Europe's Big 5G Failure

By Mika Skarp

Building information networks is a capital intensive business. Like our transportation infrastructure, networks need physical spaces and sites. They need concrete and steel for towers. They need ditches to be dug to lay down the fiber and weave the webs that hold up the clouds upon which our modern global communications system depends.

Of course, all this is regulated in painful detail. If we look at what is going on in 5G development, now on a steep curve of hype and hyperbole, we can see the financial forces coming together that will bring 5G to life in the next five years. We can also see that Europe has already been left behind.  It's predicted that we’ll see the first implementations in the U.S. by 2017, followed quickly by Korea in 2018 and then Japan in 2020. In Europe we are told we may be getting something elementary by 2020. How did this happen?

The easy answer is that telecom generations don't exit without standardization. Today that standardization simply isn't there, and as such, nothing that we might call 5G can be started before 2020. This brand of foot dragging doesn't come as a great surprise. Europe's 4G network roll-outs followed years behind the U.S., and the 5G gap is expected to be even wider. Consider this in the context of a worldwide acceleration of technological adoption and demand, and we see how truly backward this predicament is. This should constitute a major red flag for European businesses, GDP-conscious politicians and the global investment community at large.

Europe's certain failure to launch 5G is a simple matter of dollars and cents. The revenues from 5G simply can't and won't justify the expense of the network infrastructure investments required to support it. This problem is not unique to Europe. It's a flaw fundamental to the telecom industry in general. But it just so happens to have manifested itself in the worst possible way in Europe, where telecom revenue growth has gone from flat to limp to negative. But how different markets respond to these common challenges says a lot about the business culture. European carriers have decided that their best bet financially is to wait.

Meanwhile in the land of the rising sun, the Japanese and Korea Olympics are driving the critical path for 5G for 2018-2020. But lo, look at one-time mobile tech laggard U.S., and their national powerhouse Verizon getting set to launch 5G as early as next year! Call it a different business environment, culture of innovation or perfectly played blue ocean strategy, the U.S. is positioning itself perfectly for the rise and ubiquity of the Internet of Things.  Planting the 5G flag first assures the U.S. an early opportunity to grab marketshare in what is sure to be one of the largest technology sectors in history. This only makes sense. Verizon’s home market is the already the largest single economy in the world, while being the source of innovative new technologies like OTT, driverless cars and VR not to mention Pokemon (!).

Looking at this in context, it's important to remember that Europe's economy is about same size as the U.S.'s. But thanks to an arguably rabid level of telecom regulation in the EU there are about 100 mobile operators in the common market, and no pan-European operator. With Brexit in backdrop most observers can only see this taking Europe backwards on its path to a single market. This is supremely problematic and its very negative implications are recognized by the EU, but not yet fully understood by the member countries. The single biggest obstacle to building a pan European operator stems from general regulations that dictate that customer data has to be kept in the country where the network resides. And this fundamental flaw and fly in the ointment drives a marketwide approach to network architecture that remains more than a generation away from becoming optimal, cost efficient or profitable.