Transitioning from 4G to 5G is a technology shift, similar to the evolution from the voice-dominated 2G to data-driven 3G.
Executing the 5G plan would not be successful without learning from the lessons of the previous technology iterations. 3G, being the most noteworthy, painted an ideal picture on how it could have changed the world by delivering high-speed data and video, leading to an over-optimistic demand projection by the industry.
It was misguidedly promoted largely on the basis of engaging 3G device form factors and “killer applications”, which either failed to excite the consumer base or could not be delivered by the technology.
Excluding the factor of China’s homegrown technology standard, operator write-downs, delays and frustrated performance expectations have made 3G an unsuccessful platform globally.
Industry data shows that, with only 2.5 billion subscriptions worldwide at peak, 3G took around 10 years to reach 1 billion connections, only slightly shorter than the 11 years 2G took. 4G has much improved, taking just under seven years to reach that figure.
From the business perspectives, there are several reasons why the great promise of 3G and 4G for consumers failed to realize globally including China, which are related to decisions that operators took.
Devices failed to deliver user experience – The lack of compelling 3G-enabled devices largely inhibited the user experience. Customers were disincentivized to access the multimedia contents such as video call, mobile TV and music downloads or could rarely experience the power of the Internet on a small screen. The high cost of 3G-enabled devices also hindered the take off.
Lack of applications and innovation – 3G failed to deliver multimedia services such as video streaming as it had promised to. Many 3G services were complicated and not user-friendly. The poor device user interface failed to deliver enriched experience, making the applications non-appealing to consumers.
These problems were inherited by the 4G age even though the bandwidth was largely boosted. Telecom operators were disrupted in face of competition from the Internet telephony (VoIP) providers and OTT providers, which provided a much more intuitive experience and innovation.
Failing to reap the benefits of the killer applications and value-added contents, operators remained mostly as a connectivity provider, generating profits out of mobile broadband data and new smartphone sales throughout the 3G and even 4G age.
Overpriced tariff – Moving from 2G to 3G, the high 3G data tariffs kept subscribers away. Consumers were lucky if they got few hundred kilobits download speed, at a very high cost, which could hardly help them experience the power of the Internet.
They did not get an affordable data package until operators upgraded the capacity to 4G. On the other hand, consumers were getting more compelling services offered by VoIP and OTT providers at a flat-rate or even free.
Poor coverage and performance – The poor and limited coverage in many cities including those in China, especially during the early launch stage, added to the poor user experience. 3G network performance was also subpar as signals were often downgraded to 2G or deemed unreliable.
The inferior quality of service was a result of the inability to plan or invest in adequate infrastructure including towers, base stations and backhaul.
Over-bidding on spectrum – This is probably the most critical factor for the short life of 3G. Operators made huge investments for 3G spectrum, as governments around the world conducted auctions to raise revenue.
Over-expectation on multimedia applications led operators to radically overestimate the expected average revenue per user (ARPU) of 3G services. Thus, they overcommitted in spectrum auctions and build-out, which resulted in a wave of write-downs earlier this decade.
The costly spectrum bids led to many delays as some governments such as the US had to re-run the auctions after having discovered that companies couldn’t afford to operate. Regulatory regime also aggravated the situation.
For examples, penalties were imposed for those who failed to meet the rollout target associated with the 3G licenses in the UK, while China had prioritized the licensing to the operators adopting its homegrown standard.
At the same time, operators faced new competition that was not foreseen when they had paid billions for their 3G licenses, from flat rate wireless VoIP, Wi-Fi, converged services pushed by non-mobile operators and the threat of mobile broadband based on WiMAX.
While it had taken 10 years to establish 3G, 4G didn’t run into the same trouble as 3G had done due to the fact that it was an evolution and an upgraded version of the 3G standard. Overlaying on existing 3G networks, 4G is an advanced form of 3G that marks an audacious shift from hybrid data and voice networks to a data-only all-IP architecture.
Operators stepped up 4G network deployment globally to reap the benefits of its cost and spectral efficiencies and to support more advanced offerings, by exploring network sharing deals to share spectrum and rollout costs.
Having said that, 4G uptake was fueled by the timely introduction of smartphones that harnessed faster speed of the technology to deliver compelling user experience for mobile Internet.
The proliferation of low-cost smartphones and tablets from Chinese manufacturers have expanded 4G to the next billions with lower affordability, helping 4G to reach mass adoption around the world. Despite the stimulated growth, 4G deployment was not without problems.
Handset subsidies and network strain – With operators’ aggressive handset subsidies to drive penetration and the offer of unlimited data tariff plans to drive usage, 4G data traffic exploded and quickly caused strain and overload of the networks.
As data took off, bandwidth pressures were increasing in backhaul and transmission rather than access, so there was pressure to increase spending tackling the bottlenecks to improve customer experiences.
Spectrum harmonization – Spectrum harmonization was an issue to enable international roaming and interoperability.
The early launch was complicated by the non-uniformity of spectrum, which included the existing 2G or 3G frequencies, or new frequencies between the 700MHz and 2.6GHz band. There was also a domestic time-division (TD) version of LTE in China which received priority support from the Government.
However, a local standard without global acceptance will hinder international roaming. Spectrum availability was also a big issue in many
countries despite less so in China.
Operators or the industries should not expect 5G to completely change and disrupt the telecom landscape or the industries, at least in the short to medium-term. They need to be realistic and learn from history to avoid overcommitment. They have to work out their strategies for 5G and move fast to deploy new services.
