Unleashing 5G: a kick up the bum for business

04/04/2022

The industry body, the Australian Mobile Telecommunications Association, commissioned Deloitte Access Economics to prepare a report on maximising the potential of 5G. The report finds that Australia currently ranks third behind Japan and South Korea in 5G services per capita, and we could be level pegging them this year. However, unless we lift our game, Australia could slip to 9th place out 30 economies as soon as 2025.

The size of the prize

Its big by any calculation. Deloitte calculates that on Australia’s current 5G trajectory, the adoption of 5G will increase Australia’s steady state GDP by $24.1 billion (real GDP, in 2022 dollars) by 2030 and deliver a total economic benefit worth over $66.6 billion (present value terms, in 2022 dollars) over the next nine years.

But there’s more for the taking. Deloitte’s modelling is that if Australia increases the speed of its 5G adoption to maintain its current position as a global 5G leader, the economic impact would be worth another $27.2 billion (in 2022 dollars) to the Australian economy over the next nine years.

So why the risk of sliding down the 5G rankings?

While the mobile network operators are vying with each other to roll out 5G infrastructure at a world-leading pace, the social and economic benefits of 5G depend on public and private organisations building the apps and services which exploit the potential of 5G.

Deloitte surveyed 400 business leaders in four key industries: agriculture, health, manufacturing and smart cities. These business leaders recognised the importance of 5G, with 71% of respondents agreeing that 5G will make Australia more internationally competitive and 62% agreeing that 5G will accelerate the growth of their own business.

However, only 40% had a plan to utilise 5G and, as Deloitte says, a “a whopping 59% of businesses surveyed had no strategy for exploiting 5G. Australia cannot be a world leader in 5G unless this changes.”

There was a stark divide between 5G connected businesses and those without 5G connections. The 5G connected businesses were using on average twice as many advanced mobile apps in their businesses as non-5G connected businesses.

However, even amongst the 5G connected businesses, ‘true’ 5G apps - which exploit the unique potential of 5G – were limited. The survey found that some of the highest mobile use cases were ones that could possibly already be delivered with 4G technology such as mobile payments (42% of respondents), cyber security (36%) and storing large data sets (31%).

Nearly 90% of businesses (which includes most of the 5G connected businesses) reported barriers to 5G adoption, including a lack of prioritisation (28%), high costs (27%) and a lack of relevance (22%). Deloitte’s assessment is “these shared barriers suggest that a greater understanding around the potential of 5G versus the cost of adoption is needed across all priority industries.”

Deloitte created the following index of 5G readiness across sectors of the economy based on 5G connections and 5G enabled technology, workforce skills, use of existing technology and innovation pillars:

Some sectors, such as professional services, unsurprisingly ranked high. But there were some surprises:

Mining has a readiness score of 60%, just shy of white-collar businesses, driven by relatively high results for the innovation indicators, with 12% of mining businesses spending more than $1 million on innovation, more than 2.5 times the share of the next highest industry (utilities).
While agriculture has a lot to gain from digital technology which 5G can support – from remote sensors for soil, crops and animals through to robot seeders and harvesters – its readiness score was a very low 36%. Deloitte put this down to the small size of most farming businesses and limited 5G coverage: only 4% of farmers having a 5G connection. A working group of the Australian Broadband Advisory Council (ABAC) has issued a report on how to stimulate digital agriculture.
Construction also ranked with agriculture as the 5G ‘wooden spooners’. Deloitte noted that while construction has larger companies and a high 5G usage level, “the comparatively lower levels of innovation and workforce skills indicate that the industry may find unlocking the potential of 5G difficult compared to other industries.” An ABAC working group is currently looking at how to improve use of digital technology in the construction industry.

What about the rollout of 5G network infrastructure?

While Telstra, Optus and TPG are racing each other to deploy 5G network, how far can the rollout realistically go into regional and rural Australia? The ACCC’s Mobile Infrastructure Report 2021 found that only 12% of 5G sites are in regional or remote areas which make up 28% of Australia’s population, compared to 88% of 5G sites being located in major cities. While that position has probably changed since the report, with both Telstra and Optus leaning more into 5G deployment in regional areas, there are challenging economics in deploying mobile network in more marginal areas. As Deloitte puts it:

“the telecommunications industry already has the highest investment rate of all industries in the Australian economy. It allocates significant resources to improve existing infrastructure, conduct new research and deploy new technology to the market. In 2019-20, the telecommunications industry invested 65.8% of total industry value added (approximately $19.5 billion). This investment rate is higher than all of the 95 other industries in the economy – including water supply, sewerage and drainage services (50.9%), electricity supply (47.3%), and agriculture (40.6%).”

Yet, as Deloitte went onto say:

“Returns on continued investment in telecommunications have fallen in recent years. The extent and speed of the 5G rollout has had financial impacts for Australia’s three major MNOs…Comms Day analysis has revealed that operating profit for the MNOs over the past four years has decreased 24% while the capital expenditure per year remained constant at $5.4 billion per annum over the same period. This has meant that returns on invested capital have decreased from over 10% to under 5% across the three MNOs.”

Just to add to the challenge, 5G is unlikely to be a ‘build it once’ exercise because of the escalating capacity demands of the bandwidth hungry apps which 5G supports. To get more capacity, an operator needs to either increase the density of its towers (i.e. to divide the spectrum in smaller cells) or get more spectrum.

Telstra and TPG have recently announced a multi-operator core network (MOCN) in regional areas, which involves the Telstra and TPG service cores independently ‘plugging into’ a shared radio access network owned and operated by Telstra.

So what’s the fix?

While Deloitte acknowledges the Australian Government was amongst the first globally to release 5G policies, it says that is time to “recharge” those policies. The report recommends:

A major education program on 5G for business is needed: “5G is an abstract concept that does not translate into tangible investment opportunities or potential business offerings”.
Federal, State and Territory governments should use their procurement policies to fast-track deployment of 5G.
Some regulatory relief for operators is needed: “telecommunications carriers are subject to more than 300 regulations and need to engage with more than 20 regulators nationwide.”
Some regulatory relief for users is needed: “simplifying the regulations for drone use in an agricultural setting could save the average farmer up to $11,000 in upfront regulatory and training fees as well as other time and cost savings.”
More spectrum is needed: while acknowledging Australia had a good record on early release of spectrum, it is estimated that an additional 8 GHz in total spectrum for mobile telecommunications use by 2030 will be needed. Spectrum band usage also should be aligned with international uses for 5G to maximise opportunities to use network and customer equipment.
More money and more creativity in co-funding programs, including exploring tax incentives and other ways to draw in more private capital to match with Government blackspots programs.
More money and effort into ICT training: “By 2026, Australia is forecast to need some 1.1 million information and communications technology (ICT) workers, up from 806,000 in 2020.”

Co-ordinating 5G and other infrastructure projects: Governments are on an infrastructure binge, and opportunities should be explored to realise some scope economies through installing some of the physical infrastructure needed for 5G when building roads, rail etc.