The 5G auction in Germany ended successfully in June. The network operators Telekom, Vodafone, Telefónica (O2) and Drillisch (1&1), who won the bid for the radio frequencies, have now started to expand the 5G infrastructure - albeit only selectively so far. The coverage of 98% of German households required by the Federal Network Agency is not expected to be achieved before 2027. This is illustrated by a comparison with the predecessor technology 4G/LTE. Today, almost ten years after the introduction of 4G, coverage is just over 90% of households, but only around 65% of the area in Germany

National roaming could reduce investment costs

The expansion of 5G is being slowed down in particular by the high investments required in infrastructure, which exceed the auction prices of EUR 6.5 billion for radio licenses by a factor of more than ten. The existing technology infrastructure often not only has to be supplemented, but at least partially replaced by new technologies. This includes the installation of equipment for new frequency bandwidths, the laying of fiber optic cables and the development of new mobile communications transmission technology. According to Telefónica, the network operators will have to invest 76 billion euros in this
and the construction of over 200,000 mobile communications sites.

One way to meet the challenge of high investments is the cooperation of network operators in the course of 'national roaming'.
If the implementation costs can only be reduced slightly and there is hardly any cost-cutting potential in the expansion of the infrastructure, the joint construction of a 5G network allows the rapid implementation of broad network coverage with 5G in Germany, while at the same time reducing costs for the individual providers. In addition, cooperation between network operators offers the opportunity to develop new revenue models that will become a reality, especially if companies specialize in providing the necessary infrastructure for innovative 5G applications.

From bit pipe to service provider

It is not only the high investments that are forcing telecommunications companies to differentiate themselves. Rather, a central challenge results from their positioning as pure 'network developers'. In their service portfolio, companies usually only focus on providing infrastructure and basic services such as messaging, telephony and mobile Internet, which is why they are often referred to as 'bit pipes'. They usually leave the provision of value-adding and consumer-oriented services to providers such as Apple, Google etc. The latter use the infrastructure of the bit pipes to offer customers digital services such as WhatsApp, which replace traditional telecommunications services.

5G fields of application: Will network operators take advantage of the new value circle? According to BearingPoint, there is now a need for action.

© Ericsson, BearingPoint

According to forecasts, the global revenue share of services such as FaceTime, Skype and WhatsApp in the messaging sector will already be up to 63% this year - and rising. The picture is similar in the area of telephony. For the first time, Germans will make more calls via new services than via conventional landlines in 2019. As a result, the core business of telecommunications companies is eroding.

"In order to capitalize on the high investments in infrastructure expansion and to be sustainably successful in the age of 5G, telecommunications companies are forced to reposition themselves. They must move away from the role of network developer and become service providers themselves. 5G technology opens up the opportunity for network operators to penetrate deeper into value creation through new business models and logics and to develop into 'service enablers' or even 'service creators'," says Prof. Dr. Jörg Funder, Managing Director of the IIHD | Institute.
Differentiation opportunities arise in three areas in particular:

1. massive machine type communication (MMTC)
MMTC describes a new communication paradigm in which a large number of devices are connected to each other directly or via the internet and act autonomously, i.e. without human intervention. Thanks to high bandwidths and low response times in data transmission, 5G enables an increasing quality of connection and thus the possibility of linking a significantly higher number of devices. MMTC unfolds its full potential particularly in the production sector in the context of 'smart factories'. A pioneer in this field is the cooperation between the two companies Mercedes-Benz and Telefónica, which have created the first 5G production site 'Factory 56' in Sindelfingen.

2 Enhanced Mobile Broadband (EMBB)
5G is the basis for EMBB, a type of broadband that enables users to use high transmission rates for internet applications from any location at any time - for example for mobile multimedia and live streams with high resolutions, interactive videos, internet telephony and television. What is new is that in the age of 5G, a large number of users within a small radius can use such data-intensive applications simultaneously. EMBB enables virtual and augmented reality applications- for example in the middle of a concert or sporting event. Huawei has already demonstrated the potential of 5G and EMBB at the 2018 Winter Olympics in South Korea. Live virtual reality coverage created a 'close-up experience', even for spectators outside the venues.

3 Ultra Reliable Low Latency Communication (URLLC)
5G paves the way for URLLC applications that rely on robust communication (Ultra Reliable) and minimal latency times in the range of one millisecond or less (Low Latency). In addition to low failure probabilities and minimal latencies, the key advantages of URLLC include low error and packet loss rates as well as high mobility of network participants (movement of objects within or between radio cells). URLLC opens up a completely new class of use cases: Services that must not fail and require the shortest possible response times. Key areas of application are in the transportation and automotive sectors
sector (automated driving assistants and autonomous driving), in industry ('predictive maintenance' of industrial plants or 'cloud robotics') and in the healthcare sector with 'digital health' and remote-controlled surgery (telemedicine).

Marcel Tietjen, Partner at BearingPoint: "Network operators are now faced with the key decision of what role they want to claim for themselves in the 5G era. Do they remain in the passive role of a vicarious agent or do they seize the potential for differentiation and become an active shaper? If they opt for the former, they are putting their long-term future at risk. If they want to develop into a value-adding partner for consumers and industry, they must act now."