MARKET PERSPECTIVE

5G Goes Commercial: Early Experiences and Future

Prospects
John Delaney

EXECUTIVE SNAPSHOT

FIGURE 1

Executive Snapshot: The Early Market for 5G Services

Source: IDC, 2020

April 2020, IDC #EUR146160120

NEW MARKET DEVELOPMENTS AND DYNAMICS

The First Year of Commercial 5G: Taking Stock

5G is the Fastest G so far, in More Ways Than One
In terms of its performance, 5G is the fastest mobile G yet. One of 5G's principal design goals has
been to utilize radio spectrum more efficiently than previous G's, thus achieving faster throughput
of data in the radio access network (RAN). But 5G is also the fastest G so far in a different sense —
the interval between the new G and the previous G has been the shortest so far. The first
commercial 4G service came to market in Sweden in December 2009, and the first commercial 5G
service came to market nine years later in South Korea, in December 2018.

If we focus our attention on Europe and consider the appearance of new-G services on
smartphones (rather than PC connectors such as dongles and routers), the interval between 4G
and 5G looks shorter still. The first 4G smartphones that were compatible with European 4G
networks became available in mid-2012. With 5G, Swisscom launched its first commercial 5G
smartphone plans in April 2020, and smartphones were available for general purchase from the
outset. Thus, the interval in Europe between commercial 4G for smartphones and commercial 5G
for smartphones has been less than seven years.

Figure 2 summarizes the timing of each successive mobile G, the principal technology
improvements that each G brought, and the key service innovations and applications that each G
enabled. It is important to note that those key applications generally became clear sometime after
the commercial emergence of the new G, and that is why the potential 5G applications are shown
with question marks. Although we can have some ideas about what new services 5G will enable, it
is too early to tell for certain which will be the most successful ones.

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FIGURE 2

A New Mobile G Every Decade

Source: IDC, 2020

The Price of Early 5G: Splitting the Standard Into Two Phases
5G's accelerated time to market is no happy accident. It is the result of a concerted effort by the
mobile industry both to set the 5G standards quickly, and to ensure that operators were able to
offer their customers 5G-compatible smartphones from the outset. These efforts were driven by
pressure from:

 Some operators, such as those in the U.S. and Korea, that are facing an imminent
shortage of 4G network capacity
 Some chipset and device vendors that need to counter the slowdown in 4G smartphone
sales with a new wave of smartphone technology, and with new classes of devices that
use cellular connectivity
 The mobile network equipment vendors that need to stimulate a new wave of investment
by mobile operators in their access and core networks

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The price of the accelerated time to market has been to make 5G more complicated, both as a
technology and as a marketing proposition. In February 2017, 3GPP decided to separate the
standardization of 5G into two distinct phases:

 The first phase, dubbed non stand-alone (NSA), comprises deployment of 5G New Radio
(NR) in the radio access network (RAN), using the existing 4G network as an "anchor."
The functionality of 5G in the NSA phase is thus constrained by the capabilities of the 4G
core network (also known as the evolved packet core or EPC). In practice, this means the
main functional benefit of 5G NSA is a higher data-throughput rate in the RAN, providing
operators with more data capacity in their networks, and providing their customers with a
faster mobile data connection. This has become generally referred to as enhanced mobile
broadband (eMBB). The 5G NSA specification was standardized in 3GPP's Release 15,
which was frozen in June 2018, enabling volume production of network equipment and
devices using the standard.
 The second phase, dubbed stand-alone (SA), comprises the deployment of both 5G NR in
the RAN and the 5G core network. A technical comparison between the 5G core and the
4G core is beyond the scope of this report. For our purposes, it is sufficient to note that as
well as further improving the data throughput rate of 5G eMBB, the 5G core enables two
advanced use cases: ultra-reliable/low-latency communication (URLLC) and massive
machine-type communication (MMTC). Furthermore, the distributed, cloud-native
architecture of the 5G core facilitates the implementation of network slicing, whereby
virtual instances of the physical 5G network can be created, with guaranteed performance
parameters. Thus, 5G SA lays the foundation for the use of mobile networks for mission-
critical enterprise connectivity applications. The 5G SA specification is standardized in
3GPP's Release 16, which at the time of writing was due to be frozen in March 2020.
All of the commercial 5G services launched so far have been 5G NSA. 5G SA networks are not yet
available to deploy, and there are no 5G SA devices ready for commercial sale. Therefore, during
the first year of commercial 5G, and for most (possibly all) of its second year, the 5G service
proposition is simply "a faster connection." The more advanced use cases of 5G (such as remote
command-and-control, online gaming, and ultra-reliable connectivity) will not start to feature in
commercial 5G services until 2021 at the earliest.

Our expectations for the development timeline of 5G services in Europe is shown in Figure 3.

©2020 IDC #EUR146160120 4

FIGURE 3

Expected Timeline for Commercial Development of 5G in Europe

Source: IDC, 2020

Customers are Being Promised a Revolution, but Early 5G Will not Deliver it
The process of standardizing 5G and bringing 5G products and services to market quickly has
been very successful. Moreover, it seems that speed has not been achieved at the expense of
quality. As we will detail in a later section, mobile operators are reporting that they have had no
major problems in installing 5G network equipment, and that the equipment has performed well.
But mobile operators' ultimate objective with 5G is to attract more customers and generate more
revenue. In that regard, there are some clouds appearing on the horizon.

One of the darkest of those clouds is the intensity of the hype around 5G. One routinely finds 5G
being described in terms such as "revolutionary" and "transformative" in its promised effect on
people's lives and on industrial processes. The early commercial reality of 5G, though, falls far
short of that. To customers, early 5G looks much like 4G, but a bit faster. Upselling customers
purely on the basis of faster speeds is a tough challenge, as fixed-line ISPs have discovered over
the years. The main benefit of 5G in the early phases will be extra capacity in the mobile access
network. Rather than being something that attracts customers, though, extra capacity is essentially
a benefit for operators, enabling them to keep pace with the growth of data traffic in their networks
over the coming decade.

Some disappointment is already evident among early 5G customers, resulting from this mismatch
between hype about the 5G revolution, and the reality of 5G mobile broadband. In South Korea, six
months after the launch of 5G, the Financial Times reported that customers were complaining
about the poor quality of their experience, slower-than-expected network performance, and a lack
of applications for the new G. Korean operators are working to address these complaints, for
example by accelerating the development of 5G experiences such as VR that use some of the
more advanced capabilities of 5G. But it will take some time before those advanced capabilities are
available in commercial networks. In the meantime, disillusioned customers may turn against 5G,
just when 5G actually does start to look like something revolutionary.

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Commercial 5G: From Zero to Half of Western Europe in Less Than a Year
If There is a "Race to 5G," Europe is a Frontrunner
One hears a lot of talk in the mobile industry and the media about "the race to 5G." The political
establishment is also exercised about "the race to 5G," especially in the U.S. and especially with
regard to China. China is seen (with some justification) as being ahead of the U.S. both with the
development and deployment of 5G technology. This is considered detrimental to the long-term
competitive position of the U.S., on the basis that a well-developed 5G infrastructure will be a
major facilitator for building competitive economic advantage.

We generally deplore the "race to 5G" mentality, because we believe it increases the risk of
making bad decisions. However, it is important to be clear about what is real versus what is
perceived, in comparing Europe's position regarding 5G development with that of other regions. 4G
(LTE) was deployed and rolled out more quickly in the U.S. than in Europe, and there is a
widespread perception that the U.S. is ahead of Europe in 5G too. However, this is not borne out
by the facts.

South Korea is ahead of everyone in 5G — it was the first to launch a commercial 5G service (in
December 2018), coverage is being rolled out more quickly than in other countries, and the
country's 5G subscriber base is the largest in the world. But after South Korea, the U.S. and
Europe are pretty much on a par regarding time-to-market with 5G. Indeed, a good argument can
be made that Europe is actually ahead of the U.S. with the mainstream of early commercial 5G
technology; that is, 5G NR deployed in NSA mode, in spectrum in the lower part of the C band
(frequencies between 3.4GHz and 3.8GHz). The U.S. was somewhat earlier to market with
commercial 5G, but these were non-mobile deployments of 5G for fixed-wireless access (FWA)
home broadband, using spectrum in the 28GHz band, in the range referred to as millimeter (mm)
wave. A U.S. operator, T-Mobile, has also deployed 5G mobile commercially in the low-frequency
600MHz band. However, the U.S. regulator has found it difficult to make spectrum available for 5G
in the 3.4-3.8GHz mid-band, with the result that U.S. operators have been unable to exploit the
happy medium that the mid-band offers between the inferior coverage characteristics of mm wave
and the inferior capacity of low-band spectrum.

Commercial 5G in Europe Appeared Early and Spread Rapidly During 2019

In contrast with the U.S., regulators in many European countries have cleared spectrum in the 5G
mid-band, and they have licensed it to mobile operators for commercial deployment. Of the five
largest European countries, the only one in which 3.4-3.8GHz spectrum has not yet been licensed
is France, and the awarding of licenses there is scheduled to take place during the first half of
2020.

As a result of early spectrum availability, commercial 5G mobile services emerged in Europe very
quickly after its emergence in South Korea. The first European operator to launch 5G commercially
was Switzerland's Sunrise in March 2018, although at launch, Sunrise only offered 5G as a home
broadband service (but using the same 5G network as mobile 5G, not FWA in the mm wave band).
Europe's first commercial 5G smartphone service followed very soon afterward, also in
Switzerland, when Swisscom launched its 5G service plans and devices in April 2018.

©2020 IDC #EUR146160120 6

5G launches in Switzerland marked the start of a rapid proliferation of commercial 5G in Europe.
By the end of 2019, 5G smartphone services were commercially available from at least one
operator in nine of the 16 countries in IDC's "Western Europe" regional group, as shown in Figure
4. The spread of 5G was particularly noteworthy in the U.K., which was the second European
country to get 5G on smartphones when EE (owned by BT) launched its 5G service plans in May
2019. Vodafone U.K. followed a month later, and by the end of 2019, 5G was commercially
available from all four of the U.K.'s mobile operators (although Three U.K. only offered 5G home
routers until March 2020, when it launched its first 5G smartphones), as well as from the U.K.'s
largest mobile virtual network operator (MVNO) Virgin Mobile. The U.K.'s second-largest MVNO,
Tesco Mobile, followed with the launch of its 5G service plans in early March 2020. Early
availability of 5G in the U.K. was facilitated by regulator Ofcom's decision to expedite clearance of
the lower part of the 5G mid-band, resulting in the licensing of 3.4GHz spectrum to mobile
operators in April 2018. A second tranche of 5G mid-band spectrum, at 3.6GHz, is due to be
licensed during the first half of 2020.

Of the Western European countries in which 5G had not been launched by the end of 2019, almost
all were countries in which spectrum in the 3.4-3.8GHz band had not yet been licensed to mobile
operators. It is likely that operators in those countries will start offering their customers 5G soon
after they acquire licenses to that 5G mid-band, and in most cases, that is likely to happen during
2020. The main possible exceptions are Belgium and the Netherlands, where the regulator faces
particular difficulties in clearing existing usage off the 3.4-3.6GHz band so that it can be licensed to
mobile operators. Outside the Western Europe group, 5G was commercially available in only one
country at the end of 2019 — Romania, where Orange started offering 5G subscriber services in
November 2019.

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FIGURE 4

Rapid Spread of Commercial 5G in Europe During 2019

Source: IDC, 2020

European Operators' Approach to Commercial 5G Timing

The European multinational mobile operator groups have taken a contrasting approach to 5G
launch timing, driven by various combinations of spectrum availability and corporate strategy.

 Vodafone is the most advanced of the European operator groups with regard to
commercial 5G. It was among the first European operators to launch 5G, and by the end of
2019, 5G was available in five of Vodafone's European operating countries: Germany,
Ireland, Italy, Spain, and the U.K. The only Western European operating countries in which
Vodafone did not launch 5G during 2019 were those in which the 3.4-3.8GHz spectrum for
5G had not yet been licensed.
 Deutsche Telekom was quick to market with 5G in Germany, launching in its home market
in September 2019 soon after the 5G spectrum was licensed. However, DT has not yet
launched 5G elsewhere in Europe; its other operations are either in Eastern European
countries, or in Western European countries in which 5G spectrum has not yet been
licensed (DT did also launch 5G in 2019 with its U.S. operator, T-Mobile).

©2020 IDC #EUR146160120 8

  Telefónica has been in less of a hurry to bring 5G to market. It has launched commercial
5G in the U.K. from its operator O2, but Telefónica has not yet launched 5G in Germany,
nor in its home market of Spain, despite having acquired 5G spectrum licenses in both of
those countries.
 Orange has also held back from the rush to launch 5G early; its only 2019 5G launch being
the service that started in Romania toward the end of the year. In most of Orange's
European operating countries, including its home market of France, 5G spectrum licenses
have not yet been awarded. Spain, however, is an exception. Orange has licensed 5G
spectrum in Spain and it could have launched 5G during 2019, but it chose not to, despite
that fact that competitor Vodafone has launched 5G commercially there.
 Hutchison's Three group of European operators launched 5G commercially during 2019 in
Austria and in the U.K. Three did not launch 5G in Ireland, nor in Italy where it operates in
a joint venture with Wind, although 5G spectrum licenses had been awarded in both
markets. 5G spectrum was not licensed during 2019 in Three's Danish or Swedish
operating markets.
 The Nordic operators (Telia, Telenor, TDC, and Tele2) are operating some 5G networks
for trials and tests, but full commercial 5G launches have so far been confined to Finland,
the only country in the subregion that had licensed 5G spectrum to mobile operators by the
end of 2019.
The incumbent single-country European operators' position, regarding whether or not they
launched 5G commercially in 2019, has been determined by whether or not 5G spectrum licenses
were available to them.

 5G was launched commercially during 2019 by BT in the U.K. (using its EE brand), TIM in
Italy, Mobilkom in Austria (using its A1 brand), and Eir in Ireland.
 5G spectrum licenses had not been awarded in the Netherlands, Belgium, Portugal, or
Greece. Therefore, 5G has not been launched as a commercial service by KPN, Proximus,
MEO, or OTE.
Early Availability of 5G in Other Regions
Our focus in this report is on Europe, and it is not our purpose here to give a comprehensive
account of the global spread of 5G during its first commercial year. However, for the purposes of
context, we briefly note that:

 In addition to South Korea, 5G was also launched commercially during 2019 in Asia Pacific
markets including China, the Philippines, and Australia.
 5G was launched commercially by mobile operators in some Middle Eastern markets
during 2019, including Saudi Arabia and the United Arab Emirates.
In November 2019, the Global Mobile Suppliers' Association announced that a total of 50 5G
networks were in commercial operation worldwide.

Mobile Operators' Experience of Early 5G Deployment, and Near-Term

Expectations
Early 5G Equipment Performs Well, Despite the Rush to Market
As noted earlier, 5G has been brought to market early by splitting the standard into two phases,
and by accelerating the first phase to produce the 5G NSA standard in 3GPP Release 15. It is
natural to wonder whether the result of this fast-track approach, together with a more complicated
implementation, might be 5G network equipment and devices that are not fully mature, and whose
performance falls short of requirements. However, discussions with operators that we have
undertaken during the research for this report indicate that such concerns are unfounded.

©2020 IDC #EUR146160120 9

Regarding the performance of early 5G network equipment, operators' comments ranged from the
satisfied to the positively effusive.

 At the "satisfied" end of the range, one operator remarked that "there is always some effort
involved in bringing a new mobile technology on air. But with 5G, our experience has not
been significantly worse than when we rolled out 4G. There was some added complexity to
deal with because of the NSA architecture, but generally, the rollout has gone smoothly so
far. The early 5G network products have performed well."
 A still more positive view was expressed by another operator that said "in terms of the
quality of the first products, 5G has proved to be better than previous G's. We have been
rather surprised by both the speed to market and the level of maturity of early 5G
equipment, despite the fact that 5G is more complex than previous G's. It seems that the
whole mobile industry has learned from experience, to achieve shorter and improved
development cycles."
 At the "effusive" end of the range, an operator remarked that "we've found our 5G network
equipment to be outstanding. So far, we have been very happy with it, both in terms of the
experience of deploying it, and in terms of its operational performance."
The operators we spoke to included examples that are deploying 5G network equipment from all
three of the leading RAN vendors: Ericsson, Huawei, and Nokia. General satisfaction was
expressed in all three cases. Operators have been also satisfied with the experience of
interoperability between different vendors' RAN and core network equipment, stating that this has
been no more problematic with 5G than is generally the case. One operator, using equipment in
the RAN from all three vendors, remarked that "[although] some network vendors are better than
others in various aspects of their products, we are generally happy with the reliability and
performance of the three biggest suppliers' equipment."

That said, however, we also encountered — albeit not universally — a view that Huawei's 5G
equipment is somewhat ahead of the pack in terms of its advanced capabilities and features. This
view emerged rather arrestingly in the public domain in November 2018, when BT's Chief Network
Architect Neil McRae stated, on stage at Huawei's Mobile Broadband Forum in London, that "there
is only one true 5G supplier, and that is Huawei. The others need to catch up." During our research
discussions for this report, one operator commented that "in our view, Huawei is currently the
leading vendor of 5G network equipment, in terms of software features and hardware efficiency.
The other vendors have their own strengths; but overall, we think Huawei is about six months
ahead of its competitors." A vendor of telco operational software remarked that "a common theme
that has emerged in our discussions with operators is that in this early stage of availability,
Huawei's 5G RAN equipment is widely considered to be well in advance of the others, in terms of
its general maturity and readiness to deploy."

Restrictions on the Use of Huawei Threaten to Add Cost and Delay to

European 5G Rollouts
Regardless of whether or not we accept this view, it is a fact that Huawei has featured prominently
in the 5G networks that have so far been deployed commercially in Europe. Again, we note that
there are exceptions such as Orange France, which has selected Nokia and Ericsson as its 5G
RAN vendors; and Swisscom, which has exclusively deployed Ericsson equipment in its 5G RAN.
More generally, however, operators that have launched commercial 5G services are using Huawei
as one of their 5G RAN vendors. Examples include Deutsche Telekom, Vodafone, BT (EE), Three,
and Sunrise.

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That being the case, operators are concerned about the possibility that their countries'
governments might respond to the ongoing intense pressure from the U.S. government to ban the
use of Huawei (and ZTE) equipment in 5G networks. This concern partly stems from the prospect
of restricted access to what some see as the more advanced 5G RAN equipment. Mainly,
however, operators are simply concerned about the increased cost and delay to 5G rollouts that
would be incurred by requiring them replace Huawei equipment that has already been installed,
and to change their plans for future 5G network rollout.

So far, European governments have generally resisted the U.S. government's pressure to ban
Huawei. For example:

 The German government has announced that it continuously vets all network vendors'
equipment for security compliance, including Huawei's, but it does not consider Huawei to
be an exceptional risk in this regard, and it will not ban the country's telcos from buying
equipment from "any network vendor."
 The Dutch government has announced a similar position to that of the German
government. The Dutch incumbent telco, KPN, has said that it will not select Huawei as a
supplier for its 5G core network, but that it will not exclude Huawei as a supplier for its
RAN.
 French government spokespeople have stated on several occasions that they do not
intend to ban the country's telcos from using any particular vendor's equipment in their
networks. The CEO of Orange, Stéphane Richard, has been outspoken in opposing a ban
on Huawei, and although Orange has not selected Huawei for its French network "for
commercial reasons," it may do so in other countries in which it operates.
 The Norwegian government has stated that it will not ban the countries' telcos from using
Huawei equipment in their networks.
 The Portuguese government has stated that it will not ban the country's telcos from using
any Chinese vendors' equipment in their networks.
 The Spanish government has not made any definitive statements either way, but
Telefónica has selected Huawei as its 5G core network vendor in Spain. We believe it is
unlikely that Telefónica would have done that without a reasonable degree of confidence
that no ban is in prospect.
However, a partial exception to the general resistance emerged in January 2020, when the U.K.
government announced legislation prohibiting the country's mobile operators from using equipment
"from high-risk vendors (HRVs)" in their core networks, and imposing a 35% cap on the share of
equipment in the RAN that can be sourced from HRVs. Huawei 5G RAN equipment has already
been deployed extensively by U.K. operators. For example, although BT (EE) and Three have
selected multiple 5G RAN suppliers, the 5G base stations that each operator has deployed so far
have been exclusively from Huawei. More generally, in BT's mobile network, about 12,000 of the
19,000 base stations that are currently operational are from Huawei, with the remainder coming
from Nokia. Evidently, therefore, the 35% limit on Huawei in the RAN will incur additional costs for
BT. CEO Philip Jansen stated, soon after the restrictions were announced, that the government's
policy will cost the telco an estimated £500 million over the next five years.

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Regarding the core network, BT had already decided to replace its Huawei 4G core with a 5G core
from another vendor. But the U.K.'s policy, in combination with the possibility of core restrictions
elsewhere, is also having a cost impact. Vodafone, for example, uses a Cisco 4G core in its U.K.
network, but it is using Huawei core networks in some of its other European operating countries. In
anticipation of more widespread restrictions on the use of Huawei in the core, Vodafone CEO Nick
Read announced in February 2020 that the telco would be replacing all of its Huawei core
networks in Europe with core networks from other vendors, at an estimated cost of €200 million
over the next five years.

Spectrum Regulation, Cell Site Planning, and Public Health Fears Also
Impede Some Operators' 5G Rollouts
In addition to the threat of restrictions on operators' choice of vendors for their 5G networks, some
other factors are also impeding the rollout of 5G by some operators and in some countries. These
include:

 Delays in awarding commercial licenses for 5G spectrum

 Commercial difficulties in upgrading cell sites for 5G usage and in finding additional cell
sites
 Regulatory restrictions on cell site transmission power
 Growing public fears that 5G might pose a risk to human health
5G Spectrum Licensing
The 3.4-3.8GHz band has emerged as the "sweet spot" spectrum for 5G, enabling operators to
combine reasonable coverage, good capacity, and widespread availability of compatible devices.
Some parts of this band, however, have been in previous use, for example, by the military and by
the satellite industry. It has been necessary to clear these legacy users from the band before it can
be licensed to mobile operators, and in some European countries this has proved problematic. At
the end of 2019, the following Western European countries' regulators — Belgium, Denmark,
France, Greece, the Netherlands, Norway, and Portugal — had not yet awarded commercial
licenses for spectrum in the 3.4-3.8GHz band. Operators in those countries had therefore not
launched commercial 5G services.

In most cases, those countries' regulators are intending to license 5G spectrum during 2020, with
commercial 5G in those countries likely to follow soon afterward. However, band clearance has
been particularly problematic in the Netherlands and Belgium, and there is still some uncertainty
about whether 5G spectrum licenses will be awarded in those countries during 2020. For example,
at an update briefing about Orange's European business in January 2020, Orange Belgium's CEO
Michaël Trabbia said he thought it was unlikely that 5G spectrum would be licensed in his
operating country before 2021, and that he might even need to wait until 2022. He remarked that
he found this situation "really frustrating."

Commercial Difficulty in Upgrading Sites and Finding New Ones

Most European operators are aiming to incorporate massive multiple input, multiple output (MIMO)
in their 5G network deployments. By using large numbers of MIMO transmitting (T) and receiving
(R) antennae — at least 32T32R, and in some cases 64T64R — operators are finding that that they
can substantially improve both the data capacity and the coverage area of their cell sites. Some
operators, such as Orange and Vodafone, have reported that by using massive MIMO, they are
achieving the same coverage with 3.5GHz spectrum on their existing cell-site grid that were
achieving with 4G at 1800MHz.

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However, cell-site equipment with high orders of MIMO occupies more space and is heavier than
conventional equipment. In many cases, this means that the infrastructure at the site — such as
cabinets and masts — needs to be strengthened and enlarged. Such modifications require both
planning permission from the municipal authority and new commercial agreements with the site
owners. The processes of gaining approval and reaching new agreements, even if they run
smoothly, add to the lead time involved in 5G deployment. And sometimes, they do not run
smoothly.

The U.K. is an example of a European market in which operators are reporting substantial
restrictions on their pace of 5G network rollout, resulting from site-upgrade issues. Two years ago,
the U.K. government updated the Electronic Communication Code (ECC), which governs the rights
of network operators to site infrastructure on public and private land. A feature of the new regime is
to require landlords and their agents to set their cell-site rental fees according to general
commercial property benchmarks, rather than the much higher rates that have been prevalent.
However, implementation of the ECC is through bilateral negotiation between network operators
and site owners, with legal suits as the recourse if agreement cannot be reached. Mobile operators
are reporting that the effect has been that site owners and their agents simply decline to engage
with the process to stave off the prospect of large cuts in their rental income. As a result, not only
have operators not achieved reductions in their site-rental bills, they are also finding it more difficult
to modify or renew existing site rentals where the need arises. When BT launched 5G in May 2019,
for example, it announced a target of 1,500 operational 5G sites by the end of the year. However,
the number of live sites was significantly below that target at the end of 2019, a fact that BT
attributed in large part to difficulties in obtaining the necessary permissions and agreements.

Restrictions on Cell-Site Transmission Power

Mobile networks produce electromagnetic field (EMF) radiation, but they operate at frequencies
that are a long way below the threshold for the ionizing effects that can lead to cancer in human
tissue. As shown in Figure 5, ionizing effects begin at frequencies higher than those of visible light,
in the ultra-violet band. Mobile networks use frequencies that are much lower than visible light, by
several orders of magnitude.

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FIGURE 5

No Ionization by Radio Waves at Frequencies Used by Mobile Networks

Source: IDC, 2020

Although it cannot cause cancer, however, electromagnetic radiation in the mobile-network

frequency range can have the effect of heating up human tissue, if it is radiated at sufficiently high
power (such thermal effects are, for example, how microwave ovens work). Therefore, mobile
operators are subject to strict limits on the levels of power that their cell sites can use to transmit
signals. These limits are a long way below the threshold at which thermal effects from EMF
become significant, and operators' cell sites typically transmit at power levels that are well below
these limits. In a study published in February 2020, for example, U.K. regulator Ofcom tested the
transmission power on a sample of U.K. operators' 5G cell sites, and found that in all cases, power
levels were at "a small fraction" of the limits set by the set by the International Commission on Non-
Ionizing Radiation Protection (ICNIRP). The highest power level found was 1.5% of the ICNIRP,
with most of the others much lower than that.

National governments typically set even stricter limits on EMF emission power than those set out in
the ICNIRP guidelines. Most current mobile networks' power emissions are still well inside those
stricter limits — although in a few countries with exceptionally strict limits, such as Switzerland and
Belgium, capacity demands on some urban sites are starting to approach the limit. However, the
use of massive MIMO in 5G deployments could start to make current power limits more widely
problematic in Europe. The reason is that massive MIMO's capacity and coverage benefits are
achieved through beamforming (that is, by concentrating the cell-site's transmissions in useful
directions, rather than radiating everywhere). Beamforming works by using constructive and
destructive interference, which means radiating multiple transmissions that cancel each other out
when they are out of phase and reinforce each other when they are in phase. Thus, a resultant
emission that is well within the current limits could need some MIMO transmitters to emit at a level
higher than the current limit.

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Some mobile operators are currently engaged in discussions with regulators with a view of
modifying the EMF emission limits to accommodate the use of massive MIMO, without increasing
the amount of emitted power to which people are exposed. Vodafone, for example, is proposing
changes to the rules for EMF emissions in some of its operating markets, to account for the fact
that massive MIMO antennas do not broadcast the same signal strength in all directions, and it
sees these proposals gaining some traction. In contrast, some other operators — mindful of the
fears about 5G safety being expressed by a growing number of people (see below) — are not
currently pushing for a modification out of wariness about further stoking such fears. Once such
operator remarked during our research that "it would take great sensitivity and some courage for a
mobile operator to argue for higher EMF limits at present, and we have no current plans to do that."

If operators' use of massive MIMO is curtailed by the current rules applying to EMF emissions, this
could slow down the rate at which they can roll out 5G coverage and capacity.

5G Fear Leading to Restrictions on Rollout and Transmission Power

Despite the lack of evidence for any detrimental effect of mobile phone networks on human health,
a substantial number people are worried about it. There has been a marked increase in such worry
with the advent of 5G, with fears being stoked by frequent scare stories in the news media. Some
of those worried about 5G are conspiracy theorists, asserting that 5G is a tool of Chinese, Russian,
or American aggression, or linking 5G with public health phenomena such as the coronavirus
outbreak. However, a growing number of people who are far from the lunatic fringe — some of them
well informed and well educated — are expressing concerns that 5G could be a risk to their health.
As a result, operators' 5G rollouts are being impeded, as some local government authorities
respond to their electorate's concerns by ruling against the installation of 5G in their locality.

Several operators have reported that their 5G rollouts are being impeded in various ways by public
fears. Addressing such fears directly is tricky and could be counter-productive. As one operator put
it: "It's very quick and easy to trigger fears about 5G; explaining why those fears are unfounded is
more complicated and takes longer."

ADVICE FOR THE SERVICES PROVIDER

Emerging Approaches to 5G Service Marketing

5G Service Pricing: Unlimited Usage Emerges as an Early Trend
Deploying 5G involves a great deal of new investment for mobile operators. To get started, they
need at minimum to pay for new spectrum licenses, buy and install new radio-access equipment
for cell sites, and invest in marketing the new 5G services and devices. In many cases, operators
may also need to upgrade the capacity of some transport (backhaul) network links between their
cell sites and their core networks. Later on, further investment in RAN and transport equipment will
be required as coverage is rolled out, and operators will also need to invest in the new 5G core
network as they migrate from the NSA to the SA mode of deployment.

In an attempt to start getting some early return on this investment, some European operators have
tried bringing 5G to market as a premium-priced service. The premium may be direct (in the form of
an explicit extra charge for 5G service plans in comparison with 4G service plans) or indirect
(coupling 5G with the operator's higher-priced plans, such as those offering larger data allowances
or higher connection speeds).

©2020 IDC #EUR146160120 15

Other operators, by contrast, have decided not to try charging a premium for 5G, instead placing
the emphasis on 5G as a tool for customer acquisition and retention. Three in the U.K., for
example, has announced that all current subscribers will automatically have access to its 5G
service when they acquire a 5G smartphone (it is worth noting that this still has the effect of
positioning 5G as a premium service, to some extent, since the average purchase price of 5G
smartphones has so far been much higher than that of 4G smartphones).

However, a strategy that falls midway between these two extremes has emerged at a very early
stage of commercial 5G in Europe, and early indications are that it has widespread customer
appeal. In the early summer of 2019, when Vodafone launched commercial 5G, it also launched a
range of tariffs with no limit on the amount of mobile data the subscriber can use each month.
Unlimited-usage tariffs had already been seen in Europe to a limited extent from some smaller
operators, with "fair usage" limits, and as a short-term promotional tool. But this was the first time
that a large, pan-European operator offered customers truly unlimited-usage tariffs as a permanent
part of its service-plan portfolio.

Instead of a monthly data-volume allowance, Vodafone's new tariffs are tiered by connection
speed. Exact price points vary by country, but as an example, Vodafone's U.K. prices for SIM-only
24-month contract plans are:

 Unlimited Lite. £22 per month for a maximum connection speed of 2Mbps
 Unlimited. £26 per month for a maximum connection speed of 10Mbps
 Unlimited Max. £30 per month for connection at the fastest speed the network and the
customer's device can support
In practice, Vodafone's early 5G customers are likely to opt for the highest-priced Max plan, since
there would be no benefit of a 5G connection in comparison with a 4G connection on the other two
plans. Thus, we expect Vodafone's Unlimited tariffs will tend to produce an average revenue per
user (ARPU) uplift among 5G subscribers, as they are likely to upgrade to a high-priced monthly
plan to get unlimited usage with fast connection speeds. In the long term, however, unlimited-
usage tariffs may make ARPU growth more difficult. Once a customer is on a tariff with no usage
limit and no speed limit, it will be harder to offer anything extra that that customer would be willing
to pay more to get.

Early customer response to Vodafone's move indicates a lot of pent-up demand for unlimited. In its
Q1 2020 results briefing, Vodafone announced that by the end of 2019, six months after the new
tariffs were launched, it had three million customers signed up to unlimited-usage tariffs.

It is starting to look like unlimited usage might turn out to be 5G's first killer application in the
consumer market. Operators can offer unlimited usage on 4G too; and indeed, it is likely that at the
end of 2019, most of Vodafone's 3 million Unlimited customers were using 4G rather than 5G.
However, as well as reporting its customer numbers, Vodafone also reported that in the two
quarters following the introduction of its tariffs, it had seen year-on-year growth of around 60% in
the volume of data in its networks, compared with a previous run rate of around 40%. That level of
increase in usage, combined with the rapid rate of unlimited-tariff uptake, will eventually exceed
the capacity of 4G. In the long term, unlimited usage is only sustainable, as a user experience and
as a business model, with the additional network capacity and increased spectral efficiency of 5G.
Vodafone, for example, estimates that the cost of transmitting a given volume of data over a 5G
network with massive MIMO can be around one-tenth of the cost of transmitting over a 4G network.

©2020 IDC #EUR146160120 16

Service Applications of 5G
Applications of 5G NSA
5G NSA Consumer Applications
The use case that the current NSA deployments of 5G deliver is enhanced mobile broadband
(eMBB), a faster data rate in the access network — typically in the hundreds of Mbps range. This
gives the network more capacity to carry data, and as noted above, the most striking consumer
application of that benefit that has appeared so far is unlimited-usage service tariffs, which were
pushed into prominence when Vodafone introduced its Unlimited range of tariff plans. Another area
in which Vodafone sees some potential for 5G NSA revenue uplift is multidevice connectivity plans.
This has already started to happen to a limited extent on 4G, but Vodafone believes 5G makes it
sustainable and scalable in the long term. For example, it believes that having a phone, a
smartwatch, a car, and a home speaker assistant sharing the same identity and service plan is
something that many customers could be willing to pay a modest extra amount for. Further out, as
domestic Internet of Things (IoT) expands into new areas such as connected sportswear, and as
the number of connected devices grows accordingly, 5G will eventually be the only network with
enough flexibility and endpoint capacity to cope.

When we think about single applications, the most obvious example that can benefit from a faster
data rate is high-definition video. Video streaming was the main application that drove uptake of
4G in the early phase of availability, as people found that the repeated buffering and pausing that
made 3G video streaming such a frustrating experience became largely a thing of the past when
they moved to 4G. Standard-definition video works well on 4G, but 4G can start to struggle when
streaming high-definition video, especially when multiple users in the same area are doing it. The
extra capacity of 5G makes mobile networks capable of coping much better with high-definition
video, and in combination with the high-resolution screens of today's smartphones, this can enable
a more satisfying video-streaming experience, especially for content types such as sports and
natural history.

At a conference in March 2020, BT's Consumer CEO Marc Allera presented a chart showing what
applications are currently the most used by EE 4G and 5G subscribers. There is no numerical
scale on the chart, so we can draw no conclusions about absolute data values, but it is striking to
note a shift in pattern for video consumption, as shown in Figure 6. YouTube is the most-used
application among both 4G and 5G subscribers, but it is showing somewhat higher usage in 5G
than in 4G. Netflix is the fourth most-used application by 4G subscribers, but it is the second most-
used application among 5G subscribers. This suggest that there is:

 More streaming of high-definition video by 5G subscribers than by 4G subscribers

 More streaming of long-form content by 5G subscribers than by 4G subscribers
It is likely that the latter shift is associated, at least in part, with the unlimited-usage tariffs that
BT/EE introduced in August 2019, enabling subscribers to stream long videos without being
concerned about using up their monthly data allowance too quickly.

©2020 IDC #EUR146160120 17

FIGURE 6

Long-Form Video Streaming More Common Among 5G Subscribers than 4G

Subscribers for BT

Source: BT, March 2020

5G NSA Enterprise Applications

So far, it looks like the principal role of 5G in the consumer market will be to maintain current rates
of growth in mobile operators' mobile data connectivity revenues. 5G will play the same role in the
enterprise market, but its capabilities also promise new applications that it has been difficult or
impossible for previous generations of mobile technology to support. Thus, in addition to growing
current revenue streams, 5G promises to create new streams of revenue from enterprise
customers. During 2019, we published a series of reports detailing the current and potential
applications of 5G in five industry verticals: automotive, energy, manufacturing, healthcare, and
government (a list of the document references for each can be found at the end of this report,
under Related Research).

Some of these vertical applications of 5G require the advanced capabilities of future 5G SA

deployments, as we shall detail in the next section. Other vertical applications, however, rely only
on high-speed data transmission, and so they can be supported at least to some extent by the 5G
NSA services that are coming to market now.

An example is given in Figure 7, which shows applications of 5G that we have identified in the
healthcare sector. In this sector, major benefits can be derived from the ability of workers to
engage in real-time videoconferencing with their colleagues and with their patients. The nature of
the healthcare sector means that such conferences will often need to take place over the mobile
network (for example, between paramedics attending the scene of an accident and hospital-based
colleagues). Such scenarios will also frequently benefit from the ability to exchange high-resolution
images of sufficient quality for medical diagnosis. This can enable hospital-based specialists to
help colleagues in the ambulance to assess the patient's condition and begin emergency treatment
immediately, while in transit from the accident scene to the hospital. These applications do not rely
on ultra-low-latency or guaranteed network performance; their only essential requirement is the
high data-throughput rates that 5G NSA can deliver.

©2020 IDC #EUR146160120 18

Organizations in the healthcare sector can derive another set of major benefits from applications
that support cost-effective examination and treatment of patients in their homes, rather than
requiring them to visit a clinic or a hospital. Implemented effectively, this can achieve both lower
operational costs and higher quality of care simultaneously. Remote biometrics, video
consultations, and even mobile clinics can all be supported solely by the high data-throughput
rates of 5G NSA.

FIGURE 7

Vertical Applications of 5G NSA: Healthcare Example

Source: IDC, 2020

Perhaps the most important enterprise application of 5G NSA is site connectivity. This is an
application class that offers great potential benefits not only in healthcare, but also in several other
verticals including manufacturing, energy, and logistics. 3GPP technologies used in public mobile
networks can offer enterprises several advantages for site connectivity, in comparison with
traditional enterprise networking technologies. These include increased flexibility, higher reliability,
higher capacity, and a reduction in the number of network access points required.

©2020 IDC #EUR146160120 19

The idea of using 3GPP public cellular network technologies in private enterprise networks has
been around for several years, but over the past 12-18 months, private cellular networks have
become a hot topic in the telecom industry and a fast-growing market opportunity. This new
impetus is partly the result of the technology developments of 5G. But it is also being driven by
regulatory moves in various parts of the world to give private enterprises greater access to radio
spectrum that can be reserved for their own use. The most extreme example of this is the decision
of the German regulator, BNetzA, to reserve 100MHz of 5G radio spectrum for private licensees,
rather than public network operators. Several German manufacturers have already expressed their
intention to acquire private spectrum licenses, including Siemens, Bosch, and Volkswagen. Other
regulators, such as the one in the Netherlands, are considering following the German example.
Others, such as the ones in the U.S. and the U.K., are developing somewhat different measures
aimed at achieving similar effects.

A growing number of private enterprise networks are both trialing and adopting cellular technology
in their private networks, in sites such as manufacturing campuses, airports, seaports, and mines.
These private cellular networks are mostly 4G or LTE at present, but they are increasingly
encompassing 5G too. Thus, not only is private LTE (4G) a substantial telco opportunity in its own
right; it is also an important on-ramp for site connectivity applications of 5G, as we show in Figure
8.

FIGURE 8

Private Cellular for Site Connectivity: An Important 4G Opportunity, and an On-

Ramp for 5G

Source: IDC, 2020

©2020 IDC #EUR146160120 20

Telefónica was one of the first European telcos to bring private 4G to market as a distinct line of
business, as detailed in our report Private LTE: An Alternative for Wireless Enterprise Networking
(IDC #EMEA44198418, August 2018). In its current NSA phase, Telefónica also sees "private
campus networks" as the most important use case of 5G in the enterprise market. Essentially an
evolution of private LTE, these campus networks are expected by Telefónica to support
applications such as trunking communications replacement, robotics, and automation of the whole
value chain in sectors such as mining and manufacturing. Other telcos, including Deutsche
Telekom and Vodafone, are now also devoting considerable resources to developing private
cellular networks as an early new-application opportunity for 4G and 5G NSA.

Recent examples of 5G-specific private cellular activities include the following:

 In December 2019, Siemens announced that it had implemented a private 5G test network
in partnership with Qualcomm. The network is installed in Siemens' Automotive Showroom
and Test Center in Nuremberg. Applications of the network include operation of automated
guided vehicles (AGVs), and development & testing of new manufacturing methods.
 In December 2019, Deutsche Bahn awarded Nokia the tender for testing the use of 5G for
automated rail operation in Hamburg. Activities mediated by the 5G network will include
driverless shunting of empty trains, and the exchange of data between trains and trackside
equipment by 5G radio. The project is part of DB's S-Bahn initiative for increasing the level
of automation used to operate the railway.
 In January 2020, Swisscom announced the successful testing of a private 5G network at
the 2020 Youth Olympic Games in Lausanne. The network was used to connect all media
production equipment at the event venue.
 In February 2020, Vodafone Germany and Lufthansa announced the installation of a
private 5G network in one of Lufthansa's aircraft hangars in Hamburg. Applications being
tested include tablet access to AR and VR visualizations of cabin interiors
Applications of 5G SA
The 3GPP standards for 5G SA and the 5G core are in Release 16, which is due to be frozen at
the end of March 2020 and completed in the following June. After that, large-scale production of
compatible equipment can begin, following which operators can start installing 5G in the core and
moving toward the SA phase of 5G deployment. At present, it looks like European operators will
begin to do this in 2021. One vendor of 5G core software tells us that experience with their
operator customers indicates that Korea will lead the way with SA, followed by China and North
America, with European operators generally following 6-12 months later. That said, however, there
are some European operators that have described to us their ambition to start testing 5G SA
before the end of 2020 if they can, especially those with a strong focus on enterprise vertical
applications of 5G.

The distinctive new capabilities that will be enabled by 5G SA are:

 Ultra-reliable/low latency communications

 Massive machine-type communications
 Guaranteed service performance, through network slicing
5G SA Consumer Applications
There are some consumer-oriented applications that can benefit from these advanced capabilities,
but it is not yet clear whether these applications will have mass-market appeal, or whether
consumers will be willing to pay substantially more money for them.

©2020 IDC #EUR146160120 21

The most widely touted consumer applications of URLLC are:

 Online gaming. When people are interacting with other players in an online game, it is
often very important that when they take an action, the response should be instant. For
example, if you are shooting at a moving target, the timing of the shot is crucial — if there is
any delay between pulling the trigger and the shot being fired, you will miss the target. For
that reason, high network latency, or "ping" as gamers call it, is the bane of an online
gamer's life. Current mobile networks certainly cannot deliver "ping" at sufficiently low
levels to enable instant response, and fixed-line/WiFi networks often fail to deliver it too. In
principle, therefore, the URLLC service of 5G SA could be used by operators to deliver the
"low ping" connectivity that online gamers are demanding, and that at least some of them
would pay a premium for. Vodafone, for example, has run some focus groups with gamers,
with results indicating sound understanding of the value of low-ping connectivity, and
willingness to pay extra for it.
 Online virtual reality (VR). VR users inhabit a virtual environment, but they only see the
part of that environment that is within their field of vision. When they move their heads,
their field of vision moves to a different part of the environment, and the virtual scene that
is being displayed to them must shift accordingly. If there is a perceptible delay in that shift
taking place, the user will soon start to experience motion sickness. Therefore, if the virtual
environment is being sourced and rendered online, the network supporting it must deliver
sufficiently low latency for the scene to shift instantly in response to head movements. As
with online gaming, current mobile networks cannot do that, and fixed-line/WiFi networks
often struggle. Therefore, as with online gaming, there may be a market for a premium
low-ping connectivity service among online VR users. The difference is that both gaming in
general and online gaming in particular are already large, well-established markets. By
contrast, although VR has grown in appeal in recent years, it is still not clear that it will ever
be a mass-market phenomenon, in either online or offline mode.
In discussions about potential consumer applications of 5G SA, it is common to hear VR bracketed
with augmented reality (AR). But the need for ultra-low latency is not so generally clear with AR as
it is with VR. Pokémon Go —which enjoyed a brief vogue a few years ago — was a genuine AR
application, with virtual content overlaid on real-world content, and it did not require ultra-low
latency nor even a 5G network. Some particular AR applications may emerge that would benefit
from ultra-low latency, but as a class of applications, we do not include AR among those that are
enabled by 5G SA.

At present, it is far from clear whether online gaming or VR will be mass-market applications of 5G
SA either. Mobile operators in South Korea, which has the world's largest 5G subscriber base, are
currently working on 5G VR applications that they hope will counter the dissatisfaction expressed
by some early 5G customers about the lack of distinctive experiences enabled by 5G. For
example, in November 2019, SK Telecom launched its "Virtual Social World" service. Developed in
partnership with Facebook, Kakao, and Nexon, the service enables users to "meet" and interact
with each other in an online virtual space. However, it is not yet clear whether new services like
Virtual Social World will gain widespread uptake in South Korea, nor is it clear that if the service is
successful in South Korea, it will be successful elsewhere too. South Korean mobile customers
frequently exhibit very different tastes and preferences from those of typical European customers.

Another South Korean operator — KT — launched "5G Streaming Game in December 2019,"
offering subscription plans that provide access to cloud gaming provider Ubitus' library of around
100 titles. This service could prove to be a precursor of gaming as an important application area for
5G in the consumer market. Gaming has also featured in the 5G launches of some European
operators. The U.K.'s EE, for example, included a "Gamer's Data Pass" as one of the optional
extras in its 5G service bundles, and the operator partnered with Niantic to offer its customers
exclusive access to the Experience Harry Potter: Wizards Unite game.

©2020 IDC #EUR146160120 22

But despite the established popularity of online gaming and the ability of 5G to improve the online
gaming experience, there are also some question marks about whether low-ping gaming
connectivity will be a successful mass-market application of 5G SA. Leaving aside the question of
unproven willingness to pay a premium, there are also some functional issues that could stand in
the way of success. Latency below 10ms can only be achieved by playing on a nearby server:
network signals cannot travel faster than light, so for 10ms latency, the gaming server must be less
than 150km from the player. Therefore, for gamers there is a trade-off between ultra-low ping and
the scope of player matchmaking. As the radius of usable server locations gets narrower, the
number of people who are available to play with gets fewer.

5G SA Enterprise Applications
European operators generally believe that the greatest potential for new revenue-generating
services based on 5G SA lies not in the consumer market, but in the enterprise market. The
advanced network capabilities enable enterprises to use the mobile network for things that are not
possible today:

 URLLC enables applications that rely on instantaneous response to actions mediated by

the network. This opens up enterprise applications in two major areas:
 Remote command & control of a wide variety of equipment such cranes in seaports
and goods-moving vehicles in warehouses
 Automation of facilities such as factory production lines, with the ability to use AI for
controlling the response to irregular events
 MMTC expands the number of devices that can be connected to a single cell site, from the
thousands (or at most, tens of thousands) that 4G sites can handle, to hundreds of
thousands. This opens up the potential for high-density Internet-of-Things applications,
and also for the co-location of multiple IoT applications in smart-city-type scenarios. For
example, smart street lighting, smart road signs, smart parking, and smart waste
management could all use the same cell site for connectivity.
 Network slicing enables operators to create multiple virtual instances (or "slices") of the
physical network, each slice having its own defined set of performance parameters
according to the needs of the application it supports or of the customer who paid for it.
Thus, mobile networks can become a viable medium for connecting mission-critical
applications, and mobile operators can offer enterprises service-level agreements based
on minimum guaranteed performance characteristics.
We have described in detail the applications of 5G SA in five different industry verticals in a series
of reports published during 2019. The document references can be found under Related Research
at the end of this report. Some examples of applications that are enabled by the capabilities of 5G
SA include:

 Automotive. Vehicle autonomy of various degrees, and centralized traffic management

 Energy. Remote-controlled exploration and extraction operations, automated and remote-
controlled inspection of distribution infrastructure
 Manufacturing. Control of production lines and mobile robots, tracking/monitoring products
during production and after shipment
 Healthcare. Remote control of therapeutic and operational equipment, training with VR and
haptic simulation
 Government. Traffic-flow optimization and control; large-scale, multi-application smart city
installations

©2020 IDC #EUR146160120 23

One reason some operators are interested in starting early with SA and the 5G core is that without
a deep understanding of their enterprises customers' business processes, it is hard for telcos to
anticipate their customers' needs in detail as they proceed with business-transformation projects.
One way to address that is for telcos to make 5G technology available to some of their more
advanced customers, and then see what they can do with it. At present, that requires physical
private infrastructure, and the 5G core can facilitate such installations by making deployment of the
cellular core less cumbersome and costly. 5G radio and core can be deployed on enterprise
premises side-by-side with the telco network, so that the enterprise can put its own workloads on
the private 5G infrastructure and have them interact with the telco's 5G network. Later on, as
network virtualization becomes more widespread, deployments can be made easier still by
implementing private networks virtually, instead of physically, as a network slice.

Site connectivity, which as we noted earlier is feasible with 4G and 5G NSA, can be made wider in
scope once 5G SA starts coming on stream. 5G can also make site connectivity a more
economical proposition for operators. In the view of at least one European telco, although private
cellular networks are possible to a limited extent with 4G, they only become economically viable at
scale through the increased efficiency of 5G networks. This is mainly because of the properties of
a distributed core network, which is challenging in the 4G architecture, but which is inherent in the
5G core design. To provide the capabilities of a private network, with high availability and without
expensive redundancy, a telco needs local control of the user plane. Today, robust SLAs for
availability can only be achieved by using physical redundancy in the network, which is a very
expensive proposition. With 5G SA and the 5G core, the cost of supporting SLAs can be made
much lower.

A more advanced "horizontal" application of 5G SA is envisaged by Telefónica, which believes

network slicing will enable the development of "b2b2x" platforms. In Telefónica's conception,
applications will be developed on this platform both by Telefónica and by third parties, with
specialized classes of experience for different use cases. This could encompass multiple verticals
such as mining, energy, manufacturing, transportation, and retail. In this scenario, cross-industry
collaboration extends the value chain, giving Telefónica opportunities to provide not only the
network and the connectivity, but also the whole ICT proposition with associated services. An
example of the possibilities (albeit not the technical implementation) can be seen in an application
that Telefónica has developed for mining and oil extraction, which can be sold with Telefónica's
connectivity and professional services as a total package, either directly or through a third party —
the middle "b" in b2b2x. Telefónica is already working with customers to test additional use cases
such as cloud gaming, remote medical practice, predictive maintenance, and remote diagnostics.
However, Telefónica believes that the full realization of this scenario is probably 3-5 years in the
future. Operating network slices on that scale with low latency will require network virtualization,
automation, and edge distribution in the OSS and BSS.

Case Studies: U.K. Operators' Experience of Early Commercial 5G

As noted earlier in the report, the U.K. was one of the first countries in Europe to bring 5G services
to market as a commercial proposition. All four of the U.K.'s mobile operators, as well as the U.K.'s
two biggest MVNOs, are now offering their customers 5G devices and services. We interviewed
three of the U.K.'s mobile operators during the research for this report: BT (which is marketing 5G
through its EE brand), Three, and Vodafone. In this section, we present case studies of these
operators' early experiences in deploying and marketing 5G

©2020 IDC #EUR146160120 24

BT (EE): Early Experiences of Commercial 5G
Early Experience of 5G Rollout
So far, EE has been very happy with the experience of deploying its early 5G network equipment,
and with its operational performance. Typical 5G downlink data rates are in the 400-500Mbps
range. EE's network uplink can be either 4G (LTE) or 5G (NR), but not both. At present, NR uplink
is achieving about 20-30Mbps, LTE uplink is achieving up to 80Mbps. This constrained uplink
performance was one of the necessary compromises that the industry incurred by splitting the 5G
standard into NSA and SA phases.

EE has found the cost of rolling out 5G considerably higher than with 4G at a comparable stage of
deployment. However, that is not because 5G is inherently more expensive, but because EE's
circumstances made 4G deployment unusually low-cost for the operator. EE's 2G network was
deployed solely in the 1800MHz band, and thus its first 4G deployments were entirely on existing
sites, on existing antennas and in existing spectrum. If EE's 4G deployment costs had been more
typical, it they would have been roughly equivalent to the cost of deploying 5G now.

Network Vendors for 5G

At present, EE's 4G network is split between Huawei and Nokia. Huawei supplies the RAN on
12,000 sites in what EE deems to be high-capacity areas. Nokia supplies the remaining 7,000 sites
in less densely populated areas. Nokia was introduced as a second supplier about two years into
EE's 4G rollout, at the behest of EE's then-owners France Telecom and Deutsche Telekom. At the
end of 2019, all of EE's operational 5G sites were using RAN equipment sourced from Huawei, and
built on existing Huawei sites, because they are the high-capacity sites. EE is also trialing Nokia
5G RAN equipment at some of its higher-capacity Nokia 4G sites. The U.K. government's January
2020 decision to impose a 35% cap on Huawei's share of the RAN in three years is likely to affect
EE's choice of supplier mix for further 5G rollout, though it is not yet clear exactly how.

As far as the 5G core is concerned, BT announced around a year ago that EE would be replacing
its Huawei-supplied 4G core (EPC) with a 5G/dual core from a different supplier. The RFP for the
5G core is currently in progress. Since the 5G core will have a cloud architecture, contenders for
the 5G core business include some non-traditional vendors such as Canonical. However,
traditional vendors are more likely to be used for the "heavy lifting" components, like the ones that
replace the HSS. At present, the HSS in EE's "EPC plus" — the part of the EPC that is carrying
EE's 5G traffic — is sourced from Nokia.

5G NSA Commercialization and Marketing

One of the early service applications of 5G is for home broadband connectivity, commonly referred
to as FWA. EE has already had a good deal of success with using 4G for FWA, as an alternative to
fixed-line access in areas where the 4G network is lightly contended. 4G FWA is being used as a
permanent broadband solution in rural areas where there is no good fixed-line service, and
elsewhere, for customers who want more flexibility than fixed-line can provide, such as students
and short-term renters. Access data rates are typically in the 30Mbps range.

5G rollout is not being specifically planned with FWA in mind — it is primarily to provide a layer for
widespread mobility. But 5G is also likely to be used to offer FWA, although the extent and location
of the 5G coverage footprint means that it is unlikely to be a significant rural-connectivity
proposition for several years. It could be attractive at an earlier stage for urban customers who
want flexibility. The higher data rates of 5G might also make it an attractive alternative to fixed-line
in urban and suburban areas where fixed-line provision can currently offer nothing faster than 30-
40Mbps.

©2020 IDC #EUR146160120 25

EE has already been trialing 5G home broadband in this scenario with a few customers in
Birmingham, and they are typically experiencing data rates in the 60-100Mbps range, at least twice
as fast as what their fixed-line service was providing.

However, although EE sees good potential for FWA, smartphone connectivity is by far the most
important application for 5G in its early commercial phase, as it was for 4G. One of the factors that
EE believes is needed to boost 5G uptake is more affordable 5G smartphones. At present, 5G
devices start around the £500-600 mark, which is not what most customers would consider
"affordable." The newer chipsets that are now emerging, with integrated RF, will help to make
progress in that direction.

Another issue that needs to be overcome is that so far, most of the 5G smartphones on the market
are from brands such as OnePlus, Oppo, and Xiaomi, which appeal largely to the more tech-savvy
niche segments. It will be important for operators to get a good range of 5G devices from the most
popular brands, which in the U.K. means Samsung, Huawei (still very popular, despite current
concerns about access to Google services), and Apple. Apple will play an especially important role
for EE, because over 50% of EE's subscriber base is using an iPhone. That percentage has been
reducing somewhat; but the Apple user base remains very brand-loyal, and it is likely that most of
EE's iPhone customers will not subscribe to 5G until a compatible iPhone is available.

When it launched 5G in May 2019, EE stated that it intended to market 5G at a premium over 4G,
at the level of roughly £5 per month. The entry-level 5G launch tariff, including the Oppo
smartphone, was £150 upfront plus £54 per month for 10Gb of data. The top-end tariff, including
the OnePlus smartphone, was £10 upfront plus £74 per month for 120Gb of data. Contract duration
is 24 months and all tariffs include Anytime Upgrade and "swappable benefits" such as BT Sport
passes and charge-free roaming.

EE launched its unlimited-usage plans in August 2019. Most of EE's 5G users are taking an
unlimited-usage tariff, so the Technology team is now having to ensure that the capacity of the 5G
network continues to keep pace with the extra volume of data traffic generated. Despite the rapid
rise to prominence of unlimited-usage tariffs in the U.K., EE intends to retain its 5G premium, and
to make that premium "absolutely stacked with value" such as roaming and sports content.

Regarding the prospects for uptake, one encouraging sign that EE is seeing is feedback from
customers who have taken a 5G plan, to the effect that "it's a new two-year plan, and I know that
5G is coming." People are keeping their devices for longer now, with device tenures typically
outstripping plan tenures, so this long-term view of plan choice bodes well for 5G uptake.

Views and Prospects for 5G SA

EE's plan for the rollout of 5G SA is to have SA capability trialed and delivered in 2021, and in
commercial operation in 2022. The plan is to dual-run SA with the current Option 3 NSA to avoid
having a 5G service that is only available to certain users — although even then, a SIM-swap will be
needed to get access to SA.

The main driver for deploying SA is to migrate to a mobile cloud core, which in turn is being driven
mainly by the promise of reducing costs. Nevertheless, BT will also want to monetize the
investment in SA and the 5G core through new and improved end-user service propositions. The
focus is likely to be on two primary benefits that are expected: low latency and network slicing.
That said, in the early phase of SA, latency reductions will not be as radical as some people are
expecting. For consumer applications, latency is unlikely to go any lower than the 17-18ms mark. It
may be that there are some popular new applications enabled by latency at that level, such as low-
ping gaming, but the question is currently moot.

©2020 IDC #EUR146160120 26

Lower levels of latency around the 10ms mark, achieved through URLLC, will likely incur a
shrinkage in coverage of around 10%, which would exacerbate the already substantial edge-
related cost of rolling out latency at that level on a national basis. However, for some enterprise
applications, a more localized deployment of URLLC could suffice. Therein might lie the key
benefit of SA and the cloud core, from the perspective of customer services: getting a remote core
and virtual network functions into an enterprise customer at a single location, or a small number of
locations.

Regulatory Influences on 5G Deployment

Spectrum
EE's early commercial launch of 5G has been enabled, in part, by Ofcom's prompt clearing and
licensing of 3.4GHz spectrum in April 2018. Ofcom intends to license more mid-band 5G spectrum,
at 3.6GHz, as well as some low-band 5G spectrum at 700MHz, during H1 2020. In EE's view,
Ofcom has done very well to get so much spectrum cleared for 5G mobile use, especially the
80MHz of spectrum that will be licensed in the 700MHz range. That coverage band is especially
important to EE because, unlike competitors Vodafone and O2, it has no 900MHz spectrum,
having entered the U.K. market in the mid-1990s well after 900MHz was licensed.

In addition to licensing new spectrum, EE will be refarming spectrum from legacy networks for use
in 5G (and 4G). The operator has already announced its intention to switch off its 3G network in
2022, although there may be challenges in achieving that owing to EE's network-sharing
agreement with Three. Refarmable spectrum will be a useful outcome of the shutdown, but the
main driver is cost savings, through simplification of the overall network, and through avoiding the
increasingly expensive maintenance of the 3G network, owing to the growing scarcity of necessary
parts and materials. In some cases, network engineers are now having to use refurbished
components from other networks. For the 2G network, 2025 has been provisionally set as the
switch-off date, though this is still subject to change.

Other Regulatory Issues

EE has found it difficult to meet the target of 1,500 operational 5G sites by the end of 2019 that it
announced at launch. The main reason has been difficulty in reaching satisfactory site-upgrade
agreements with landlords following the 2017 updating of the Electronic Communications Code
(ECC), which governs the rights of telecoms network operators to maintain infrastructure on public
and private land. From EE's perspective, the new ECC's unintended consequence has been an
almost complete standstill on progress with site providers, because landlords and agents have
been refusing to engage with the ECC as a way to avoid big reductions in their site rental fees. EE
also acknowledges that in some cases where it has sought immediate rent reductions, this has
partly exacerbated the issue.

EE would prefer to build its 5G infrastructure optimally from the outset, with 64 x 64 MIMO in the
RAN, but that requires additional infrastructure that changes the appearance of the site and
requires more space, requiring new planning permissions and site agreements. Because these
agreements have been difficult to obtain quickly, EE is deploying a lot of 8 x 8 MIMO. Further
upgrades to those sites will be needed in 2-3 years to get the extra capacity of 64 x 64. This was
judged to be the most efficient approach, because it enables more site deployment in the early
stages, and because in three years the 64 x 64 equipment is likely to be smaller and perform
better.

©2020 IDC #EUR146160120 27

Regarding current regulations on mobile site deployment:

 Restrictions on mast heights are not a problem yet, because 5G sites are mostly being
built on rooftops at present. In 2-3 years though, it may be necessary to look again at the
upper limit on height to achieve sufficient coverage efficiency and accommodate site
sharing. EE considers 25m to be a reasonable limit for rural areas.
 Electromagnetic field (EMF) emission levels are becoming more of an issue in site
planning now. Landlords and site providers are routinely asking to see EE's drawings for
features such as exclusion zones, which rarely used to happen. In EE's view, this is partly
the result of the 5G health-scare stories that are circulating both informally and in the
established news media. EMF emission limits are already having some impact on network
rollout. For example, there a quite a few three-sector sites where not all three of those
sectors are live for 5G, because the required exclusion zone was not achievable.
Vodafone: Early Experiences of Commercial 5G
Note: This case study refers to Vodafone Group, as well as Vodafone's U.K. operating company.

Early Experience of 5G Rollout

The process of getting 5G operational and bringing it to market as a commercial proposition has
gone smoothly for Vodafone so far. As with previous new G's, the early-stage technology has
some aspects of immaturity, but in terms of the quality of the first products, Vodafone has found 5G
to be better than previous G's, despite the fact that 5G is more complex than previous G's.

Another aspect in which Vodafone's early 5G experience has been better than previous G's is the
simultaneous availability of network equipment and end-user devices. 3GPP Release 15 was
completed and frozen in December 2018, and in February 2019, Vodafone carried out its first
smartphone-to-smartphone call on a live 5G NSA network. This is the first time that phones have
been available before the network was available.

Network Vendors for 5G

Generally, Vodafone has been happy with the reliability and performance of network equipment
from the "big three" suppliers (Ericsson, Huawei, and Nokia), all of which are being used in
Vodafone's 5G networks. In the future, however, Vodafone is interested in bringing in some other
suppliers — not because of shortcomings in the incumbents' technology or delivery, but because it
would like to foster faster innovation and ensure vendor diversity. With three incumbents more-or-
less in equilibrium, innovation becomes incremental.

Samsung has been pushing to increase its RAN market share with 5G. A few years ago, Vodafone
set up a trial with Samsung in Turkey for single-RAN 4G, which was technically successful, but
which did not result in a commercial relationship. Vodafone is looking again at Samsung now, and
in November 2019, it announced that Samsung had won an RFI for work on a 5G Open-RAN
design — the requirements of which included software running on x86-based processors, support
for open interfaces and O-RAN, and membership of the Telecom Infra Project (TIP).

Interoperability between different vendors' RAN and core equipment is working satisfactorily,
although it is inevitably something of an overhead. It is not possible simply to connect them
together and have them work; but the interfaces are standardized, and after some lab testing and
field-testing work, operational interoperability can be achieved. Vodafone considers this process to
be far preferable to the alternative of a single-vendor network.

©2020 IDC #EUR146160120 28

In the specific case of NSA, in which the 5G RAN interoperates with the 4G core, Vodafone U.K.
has a Cisco 4G core, which is switching traffic from Ericsson, Huawei, and Nokia base stations; but
this did not cause Vodafone to launch 5G any later in the U.K. than in Spain, Italy, or Germany.
Problems arise not from mixing core with radio, or even transport with core and radio; but rather,
from mixing the radio unit with the baseband, or the hardware with the software, from different
vendors. It is in order to improve interoperability in situations like this that Vodafone is pursuing
interest in initiatives such as Open RAN.

5G NSA Commercialization and Marketing

Vodafone launched 5G as a commercial proposition during the summer of 2019 in five European
markets: Germany, Ireland, Italy, Spain, and the U.K. Vodafone stated that it will not charge any
price premium for 5G in comparison with its 4G services. Instead, Vodafone coupled its 5G launch
with the launch of its unlimited-usage tariffs, in which the price tier is determined by a maximum
provided data rate, rather than by a fixed-volume data usage allowance. The highest-priced tariff
provides the maximum speed that the network and the customer's device can support. Thus, in
practice, 5G has been tied to the most expensive tariff. This is how Vodafone expects to achieve a
revenue uplift from new 5G subscribers.

Without 5G, Vodafone doubts that its Unlimited tariffs would have been sustainable as a long-term
proposition. On the economic side, 5G dramatically lowers the cost of data transfer. Comparing all
data over 5G (with massive MIMO) versus all data over 4G, Vodafone believes 5G reduces the
cost of transfer to about one-tenth of the cost of 4G. 5G also makes Unlimited sustainable in terms
of the end-user experience, by providing a larger amount of capacity in the network to support both
growth in the Unlimited subscriber base, and in the amount of data that each Unlimited subscriber
uses.

Another area in which Vodafone sees potential for 5G revenue uplift is multidevice connectivity
plans. This is also something that can happen (indeed, is happening) without 5G, to some extent,
but that 5G makes sustainable and scalable in the long term. In this scenario, the service provider
moves toward marketing and supporting complete solutions, not just connectivity plans. In some
cases, Vodafone can be the customer-facing solution provider; in others it would make more sense
to partner with another player that is the solution provider. The most efficient approach would be to
provide solution providers — sportswear manufacturers, or home security companies, for example
— with a platform upon which they can build, integrate, and provision their service propositions,
leaving things like connectivity and roaming management to Vodafone.

In Vodafone's view, home broadband is not a particularly important 5G opportunity. It is doing

some fixed wireless access opportunistically, on a per-market basis, in places where it's difficult to
build fiber both now and in the future. But FWA is unlikely to become a general offer from
Vodafone.

Views and Prospects for 5G SA

With the advent of 5G SA, ultra-reliable/low latency communications (URLLC) applications start to
become technically feasible. Ultra-low latency is often taken to mean sub-10ms, but Vodafone
sees a sweet spot in the 10-20ms range which does not require huge numbers of edge sites in the
network, but which still enables important new applications that cannot be done today. One
example could be end-user devices that run their processing and graphics rendering in the cloud,
in a new manifestation of the thin-client concept. This could be quite economical to deliver — rather
than needing thousands of edge sites, in Europe, Vodafone believes it could be done with just a
few dozen edge sites per county. This would enable, for example, augmented reality glasses to
become lighter and more comfortable. However, this scenario is several years from becoming a
mass-market possibility, because it relies on widespread coverage as well as low latency.

©2020 IDC #EUR146160120 29

Vodafone also sees possibilities for whole ecosystems of devices and applications to be unlocked
by URLLC in the home as well as on the move. Gamers, for example, are frequently dissatisfied
with the impact of high latency — or "ping" — on their gaming experience. Vodafone has run some
focus groups with gamers that indicated good understanding of the value of a connectivity service
with guaranteed low ping, and willingness to pay quite a large amount of money for it. As 5G SA
matures and as coverage grows, it will be increasingly possible to provide customers with better
latency on the mobile network than their home broadband, leading gamers to play more on their
mobile devices and less on their home consoles (one reason why small screens can be preferable
to large screens for gaming is that they refresh more quickly).

Virtual reality in general, beyond gaming, is another potential consumer application of 5G SA.
There is an emerging phenomenon referred to as "social telepresence," in which participants in
different locations can interact as if they were present in the same place, using technology such as
holograms rendered in eyewear.

The 5G core will enable operators to organize these things in a way that will scale. The 4G EPC
can only support a few separate propositions, but the 5G core will be able to support a large
number of low-latency cases, each of them marketed in a different way. People might pay, say €5-
€10 per month for each of smartphone-as-a-service, low-latency gaming, telepresence, and so on.

Vodafone has no firm timeline yet for deploying 5G SA and edge computing, but it believes that it
may be possible to start in late 2020 or early 2021. A major factor determining the feasibility of
early deployment will be the availability of SA-compatible devices. However, Vodafone will be
unlikely to promote 5G SA per se as something distinct from 5G NSA in customer marketing.

Regulatory Influences on 5G Deployment

Spectrum
Vodafone believes that the best way to roll out 5G, at least in dense areas, is with massive MIMO.
That requires big blocks of spectrum in the 3.4-3.8GHz band, investing in which is generally
worthwhile because the lower cost-to-carry is very attractive. It is also necessary to have some
mid-band or low-band compatible with NR for the uplink, because that will be needed once 5G SA
deployments commence. Dynamic spectrum sharing (DSS) can help to make this transition
smooth, although it's not a panacea because it has an associated capacity overhead, which will be
more significant in low-band than in mid-band spectrum.

The ideal solution would be a low band dedicated to 5G. Thus, the 700MHz spectrum that is
currently being licensed to mobile networks in Europe is likely to be a de facto 5G band; although
in countries where 700MHz is already available, like Germany, there will be a short-term case for
deploying 4G because few 5G terminals are in use, and 700MHz has good potential to provide
extra capacity in areas where there is congestion on 800MHz.

Millimeter-wave spectrum is not viable for wide area coverage, in Vodafone's view, but it has good
potential for hotspot capacity, as well as for stadiums and campuses. Vodafone is already investing
in mm wave spectrum, having licensed some in the 2018 Italian auction, and it will be investing in
mm wave elsewhere as it becomes available. One good thing about mm wave is that there is
already some device support for those high-frequency bands, because U.S. carriers have required
it for their service deployments.

©2020 IDC #EUR146160120 30

Other Regulatory Issues
Planning permissions and the agility to deploy are becoming an increasingly important factor
governing 5G rollouts. For the first time in about 30 years, operators' antennas are changing form
factor, because massive MIMO tends to require a stand-alone antenna. The changed appearance
and extra space required often mean that new planning permission is required for existing sites,
which can introduce significant delays in rollout.

Vodafone is also proposing some changes to the rules for EMF emissions to account for the fact
that massive MIMO antennas do not broadcast the same signal strength in all directions. Rather,
they concentrate the signal strength in certain directions. It believes these proposals are gaining
some traction.

Three UK: Early Experiences of Commercial 5G

Early Experience of 5G Rollout
Three believes that its experience of deploying 5G in this early stage of the technology is an
encouraging indication of how mature the whole industry has become. Agreeing the standard and
producing the equipment have happened more quickly than in previous generations, and the
performance of the first available network equipment is better. Three has had no major problem in
acquiring RAN equipment, and no problems in deploying it, aside from a few minor interoperability
challenges in the configuration of transport and core connectivity. The main area in which Three
would like to see future improvements is the management, monitoring, and supervision of the 5G
network architecture (for example, by introducing more automation).

So far, the 5G equipment Three has installed in its RAN has been exclusively from Huawei.

Regarding end-user devices, the only significant challenge is that the first 5G smartphones came
from the second-tier and third-tier manufacturers, so consumers have a fairly limited range from
which to choose. The emergence of Samsung devices produced an uptick in the number of
deployed 5G handsets, which Three believes bodes well for prospects when 5G devices emerge
from other top-tier brands.

Three sees a good prospect of seeing 5G smartphone prices come down significantly in H2 2020,
possibly to mass-market price points. The third generation of integrated chipsets will be emerging
then, and manufacturers will have had more practice of integrating the parts. Volumes will also
have built sufficiently for discounts and economies of scale to start playing a part. This will lower
the entry barrier to 5G for customers.

5G NSA Commercialization and Marketing

Three launched 5G in August 2019 as an FWA service for home broadband. Three's 5G
smartphones and plans were launched in March 2020.

Even in the NSA phase, Three sees 5G as a new service proposition for its customers, more than
just "the same but a bit better." 5G enables a big shift in the content and applications that people
can consume. For example, Three's 5G FWA service delivers very low latency and jitter,
outperforming many fixed-line broadband services, and this can offer significant improvements in
the gaming experience.

The most important differentiators of 5G FWA against fixed-line broadband are simplicity and
flexibility. There's no need for an engineer visit to get set up; all customers have to do is plug in the
router, and they are up and running with service straight away. Customers can also avoid getting
tied to the long-term service contracts that fixed-line requires. This makes it a very good
proposition for people who live in urban areas and who tend to change where they live frequently.

©2020 IDC #EUR146160120 31

Three does not intend to market 5G FWA by making it significantly cheaper than fixed-line
broadband. The cost of provisioning the service and the CPE is too substantial for that strategy to
be anything other than "a race to the bottom." This may change in the future, though, as maturity
and economies of scale start to bring down the price of 5G equipment.

5G service has been made available to all of Three's smartphone customers, at no extra cost. Any
customer with a 5G-capable smartphone will automatically connect to 5G, when in coverage.
Three's general approach to tariffing will continue to be keeping things simple. For example, Three
does not intend to emulate competitors that have started to tier tariffs by access data rate, although
it will continue to offer tiers by data-usage allowance, in addition to unlimited-usage tariffs (which
Three was the first U.K. operator to bring to market). There may therefore be some increased
revenue associated with customers finding that they need a higher usage allowance when they
move to 5G.

Generally, though, Three sees 5G not as a source of extra revenue in its own right (although it will
drive sales of higher-priced handsets in the near term), but as an enabler of new use cases for
customers. Some of the things we take for granted today on 4G, like music streaming, only exist
because 4G was able to provide the bandwidth needed. Similarly, 5G will enable people to do
things they couldn't do before, such as streaming HD video. The whole smartphone experience will
be better and more compelling for 5G users. Three expects more of a shift toward application-led
marketing with 5G. In addition to HD video, another example might be VR experiences, which are
becoming popular in Korea, although there is a question-mark about whether that would be a good
cultural fit in the European market.

In Three's view, unlimited usage brings in more paying customers, which enables Three to bring
more spectrum and sites onto the market, further increasing the capacity of the network to handle
unlimited usage. As the network technology matures, Three will deploy more and more of its
spectrum, ensuring its customers continue to get a good experience. Three's cloud core is
designed to scale horizontally, and the operator is bullish about its ability to continue serving
unlimited-usage customers at a reasonable cost.

Views and Prospects for 5G SA

As 5G moves into the SA phase, bringing URLLC and MMTC on stream, Three sees it enabling
more and more IoT-style applications, leading to more extensive implementations of smart home
technology. With the ability to provision narrowband connections, and with the rollout of IPv6, it will
be possible to connect a much larger number of endpoints to the 5G network.

However, Three's 5G network is likely to be NSA for at least the first couple of years, because until
a good number of SA devices are available on the market, it will not make sense for Three to shift
to a 5G core.

Regulatory Influences on 5G Deployment

Three is broadly happy with the conditions set by Ofcom for the next U.K. auction of 5G spectrum
in 2020, particularly regarding the absence of any coverage obligation in the licenses. It is also
reasonably comfortable with the caps that have been set on operators' total spectrum holdings.
Three is especially interested in the possibilities opened up by the 700MHz spectrum that will be
licensed, despite short-term challenges such as scarcity of 5G devices supporting that band. The
ability to deploy 5G using existing antennas will be extremely compelling.

©2020 IDC #EUR146160120 32

Three believes Ofcom could help to expedite the rollout of 5G by making it easier to get planning
permission for high masts, and by making sure that electromagnetic field emission guidelines are
being interpreted correctly for the new technology (for example, taking into account the different
emission characteristics of massive MIMO). Three would also like to see the imposition of a shorter
time for landlords to respond to requests under the Electronic Communications Code. It believes
that the government is supportive of the operators' position on this question.

Expectations for Customer Uptake of 5G

The 5G Subscriber Base Has Grown Very Rapidly in China and South Korea
South Korean operators SK Telecom, KT, and LGU+ were the first in the world to offer 5G to their
customers, and also the first to make 5G subscriber numbers publicly available. Early uptake grew
quickly and strongly — 5G went on sale in January 2019, and in June 2019, the three operators'
collective 5G subscriber base went past the 1 million mark. The growth rate continued during Q3
2019, but it started to slow down in Q4. The total number of 5G subscribers reached 4.7 million by
December 2019. While this was somewhat short of the 5 million that was being projected on the
basis of growth rates earlier in the year, it still accounted for an impressive 7% of South Korea's
total mobile subscriber base, from zero at the start of the year.

Nevertheless, it is useful to consider why growth slowed down toward the end of the year. Factors
cited in the Korean media included:

 Samsung and LG did not launch any new 5G smartphones in November or December.
 A slowdown in operators' spend on 5G marketing toward the end of 2019, following a big
surge earlier in the year. KT, for example, reported that its marketing spend for 2019 was
18.2% higher than for 2018, at KRW 2.74 trillion.
 There was customer dissatisfaction with "unstable coverage." Coverage and performance
of 4G in South Korea are among the best in the world, and customers' experience of the
relatively sparse 5G coverage compared unfavorably with what they were previously
accustomed to. This was despite a sharp rise in RAN investment by the Korean operators,
for deploying 5G. KT, for example, reported that its capex was 65% higher in 2019 than in
2018, at KRW 3.26 trillion, with access networks accounting for 67% of the total.
The other market that is reporting numbers for 5G subscribers, at least partially, is China. Chinese
operators China Mobile, China Telecom, and China Unicom started offering 5G to customers in
November 2019. China Unicom has not reported any numbers for 5G subscribers so far, but China
Mobile has been reporting them every month, and China Telecom released its first figures in March
2020.

For China Mobile, the figures for 5G subscribers are:

 0.63 million at the end of November 2019

 2.55 million at the end of December 2019
 6.74 million at the end of January 2020
 15.4 million at the end of February 2020
China Telecom reported that it had 10.7 million 5G subscribers at the end of February 2020.

©2020 IDC #EUR146160120 33

In China too, then, operators are seeing very rapid growth in uptake, and the country now has the
world's largest 5G subscriber base by far. We need to put this in the context of the Chinese
market's enormous scale. China Mobile's total mobile subscriber base was reported to be 942
million in February 2020, so 5G accounts for 1.6% of the total. China Telecom's mobile subscriber
base is 330 million, putting is 5G penetration twice as high, at 3.2%. Bearing in mind that China is
only 4 months into commercial 5G availability, this shows a very impressive growth rate for 5G
uptake in China.

European 5G Subscriber Growth is Likely to be More Modest

We cannot extrapolate these impressive figures for early 5G uptake in China and South Korea to
the European market. The South Korean operators are promoting 5G migration very strongly
because they are facing an imminent shortage of capacity on their 4G networks. South Korean
consumers are also atypically enthusiastic adopters of new technology, and they are the domestic
market for what is currently the world's biggest 5G smartphone brand, Samsung. China is the
domestic market for another of the world's biggest smartphone brands, Huawei, as well as several
other popular brands that have been early to market with 5G smartphones, such as Xiaomi and
Oppo. More importantly still, there is a strong push at government level in China to achieve global
leadership in 5G technology and rollout.

None of these factors apply generally to the European market. There are some localized factors
that work in 5G's favor, such as the situation in Switzerland where very strict limits on the power
output of cell sites are leading to a squeeze on capacity in operators' 4G spectrum, and a
consequent need to migrate subscribers to 5G quickly. More generally, however, we do not see
any supply-side factors in Europe that are likely to drive the rapid growth in 5G uptake seen in
South Korea and China.

So far, no European operators have yet released any data about 5G uptake in their customer base.
As a general rule, we tend to assume that if operators are not releasing numbers that could be
released, then those numbers are not particularly impressive. We see no reason not to apply that
assumption to the European operators' 5G subscriber numbers. At present, therefore, we believe
that the number of 5G subscribers in Europe is modest, and we have no indication so far that we
should revise the rather conservative scenario we have adopted in our current estimates for 5G
connections, in which 5G accounts for 0.3% of total mobile connections in Western Europe at the
end of 2019 (although it is important to bear in mind that 5G was available to subscribers in only
just over half of the countries in our Western Europe group at the end of 2019). As shown in Figure
9, we are currently forecasting that 5G will account for 12.4% of total mobile connections in 2023.
That is a conservative expectation, made in the absence of any base data from operators. If
European operators' 5G subscriber numbers look stronger than we have assumed, when they do
start reporting them, future revisions of our mobile forecasts may show a higher expectation for
growth of 5G in the subscriber base.

©2020 IDC #EUR146160120 34

FIGURE 9

Estimated Growth of 5G in the Western European Mobile Subscriber Base

Mobile connections (millions)

5G of total:
800 5G of total: 12.4%
5G of total: 8.3%
5G of total: 5G of total: 4.3%
0.3% 1.4%
700

600

500

400

300

200

100

0
2019 2020 2021 2022 2023

2G 3G 4G 5G

Source: IDC, Telecommunications Services Database, Q4 2019 update

The main factors that we see driving uptake of 5G in these early years include the following:

 Early availability of 5G smartphones. Commercial deployments of 4G started in 2010 in

some European countries, but 4G smartphones that were compatible with the frequencies
used in European networks did not become available until mid-2012. Customer uptake of
4G was thus very limited during the first two commercial years of 4G, because the only 4G
devices that were available were PC connectors such as dongles and WiFi routers. The
5G standardization timeline was designed to enable chipset vendors and smartphone
OEMs to produce 5G smartphones for simultaneous availability with the first 5G network
equipment. Therefore, there has been no gap between availability of service plans and
availability of smartphones to restrict customer uptake of 5G.

©2020 IDC #EUR146160120 35

  5G smartphones at mass-market price points. One thing that has been restricting 5G
uptake is the high prices of early 5G smartphone models. During 2019, the lowest-priced
5G smartphones on the European market were around the €600-€700 mark, and 5G
smartphones from tier 1 brands such as Samsung were priced well in excess of €1,000.
This has largely restricted uptake to the affluent and tech enthusiasts. However,
semiconductor vendors are improving the levels of integration in their chipsets to bring
down the bill-of-materials cost and thus enable OEMs to produce lower-priced models (in
some cases, such as Samsung and Huawei, the same company is producing both chipsets
and smartphones). Some European operators are optimistic they will be able to offer 5G
smartphones at mass-market price points before the end of 2020.
 5G service pricing trends. Some operators have brought 5G service plans to market priced
at a premium over 4G. However, it is already looking unlikely that an explicit 5G premium
will be sustainable for very long. Several operators, including Vodafone, have stated that it
will charge no premium for 5G, so competitive pressure is likely to push 5G premiums out
of the picture quite soon. This will boost customer uptake by lowering the entry barrier to
5G, especially in combination with smartphones at lower price points.
However, there are also forces that are likely to inhibit uptake rates for 5G during the early years of
availability — again, contrasting with the situation in the early years of 4G. 4G services came to
market in the middle of a boom in demand for smartphones. People's enthusiasm for the device
class had been fueled by the emergence and success of Apple's iPhone, and there were a lot of
customers who were buying their first smartphones during the period when 4G became available.
People were also replacing their smartphones frequently, as devices with innovative capabilities
came to market on a regular basis, and it was fairly common for people to buy a new smartphone
more than once a year. Thus, 4G service uptake was able to ride on a surging wave of new
smartphone sales. But as we enter the 2020s, the smartphone market has become mature and
saturated, and people are holding on to their existing smartphones for longer. Operators are
reporting typical handset replacement times of two years or more. Unlike 4G, therefore, 5G uptake
will not be driven by a smartphone buying boom, and this looks likely to cause the new G to
penetrate the mobile customer base more slowly than it did the last time around.

LEARN MORE

Related Research
 5G in Vertical Applications: Government (IDC #EUR145734419, December 2019)
 5G in Vertical Applications: Healthcare (IDC #EUR145535219, September 2019)
 5G in Vertical Applications: Manufacturing (IDC #EUR145105019, June 2019)
 5G and the Mobile Transport Network: Operator Strategies (IDC #EMEA43343318, April
2019)
 5G in Vertical Applications: Energy (IDC #EMEA44924919, March 2019)
 5G in Vertical Applications: Automotive (IDC #EMEA44566918, December 2018)
 Private LTE: An Alternative for Wireless Enterprise Networking (IDC #EMEA44198418,
August 2018)

©2020 IDC #EUR146160120 36

Synopsis
This IDC Market Perspective takes stock of mobile operators' experiences of deploying and
marketing 5G during the technology's first commercial year and considers the prospects for 5G
market development over the coming few years.

"5G's accelerated time to market is no happy accident," said John Delaney, IDC's associate VP,
Mobility. "It is the result of a concerted effort by the mobile industry to bring the next generation of
mobile technology to customers as quickly as possible."

©2020 IDC #EUR146160120 37

About IDC
International Data Corporation (IDC) is the premier global provider of market intelligence, advisory
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trends in over 110 countries worldwide. For 50 years, IDC has provided strategic insights to help
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