Scant investment and fragmented use cases could stunt 5G revolution

A handful of barriers threaten to curtail progress, and the next decade may be rockier than the last

Although the future of connectivity is full of potential, a lack of coordination among industry players, data complexity, and misaligned incentives, among a host of key factors, means progress is being threatened.

With future economic growth, largely driven by the adoption of technologies like 5G and Wi-Fi 6, depending on improving productivity, there are a handful of hurdles that urgently need addressing.

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There are five key barriers, according to a McKinsey discussion paper published this month, that must be addressed in order to ramp up sluggish connectivity investment, as well as progress on adopting use cases.

Coordination between networking and telecoms giants, for instance, can help the industry develop technical standards for the hardware needed for systems to work. Although this may be a struggle considering the fact that many have never collaborated before.

The fragmentation of use cases, and the fact that understanding the benefits of technologies like 5G and Wi-Fi 6 requires aggregating many small pockets of potential, means it’s difficult for these to be investment priorities. Companies, as a result, tend to take a ‘wait-and-see’ approach, or stalling in ‘pilot purgatory’.

“These are thorny issues that cannot be solved by technological advances alone. But they are also not insurmountable challenges,” the discussion paper said. 

“Fragmentation presents an opportunity for an actor - whether government, connectivity providers, tech giants, or industry coalitions - to play a coordinating role. Likewise, current business models may have to evolve to allow for more cross-sector partnerships, realignment of incentives, and risk sharing. 

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“In most countries, governments can play a coordinating role or set standards, but the private sector will shoulder most of the weight of forming smoothly functioning ecosystems.”

The 'connected evolution' can also be stunted by misaligned incentives, which can be translated to mean the entity that bears the costs and risks of an investment may not be the same entity that eventually benefits. 

The fact that use cases require data sharing across company and industry boundaries, too, throw privacy and security concerns into the mix. There is also a level of interoperability needed that doesn’t exist in many industries to the extent that is needed, in healthcare for example.

Finally, there are a string of physical barriers holding back progress, including slow network enhancement. Legacy infrastructure, for example, could be expensive to upgrade, while regulatory uncertainty needs to be resolved around areas such as mobility and healthcare.

The McKinsey paper examined not just the problems facing the promise of connectivity, but the prospective benefits. These arise in a number of sectors and could lead to a global GDPR boost by between $1.2 trillion and $2 trillion by 2030.

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In manufacturing, for example, highly precise operations can be run using low-latency and private 5G networks. These will involve running smart factories powered by analytics, artificial intelligence (AI) and advanced robotics running at maximum capacity. A growing number of factories will also incorporate features like automated guided vehicles and computer vision-enhanced quality control.

Healthcare is another industry touted to feel the benefits of advanced networking, particularly given a stream of connected devices and sensors that have been developed for clinical contexts. Data can potentially flow through entier medical systems to smoothen operations, and be used alongside AI-powered decision-making tools to make diagnoses faster and more accurate.

To reap these benefits, however, a significant level of investment is needed, and the discussion paper concluded that it may be tough to convince businesses to front up the cash needed to sustain these productivity improvements.

“The road for many connectivity providers has been rocky in recent years, and it does not look much smoother in the decade ahead,” the report added. 

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“Build-outs and upgrades will demand major investment at a time when mature markets are saturated, and competition is leading to price wars. Many providers will struggle to find the required capital and make investments pay off with conventional revenue models. 

“In some countries, competitive pressures or regulation are forcing connectivity providers to plunge ahead with build-outs and upgrades even before the economics have become clear.”

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