The opportunities for network operators to realise new revenue from 5G fall into three broad categories:
• Enhanced mobile broadband: 5G delivers ultra-fast data speeds.
• IoT: 5G provides the ability to connect many millions of new devices.
• Mission-critical applications: 5G can deliver ultra-high reliability and low latency.
Such use cases require network performance to improve 10-fold over current levels of latency, throughput, reliability and scale.78
The associated investment requirements are significant, with the need for capital expenditure in new spectrum, new large and small base stations to make networks denser, upgraded fibre transmission (backhaul) and new core networks. Industry analysis predicts network-related capital investment would need to increase 60% from 2020 through to 2025 in one European country, roughly doubling the total cost of ownership.79
This comes at a time when the financial performance of telecommunications operators has been negatively impacted by a longer-term trend of declining revenues. This is being driven in part by highly competitive markets and the entrance of 'over-the-top' technology applications (content, social media, data and cloud computing). This has been compounded by the shorter-term impact of the COVID-19 pandemic, which resulted in less revenue from products such as roaming and international calling and put more customers in a state of financial hardship.80
Price plans now offer generous or effectively unlimited levels of data. The associated sharp increase in data demand (partly driven by the pandemic) has required immediate capacity investment by wireless and fixed operators but has not tended to translate into incremental revenue.
Conversely, the 'over-the-top' services providers that stand to benefit most from 5G play little part in network or spectrum investment.
Together, high capital expenditure costs and the relatively lower potential for returns present the risk that Australia may not realise a folly competitive 5G market without active support to ensure building a national network is a sustainable investment.
To mitigate this risk, governments and regulators should ensure mobile network operators can invest efficiently in the provision of 5G services. The telecommunications industry provides significant government revenue through spectrum auctions and site rental. Site rental fees tend to be high and access costs for building on public property are generally high.
The ACCC has observed that, while large revenues from spectrum auctions are attractive for governments, they can be anti-competitive if operators overpay.81 The auctions are designed to gauge the market value of spectrum, which depends on competition for access as well as the value of different use cases for the relevant band. High spectrum costs can affect financial sustainability, leading to lower network investment and poorer-quality services that deliver a sub-standard user experience.
To address this, the Australian Government has in the past introduced allocation and price limits for spectrum auctions, to promote competition and ensure spectrum is accessible to all key parties.
Prohibitively high costs for spectrum, difficulty in accessing public assets to build telecommunications infrastructure and complex spectrum licensing will only serve to constrain the sector's ability to deliver comprehensive and high-quality 5G, which is a critical enabler for Australia's future economic growth. For end users, this situation will manifest as higher costs and less competition.