The Vault

5G Urban Deployment: Debunking the Capex Myth and Unlocking New Growth
White Paper / May 2019 / abi, whitepaper

The global economy is experiencing rapid changes during the first years of the 21st century, with new technologies, concepts, and behaviors now changing the way we live and work. Blockchain, self-driving cars, Artificial Intelligence, and machine learning, Three-Dimensional (3D) printing, and Augmented Reality (AR) are just a few examples of technologies that hold the potential to create new markets and disrupt legacy businesses. At the same time, the world is experiencing increasing urbanization, with large cities continuing to act as centers of economic, technical, cultural, and social growth.

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www.abiresearch.com Analyst: Dimitris Mavrakis 5G URBAN DEPLOYMENT: DEBUNKING THE CAPEX MYTH AND UNLOCKING NEW GROWTH INTRODUCTION AND MARKET OVERVIEW The global economy is experiencing rapid changes during the first years of the 21st century, with new technologies, concepts, and behaviors now changing the way we live and work. Blockchain, self-driving cars, Artificial Intelligence and machine learning, Three-Dimensional (3D) printing, and Augmented Reality (AR) are just a few examples of technologies that hold the potential to create new markets and disrupt legacy businesses. At the same time, the world is experiencing increasing urbanization, with large cities continuing to act as centers of economic, technical, cultural, and social growth. Mobile broadband connectivity has been a key pillar for economic growth in cities, where the availability of data connectivity has increased productivity and created new paradigms, including more social sharing and the rise of the collaborative economy, including Airbnb, Deliverroo, and Uber. Apart from the popular Western applications that include Airbnb, Snapchat, and Uber, there are markets where the smartphone has become TABLE OF CONTENTS The Importance of Deploying Mobile Broadband in Cities ................................3 Economic Growth and Potential ..............................3 A Connected City Example: Sacramento ..................4 Evolution to Smart Cities and the Importance of Mobile Broadband .................................................4 5G Now: 2019 to 2020 .............................4 Small Cells ..............................................................5 Fixed Wireless Access ..............................................5 Sub-6 GHz Network Activities ..................................6 Early mmWave ........................................................6 Private Cellular Networks ........................................6 5G Consolidating Spectrum, Air Interfaces, and Devices ...................................................................8 Telco Cloud: Edge Computing .................................9 Virtualization and Network Slicing .........................11 New Deployment Models ....................................11 Conclusions and Recommendations ....... 14 2 www.abiresearch.com 5G URBAN DEPLOYMENT: DEBUNKING THE CAPEX MYTH AND UNLOCKING NEW GROWTH a wallet, a parking meter, shopping assistant, and much more. For example, Alipay and WeChat are ubiquitous applications in China for every facet of city life, including communication, payment, parking, and shopping. None of these applications would have succeeded if it were not for consistent mobile broadband connectivity. At the same time, the telco value chain is facing a challenging era, with market saturation, increased regulation, and competition from within and from outside the value chain shrinking profit margins. Chart 1 illustrates ABI Research’s forecast for mobile operator service revenue and network Capital Expenditure (CAPEX) for the next few years. Chart 1: Mobile Service Provider Service Revenue and CAPEX by Technology (Including 3G, 4G, and 5G) World Markets, Forecast: 2018 to 2023 (Source: ABI Research) Although service revenue is expected to grow, the imminent deployment of 5G will create pressure on operator financials, but new use cases will be needed to justify nationwide deployments of 5G well beyond the current urban hotspots in which it is being deployed. This evolution started in 4Q 2018, with mobile service providers deploying 5G connectivity in big cities across the world. The urban areas are where new services will appear and 5G will act as the catalyst for the emergence of new service paradigms, including richer content services, such as AR, Virtual Reality (VR), and immersive media, machine vision use cases for security in smart cities, or predictive maintenance in the manufacturing space and near-real-time healthcare applications. These are a few examples of applications that will radically change the way we live and work and 5G in the city environment will be the most important ingredient to start this evolution. 1,200 1,000 800 600 400 200 2018 2019 2020 2021 2022 2023 Connectivity Revenues CAPEX M ob ile O pe ra to r R ev en ue s an d CA PE X (U S$ B ill on s) 3 www.abiresearch.com 5G URBAN DEPLOYMENT: DEBUNKING THE CAPEX MYTH AND UNLOCKING NEW GROWTH Following the introduction of 5G in cities, ABI Research expects a new wave of enterprise vertical use cases that will redefine consumer lifestyles and enterprise operations in cities. The first wave of 5G will focus mostly on consumer experiences with enhanced Mobile Broadband (eMBB), while the second focus will be on Ultra Reliable and Low Latency Communications (URLLC). This is when advanced services will be enabled, driven by edge computing, virtualization, network slicing, and more. In any case, the deployment of these features will initially take place in cities, where the high concentration of subscribers and businesses will benefit from 5G. THE IMPORTANCE OF DEPLOYING MOBILE BROADBAND IN CITIES Mobile broadband connectivity is the building block for city infrastructure and, in many cases, it is driving the adoption of smart city applications. Wireless technologies include proprietary and open standard protocols, Internet of Things (IoT)-focused technologies, and consumer technologies. 5G technology is positioned to be a leading technology, given its ability to serve a wider set of needs and move beyond a fragmented connectivity landscape, connecting people, devices, sensors, and cameras to the network. Machine vision is becoming a key driver for many new use cases and applications, including city security, and 5G will provide connectivity for many applications in cities. ECONOMIC GROWTH AND POTENTIAL Mobile broadband connectivity directly drives economic growth and previous network generations have acted as a major catalyst for economic growth in urban areas. According to ABI Research forecasts, 4G generated US$4.956 trillion of value in 2018, roughly 10 years after it was standardized. This value is driven by three main categories: • Direct revenue, mostly driven by end-user subscriptions for connectivity services. To date, these are driven by consumer subscriptions. This was than US$1.1 trillion in 2018 for 4G. • Indirect revenue, including supply chain flows from devices, infrastructure, applications, advertis- ing, and other products and services. Indirect revenue for 4G was roughly US$500 billion in 2018. • Productivity gains, which refers to better worker efficiency due to the availability of connectivity throughout cities. ABI Research estimates this to be US$3.3 trillion for 4G in 2018. In 2028 (10 years after it is standardized), ABI Research forecasts that 5G will generate US$2.4 trillion for direct contributions, US$866 billion for indirect contributions, and US$3.2 trillion for productivity gains. 5G will also consolidate all cellular generations by then and will likely be the foundation of future networks and additional enterprise vertical services, including machine vision for smart city security, immersive and tactile media distribution, personalized retail shopping experiences, and predictive healthcare applications. By 2035, ABI Research expects 5G to generate US$17 trillion in total economic growth, by which time enterprise vertical services will have matured. Initially, these activities will focus on connected cities and will then expand to non-urban areas. 4 www.abiresearch.com 5G URBAN DEPLOYMENT: DEBUNKING THE CAPEX MYTH AND UNLOCKING NEW GROWTH A CONNECTED CITY EXAMPLE: SACRAMENTO In 2019, most areas in developed markets are densely populated and connected with a variety of connectivity technologies: fiber, copper, cable, 4G, and Wi-Fi. However, there are a few exceptions, which are often the result of partnerships, that go beyond the connectivity domain. On such example is Sacramento. In June 2017, Verizon signed a Public Private Partnership (PPP) with Sacramento in California to develop smart city projects. According to the proposal, the PPP will implement smart city technologies, while also facilitating the installation of fiber optic and 4G wireless infrastructure throughout the city, with a future plan to introduce 5G throughout the city. These smart city technologies include smart kiosks, advanced signal controls to reduce traffic congestion, and connected local communities. The overall goal of these solutions is to improve the quality of life of the citizens, reduce costs for the city, and deliver services in a more effective way. From an economic point of view, the city expects to gain from infrastructure investment, jobs creation, and technology leadership, positioning the city in a prime place to benefit from economic growth thanks to 5G and other technologies, such as autonomous driving. Sacramento will be able to enjoy faster connectivity, while Verizon will also benefit because the city council has agreed to accept the California Utilities CPUC attachment rate for future 5G small cells, which is lower than the national average attachment rate. The city will streamline permit approvals on certain city-owned assets (e.g., street lights) and it will provide Verizon with streamlined deployment for wireline infrastructure. EVOLUTION TO SMART CITIES AND THE IMPORTANCE OF MOBILE BROADBAND The concept of connected cities refers to urban areas that are well connected in terms of broadband connectivity, and where mobile networks are also densely deployed. Smart cities are built on connected cities to implement several advanced concepts to tackle several challenges, including increasing traffic congestion, high levels of pollution, security needs, and limited public resources. These necessitate the efficient use of technologies and services. There are existing examples of cities that are now using smart waste management, smart street lights, connected cameras for security concerns, and parking sensors to help urban citizens. Machine vision and AI for smart city use cases is becoming a key domain for Research and Development (R&D) spending in many high-tech hubs and most of these algorithms and platforms are currently powered by public clouds. However, the increase in devices, traffic, and people living in smart cities will require faster connectivity and processing to be distributed throughout the network, rather than centralized. 5G will be pivotal in democratizing the use of AI throughout the network, while lowering latency and increasing network capacity.1 5G NOW: 2019 TO 2020 The extent of the potential value pool behind 5G is unprecedented. Consumers and industrial players both claim that high-capacity, reliable, and low-latency connectivity will become the fourth essential utility. Based on the vast Capital Expenditure (CAPEX) expense of 5G deployments and the fragmented demand for connectivity, ABI Research expects that 5G will be deployed in phases, starting in dense urban areas, or megacities. 1. According to the California Public Utilities Commission Decision 18-04-007 on installing small cells: The annual fee is equal to the greater of $2.50 or 7.4% of the utility’s an- nual cost-of-ownership for the host pole and supporting anchor. From: http://docs.cpuc. ca.gov/PublishedDocs/Published/G000/M213/ K609/213609261.PDF 5 www.abiresearch.com 5G URBAN DEPLOYMENT: DEBUNKING THE CAPEX MYTH AND UNLOCKING NEW GROWTH As of 2019, 5G is entering the commercial deployment stage. Early adopters, including the United States, China, Japan, South Korea, and the United Kingdom, all announced their commercial mobile 5G launches for 2019, and telecommunication infrastructure vendors have already started to ship 5G-capable network equipment to operators. While the first 5G-related use cases will be fueled by enhanced Mobile Broadband (eMBB), advanced 5G features, such as URLLC and massive Machine Type Communications (mMTC) will start to be relevant starting in 2020. Early 5G non-standalone deployments will enable greater data bandwidth, complemented by moderate latency improvements for customers, helping to realize use cases, such as AR/VR media and applications, massive surveillance, UltraHD or 360-degree streaming video. In the early phase of 5G deployments, ABI Research expects that Mobile Service Providers (MSPs) will develop new Random-Access Network (RAN) topologies as they are introducing eMBB in different ways: • Providing wireless home broadband with 5G: Fixed Wireless Access (FWA) (e.g., Verizon in the United States) 5G connectivity with mobile hotspot routers (MiFi) that connect to the 5G network and distribute mobile data connectivity via Wi-Fi locally (e.g., AT&T in the United States) • 5G for enterprises through the mobile hotspot and 5G prototype smartphones (Three South Korean MSP) • Mobile 5G for smartphones, from 2Q 2019 (e.g., Sprint in the United States; Elisa Finland; SK Telecom and KT in Korea; and NTT DOCOMO and SoftBank in Japan) SMALL CELLS Small cells, as their name implies, are low-power versions of macro basestations and are intended to be placed throughout the building to improve coverage and capacity for outdoor congested areas—referred to as hotspots, where a localized capacity boost is necessary. Small cells connect directly to the MSP core using the building Information Technology (IT) infrastructure and cabling or wireless connection as backhaul, and so far, support a single operator and single band, although some vendors are producing multi-operator versions. Many small cells also support Wi-Fi connectivity standards. While small cells are low-cost when compared to macro cells, they only support a limited number of bands and operators. A multi-band, multi- technology installation can rapidly become expensive and complex, especially for larger floor areas of greater than 150,000 square feet (~14,000 m2), as a rule of thumb. Small cells are best suited for buildings with many users that use voice and data from a single carrier in buildings that do not exceed this 150,000 square feet limit. Overall, deploying small cell systems will be essential during the densification of 5G networks. FIXED WIRELESS ACCESS 5G’s higher throughput and flexibility (i.e., flexible numerology and more efficient coding schemes) open the door for FWA and the option to replace Fiber-to-the-Home (FTTH). FWA uses wireless connectivity, instead of fiber or copper cables, to provide last-mile fixed broadband connectivity to homes and enterprises. Based on the uniqueness of each household, home broadband providers are currently dealing with high costs and uncertainty during cable laying. While deployment of fixed broadband has a significant variable cost nature, deploying a wireless cell is a one-time, foreseeable fixed cost. For example, trenching in an urban area may cost as high as US$50,000 per km, which is a prohibitive cost to deploy copper, cable, or fiber networks. 6 www.abiresearch.com 5G URBAN DEPLOYMENT: DEBUNKING THE CAPEX MYTH AND UNLOCKING NEW GROWTH Consequently, MSPs will likely choose carefully where to deploy FWA, so that the new service does not cannibalize their fixed broadband business. For example, it would not make sense to deploy FWA in areas where the fixed network offers high-speed broadband services, but it would certainly make sense in areas where the operator cannot yet reach with a fixed connection. Several dense, urban areas and megacities will fulfill these conditions and experience faster-growing coverage. AT&T and Verizon in the United States and Three UK are focusing on synergies and trying to provide 5G FWA services on a different scale. MSPs are looking at FWA as a complementary deployment solution to provide home broadband services and enter the home broadband market. SUB-6 GHZ NETWORK ACTIVITIES While the low-band (<1 GHz) spectrum is ideal for providing wide-area coverage in low-density regions, mid-band (1 GHz to 6 GHz) spectrum can satisfy the booming capacity demand for dense urban areas. While MSPs in Western Europe and Southeast Asia are likely to focus on the mid-band, U.S.-based operators are heavily planning to repurpose their Long-Term Evolution (LTE) spectrum for 5G and are targeting both high-band (typically above 18 GHz), mid-band (between 2 GHz and 6 GHz), and low-band (below 2 GHz) spectrum allocations. Until 2020, ABI Research expects that those low-band 5G deployments will support widespread coverage across suburban and rural areas and help support IoT services. Furthermore, the most popular, mid-band deployments will offer the optimal mixture of coverage and capacity benefits. The 3.2 GHZ to 3.8 GHz range is expected to form the basis of many initial 5G services and be the most commonly used spectrum range globally until 2020. EARLY MMWAVE One of the most promising potential 5G technologies is the use of high-band spectrum (e.g., in the 26 GHz, 28 GHz, and 39 GHz bands). Millimeter wave (mmWave) has many favorable properties, such as high throughput and spatial isolation (due to the pencil-beam nature of the transmitted patterns from the antennas), and there is also a large amount of unused spectrum in the high frequencies. mmWave has traditionally been the domain of aerospace, military, and satellite-to-Earth communication systems. Using mmWave frequencies will allow more bandwidth to be allocated, resulting in higher speeds of data transfer. Thus, mmWave is optimal for providing ultra-high-speed mobile broadband in dense megacities and providing wireless connectivity. Governments have already started to stimulate the markets with high-band spectrum auctions, and they are encouraging MSPs to deploy 5G in urban areas; examples include the U.S. Federal Communications Commis- sion (FCC) auction in November 2018 and South Korea’s 28 GHz spectrum auction in June 2018. Currently, the United States leads the global mmWave deployments race; almost 5 GHz of high-band spectrum is expected to be allocated by February 2020. PRIVATE CELLULAR NETWORKS Private cellular networks are local deployments of the 3rd Generation Partnership Project (3GPP) standardized technology, often in unlicensed or shared spectrum. For example, the mining company Rio Tinto has been using private LTE (using leased spectrum from a large MSP) in its open-pit mines in Australia for several years to replace proprietary and short range industrial Wi-Fi with standards-based, longer-range basestations. Rio Tinto claims to have replaced 18 Wi-Fi access points with three LTE basestations, which also 7 www.abiresearch.com 5G URBAN DEPLOYMENT: DEBUNKING THE CAPEX MYTH AND UNLOCKING NEW GROWTH provide better coverage and quality of service. The very same technology is now coming to enterprise vertical locations, aiming to become an important component of enterprise digitization. Particularly in the United States, the Citizens Broadband Radio Service (CBRS, also referred to as OnGo) aims to offer simple access to shared spectrum for enterprises. Government initiatives for shared spectrum are also becoming popular, for example, the United Kingdom’s Office of Communications (Ofcom) advocated the need for shared spectrum in one of its recent publications.2 Private networks for 4G and 5G will appear initially in urban areas, where several enterprise vertical markets are pursuing digitization, on which 5G will be a core component. This transition from cellular connectivity to the deployment of use case-specific networks will likely start with enterprises able to deploy private wireless networks in their warehouses, factory floors, and even enterprise campuses, while enjoying the economies of scale that a standards-based technology offers in devices and chipsets. Indeed, developments in the United States with CBRS are evolving rapidly and even webscale players are testing the new technology for their own internal use.5G deployments for cities after 2020 5G will initially be deployed for targeted use cases where the new 5G technology is mature and the business case works. These will likely be used to meet capacity in dense urban areas, such as in Central London, Manhattan, Hong Kong, and Singapore. This is already taking place across the world, with Verizon’s FWA deployment in the United States, and South Korea and Japan deploying mobile 5G networks that will launch during 1H 2019. These networks will provide a glimpse into the future and will enhance the user experience beyond what is expected today. Consumers will have access to Gigabit connections on the move, while enterprise applications will be able to connect with consistent mobile broadband connectivity at reduced cost. This first level of 5G deployments will then make way for a second, more advanced stage, which will introduce new features and unleash the true potential of 5G services. 2. Ofcom: A framework for spectrum sharing. https://www.ofcom.org.uk/consultations-and- statements/category-2/spectrum-sharing- framework 8 www.abiresearch.com 5G URBAN DEPLOYMENT: DEBUNKING THE CAPEX MYTH AND UNLOCKING NEW GROWTH Figure 1: 5G Networks Deployed across Cities (Source: ABI Research) The following sections describe how mature 5G networks will be deployed and how they will stimulate value in several enterprise verticals, beyond consumer telecommunications. 5G CONSOLIDATING SPECTRUM, AIR INTERFACES, AND DEVICES 5G New Radio (NR) is designed to serve as a uniform connectivity layer that can span different spectrum types, use cases, and performance requirements. Unlike previous generations of cellular standards, 5G is not expected to simply support higher bandwidth and speeds, but to support advanced use cases in various verticals as these are developed over the next 5 years. To support this kind of flexibility in applications and spectrum bands, 5G will support the three most important attributes of 5G networks: flexibility, scalability, and efficiency. For example, 5G is expected to offer scalable speeds from 2 Gbps to 20 Gbps. In LTE, the maximum spectrum bandwidth is 20 MHz, while in 5G, 100 MHz is being recommended as a minimum. Due to lack of spectrum availability, 100 MHz is unlikely to be the case at lower frequencies (predominantly <6 GHz), but at higher frequencies, wider contiguous bandwidths are available, often in the range of a few GHz.5G will consolidate previous cellular standards into a single umbrella, consolidating 2G, 3G, and 4G into a single network. For example, Narrowband (NB)-IoT will be included in 5G for mMTC, which will be formally standardized in Release 17. This release, combined with the enhancements coming in Release 16 (Next Generation Core, Ultra Low Latency Services, and Service-Based Architectures) will be the foundation for taking 5G beyond connectivity into enterprise verticals and non-consumer markets. 3GPP Release 15 will bring 5G to the consumer market and will familiarize the market with the new generation, but 5G will truly 5G eMBB Wireless Home Broadband, Fixed Wireless Access Massive MIMO Antenna 5G URLLC Connected Vehicles 5G URLLC Drones, Safety, Public Service and Transportation, Logistic 5G eMBB Massive Surveillance, Body Cameras 5G mMTC Sensors, Smart Parking, Lighting, Waste Management, Bridge Inspection Small Cell 5G AND CITIES 5G eMBB Wireless Home Broadband, Fixed Wireless Access, Massive Survalience, Body Cameras 5G URLLC Drones, Connected Vehicles, Safety, Public Service and Transportation, Logistic 5G mMTC Sensors, Smart Parking, Lighting, Waste Management, Bridge Inspection 9 www.abiresearch.com 5G URBAN DEPLOYMENT: DEBUNKING THE CAPEX MYTH AND UNLOCKING NEW GROWTH come to market with Releases 16 and 17, when it will become a service enabler for several end markets, much more than current networks that provide connectivity exclusively. 5G will also expand the range of devices connecting to the network and will include smartphones, FWA terminals, IoT devices, connected cameras, and more. TELCO CLOUD: EDGE COMPUTING The edge of the network is becoming a contested area for both telcos and webscale giants like Facebook, Amazon, Netflix, and Google (FANG), despite priorities being different for either of them. • Telcos seek to distribute applications to the edge and to better use existing points of presence (e.g., metro locations), using initiatives such as M-CORD. These locations can become anchor points for new services, including location-based services, network analytics, and contextualized marketing. M-CORD will aim to turn local offices into edge clouds that will bring processing and storage capabilities much closer to the end user. These central offices will likely be the first entry into the edge computing space for MSPs, because a handful of these locations can cover entire cities, thus enabling new business models without major costs. • Webscale companies seek to control the last mile, reduce their transport costs, and enhance their end user understanding through edge analytics. This may be one of the reasons Amazon has acquired Whole Foods, in order to gain access to retail locations for its edge servers. More- over, Amazon has launched Amazon Web Services (AWS) IoT Greengrass, which runs locally on the edge device to collect and process data at the user’s premises. • Both aim to introduce low-latency applications and IoT applications, particularly focused around sensor data collection and validation. Despite these common priorities, the two domains have conflicting definitions: • For Amazon, Google, Facebook, and Microsoft, network edge may mean country or metro area locations at best. • For telcos, network edge means cellular basestations, enterprise Computer Premises Equipment (CPE), broadband concentrators, or even consumer set-top boxes. Even still, the definition is not the same, because some telcos see the cell site as the edge, while others see the set-top box as the edge. • Tower companies define their towers as the edge of the network, which may not necessarily be the last hop to reach the end user. Large macro sites may be home to cloud-RAN baseband units that connect to several small cells. However, a major strength that telco service providers hold onto is the last-mile spectrum or fixed connec- tions. Webscale companies have little opportunity to disrupt the consumer markets, and even with private networks, their reach will likely be limited. On the other hand, telco cloud applications, including edge clouds, will likely grow considerably with 5G and become enterprise vertical enablers when the new cellular genera- tion matures. Figure 1 illustrates typical edge locations for telcos and webscale companies, where the former can reach closer to the end user. On the other hand, webscale companies can only reach the national level, unless they have acquired retail assets like Amazon and Whole Foods. Some telcos may also reach an international scale, such as U.S. and Chinese operators, as well as multinational operators, including DT, Telefonica, and Voda- 10 www.abiresearch.com 5G URBAN DEPLOYMENT: DEBUNKING THE CAPEX MYTH AND UNLOCKING NEW GROWTH fone. These operators have a much larger scale compared to their local Tier Two or Tier Three competitors and can also become much larger forces for edge computing, due to their wider reach across a larger area. The local level is becoming increasingly important, as it offers situational visibility for many applications, and will likely be the next battlefront for real estate and dominance. Several applications require a local presence to offer personalized or near-real-time services, while the emergence of processing-hungry AI applications may saturate the cloud. It is for these reasons, and many more, that the edge of the network is becoming so important, even for consumer applications. Local content caching will likely be the initial content-driven use case, followed by personalized entertainment and even video delivery with real-time input from the end user. This may not be as futuristic as it sounds; Netflix pioneered the first interactive film in 2018 and the format will likely become a popular content delivery mechanism that does place a significant burden on the network due to multiple possible timelines and the need to cache all of them for no waiting time. Figure 2: Webscale and Telco Definitions of Network Edge (Source: ABI Research) Hyperscale Cloud Telco Cloud Edge Cloud Edge Cloud Edge Cloud Retail Assets Cell Site Consumer AP Wi-Fi or Private Cellular Enterprise CPE Global Level Country Level Metro Level Local Level Mobile Devices 11 www.abiresearch.com 5G URBAN DEPLOYMENT: DEBUNKING THE CAPEX MYTH AND UNLOCKING NEW GROWTH VIRTUALIZATION AND NETWORK SLICING Telco networks are migrating to the virtualized domain, where network functions and access networks are implemented in software, while hardware evolves from a proprietary nature to a commoditized one. There are several benefits for doing so: less vendor lock-in, less reliance on hardware and more on software, service agility, and velocity due to software and the ability to take advantage of advanced algorithms, including AI and machine learning for network optimization and maintenance. In the long term, telco networks will be powered by shared resource pools, called telco clouds, rather than proprietary and isolated hardware components. This will allow operators to enable much more than connectivity and is the foundation of network slicing.In the long term, private networks will likely morph to network slicing, which is a much more integrated and powerful platform for new services. A network slice will likely include a private network as the last mile that may be a 5G NR network on unlicensed spectrum. The nucleus of network slicing revolves around splitting the network into multiple logical Network Slice Instances (NSIs), which can be considered as compositions of a set of network functions (physical and virtual) and a specific configuration set of Radio Access Technologies (RATs). This collection of individual network functions and RAT configurations, orchestrated and managed in a synchronized fashion, are directed toward a defined business purpose, whether it is a Business-to-Consumer (B2C), a Business-to-Business (B2B), or a hybrid commercial transaction. • Multi-Tenancy: Network slicing enables a multi-tenant ecosystem wherein multiple tenants rang- ing from individual consumers, Mobile Virtual Network Operator (MVNO), and enterprise verticals can isolate traffic between different slices congruent with their business requirements. The multi- tenancy is ultimately supported by vendors’ Network Function Virtualization Infrastructure (NFVI) deployments, and, more specifically, their ability to support extreme virtualization and to ensure that Physical Network Functions (PNFs)/Virtual Network Functions (VNFs) can communicate, while providing secure and isolated capabilities for a multi-tenant environment. • Service-Tailored Composition of Mobile Networks: Network slicing enables tenants to deploy service-tailored products, each targeted at individual use cases with different requirements (e.g., IoT, retail, etc.). Multiple slices and associated widespread network virtualization, whether it is at the core, access, or radio, can potentially add complexity. Vendors should manage this complex- ity with the right solution and investment in orchestration and automation capabilities. • Economic Gains: Network slicing supports two fundamental economic principles: reduce operational costs and generate new revenue streams. Ericsson, in collaboration with BT, developed a network slicing business case model—built on 40 discrete services—that demonstrated a 30% revenue increase and a 40% lower Operating Expenditure (OPEX) benefit to be gained. Although network slicing provides operational efficiency gains and revenue increases, the latter may depend on premium customers. NEW DEPLOYMENT MODELS There is growing skepticism whether 5G can be deployed in the same way previous generations were deployed, or in other words, if multiple operators can deploy nationwide networks independently and justify a business case with adequate Return on Investment (ROI). There are some discussions that aim to position tower companies or even infrastructure vendors as the primary drivers of 5G cellular deployment who take charge of infrastructure deployment, maintenance, and day to day operations, while MSPs lease capacity from these third parties accordingly. Neutral host tower companies, such as American Towers and China 12 www.abiresearch.com 5G URBAN DEPLOYMENT: DEBUNKING THE CAPEX MYTH AND UNLOCKING NEW GROWTH Tower, are already active in this area and deploying computing platforms in their towers, which can act as edge computing servers at the edge of multiple networks. This has several advantages: these edge computing servers may potentially reach all subscribers in a specific area, rather than the subscribers of any given operator. Moreover, MSPs may be less reluctant to try out new services based on edge computing when leasing capacity from a third party, rather than deploying their own edge clouds without a strong business case. That is not to say that all MSPs will rely on third parties for the deployment of edge clouds. It is more likely that Tier One MSPs will choose to deploy their own networks, while Tier Two and Tier Three players may use third parties.5G will drive new applications in cities The previous sections have outlined the necessary technologies and platforms that are needed to enable a consistent and reliable fabric of connectivity throughout the city. Small cells, mmWave spectrum, edge clouds, and virtualized network elements will create the platform for new applications and use cases. Given that these technologies will first be deployed in cities, it is natural that these very same environments will become the hotbeds for new applications and use cases. Smart cities, for example, are the first areas that will benefit from the availability of 5G. At the same time, the availability of processing capabilities deployed with 5G throughout cities will likely create the platforms for adjacent technologies and, most importantly, AI. New models that include distributed and federated learning have the potential to create new areas of growth. ABI Research outlines new potential areas of growth for 5G in cities below. The proliferation of connected cameras and sensors around a city, in combination with 5G connectivity and edge computing, will allow for a much more comprehensive security solution deployed throughout cities. Connected cameras are currently becoming the user interface for machines and machine vision can translate images and videos into something machines can process automatically. This can allow for near-real-time behavior prediction in smart cities, and when coupled with 5G connectivity, it can allow city authorities to operate a much safer and secure city environment. At the same time, first responders can access images or videos from incidents in near-real-time. 5G can also enable smart transport in cities and alleviate traffic bottlenecks and ease congestion. It is almost certain that edge computing will be deployed first in cities, and coupled with 5G, it can allow for smart transport applications. ABI Research expects this sector to radically transform in the next few years, and many new technologies and concepts will enter the mainstream, including car sharing, AR-based navigation, autonomous driving, and automated traffic management. At the same time, smart cities can use 5G coupled with AI to reduce carbon emissions by optimizing several city operations, including waste management, crowd control, automated transport, electrification of city vehicles, and much more. There are several enterprise verticals where 5G will create a platform for new growth. Although no one cannot predict all of the types of services that will appear with 5G, we can be certain that 5G will be what 4G was for consumer services: a platform for the creation of new applications and new types of experiences. 5G is currently being deployed for eMBB in cities, which will enhance the consumer experience and allow operators to deploy faster and more efficient radio networks. However, the true revolution will come 13 www.abiresearch.com 5G URBAN DEPLOYMENT: DEBUNKING THE CAPEX MYTH AND UNLOCKING NEW GROWTH with Release 16, when URLLC is enabled, allowing deterministic and reliable networking for many different verticals. It is this phase that will create an explosion in enterprise applications and holds the potential to transform many different verticals.Value Created by 5G in Cities 5G deployments will likely be costly, especially due to the higher frequency and advanced features the new standard will introduce. Contrary to 3G and 4G, which initiated a revolution in consumer mobile broadband, 5G will come at a time when existing mobile broadband networks and devices are adequate for consumer requirements. In the consumer space, 5G can only provide incremental improvements to consumer experiences and networks, making it difficult to justify a nationwide deployment just for consumer use cases. Chart 4 illustrates ABI Research’s latest 5G network investment and revenue forecasts, indicating that ROI for 5G networks may come many years after they have been fully deployed. Chart 2: 5G Cumulative CAPEX and Revenue World Markets, Forecast: 2019 to 2035 (Source: ABI Research) The calculations for chart 2 assume an incremental evolution of enterprise services enabled by 5G. However, the creation of new types of services, especially in cities and smart cities, will likely come faster when 5G becomes a consistent connectivity and processing platform. This will create a new wave of use case innovation and will allow B2B application developers to create many new applications that we cannot yet imagine. 6000 5000 4000 3000 2000 1000 U S$ B ill on s ROI Consumers Revenue Industrial Revenues CAPEX Only CAPEX+OPEX MSP’s Cummulative 5G Revenues vs. Investments 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 14 www.abiresearch.com 5G URBAN DEPLOYMENT: DEBUNKING THE CAPEX MYTH AND UNLOCKING NEW GROWTH It should be noted that ROI for any given cellular technology is not a straightforward calculation, because the previous generation revenue is used to fund the next one. For example, 3G revenue was used to deploy 4G, while 4G revenue will be used to deploy 5G. Nevertheless, the calculations and chart 2 above illustrate that without enterprise vertical revenue, 5G ROI will be a very long process, which may take as much as 15 years. CONCLUSIONS AND RECOMMENDATIONS The deployment of new mobile broadband networks typically takes place in cities first, where the high popula- tion concentration allows MSPs to monetize the new technology without a massive investment and a long ROI cycle that a nationwide deployment necessitates. This common strategy, to deploy in cities first, has created the foundation for new user experiences for new enterprise vertical processes, and has created tremendous productivity gains for previous network generations, especially for 4G. The same will happen with 5G: it will be rolled out in dense urban environments in 2019 and 2020 and it will later be expanded to other areas. These first years will be vital for 5G to show consumers and business what can be achieved and to lay the foundation for the more advanced, service-based improvements that will be introduced after 2022, including edge com- puting and network slicing. These will unleash the true power of 5G and will likely enhance several enterprise verticals well beyond the current reach of telco networks, which focus on connectivity. Regulators should position spectrum auctions to stimulate the deployment of 5G, especially in dense urban areas. The new generation could be positioned as a catalyst for many new advancements in cities, leading to the evolution of a smart city. Mobile operators should also take bold steps to deploy 5G more aggressively in cities, to make consumers familiar with the new technology and lay the foundation for new applications. Infrastructure vendors should make their equipment as interoperable and open as possible, while aiming to migrate to cloud- and edge-based architectures as soon as possible, in order to ease the transition to distributed and intelligent networks that 5G requires. Published May 6, 2019 ©2019 ABI Research 249 South Street Oyster Bay, New York 11771 USA Tel: +1 516-624-2500 www.abiresearch.com About ABI Research ABI Research provides strategic guidance for visionaries needing market foresight on the most compelling transformative technologies, which reshape workforces, identify holes in a market, create new business models and drive new revenue streams. ABI’s own research visionaries take stances early on those technologies, publishing groundbreaking studies often years ahead of other technology advisory firms. ABI analysts deliver their conclusions and recommendations in easily and quickly absorbed formats to ensure proper context. Our analysts strategically guide visionaries to take action now and inspire their business to realize a bigger picture. 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ABI Research disclaims all warranties, express or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. www.abiresearch.com The Importance of Deploying Mobile Broadband in Cities Economic Growth and Potential A Connected City Example: Sacramento Evolution to Smart Cities and the Importance of Mobile Broadband 5G Now: 2019 to 2020 Small Cells Fixed Wireless Access Sub-6 GHz Network Activities Early mmWave Private Cellular Networks 5G Consolidating Spectrum, Air Interfaces, and Devices Telco Cloud: Edge Computing Virtualization and Network Slicing New Deployment Models Conclusions and Recommendations