Analyzing Telecom

Hottges
5G is not raising Canadian capex

TRAI is demanding that all telecom gear, not just phones, move to Made in India.

Turkcell’s Superbox 4G fixed wireless added 91,000 subscribers Q2. With far more 4G capacity than they can sell, telcos including Verizon are promoting 4G fixed.


Canadian telcos claim 5G at 1.7 Gbps. Actually, in the spectrum they have, 300 Mbps would be extraordinary in a real test. In the lab, they can combine four 4G bands (1.2-1.4 Gbps) with a single 5G band to reach that figure. 4G is still faster than low-band 5G until many problems are solved.

The first substantial 5G testing results are unbelievably bad. (Open Signal.) The scam of “low-band 5G,” spreading in Germany, is slower than decent 4G. Indoor results, including mid-band, are dismal.:

  • Verizon mmWave 5G customers connected 0.4% of the time despite $billions spent on the network.
  • Korea has >90% outdoor coverage but only 15% 5G connection rate
  • T-Mobile 5G 49 Mbps, AT&T 61 Mbps. Canada 4G 69-75 Mbps
  • My analysis, that 5G capacity would be great, may be totally unsound.
  • Latency at Verizon is 30 ms; no 5G deployment has very low latency. 1-10 ms is a fantasy outside the labs.
  • 10-20 ms latency will be possible in the few places outside China building Edge networks.

17.6 million 5G phones in June in China is on track for 150 million year-end. Fine phones from US$230-260 and $13 service plans driving demand, although few practical uses have developed.

Craig Moffett warns about “the fallacy of marginal cost advantage. … It’s not true with telecom.” Remarkable technical advances have resulted in more capacity almost everywhere than the telcos can sell. Result: the low costs of Verizon’s mmWave or Rakuten’s new network are useless unless buyers can be found. Verizon’s Hans Vestberg is learning that the hard way.

5G slower than 4G in the US Finally, Data: US 5G slower than Canada’s 4G. Believe it and Germany.

A huge question for Edge inside telco networks is whether the web giants will take over. It’s now clear most Edge is a hybrid cloud and hybrid clouds need huge teams of engineers to manage. Many telcos are deciding to hand over to the web giants and take a (modest) percentage. Even the telcos building their own, like Verizon and DT, will find profits hard to come by, Pal Zarandy notes. “Buyers like Google, Amazon, Microsoft, Facebook with massive bargaining power would bargain away MNOs’ margins. Near zero marginal cost network economics => near zero margin to be made on wholesale access.” He’s talking about other services than Edge but the point holds. Will the telcos be able to cash in on their terminating monopoly? To be seen.

Keith Bradsher in the NY Times dramatically makes clear the effectiveness of industrial policy support in his article on the growth of Chinese medical supply manufacturers. Indian telecom production is booming under protectionism. Ericsson & Nokia benefit from over a $billion in EU R&D in 5G.
The US chip industry has come together to demand $30 billion. Senator Mark Warner wants $billion for 5G in the U.S. From cruises to autos to pharma, business leaders decry government support except for their own companies.
US policy for 40 years has been to stimulate the economy with tax cuts, although only a small fraction of the money goes to expanding investment. The money would be far more effectively used for investment in strategic industries. That works whether the government is capitalist or communist – so long as it’s not captured by industry or totally corrupt.

“The Moving Finger writes; and, having writ, moves on.”  If you’d like America’s top China trade rep to speak for you instead, Jeffrey Gerrish has abandoned Trump and returned to Skadden Arps. Million dollar retainers expected.

“What jumped out to me was how users’ current thoughts are mostly around smartphones, IoT/sensor data collection, display boards, CCTV and so on. Whereas MNOs are focused on automation, robots, AR/VR and the ‘sexier’ applications.” Dean Bubley writes, adding that all the likely apps work fine on 4G. Telefonica CTO Enrique Blanco also wonders whether 5G is actually needed for IoT. (Hint: not.)

Some people still think 5G is expensive to build. AT&T & Orange are cutting capex while building 5G. Deutsche Telecom is keeping it flat. 5G does not cost more than 4G.

Tim Hottges, CEO of DT, is the Great Welsher. TMO wants out of merger agreements to serve 93% of Californians with carefully tested 300 Mbps by 2024 and to cut 1,000 jobs.

Telcos’ greatest problem: demand growth is slowing while technology is increasing at a ferocious rate. Hans Vestberg of Verizon claims, and I can confirm, that cost per bit is going down at 40%/year. Traffic growth is now typically 25%-35%. Every investor implicitly acknowledges this: the number of subscribers is crucial to the stock price response after quarterly earnings.
That’s the reason why millimeter wave, the real 5G, finds so little demand. When the enormous capacity of mid-band spectrum became clear, carriers realized they would have more capacity than they could sell without mmWave.
The primary factor in telco profitability is how close the carriers come to cartel-like pricing. CEOs talk about “rational pricing,” a true description that should be a signal to antitrust enforcers. When carriers have unused capacity in most locations, the natural act is to break from the (unspoken) cartel.

For a good understanding of AI today, read Architects of Intelligence: The truth about AI from the people building it by Martin Ford. To understand China, the U.S. and what’s going on, Kai-Fu Lee’s AI Superpowers: China, Silicon Valley, and the New World Order is deeply informed but easy to read. AI/Machine Learning has limits. It is great for translation, video surveillance, and speech recognition. It’s been disappointing, so far, in tasks like network optimization. (That could change)

Multi-cloud and hybrid cloud are crucial trends in data centers, Equinix is demonstrating, per Nick Del Deo of Moffett.

GSMA has reduced its 5G 2020 subscriber estimate to 150 million, citing low phone sales. GSMA has some of the best analysts, but I am holding at 195-205 million. I believe China will meet its 150 million goal and low phone prices will drive demand everywhere. Ericsson has said it will raise its 2020 forecast from 100 million.

Essentially every projection of 5G, including mine, just became invalid because it will be impossible to separate 4G speed “low-band 5G” from the better stuff. Deutsche Telekom and Vodafone have now jumped on this. “5G.” Others will likely follow and everything will now be “5G.” Until this week, virtually everyone outside the U.S. thought 5G was faster than 4G. Instead of building better networks, DT is just changing the definition.

Verizon CEO promised “5G mobile edge compute this year.” If it’s substantial, VZ will be first in the West to the Edge.

CEO Börje Ekholm says Ericsson is losing money on the China Mobile contract for ~25,000 5G upgrades, will make it up later. China Mobile is paying about US$25,000 per station from Ericsson, Huawei, and ZTE. Nokia has refused to match the price, a dangerous tactic when China is 70% of the 5G market in 2020 & 2021.

$400 decent Xiaomi 5G phones are now for sale at Vodafone Germany. When Xiaomi dropped the China price to $285, I put out an estimate that 210 million would buy 5G in 2020.

China has upgraded over 200,000 cells for mid-band 5G but reduced the year-end target to 500,000. The “50 million 5G contracts” is an uncertain figure which may be higher than the number of phones sold.

Talk to me

Scroll to top