Whilst the European industry is only starting to get a pay-back on its 4G
investment, government agencies and standard-setters are busy sharing their
vision for 5G. The ITU has already set a 5G target of up to 10Gbps mobile
download speeds with 1ms latency, supporting new services such as connected
cars, augmented reality and the Internet of Things. Such a 5G vision would
come with a big price tag, requiring many more cell sites to be built.
Meanwhile, the European industry has fallen upon harder times, having lost
around eu300bn of funding capacity from EC regulation of MTRs and roaming
and the impact of smartphones on SMS. Average investment returns have fallen
to cost of capital, and lower for the challengers. Few players are seeking to
enter the industry as network operators and many challengers are seeking to
exit whilst minimising investment. This suggests a pay-back period for the
operators remaining, with spectrum auctioned for 5G likely to fetch a lower price,
5G build to be slow and investment focused first on enhancements to 4G.
5G comes with a big price tag and drives the industry to scale so the pressure
to consolidate will not go away. If the EC really wants Europe to catch up, it will
have to adapt its thinking on consolidation. Attempts to keep current levels of
competition artificially alive through MBA-MVNOs will likely just undermine
investment incentives further. If 5G applications are of real value to society, we
believe long-term consumer interest would be better served by allowing two-tothree
stronger mobile networks to emerge per market, capable of investing in
5G properly, with much better network coverage being the quid pro quo.