The next big thing in telecom

With its enhanced speed, ultra-reliable connectivity and guaranteed service quality, 5G will be a key enabler of industry's digital transformation initiatives

It is said that when it rains, it pours. That is more or less the story of the development of Indian telecom. After years of constrained data growth, the entry of Reliance Jio and its competitive pricing has ensured rapid deployment and uptake of 4G, enabling India to leapfrog from 2G networks to 4G. But, technology development does not rest easy. 

The age of 5G, the latest generation of mobile networks, is around the corner. SK Telecom in South Korea and Verizon in the US have already launched 5G services commercially, while operators in many other western countries are gearing up to launch their own 5G services soon. Our recent study on 5G in industrial operations found that 72 per cent of telcom operators across the globe are planning to launch 5G networks within the next two years.

The Indian telecom industry is also gearing up for 5G adoption. While the specific timelines are yet to be declared, there have been reports that the government is likely to auction 5G spectrum before the end of 2020. Telecom operators and network equipment manufacturers have already started setting up joint initiatives. In India, there are two aspects to 5G adoption — regulatory and financial, and actual market development.

Indian telecom providers are saddled with large quantities of debts. These operators are required to pay huge sums of money to the government for using spectrum. This licensing process, which started with 2G spectrum, has continued until 4G spectrum was auctioned a few years ago. Through this process, operators have amassed a large amount of debt. In fact, owing to operational difficulties, this space has seen mergers and acquisitions too, with the industry now consolidated into three large private players.

Additionally, Indian banks are coming out of a credit and liquidity crunch cycle, which started a few years ago. As banks grapple with high levels of non-performing assets (NPAs), they will be cautious about lending to telecom operators. This situation is likely to change in the next year, as NPAs in the system started to decline in the last quarter of financial year 2018-19. For 5G auctions to succeed, telecom operators will have to work closely with banks. Even after the auctions, banks will need to support the capex requirement for the 5G roll-out.

The government on its part has also set up a committee to explore the feasibility of reducing the cost of spectrum. This committee may recommend moving towards a revenue sharing model with the government, instead of an upfront royalty structure. If this happens, telecom operators will be able to invest in 5G with greater financial ease.

The second aspect telecom operators will need to focus on is actual market development. While 5G’s features, such as enhanced speed, ultra-reliable and low-latency connectivity and guaranteed quality of service, promise to transform the digital experience in both the industrial and consumer space, they are of particular interest to a subset of organisations — industrial manufacturers.

Our research found a strong business case for 5G adoption in smart factories or industry 4.0 initiatives. Globally, 75 per cent of industrial companies feel that 5G will be a key enabler of their digital transformation initiatives in the next five years. This is surprisingly higher than the share of executives that feel the same for artificial intelligence or advanced data analytics. Not just that, nearly two out of every three industrial companies are ready to implement 5G in their operations within two years of its availability in their respective markets.

Such a strong level of interest from industrial companies can partly be explained by the fact that nearly half of industrial companies feel that connectivity issues — such as signal reliability and lack of speed — are a significant hindrance for their digital transformation initiatives. Our research also found that industrial companies are ready to pay a premium over their current connectivity costs for 5G features.

An engineer stands under a 5G base station antenna in Huawei’s multi-probe spherical near-field testing system at its manufacturing centre in Guangdong, China

The uses of 5G in manufacturing are many. They range from video surveillance of remote production lines to real-time service and breakdown alerts in shop-floor operations, and remote monitoring of shipment conditions (such as temperature and humidity), to virtual testing of parts and packing from suppliers in supply chain operations. In countries such as Germany, large industrial giants are actively considering acquiring regional licences for 5G, so that they are in better control of their destiny when it comes to smart factories. In fact, our research found that a third of industrial companies are considering applying for their own 5G licence, assuming the regulator allows it. 

With the focus on manufacturing growing in India, the smart factory and industry 4.0 domains can provide telcom operators a stable revenue stream. In our earlier research on smart factories, we found that 70 per cent of organisations in India either already had an ongoing smart factory initiative, or were planning to have one soon, with big investments flowing in from multinationals such as GE and Bosch. Moreover, in areas such as supply chains, we found that over 50 per cent of organisations in India were already experimenting with or implementing robotics and the Internet of Things ( 75 per cent). 5G technologies can be a shot in the arm for all such industrial manufacturers. 

In order to tap the industry 4.0 opportunity, telcom operators need to evolve from plain service providers to digital transformation partners for industrial companies. This would require understanding business requirements, translating the requirements into solutions, and taking the lead in implementing the solutions. Co-innovation projects with industrial companies and close collaboration with the entire 5G ecosystem can facilitate the journey of telcom operators into trusted digital solution partners.    

The writer is Director, Capgemini Invent India