230M 5G in 2020. The High Scenario

Update April 15: I’ve reduced my 2020 high estimate from 265 million to 230 million. People need a new phone for 5G and phone sales are crashing. Korean growth fell to half the August 2019 rate. The Chinese telcos recommitted to 150 million subs but will need a strong effort to get there. The upside looks more limited. Update Dec 12: Xiaomi will have a decent 5G phone for $285 in China for January. The high estimate is looking more likely. **The surprise-free projection is 210M 5G subscribers in 2020 but surprises always happen. With only 6 months of data from Korea and month from China, 5G predictions are especially uncertain. Some plausible factors that could result in more subscriptions include:

The price of phones comes down worldwide and drives sales

One reason demand is exploding in China but slow-moving in the West is that 5G phones in China cost about less than half the price. Decent 5G phones cost US$470 in China. Update: down to $285.** Most are $500-$700. The parts for a 5G phone will only cost $15-35 more more than 4G in 2020. The gap between 4G is rapidly falling as 9 companies compete to survive in a market with room for only 4 or 5 to make a profit. LG and Lenovo/Motorola are losing a lot of money already. Today in China, most people buying phones costing $400 or more are smart to choose 5G. That will be true across the developed world as Chinese prices reach the West. Who would want to buy a 4G phone likely to be obsolete in a year or two when 5G prices are close? It only costs $1 to airfreight a phone. I’ve already had a query about whether you could make money by importing phones to Europe. It’s probably a good business, although small incompatibilities could be a problem. The first European carriers to offer phones at worldwide prices stand to gain important market share. LG Uplus, #3 in Korea, has gained important share. In the first month, China Unicom is ahead of China Telecom rather than far behind. 5G is a once in a decade opportunity for companies to win.

Europe and US might go beyond pr

The massive hype around 5G in the West is almost totally hot air, incompetent regulators, and companies unwilling to give customers what other carriers offer. Korea covered half the country by the middle of 2019. China now covers over 100M pops and will cover 600-700M in 2020. (China Mobile estimate). Any honorable regulator will demand that telcos at least match Korea’s coverage within two years. Korea’s population is dense but the mountains are expensive to serve. Two years is plenty of time to catch up. Outside of Switzerland, I do not know any Western companies planning more than 10% at the end of 2019. Germany and Italy are talking only 20% in 2021.¬† If 5G is important, that’s ridiculous. Alternately, an aggressive challenger could force the incumbents to respond. I’ve calculated that a 10-15% capex increase at Vodafone or Telefonica would pull them well in front and win customers. Because it would take a while to catch up, the added customers almost certainly will more than make up the cost. It’s the right business move for companies like that, although the CFOs don’t see it yet.

Japan comes in strong

The Japanese will turn on 5G in the spring, probably March. They’ve given no information on what areas will be covered. Most infer Japan 2020 will be limited¬† both in coverage and subscriptions. My surprise-free estimate has only a modest contribution from Japan. Will they go slow? Rakuten, the new 4th telco, has promised to change the market. Seizo Onoe, the CTO at NTT DOCOMO, and Tariq Amin, CTO at new fourth carrier Rakuten, are among the most respected in the business. Given the capex, they could match what the Koreans have done, 50-80% coverage the first year. The public wants to buy 5G; priced right, 10% of Japanese, ~12 million, might sign on quickly. The Korean telcos had to subsidize the early, expensive phones to get a high take rate. The Japanese can offer reasonably priced phones from the beginning. At Rakuten, Tariq Amin is building one of the most advanced networks in the world, completely software-defined and cloud native. The network has gone live with 4G and is designed to launch 5G soon. Rakuten intends to follow the Jio model: Efficiency for very low costs that allow low prices to win customers. The 355 million 4G customers Jio has won in 4 years are more than the population of the US. They will change the Internet. Onoe has been a key participant in 5G discussions from the beginning. His presentation “Myths of 5G” was one of the first to predict capex would not need to be increased. He framed the discussion around “When will telcos need the capacity?” The answer, and his initial expectation for 5G, was 2022-2024. One reason telcos like DT are happy to go slowly is they can meet traffic needs without 5G. Most have enough spectrum for 4G for several more years of growth. Where congestion appears likely, small cells or more antennas can meet the need at relatively low cost. The surprise-free assumption is that 2020 5G in Japan will be limited, but it’s easy to envisage a scenario of much higher growth.

China “accelerates” even more

Minister Miao Wei believes 5G will accelerate the economy and in the spring told the carriers to “accelerate.” The results are remarkable; over 100 million people can get 5G today and 10 million plus have signed up. The plan for 2020 is 150 million subscribers and over 600 million servable. That is realistic given that the Chinese buy ~400 million phones a year. “Acceleration” is important for political reasons as well. Huawei sells close to half of the phones in China. The increased sales of radios and phones in China are replacing the sales lost in Europe because of the US boycott. To further support Huawei and for other reasons, the government could tell the telcos to seel even more 5G than the current plan. That would require device subsidies oand other promotion, but there’s room to grow faster if the government wants to.

Other surprises are possible

The technology and cost factors could make 5G in Africa and Latin America profitable. The companies now are planning very little in 2020, but national pride or competitive demands could change that. “Unknown unknowns” and black swans are always possible, especially in something growing as fast as 5G.

Low-band is not included in my 5G figures.

The test data has just come in this week. “5G low-band” runs at about the speed of 4G. I think it’s a scam to pretend it’s something special. It’s just 4G with some software, “5G NR.” In low bands, the software does almost nothing. Don’t believe the hype.

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