After 5G, there will be no more "operators".

Operators, as the name implies, their core competence is operation, and differentiated operation capability is undoubtedly the moat of operators. Especially into the wireless era, the operation of wireless networks is a large capital requirements, high technical barriers to work. The double barriers of capital and technology have helped operators earn high profits and create a giant industry.

This has also opened up the ability to differentiate operations between carriers, resulting in a dominant China Mobile.

But after 4G, the demographic dividend disappeared, the traditional telecom scale growth has reached the ceiling, generally into the "incremental not incremental" dilemma; coupled with the chip phone technology advances and network coverage gap narrowing, wiping out the differentiation of operational capabilities, operators are destined to fight in a sea of red.

However, 5G, at the outset, is a competition without differentiation. This is an afterthought.

Let's first look at the giant operator we are familiar with around us - China Mobile.

China Mobile has finally lowered its stature and joined the price war

Finally China Mobile has lowered its noble head and also launched unlimited traffic packages, which are cheaper than its friends and almost 50% cheaper than China Unicom's Ice Cream package. China Mobile's 1.77 million LTE base stations, the world's No. 1 LTE network, has no ground to stand on in front of the networks of China Unicom (770,000 LTE base stations) and China Telecom (1.05 million LTE base stations).

At one time, China Mobile, which has almost no 3G network and terminals, has not lowered its stature so much with its 2G GSM network to counteract China Unicom's 3G WCDMA network.

Why join the price war in the 4G era of "network leadership"?

Starting in 2016, you'll see more and more people using China Telecom and Unicom numbers, which would have been unthinkable just a few years ago.

Back in 2011/12, were you ever unhappy with China Mobile's prices or service? What would you have done? Switch to China Unicom's cheaper and still WCDMA-technology 3G network? No way, because there is often no signal. How about China Telecom? China Telecom's coverage is good and cheap. I can't, but I'll have to change my cell phone. In the end, it's highly likely that you'll stay with China Mobile, even though its 2G network is slow and expensive.

This is where China Mobile's pricing power comes in. The excellent 2G network (GSM) coverage and the abundance of terminals gives China Mobile great pricing power.

Deploying a nationwide coverage network in China with medium frequency (1.8GHz or 2.1GHz) requires about 750,000-800,000 stations. China Unicom only had 430,000 3G base stations at the end of 2014, only 50% of the national basic coverage is completed, and cell phones often "no 3G signal". The slow pace of 3G network construction, so that China Unicom in up to five years, empty advanced technology, no physical network to provide basic services. By the time Unicom's 3G finally completed its initial coverage in 2015, Mobile had already deployed 1 million 4G base stations, making 3G a complete history.

Into the LTE era, in mid-2017, China Unicom's 4G base stations also reached 770,000, the coverage capacity has been on par with China Mobile. Cell phone terminals are almost all fully networked, and users can switch to the network without changing their phones. China Mobile painstakingly managed more than 20 years of high-end brand image, claiming that the entire network 300Mbps download rate advantage, this time in front of Unicom's price war also have no strength.

Although the network experience of the three operators is different, not all of the differences can be differentiated. Only the gap in network and terminal coverage is the biggest differentiator and source of pricing power for operators.

Unlimited traffic: the worst thing is not the decline in profits, but the erasure of differentiation

This is not a special case in China, the same story is repeated in the US. The United States is a magical country, the land area of 9.37 million square kilometers, actually only 45,000 to 60,000 base station site resources. Compare this to China, which has about 1.9 million sites on a land area of 9.6 million square kilometers, which is 30 times the number of sites in the United States. Consumers still feel that the coverage is not good. Imagine how bad the mobile service is for people in the U.S. When there is no low-band (below 1GHz) base coverage in the U.S., the network is simply unusable.

In the 2G/3G era, only Verizon and AT&T had the spectrum resources to build a nationwide coverage network; Verizon was based on CDMA at 800MHz, and AT&T was based on GSM at 900MHz. AT&T's 3G network, although the theoretical rate reaches 21Mbps, far more than the CDMA EVDO Rev.A's 3.1Mbps, but limited by the high frequency band, the coverage is seriously limited. Poor Sprint and T-mobile don't have low-band coverage.

And China Unicom's situation is similar, AT&T has advanced technology but no good network coverage, with the iPhone first-mover advantage, but also failed to shake Verizon. T-Mobile's series of sensational "Uncarrier

T-Mobile's series of fierce "Uncarrier" price wars can only snatch users from Sprint, but have failed to form a threat to the two giants. The difference in coverage became the carrier's biggest point of differentiation and source of pricing power, and that applies in both China and the US.

By the 4G era, Verizon, with its bold investments, was the first to support LTE technology and complete national coverage, once again establishing a coverage advantage, with AT&T close behind. The two giants have maintained several years of double-digit revenue growth. T-Mobile's price wars have also only been able to draw blood from Sprint until T-Mobile has an LTE network with low-frequency coverage.

However, after 2015, after T-Mobile completed LTE nationwide coverage at 700MHz, both Verizon and AT&T's brands were unbeatable, and T-Mobile relied on the low price strategy of unlimited packages to keep sucking in subscribers, and both giants' revenues began to decline. Finally, Verizon and AT&T had to lower their noble heads and also introduced unlimited traffic packages, expecting to stop the bleeding.

After the homogenization of the network, operators who can not improve profitability, U.S. operators EBITDA% began to converge, Verizon and AT& T scale advantage is disappearing.

Operators competing to launch unlimited traffic packages, the terrible thing is not the growth of CAPEX, the decline in profits, but the fact that the operators' networks can no longer be differentiated.

Operators disappearing moat

From the case of China and the United States can be seen, consumers expect to be connected, to achieve the desire of the most basic elements are: network coverage and cell phones. Doing these two things well, operators can build their brand, which in turn can generate a premium. But the brand does not become a moat; it is vulnerable to the lure of price.

Branding is one of the weakest, vaguest means of monopolization.

-- Peter Thiel

Carrier dominance is not sustainable. Once competitors reach the same level of coverage, operators enter a phase of homogenized competition among themselves. The leading carriers will re-establish their moat by planning ahead for the next generation of new communication technologies to avoid price wars. Meanwhile, smaller carriers are looking to rewrite the competitive landscape by prioritizing the deployment of new technologies.

South Korea's LG U+ took advantage of Korean Telecom's hesitation in 4G construction and 3G upgrades to preemptively complete 4G nationwide coverage and capture Korean Telecom's subscribers. The advantages that carriers built up in the 3G era won't carry over to 4G.

Getting both network coverage and terminals right used to be extremely difficult. To deploy a well-covered network, you need to study the wireless propagation characteristics, plan the network capacity, buy spectrum, choose station sites, test and select wireless equipment and terminals, optimize the open network, and perform routine maintenance; coordinate with chip manufacturers and terminal manufacturers, determine the technology and frequency band, buy terminals, and build the ecosystem. Choosing a technology path used to be a very risky decision, and in the 2G era there were 5 different technologies, and the choice of network technology also included the prediction of terminals and ecosystems.

A little carelessness, tens of billions of dollars of investment hit the water. 3G era, Australia's Telstra, Korea Telecom, South Korea, have finally dismantled the CDMA network and rebuilt WCDMA. 4G era, the United States, Sprint waiting for the determination to dismantle the WinMax and then build LTE, already do not know how many streets by the other operators have been left behind.

Technology

The unification of communications technologies, the high degree of integration of chips, and the accumulation of network construction experience have dramatically reduced the operator's "operational threshold.

In the 2G and 3G eras, operators might have wavered a bit between the more technologically advanced CDMA and the more scale-oriented GSM, but in the 4G era, only a few operators wanted to try WiMax at the beginning. Thanks to the 3GPP and the ITU, in the 5G era, operators don't have to choose, there is only one standard. With a highly integrated chip, a single baseband chip can support almost all technologies and all frequency bands at the same time. The reduction in operational difficulty and the reduced threshold for consumers to switch networks also means that the moat for operators is getting narrower and the competition is completely homogenized.

Pathetic 5G, inherently homogenized

While almost all of the coverage of 5G right now is about ultra-high bandwidth and rates. High-bandwidth 5G can be used to raise the image of operators, who are well aware that they must use the fastest possible speed to complete national coverage of 5G with low- and mid-range spectrum to build competitiveness and attract consumers. In fact, Japan's NTT Docomo has already publicly announced that it does not need new spectrum for 5G, and that existing spectrum in the low and mid bands will be used for 5G. T-Mobile in the US, which understands the importance of coverage, can't wait to deploy 5G on its newly purchased 600MHz spectrum.

Experts will argue that this isn't the true IMT-defined 5G, but what's the point? In 2008, the ITU envisioned 4G delivering 1Gbps of capacity, and 10 years later that hasn't materialized yet either. Consumers only care if they get a full 5G signal on their screen.

With the same technology and the same terminals, the competition for 5G has been homogenized from the very beginning, as never before in the history of the communications industry.


But operators have to invest in 5G because they can't afford to lag behind other operators in terms of 5G coverage, and maybe 5G doesn't bring much of an improvement in the consumer experience, but consumers won't choose a "previous generation" of technology. Regardless of whether 5G can bring tens of billions of IOT connections, in the face of the homogenization of 5G networks, operators can only fight the price war, the inevitable result of tens of billions of connections and the flood of data can not stop the decline of operators' traditional revenue.

If it's true that 5G will require trillions of dollars of investment, 40% more than 4G, as predicted by some in the industry, then not only will 5G be a crushing force, but it will also be a major source of revenue. Then not only will 5G be the last straw that crushes carriers, but also the sadness of the communications industry, in a market that is so slow-growing, but there is no breakthrough in technology to effectively reduce the cost of building a network.

After 5G, there will be no more "carriers"

Not all network differences can be differentiated, and not all operational differences can be differentiated. After the traditional differentiation points of building network coverage and building ecosystems have disappeared, there is no "operational" difference between operators. The days of relying on operations alone to make excess profits are over.

A strategy that relies on operations alone is too flat, and operators need to have more depth in their strategy. Operators should have their own "intellectual industry", in the future belonging to the software, operators must have their own software development. Operators need to innovate, but innovation has a direction. Now the biggest contradiction for operators is the future of technological homogenization, high investment (CAPEX) can not bring excessive returns. Operators more than ever need to innovate in reducing network costs.

Operators strategically moving forward into the terminal industry, has been repeatedly verified as not feasible, and now the terminal is completely personalized products. Backward towards a more standardized equipment manufacturing, perhaps a better choice for operators.

Network management digitization and AI, which is to accurately understand their own network, to improve the accuracy of the investment. NTT Docomo in the LTE network, after completing the 4G national coverage, just to maintain the capacity to increase in 10% of the base station, the competitiveness of the competitiveness of the KDDI and Japan's SoftBank in no way lost. On the contrary, China Mobile is rich and generous, estimated at 30% of base stations deployed on the multi-carrier, such investment behavior is too rude. Ren Zhengfei then proposed that "in the face of increasingly large and complex networks, artificial intelligence is the most important tool for us to build and manage networks." But by borrowing from vendors, carriers are still not competitive with each other, and they must have their own, more efficient AI.

"De-Telecomization" , which Wei Leping, the former director of China Telecom Group's Science and Technology Committee, visionarily put forward as early as 2013: "99.999% availability from an unclear source is very costly! ". But the demographic dividend was still there, so operators didn't realize the urgency, and the industry's hardware level wasn't high enough to support "de-telecommunication" in 2013.NTT Docomo was able to reduce its wireless network investment in 4G by 50 percent compared to 3G by introducing its own C-RAN technology. C-RAN was once viewed as a technology that could not meet 99.999% stability.

Digitization and AI for network management reduces the risk of "de-telecomfication". By knowing exactly what users want, operators can find areas of the network with different communication needs and gradually "de-telecom-ize" the network while minimizing the impact on the user experience.

Rapidly improving hardware capabilities is the foundation for white-boxing or "de-telecom-ization". In addition to AT&T's investment in white box switches, Verizon and NTT Docomo have both begun investing in small white box cell sites, and Facebook's OpenCellular program has gained support from carriers. With hardware homogenization, carriers are well positioned to differentiate themselves in software.

Further, white-boxed small cell sites and software-enabled core networks provide a cost advantage for carriers to expand into the IT space. LTE and even 5G technology can be simplified to sink into the enterprise and even the average user, replacing WIFI. 3GPP-based wireless technology is better than IEEE-systems WIFI in terms of both quality and security, but it is too costly to enter the huge market for home and residential use. Cannot enter the huge market of home civilization.

The unprecedented unification of 5G standards and the battle for unlimited traffic packages announced the beginning of the undifferentiated network, and operators and equipment vendors at the turning point of the industry are still not adapting, unwilling to recognize such a reality. But the future belongs to the first to accept the reality and positive change.