Europe’s Path to 5G Success

Europe’s assets provide a solid foundation on which to build and sustain a leading global role in the exploitation of 5G technologies. Europe has two of the three largest vendors of mobile infrastructure in the world—Ericsson and Nokia—and mobile operators with vast local and global reach—Vodafone, Deutsche Telecom, Orange, Telefonica, Telecom Italia, and Telenor. Its consumers enjoy good competitive deals for voice and data packages.  Finally, Europe’s export-oriented manufacturing industries continue modernizing and competing globally as we move to Industry 4.0.

Europeans will likely overcome any obstacles to their 5G ambitions. These obstacles are largely internal, notably regarding the release of spectrum for 5G and leveraging the new mobile technology in the software-driven digital transformation of everything.  Regarding spectrum, other regions have been proceeding more rapidly than Europe; on the economic-policy vision for the future of technology, Europe’s strategies sometimes come across as satisfied with the status-quo.  In the post-pandemic global economy that is beginning to emerge, accelerating 5G and linking it to a broad vision of competitiveness-enhancing programs of digital transformation at the granular level of companies, administrations, and educational institutions will matter more than ever.

Spectrum

Examples within Europe as well as overseas show how it is possible to build a leading position in 5G, despite pandemic-related delays. The benefits generated both directly and, more importantly, indirectly by applications and services making use of 5G connectivity dwarf the one-time value of spectrum fees.  Fees should not be a major criterion in the choice of procedure for spectrum awards.

An excellent example of a rapid spectrum allocation process via auction is the recent 26 GHz 5G auction in Finland which was concluded within a day. New Zealand  and Hong Kong  are examples of alternative, efficient spectrum awards via administrative allocation. In May 2020, New Zealand abandoned an earlier plan to conduct an auction of 3.5 GHz spectrum (postponed because of Covid-19), deciding instead to allocate available spectrum licenses administratively, enabling operators to deploy 5G services more rapidly than otherwise.  In 2019, the Hong Kong regulator, the Office of the Communications Authority (OFCA), administratively awarded 5G spectrum in the 26 GHz and 28 GHz bands to network operators to jump start 5G investment and growth. It justified this approach because of the abundant supply of spectrum in millimeter-wave bands which enabled all demands of network operators to be met without intense competition for frequencies.

After the first paralyzing impact of the Covid-19 pandemic in Europe, many countries reacted and spectrum releases are now accelerating across the region.  The UK and Germany are planning the release of 26 GHz and France of 3.5 GHz.  However, the efficient release of a full portfolio of frequencies for 5G (in low, mid- and high (mmWave) bands) sooner rather than later, at low spectrum fees, is a necessary but insufficient condition for Europe to become a 5G leader.

Europe will overcome any obstacles to its 5G ambitions. These obstacles are largely internal, notably regarding the release of spectrum for 5G and leveraging the new mobile technology in the digital transformation of everything. 

Future of Technology

Opportunities for 5G-value creation in Europe rest on the combination of a substantial single market, extensive European wireless expertise, a string of outstanding R&D centers in and outside of universities, experienced mobile operators, and key vertical sectors (manufacturing, health care, pharmaceuticals, and energy to mention only a few) that will be major 5G beneficiaries:

• The single market under common standards was at the heart of what is one of Europe’s most successful technology stories—the GSM standard.  The will and ability of Europeans to cooperate and innovate within a broad systems perspective lie at the heart of this standard that brought Europe together and then went on to conquer the world.  Focusing on providing common spectrum across the region for 5G emulates this spirit that generated so many benefits for Europe. 
• The European Telecommunications Standards Institute (ETSI) is a global standard-setter for a number of electronic technologies.  Jointly with the two largest vendors, the top five operators, private and university-based R&D centers, Europe has a unique ecosystem to lead the world in 5G and Artificial Intelligence. Today Europe is making substantial investments in the development of 5G technologies and applications both at national levels and on a region-wide basis in the context of the European 5G Public-Private Partnership (5G-PPP).
• Regulators have given industry verticals mechanisms for direct access to spectrum for 5G, but it is mobile operators that can provide the scale and drive 5G-gear costs down.  The combination of 5G deployments through licenses for wide-area operators and local licenses for a wide variety of industrial, agricultural and other entities fosters opportunities for innovative solutions inspired by many diverse sources of expertise. This enables exploitation of all the new capabilities of 5G in terms of increased speed and low latency. It also enhances the efficiency with which spectrum is used and the effectiveness of competition at the end-user level of applications and services.

Recent initiatives of the EU in 5G, AI, and digital transformation will likely enable European leadership in the technologies of the future.

Costs of Delays

Several attempts to quantify the value generated by 5G (global, regional, and national) have been made, including specifically mmWave 5G.  Germany, which accounts for some 21% of total regional GDP, is a trend setter for Europe. One report estimates that the total economic contribution of the 5G value chain in Germany will amount to $171 billion in gross output in the year 2035. The specific contribution of mmWave 5G to the total impact of 5G has also been estimated. Over time, the use of mmWave spectrum will account for a significant proportion of the total global output attributable to 5G services, about one third in Europe by the mid 2030s.

The costs of delays of a year or more in awarding 5G-spectrum can be illustrated with a simple calculation. They are far greater than the one-time revenues from spectrum awards themselves. Assume that over a period of ten years the annual contribution of 5G to an economy is lower by a constant nominal amount of $10 billion compared to an earlier release of this spectrum. The net present value of this loss amounts to $87.5 billion using a discount rate of 3%, and $80 billion with a discount rate of 5%. This scenario is very plausible and conservative for an economy the size and structure of Germany’s, for instance.

These estimates of 5G-dependent value assume that a broad portfolio of frequencies for 5G deployments is made available in the very near future. However, this value will be substantially reduced if the release of spectrum necessary for the rollout of a full suite of 5G services is delayed, or misallocated. Such an outcome is more likely if spectrum allocation procedures are complex and time consuming, and license winners have to pay high spectrum fees or face other barriers that limit the pace and coverage of subsequent network deployments.  The stakes are huge.