Will 5G Really Drive A Big Upgrade Cycle For Nokia And Ericsson?

by Trefis Team
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Ericsson (NASDAQ:ERIC) and Nokia (NYSE:NOK), two of the world’s largest telecom equipment providers, are betting on next-generation 5G technology to drive growth, after posting mixed results over the last few years amid intense competition from Chinese equipment manufacturers and weaker spending by wireless carriers. However, telecom equipment companies can’t take the 5G cycle for granted, as the upgrade process could take time and the investments are unlikely to match the peak of the 4G cycle. Below we discuss further.

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The 5G Opportunity 

Operators across the world have started to outline plans for their 5G upgrades, with U.S. carriers planning for commercial deployments of the technology as early as the end of this year. For instance, AT&T will launch its 5G wireless service in 12 cities by the end of 2018, while Verizon is bringing fixed 5G to homes in multiple U.S. cities. Other regions including South Korea, China, Japan and the Middle East are expected to commence their build-outs from 2019. Ericsson projects that there could be 3.5 billion “internet of things” connections on networks running 5G by 2023, with roughly 1 billion mobile customers, which translates to roughly 12% of total projected mobile subscriptions. European companies such as Ericsson and Nokia could also have a leg up over their Chinese rivals such as Huawei and ZTE in the 5G race. These Chinese companies face regulatory hurdles in Western markets, amid fears that they could give backdoor access to the Chinese government. For instance, there have been reports that Huawei could be banned from supplying equipment for Australia’s 5G buildout.

The Challenges

That said, analysts remain skeptical that 5G spending will reach levels seen at the peak of the 4G deployments in 2015, as the use cases and business cases for the technology still need to be ironed out and there isn’t a so-called “killer app” for the technology as yet. While 5G technology is expected to be significantly faster than the older 4G network, the low latency (time delay) is likely to be the biggest differentiator. Although this could enable a host of new applications, ranging from autonomous driving to virtual reality, these applications still need to reach maturity from a hardware and software standpoint, with networking likely being a secondary concern at the moment. Chinese telecom behemoth Huawei has also been somewhat circumspect about the prospects of 5G, indicating that customers may not notice a significant difference from 4G. The deployment of 5G could also be very expensive for operators, as it requires a denser set of base stations, considering its use of higher-band spectrum with weaker propagation characteristics. Ultimately, wireless carriers will decide on the scale of their deployments based on returns on investment.

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