5G: what will it cost?
May 28, 2020
The fifth generation of cellular wireless technology (5G) will provide a better user experience than previous mobile standards through higher speeds, lower latency, and more reliable connectivity.
While the technical improvements of 5G in relation to previous technologies are clearly identified it is also crucial to consider the economic aspects of this new technology. These play an important role in operators’ decisions on how to rollout a specific technology and, naturally, on the cost of providing the services.
With the aim of assessing the implications of 5G deployment on the cost of wholesale services, we developed a Bottom-Up Long Run Incremental Cost (BU-LRIC) model of a hypothetical mobile network in an Asian country.
The model calculates the incremental cost, over the period from 2021 to 2026, that a hypothetical operator would incur by carrying an additional minute of voice call and additional megabyte (MB) of data for two scenarios:
- 4G scenario – in which the operator deploys a full 4G Radio Access Network (RAN) based on LTE-A technology
- 5G scenario – a non-stand-alone scenario where 4G RAN is deployed for providing coverage, and 5G RAN for serving additional traffic beyond the 4G RAN coverage capacity.
The model assumes that the hypothetical operator implements a non-stand-alone (NSA) architecture for 5G deployment. The 5G standard allows 5G RAN to operate alongside existing LTE RAN infrastructure and core network (Evolved Packet Core or EPC) (Exhibit 1). The NSA architecture is considered an intermediate step towards a full 5G architecture, and may be chosen by operators seeking to leverage existing 4G deployments. It supports LTE services but with the added capabilities offered by the 5G RAN.
Exhibit 1: 5G non-stand-alone architecture [Source: 3GPP]
The capacity expansion required to carry the total projected demand and provide service to the coverage area (capacity network) is met by network densification on top of the coverage network, enabled by macro, micro and small cell deployments operating at sub-1GHz and above 1GHz spectrum. In the case of the 4G scenario, LTE-A cells operating at 850MHz and 2600MHz are deployed. For the 5G non-stand-alone scenario, densification is achieved with 5G cells operating at 700MHz and 3.5GHz.
Model calculations are performed on a geotype basis – four different geotypes are used (dense urban, urban, suburban, and rural). To capture the different characteristics of each geotype, the model includes inputs and assumptions which differ depending on the geotype such as:
- maximum cell radius
- number of sectors per base station
- proportion of base stations within the geotype that are macrocells, microcells and picocells
- site sharing proportion – the proportion of sites that are shared with another operator.
The results from the model indicate that by using 5G technology operators can achieve considerable reductions in the cost of wholesale voice and data services compared with LTE-A. The Total Service Long Run Incremental Cost (TSLRIC) results for the modelled 5G scenario are 15% to 21% lower than the 4G scenario for data services (Exhibit 2), and 8% to 11% for voice services (Exhibit 3).
Exhibit 2: Data service – incremental cost per Mbyte (US cents per Mbyte) [Source: Network Strategies]
Exhibit 3: Voice service – incremental cost per minute (US cents per minute) [Source: Network Strategies]
The difference in service cost is mainly driven by the lower level of investment in RAN and backhaul networks required for the 5G scenario. 5G offers a higher spectral efficiency in comparison to LTE-A, therefore given the same amount of spectrum 5G capacity per sector is higher than LTE-A. As a result fewer base stations are required when deploying 5G rather than LTE-A for capacity expansion. For the modelled network the number of base stations required in the 5G scenario is 15% lower than the 4G scenario for the year 2021, with this difference increasing over time to 17% in 2026 driven by growth in traffic (Exhibit 4).
Exhibit 4: Number of base stations [Source: Network Strategies]
Operators will choose different strategies to meet increasing mobile demand. One potential approach involves densification by deploying different technologies in different frequency bands. Deployment of small cells will play a key role in densification, particularly in densely populated areas, and 5G is better positioned in this regard than previous technologies as it uses more advanced radio technology and operates at higher frequencies than those currently used by 3G and 4G – for example 3.5GHz and the so called millimetre wave bands (above 24GHz).
The model results indicate that 5G improvements in spectral efficiency have a significant impact on the cost of wholesale services when compared to LTE-A, therefore operators have an economic incentive to deploy 5G. The NSA option not only allows operators to bring to market some of the features of 5G quickly without the need to invest heavily in a completely new network, it also helps operators to cope with increasing mobile traffic in a more cost efficient way than if using LTE-A.