IDTechEx: China’s 5G investments may be slowing, but it’s still the 5G market to watch

China is certain to be one of the world’s largest 5G markets and has been spending heavily to gain an early lead in 5G adoption, yet there are signs that 5G momentum is slowing down in the market.  That was one of the conclusions of a new report from IDTechEx Research on the 5G technology market forecast for the next 10 years.

The report found that China’s big three operators China MobileChina Telecom and China Unicom have all announced 5G capex budgets that are lower than expected.

China Unicom plans to spend between 6 billion yuan ($893.3 million) and 8 billion yuan on 5G in 2019, while China Telecom has allocated 9 billion yuan. While market leader China Mobile has not disclosed its projected 5G spending, the report forecasts that its spending will be in the region of 17 billion yuan.  The total 5G capex budget allocated in China (34 billion yuan) for 2019 is therefore significantly lower than the projected 50 billion to 100 billion yuan.

Factors behind the lower than expected spending include: greater activity to upgrade 3G networks to 4G, falling per-subscriber revenue and the uncertainty over whether 5G investments will generate returns, the market research firm said.  The CEO from Huawei, the top one telecom infrastructure supplier and number two smartphone provider in the world, has publicly expressed a similar concern on the payback from 5G.

Based on slower than expected 5G deployment schedules, the total contribution of 5G for the telecoms sector could be reduced from the projected $200 billion by 2029 to $160 billion.  Network operators are forecast to invest around $200 billion to $350 billion for 5G development from 2020 to 2030.

Source:  IDTechEx Research

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IDTechEx Research predicts that by 2030 the direct 5G revenue in China will be 6.3 trillion CNY (about $930 bn) and the Compound Annual Growth Rate (CAGR) in the coming ten years will be 29%. 5G will create 8 million jobs and contribute around 5.8% GDP growth in China by 2030. The indirect revenue generated by 5G will be 10.6 trillion CNY (about $1,579 bn), with CAGR of 24%. Among them, the direct revenue for telecoms will be over $200 bn by 2029.

As the current 5G deployment plan is slower than expected, these numbers might be overestimated. The new IDTechEx Research report 5G Technology, Market and Forecast 2019-2029 forecasts a moderated revenue of $160 bn for telecoms in China by 2029. Nonetheless, China is still the main market to watch. It is likely that the telecoms in China will invest at least $200-350 bn from 2020-2030 for 5G development, with the key focus on automotive, industry, healthcare and energy.

References:

https://www.idtechex.com/research/articles/is-5g-slowing-down-in-china-00016958.asp

More information can be found from 5G Technology, Market and Forecast 2019-2029 – contact research@IDTechEx.com or visit www.IDTechEx.com/5g.

4 thoughts on “IDTechEx: China’s 5G investments may be slowing, but it’s still the 5G market to watch

  1. Very factual blog post, especially the amount of billions of Yuans being allocated to 3G and 4G networks by China’s network operators. Hundreds of billions allocated to the main 5G network that will push China to the forefront. Whether people believe it or not. Huawei the second biggest seller of smartphones in the world and #1 telecom equipment vendor, is skeptical about the 5G return on investments (ROI). Eye opening report!

  2. How China’s Huawei took the lead on 5G –Washington Post:
    As U.S. officials have pressured allies not to use networking gear from Chinese technology giant Huawei over spying concerns, President Trump has urged American companies to “step up” and compete to provide the next generation of high-speed, low-lag wireless service known as 5G.

    “We cannot allow any other country to outcompete the United States,” Trump said Friday at a White House event to unveil the administration’s next steps on 5G – a massive airwaves auction and a proposed $20 billion broadband infrastructure fund.

    There’s just one problem: Barely any U.S. companies manufacture the technology’s most critical components.

    The absence of a major U.S. alternative to foreign suppliers of 5G networking equipment underscores the growing dominance of Huawei, which has evolved into the world’s biggest supplier of telecom equipment, sparking fears within the Trump administration that a 5G network powered by Huawei’s wireless parts could endanger national security. And it throws into sharp relief the years-long retreat by U.S. firms from that market.

    Carriers such as Sprint and Verizon have moved swiftly to launch 5G services for consumers. But the wireless networking gear the industry relies on still comes from foreign suppliers: four companies – Sweden’s Ericsson, Finland’s Nokia and China’s Huawei and ZTE – account for two-thirds of the global market for telecom equipment, according to analyst estimates.

    Some U.S. technology giants such as Cisco sell switches and routers that reside in the innermost parts of a carrier’s network. But despite its size, Cisco doesn’t compete in the market for “radio access,” or the wireless infrastructure that allows cell sites to connect with smartphones and other mobile devices.

    “There is no U.S.-based wireless access equipment provider today that builds those solutions,” said Sandra Rivera, a senior vice president at Intel who helps guide the chipmaker’s 5G strategy.

    It’s this part of the Internet ecosystem that is increasingly important as more devices and appliances gain wireless connectivity and smart capabilities. 5G is expected to shape technological innovation for years to come, providing mobile data connections for virtual-reality headsets, driverless cars and more. Proponents say 5G eventually will support download speeds of 1,000 megabits per second, roughly 100 times faster than today’s 4G standard.

    The rising global demand for 5G equipment highlights how the United States, a technology leader in other respects, is largely absent from the wireless networking industry. It reflects the decline of a once vibrant ecosystem of American companies that formerly went toe-to-toe with the likes of Nokia and Ericsson. And it puts a focus on Chinese firms such as Huawei, whose rise to prominence has come at the expense of Western networking titans and sparked a global campaign by U.S. officials eager to persuade allies not to allow Chinese equipment into their networks.

    At the dawn of the wireless age 30 years ago, U.S. companies jostled for primacy in wireless networking. Companies such as Motorola and Lucent – an offshoot of the old AT&T monopoly – were sources of innovation, exploring new ways of delivering voice and data wirelessly. It was Lucent, for example, that helped introduce Code Division Multiple Access, or CDMA, a mobile technology that promised to improve the capacity of wireless carriers.

    But their fortunes declined around the turn of the century as they failed to keep pace with a changing market. No U.S. company stepped in to fill the gap as those companies faded – partly because of the growing strength of foreign alternatives and partly because of the immense scale required to survive in that line of business, according to industry experts.

    “Lucent basically collapsed because they didn’t have a big enough wireless arm to keep them afloat when the Internet backbone [business] collapsed” in the dot-com bust, said Roger Entner, a telecom analyst at Recon Analytics. “Motorola, over time, simply became less competitive because the other vendors had more economies of scale.”

    Motorola and Lucent’s wireless infrastructure businesses were soon gobbled up by Finland’s Nokia and France’s Alcatel, respectively. One reason the European companies proved so successful, Entner said, was because the European industry agreed from the start to develop a common standard for wireless communication, known as GSM, that all European telecoms would share. By contrast, the industry in North America took a looser approach, with some carriers backing network technologies that weren’t mutually compatible.

    Take CDMA. First developed for mobile use in the 1990s, the standard was technologically superior, allowing carriers such as Verizon to pump more traffic through their cell sites over the same amount of time compared with alternative standards. But the technology created headaches for consumers who found they couldn’t keep their phones when they switched from Verizon to a network like T-Mobile’s, which ran on GSM.

    While the American approach allowed for more technological experimentation and innovation, a fragmented market based on competing standards made it more challenging for U.S. wireless equipment sellers to amass a large customer base.

    Today, Nokia and Ericsson are the top providers of telecommunications networking gear in North America and are No. 2 and No. 3, respectively, in the world. The two companies each recorded revenue of about $25 billion last year.

    But both have been surpassed by Huawei, which in the span of three decades has become the world’s largest provider of telecom equipment.

    “I do think the Western companies did underestimate how credible Huawei was,” said Paul de Sa, a telecom industry analyst and co-founder of the advisory firm Quadra Partners. “There were executives who basically laughed [at the idea] that Huawei or ZTE could compete.”

    Founded in the late 1980s by Ren Zhengfei, a former engineer for the Chinese military, Huawei began as a technology supplier for Chinese customers. But by the early 2000s, Huawei had begun selling globally, and now does a robust business not only in network equipment but also in consumer smartphones and enterprise services. Last month, the privately held company reported that it had finished 2018 with revenue of $107 billion, up 20 percent despite the U.S. campaign. Profits rose 25 percent, the company said, to $8.8 billion.

    To give another perspective on Huawei’s enormous influence, the company’s chief rivals, Nokia and Ericsson, account for 17 percent and 13 percent of the global market for telecom equipment, respectively, according to figures compiled by the research firm Dell’Oro Group.

    Huawei’s market share, at 28 percent, is nearly as large as both of them combined.

    Despite an early reputation for cheap knockoff hardware, Huawei today is recognized for low prices, reliable equipment and engaging customer service, analysts say. As Huawei has invested in its own research and development, even Western telecom companies acknowledge that Huawei’s products are as good as – if not better than – competing equipment from Nokia or Ericsson.

    “About 25 percent of our members have Huawei or ZTE” in their networks, Carri Bennet, an attorney for the Washington-based Rural Wireless Association, told lawmakers at a recent House Judiciary subcommittee hearing.

    Gordon Smith, the chief executive of Sagent, a network intelligence and analytics company formerly known as Clover Telecom, estimated that Huawei gear typically costs “tens of percents” less than the competition’s.

    With the support of China’s state-owned development bank, Huawei also has been able to undercut competitors with attractive financing for its products. In February alone, Huawei announced partnerships with wireless carriers in eight countries, including Iceland, Switzerland, Saudi Arabia and Turkey.

    It doesn’t hurt that Huawei serves a massive domestic market in China, which grants it tremendous advantages of scale that many tech companies, including American ones, are hungry to access themselves. China is so critical to Apple, for example, that the iPhone maker blamed the country’s economic slowdown for a downward revision in Apple’s recent quarterly sales estimates – the company’s first such warning in 15 years.

    Huawei’s success, however, has been clouded by allegations of intellectual property theft.

    The U.S. government accused two Huawei units this year of trying to copy a robotic arm used by T-Mobile to test smartphones. (Huawei has pleaded not guilty.) In the past, Huawei has also been accused of stealing technology from Cisco; the two firms became locked in a legal dispute in 2003 and settled months later, after Huawei conceded that Cisco-made code had ended up in a Huawei product. The code was later removed.

    Then there is Nortel Networks’ discovery in 2004 that hackers – traced to IP addresses in Shanghai – had stolen nearly 1,500 sensitive files from the Canadian telecom giant’s computer systems. The company’s subsequent investigation failed to prove China’s direct involvement, much less Huawei’s. But after analyzing the stolen files – which bore cryptic names such as “Photonic Crystals and Large Scale Integration,” “Eco_Strategy.ppt” and “HDX R2 Standard Reconfigurations Test Plan – Draft 0.2†³ – and a months-long probe, Nortel’s security adviser at the time, Brian Shields, became convinced Huawei benefited indirectly from the breach. The file names, a list of which Shields provided to The Washington Post, have not been previously reported.

    “Nobody would be interested in these kinds of documents other than a competitor,” Shields said. “In my opinion, looking at what the hackers went after, it is likely these documents made it to Huawei.”

    That seemingly ancient history is newly relevant, as U.S. officials argue that incorporating Huawei gear into U.S. carriers’ 5G networks poses a significant spying risk.

    At an industry conference in Barcelona in February, U.S. officials urged allies in bilateral meetings not to use Huawei equipment over concerns that it could enable eavesdropping by authoritarian regimes. U.S. partners largely acknowledge the risk but have asked for more concrete evidence to back up the case.

    “The Europeans really keep pushing for this concept of, ‘Where’s the smoking gun?’ ” said a person familiar with the discussions, who spoke on the condition of anonymity to speak more freely about the closed-door meetings. “They say, ‘Hey, we don’t want security threats, either . . . but you can’t just come in here and tell us that there is a unity of interest between Beijing and Huawei and have that be the end of your presentation.’ ”

    Some analysts say that in a previous era, America’s allies might have been more sympathetic to the Trump administration’s message. But Trump’s conduct, they say – berating NATO allies, canceling a visit to a World War I memorial because of rain, calling Europe a “foe” on trade – has not helped.

    “In a world where the U.S. had more soft power,” Entner said, “I’m pretty sure the Europeans would be a lot more receptive.”

    brian.fung@washpost.com

  3. A bruising fight is under way between the U.S. and China over 5G, which promises superfast data transmission that will underpin autonomous driving vehicles, robotic assembly lines, remote surgery and other emerging businesses.

    Telecommunications operators are expected to spend hundreds of billions of dollars in the coming years to build out the networks. In China, the government and major carriers have said they plan trials of 5G in 2019 and aim to roll it out on a larger scale in 2020. In the U.S., companies are expected to test pilot network installations by the end of the year and the government is preparing to auction off broad swaths of airwaves.

    The U.S. has effectively barred Huawei from domestic 5G networks and is trying to persuade allies to do likewise, saying that the Chinese company is beholden to the Communist Party and thus presents an espionage and security risk in networks that will be pervasive.

    Huawei denies the allegations. The firm is the world’s largest maker of telecommunications equipment, a leader in superfast 5G technology and a top seller of smartphones globally.

    Huawei has long said that it doesn’t pose a cybersecurity threat and has denied all of the legal charges against it.

    Recently, its founder, the former Chinese army engineer Ren Zhengfei, has given a series of interviews defending the company while also praising President Trump, telling CNBC in an interview set to air this week that Mr. Trump is a “great president” whose tax policies are “helping revitalize enterprises.”

    https://www.wsj.com/articles/china-investigates-ericsson-over-licensing-as-5g-competition-heats-up-11555332158

  4. Exhaustion of LTE will push migration towards 5G: Nokia
    Romita Majumdar from Mumbai (Bombay), India. Business Standard

    The internet data boom and rising consumption of content and related services will eventually lead 4G LTE resources to exhaust, leaving operators no choice but to adopt 5G networks, said Alexander Tikhonov (vice-president and global head of customer solutions architects at Nokia).

    Last week, Nokia confirmed its position with 42 commercial 5G deals (more than any other wireless telecom equipment vendor has announced) in place with operators around the world, 22 with named customers such as T-Mobile, Telia Company, and Softbank. Including these deals, Nokia’s 5G deals, trials and demos total over 100 5G customer engagements to date.

    “The data consumption (in India and globally) is video centred on internet devices at very high quality. That will exhaust LTE spectrum at a point in time in near future, that is, between 2021 and 2023 as per studies across most countries. And they will need to shift to 5G to satisfy consumer demand,” said Tikhonov.

    According to a recent Assocham-PwC report, data consumption in India will grow from 7.2 million MB in 2017 to 1.09 billion MB (megabytes) in 2022, growing at a compound annual growth rate (CAGR) of about 72.6 per cent. While internet penetration is increasing in India, with mobile internet penetration set to reach 56.7 per cent in 2022, from a mere 30.2 per cent in 2017, with video-on-demand driving usage.

    In fact, according a Nokia report last year, video streaming constitutes up to 75 per cent of the data traffic. According to telecom experts, the humongous video streaming levels is also a reason for rising network congestion (even for voice services) in the country.

    While incumbent telecom operators like Bharti Airtel and Vodafone Idea (VIL) have been up in arms against 5G spectrum auction in the near future due to a financial crunch in the sector, Reliance Jio has been quite vocal about going ahead with 5G trials.

    Bharti Airtel hopes that the Centre will bring down the proposed base price for the 5G auctions for the company to consider participating in the airwave sale. In a recent investor conference call Gopal Vittal, chief executive officer of Bharti Airtel, said that since 5G requires large quantity of spectrum and investments in the range of ~50000-55,000 crore and “clearly these are prices we can’t afford as they are exorbitant, we hope the government will bring down pricing and then we will look seriously at 5G”.

    While spectrum cost is a concern, telecos are also bidding on data usage as a means to grow revenue and usage over voice services.

    Airtel currently has 115 million data subscribers compared, to 306 million of Reliance Jio and 146 million of Vodafone Idea. Airtel, however, has the highest data usage at 11 GB per subscriber per month, compared to 10.9 GB for Jio and 8.8 GB for Vodafone Idea.

    “ With 4G penetration for Bharti Airtel and Vodafone Idea still at 25-30 per cent of the subscriber base, limited use cases of 5G at present, and a nascent 5G ecosystem, we believe it will be negative for operators to spend over $7 billion on a project offering limited returns,” noted Deepti Chaturvedi, research analyst at CLSA, in a note to investors.

    Further, with 275MHz spectrum available in 3.4-3.6GHz band and only three operators in play, there is enough supply. So, even if Reliance Jio bids in current auctions, incumbents led by Bharti Airtel can purchase spectrum in subsequent auctions.

    Deferring purchase will likely also lead to a cut in price of spectrum. Historically, the govt has cut spectrum prices by 30-40 per cent if it saw no demand in the previous auction, Chaturvedi wrote.

    Operators in South Korea, Japan and China have been granted 100-200MHz spectrum each in the 3.5-3.7GHz band for 5G services. Over past few months, commercialisation of 5G has also started with Korean operators introducing 5G plans and Samsung launching the first commercial 5G smartphone.

    In USA, Verizon launched its mobile 5G service called 5G Ultra Wideband in April in a couple of cities and plans to expand this to another 20 cities in 2019.

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