The 5G technology promises to earn trillions of dollars for the global economy within the next decade, primarily thanks to the wireless data transfer capability on a completely new level. Higher productivity and efficiency of conventional economy sectors is only one part of the deal. We can expect a truly explosive growth in innovative niches, from driverless vehicles to smart production facilities. Building 5G networks is a complicated project for Russia as we don’t know if the so-called ‘golden band’ (3.4‒3.8 GHz) will be available. Is it possible that our country will lack behind in the global 5G race and are there any consequential risks for the Russian economy? And when will the new-generation networks become available in Russia? Invest Forsight spoke to Tair Ismailov, Strategic Engagement Director for Russia and CIS at the GSM Association (GSMA), an organization that represents mobile communications providers around the world.
Five-year plan for 5G
— When will 5G networks become available in Russia? What is the approximate deadline, according to GSMA?
— We estimate that 5G will be launched before 2025. In our report, The Mobile Economy Russia & CIS 2021, we review the situation in Russia and the CIS in general although Russia dominates in the region for the majority of indicators, historically. We have slightly cut our forecast since last year. If previously, we predicted 52 million connections in the region by the end of 2025, now we are expecting just over 30 million.
There is a 5G roadmap for Russia which states that the networks will start operating in the country by 2024. This deadline is based on network equipment requirements as there are no available frequencies for 5G at the moment. This means that for the next couple of years, Russia will continue to lay the groundwork and start building the networks in two years at the earliest. Covering a specific territory where the population can start using them takes time.
— Where does Russia stand as opposed to its neighbors?
— Our neighbors such as Belarus and Kazakhstan are progressing towards 5G more ambitiously. There have been no frequency auctions or assignments yet but they are expected as soon as next year. Uzbekistan announced launching 5G networks for commercial use, with frequency assignments having already taken place. Operators said that commercial networks are available. Of course, it is a very local case from a specific district in Tashkent. Our forecast for the region in general is that the penetration rate will be around 8% by 2025. Russia will be seriously behind 5G leaders, including the United States and Europe. However, our rate will be just below the global rate.
— Will customers of all mobile communications providers have access to the networks?
— If we look at the activity of providers, they are actively testing the technology and exploring new pilot zones. For example, Rostelecom has developed a pilot zone for 5G testing in healthcare at the Botkin Hospital. There are test zones in the VDNKh district, in Luzhniki and other areas of Moscow, developed by MTS, MegaFon, Beeline and Tele2. There are pilots in other cities as well, including St Petersburg and Kazan. At the moment, these projects concern the B2B segment, but MTS has announced the launch of the 4.8 GHz to 4.9 GHz band for 5G for private users. As I see it, it will be a process that all network operators will join together. They will probably do that at different paces, but all of them are striving to begin it and after dealing with regulatory issues, they will launch the project.
— For how long will various generations of mobile networks coexist?
— It took all new network generations some seven years between the first release and the average worldwide coverage of 10%. So they will coexist for a long time. We still have 2G and 3G networks. There is a global trend to abandon them completely, but only Taiwan has managed to do that so far. It is a long and slow process. In Russia and the CIS, the 4G standard only recently became the main one; the number of 4G connections became dominant in late 2019. We predict that by 2025, some 70% of all connections will be LTE while 5G will take some 8%. So it is easy to calculate how many years it will take 5G just to catch up with LTE in terms of coverage.
— How soon will users receive access to 5G after its launch?
— In countries where 5G has been launched, it is actively used by both industrial companies and private users. In 2018, devices that supported 5G could be counted on one hand, and now there are many more of them. Almost all flagship models by all manufacturers support 5G, and their price is getting considerably lower. There are devices that cost some $300. 5G is becoming a mainstream trend for economy class smartphones, and manufacturers consider it necessary to provide support of 5G.
Frequencies are the key issue
— What is the main obstacle for 5G in Russia? Is it regulation?
— For communications, the key issue is frequencies. They must be the right band, be able to transmit certain amount of information, be able to penetrate through obstacles, etc.
We, being part of the network operator community, believe that it is necessary to assign frequency bands lower than one gigahertz to provide a wide coverage, including outside cities. The most promising band is 700 MHz that earlier belonged to the television but after switching to digital TV is being allocated for mobile networks all over the world.
In the mid band spectrum, which is considered to be the gold standard, it is necessary to assign the 3.4 GHz-3.8 GHz band; most networks in the world are operating in this frequencies. The launch of the 4.8 GHz-4.9 GHz band is considered an alternative. Their coverage features are different, but the mobile industry relies on scaling up. If most networks work in the 3.4-3.8 GHz band, manufactures will unlikely be willing to invest in equipment for other bands.
We have conducted a survey that showed that it would be cheaper for mobile network operators to build equipment for the 3.4 GHz-3.8 GHz band. In addition, there are issues of near-border coordination if adjacent countries use this band and we move to a different one.
There is the third, millimeter spectrum within the frequency range of up to 20 GHz. Such networks operate in many countries and our operators are launching relevant pilot projects. This frequency has a huge capacity but requires more base stations. This is the key issue.
— Is it crucial for Russia only?
— Frequencies are a limited resource and there is always a question who will get them. The World Radiocommunication Conferences are held by the International Telecommunication Union, a UN agency. Every year, the conference outlines which frequencies will be used to what purpose in each of the three global regions. In theory, countries should follow these recommendations, but there are always local specifics. All countries are looking for ways to resolve this issue and allocate the required amount of frequencies to operators. In our country, efforts are also being taken to find a balance as well as an optimal solution that would work out for everyone in order to allocate frequencies for the new communications standard.
— Does the requirement to use solely domestic equipment affect the timing of launching networks in Russia? Has this changed the forecast for 5G development in the region?
— According to the roadmap for 5G development, local hardware will be ready by about 2024, with an opportunity for building networks. This all definitely affects the forecast.
Who counts on 5G
— Which countries lead the world in deploying 5G technology?
— This is already a group of countries, with over 150 operators across the globe having launched 5G networks. As regards leading positions, I should mention South Korea, where 90% of the country’s territory has 5G coverage; every resident can use the standard if they wish to do so. The actual 5G network coverage has reached 15–20% globally. In China, there are already as many as 200 mio 5G connections and about a million base stations; these are immense numbers. 5G networks are actively developing in the United States, where they cover the country’s vast area and almost 30 mio households use the Internet via fixed wireless access (FWA). The geographic coverage is very expansive, with numerous countries counting on 5G.
— How can we assess 5G’s economic impact?
— According to the global forecast, the mobile industry’s contribution to the economy will amount to $5 tln by 2025. Due to the transition to 5G to take place across the globe, the technology’s economic impact is going to be immense. For Russia and the CIS, we estimate the mobile industry’s contribution at $143 bln, and at $160 bln by 2025. This includes both direct and indirect contribution due to new jobs and a boost in labor productivity. It is often emphasized that 5G is a technology for the B2B segment, the one aimed at enterprises to be able to use a greater data transmission rate and low latency. This will allow for transforming numerous industrial sectors and advancing the economy.
— Does the new communication standard serve as a powerful competitive advantage for the country’s economy?
— Transition to the new standard is a time-consuming process; you do not have to be among the industry pioneers that are driving this development. The countries that are doing it first are mostly those that have their own export-oriented manufacturers of electronic chips, devices and equipment. But domestically based businesses receive the new technology more promptly as well and use it for developing new technological solutions. Countries to launch 5G faster will provide more opportunities for their startup ecosystems and leading companies to implement and develop innovations and possibly expand their business into new markets.
— What areas are being transformed by the technology?
— Introduction of 5G is a process that is taking place not independently but along with other innovative technologies such as Big Data, Artificial Intelligence, and the Internet of Things. We call it intelligent connectivity; it implies interconnection between people as well as between objects and devices, which communicate with each other and with people. The launch of 5G will allow a huge number of devices to be interconnected, exchange information, and be controlled automatically.
The general potential of 5G technology is yet hard to assess. As previous generations of communications standards emerged, hardly anyone could imagine that someday we would be able to watch YouTube videos on the phone without downloading them to our device. Neither could anybody imagine that people would quit downloading music but choose to listen to it online. And no-one could predict the emergence of such services as Uber. Before these things found their way into our everyday lives, no-one knew they were needed and possible at all. We will see actual scenarios for the new technology only following its launch.
By Olga Blinova