Huawei: Automotive and energy industries driving 5G and IoT, not telcos

Huawei has said it is now the automotive and energy industries driving the 5G network evolution, with mobile telcos likely unable to retain their current business model under the IoT.

While mobile telecommunications providers began driving the evolution towards 5G network connectivity, this is now being driven by the industries that will benefit the most from it -- which includes the automotive, energy, and agricultural sectors, and not traditional telcos, according to Chinese network technology giant Huawei.

"5G currently is driven by the operators; I think that's changing. That probably was true two years ago, but that's changing," said Abdurazak Mudesir, VP of 5G Marketing for Huawei Europe.

Speaking at Huawei Innovation Day 2016 in Sydney, Mudesir said that this is because 5G is not about the technology or download speeds involved; rather, it's about the practical use cases. Vendors need to start from the use cases in order to address them with flexible network architecture, he said.

For instance, the 5G Automotive Association made up of BMW, VW, Mercedes-Benz, Audi, Huawei, Ericsson, and Nokia is driving "an end-to-end industry change that's working together to define the requirements" of 5G.

"Another area we're seeing right now is the smart grid, smart energy [industry] ... there is an understanding that smart cities will drive the IoT adoption, and it is already happening with 4G, we're seeing that today," he added.

Mudesir also said that in an ideal world, 5G will connect the IoT to homes for the last mile, as fixed-line fibre broadband will be too expensive to roll out all the way to premises.

"There will be use cases like last-mile home access where we see the cost of fibre will be too expensive," he explained.

"I think there's been a lot of research from academia, from government, which highlighted the return on investment on last-mile fibre investment ... would be too expensive. In those scenarios, wireless will supplement, and that's why at Huawei, we are pushing what we call business to home or WttX. This will supplement the fibre."

On the issue of return on investment, Mudesir said that the high cost of IoT is one big challenge for uptake.

"What we've learned in Europe is that there was a lot of expectation around the new business opportunity coming from IoT ... some of them have learned the hard way: 'Wait a second. If we are just selling connectivity like you do today, the money we can actually get might not even cover our costs, or the return on investment might take quite a long time.'

"So what are they doing? They are looking into the multi-sided platform business model ... offering platform as a service coupled with connectivity and, very important, we need to build the ecosystem. And I think only if you couple these three that we can take this huge opportunity present to us."

The current business model used by mobile telcos therefore won't work in the 5G era, either for IoT-connected devices that use a massive amount of data or for devices that use barely any at all, he argued.

"If the industry, especially the mobile operators, continue with the current business model of selling connectivity, saying 'X amount of data costs this', I think it's going to be very challenging, especially when you have this extreme data; or, in the other spectrum, IoT sensors which are generating just 1 bit of information per month -- how do you charge them? In the data plan? Then that should be $1 per year. This is what is happening right now," he pointed out.

"So you need business model transformation. You need to get out of this mindset of selling only data; you need to get into 'what value do you create?', and based on your value creation you need to have a business model for value capture. And you need to get into platforms.

"So maybe you will offer a package -- BMW today they offer as a package a data plan, which is very different from your normal smartphone data plan, but it's integrated into the car ... you could also offer mobility as a service."

The network itself also needs to be brought down in cost, he said, as the cost per bit across 5G needs to be lower than on 4G. The architecture of the backbone of the network needs to be rethought, with network slicing being one cost-optimisation feature, he said.

Spectrum -- licensed, harmonised, wide spectrum -- must also be readily available under a global standard.

"The European commission with the 5G action plan; in there, one of the key requirements for the national regulators coming from the EU is to make sure that spectrum is available early enough and harmonised, and it's wide enough ... we need a big chunk of spectrum, harmonised and available as soon as possible."

On the subject of the high costs of 5G and IoT, CTO of Fujitsu Australia Peter Lawther, also speaking at Huawei Innovation Day, said this is one of the three challenges of IoT, alongside security and privacy; and compatibility and connectivity of devices.

"IoT return on investment is always a difficult challenge," Lawther said.

"All IoT solutions require capital investment. That capital investment is normally upfront, and that capital investment can cause issues when you try to get a business case across the line. We all need to consider as part of that what insights we need to gain from our IoT solutions and how it affects our business."

Lawther added that there are four categories of drivers for IoT: Increasing productivity, reducing time to market, improving process automation, and boosting customer experience.

Similarly, research firm New Street Research said earlier this year that while the IoT will bring in revenue for vendors, it won't be a viable source of revenue for telcos.

"I'm perfectly prepared to accept that the Internet of Things is extraordinarily interesting to equipment makers and vendors, to systems integrators, to policy makers, and to people concerned with the social role of communications services in our lives, but there is an awful lot of noise about the Internet of Things that doesn't actually translate into, to put it strongly, a whole hell of beans for the telecoms operator who's looking to sell services to achieve revenue per customer or revenue per device," Andrew Entwistle, New Street Research partner, said in June.

"I can't see any business case for a telecoms operator."

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