During the last week of June 2019, we attended a couple of events in Shanghai, China. First up was a Nokia Analyst Day summit for mostly Asia based analysts. Next up was Mobile World Congress Shanghai, the sister event of GSMA’s MWC in Barcelona. We also managed to attend a couple of sessions hosted by Qualcomm and Ericsson adjacent to the main show.
A week that began with the US-China trade war and the impact of the ban on Huawei looming large was bookended by news trickling out of the G20 Summit in Osaka that President Trump had partially eased the restrictions on Huawei.
Here are some of our key takeaways from the week that was…
5G is Here, in China, and it will be big
In a previous post about the flagship MWC event in Barcelona, I had opined that it was impossible to leave Barcelona without having “5G etched, scratched or even burned into your brain.” Well, it was more of the same in Shanghai, with the added boost of the world’s largest telecom market having announced new 5G license awards barely three weeks prior to MWCS19. Indeed, on June 6th, China awarded 5G licenses to three incumbents — China Mobile, China Unicom, China Telecom — and one surprise package, which was China Broadcast Networks. While the timing of the announcement may have come as a surprise to many China watchers, it was clearly not a surprise for the prospective 5G operators, who went all out to showcase 5G in their respective booths, replete with demos, use cases and battalions of attendants at every station.
During keynote speeches at MWCS19, China’s communications service provider (CSP) community made announcements underscoring the size of 5G launches in China as well as ambitious plans to scale these networks. China Mobile’s CEO announced plans to launch commercial 5G in 50 cities by the end of 2019. China Telecom announced that it had already started building a hybrid standalone/non-standalone (SA/NSA) network in 40 cities across the country. These announcements will boost the groundswell behind 5G in 2019, as the number of “Year 0” launches accelerate at a much faster pace than 4G, with China accounting for more than fifty percent of global sites for 5G. Moreover, China’s 5G networks will have one fundamental difference to the rest of the world. We expect that these networks will cater heavily to industrial use cases. In a country that is effectively the factory of the world, the number of use cases and the efficiencies that can be driven across industrial segments will be a huge boost to productivity and China’s economy.
Vendor one-upmanship over 5G network buildouts overshadows the real story
Not that it hasn’t happened before, but the week at MWCS19 was full of claims and counter-claims from the major network equipment providers (NEPs) like Nokia, Ericsson, and Huawei. While Huawei claimed the outright lead in 5G with over “50 commercial deals and over 150,000 base stations shipped”, Nokia pointed to its 43 commercial deals with many of them “public”! Ericsson, for its part, encouraged analysts not to focus on top-line numbers but instead the depth of engagement with its customers as much more worthy metric of success. If I had polled Samsung as well, I would have likely got similar claims of 5G success and market leadership.
It’s easy to be dismissive of all the constant one-upmanship on display from the vendor community but lost in the noise of these claims is the fact that 5G really does have momentum and the numbers of operators across the world who have accelerated their deployment timelines is real and significant. In Korea and China respectively, amongst the earliest Asian markets to deploy and announce 5G respectively, all the major NEPs have won market share, to varying degrees. While Huawei can claim to have the early lead, Ericsson has managed to retain its tier 1 customer base and Nokia is able to leverage its end to end portfolio to pick up 5G “wins” across different network domains.
China’s new Digital Economy was a central theme at the event
MWCS19 was awash with demos of industrial and vertical use cases but the larger takeaway from this event was China’s new focus on the “digital economy”. This is another way of saying that the “enterprise” segment, whether for private industry or Governmental applications, will be the dominant driver of demand for 5G connectivity. The incredible scale offered by China’s industrial and government sector has already manifested in a massive installed base of IoT devices that underpin smart cities, smart lighting, parking and a range of use cases based on NB-IOT technology. China Mobile’s CEO made pointed remarks about China becoming a $2 trillion-plus (150 trillion RMB) “digital economy” by 2035, with over 50% of the economy being attributable to digital. For this to be achieved, China’s installed base of IoT devices, already vast, will need to grow exponentially and will require reliable connectivity. Much of the hard work to enable this has already been done by Chinese SPs, with the market boasting nearly 5 million macro “cells”, far larger than its nearest comparable telecom market. Densifying the networks will add millions of more sites to the current inventory, all of which will need to be managed through digital technologies like SDN, AI/ML and others.
5G investments will be across the network, not just in the radio access layer
As 5G is rolled out across Chinese cities, the technology will turbocharge the drive to digitally transform China’s immense industrial landscape, with an early focus on targeted vertical applications that in many cases will be run as private networks. Regardless of whether these new networks are run through “network as a service” models offered by CSPs or as private networks, the adoption of 5G will also throw up opportunities for big investments not just on the radio side but also in the transport networks that will be essential for backhaul traffic and software-defined networking (SDN) capabilities that will be essential for intelligent management. Indeed, the increased demand for optical networks was validated by Nokia during their analyst day, with optical network sales showing very healthy growth across the APJ region, as enterprise clients upgrade their traditional SDH networks to optical.
China is a use case nirvana
China is a use case nirvana!!! I’ve talked about the massive scale of the installed base of IoT devices in China, but it goes beyond the numbers. The more impressive feature of China’s IoT leadership is the way millions of sensors, cameras, and other devices merge seamlessly with application software and payments platforms to create truly immersive experiences. The advent of 5G will throw up even more use cases. My favorite from MWCS19 was a remote mining demo in the Huawei booth, where I got to test my specialist operator skills on a bulldozer/digger machine at a mine in northern Henan province. Latency was not quite as advertised but let’s just put the overall experience down to the fact that I won’t be acquiring a specialist license any time soon!!!
China is blanketed with mobile coverage.
As mentioned earlier, China has nearly 5 million “cells”, which is over seven times the equivalent number for another large Asian country — India! Those who continually seek to minimize the importance of the CSP community and wish to relegate them to “dumb pipe” connectivity providers should seriously consider the consequences of under-investment in networks. None of the amazing use cases in China and beyond would be possible without seamless mobile connectivity…regulators, government agencies, webscale and OTT companies will ignore this at their peril!
China is truly cashless
It’s hard to describe the sophistication of China’s mobile Internet until you experience a street food vendor accept digital payments or buy a Coca-Cola at a vending machine, or buy train tickets and pay tolls, all through WeChat. My favorite use case was the toll payment options through WeChat and Alipay.
Such innovations are not unique to China by any means but what is unique is the sheer scale of the deployments, with countless ecosystems of software and hardware vendors for every conceivable use case, all applied at a scale that is generating transformative experiences for a billion plus citizens!!! The ease of payments in China bodes well for the monetization potential of 5G, especially for mobile broadband and consumer services.
China’s Next Billion problem
Despite all the digital momentum, China still has a “Next Billion” problem. I was convinced that I was getting a lot of quizzical looks from the locals as I fumbled in attempts to generate a metro ticket in Shanghai using cash. But the more you travel around China, one can observe plenty of people queuing up in long lines for tickets for a variety of reasons including the lack of sophisticated smartphones, digital illiteracy, the loss of national ID cards and more. A fellow passenger’s explanation was quite brutal — “They don’t know how to use apps!” As pervasive as the mobile Internet ecosystem has become in China, there is still plenty of room for growth, not just in absolute numbers for metrics like monthly active users (MAUs) but also in terms of new use cases as more applications become viable with enhanced connectivity.
Facial recognition will be huge in China
In fact, it’s already big news. Getting through immigration for entry in Shanghai required a full biometric and facial recognition scan thought the exit procedures were very fast. Facial recognition per se is not uncommon anymore but the number of endpoints in China across airports, train stations, hotels, buses and more where your face is scanned for registration and verification purposes is growing rapidly and suggest a much bigger platform in the near future. Today, most of these will be connected by fixed-line broadband but as the “network” of endpoints grows, mobile connectivity will be crucial. Real-time verification in several use case scenarios will also require edge compute and reliable wireless backhaul networks.
One of the demos I checked out was a facial recognition and payments application for the Guizhou Public Transport Authority. Basically, all of the buses would be equipped with a device that would accept both QR code payments or, if commuters opted in, facial recognition would automatically deduct payment from linked bank accounts and allow them to board without transacting at the door. While privacy questions are obvious and will linger, there is tremendous potential for facial recognition in this use case to speed up the free flow of commuters and avoid bottlenecks in a country with as many commuters as China.
5G will enable AR/VR & cloud gaming and radically change device form factors
A demo at the China Mobile booth validated some of our thinking around cloud gaming and AR/VR. While they are distinct segments, they overlap when it comes to devices and the constraints that current form factors place on growth. The issues with glasses and headsets for AR/VR and gaming are numerous but the cost of the device and the bulky form factors were significant impediments. A big part of this equation is that these devices need to perform all of the computing, rendering, etc locally. That is, on the device. As a result, a lot of components need to be packed into these devices, especially for VR.
However, 5G will have significant benefits for both AR/VR and cloud gaming segments. With high bandwidth and ultra-low latency on offer, we will see the rise of “thinner” and more “regular” styled glasses and headsets due to the fact that the heavy lifting can be done in the “cloud” with split rendering, leaving more bandwidth-light activities for the device itself. To be sure, the edge cloud location that would do the heavy bits of processing will vary depending on the use case scenario. For enterprises and vertical segments, the edge cloud server could well be located on the premise whereas, for consumers, it would be further out in the network. At the China Mobile booth, I was able to test some AR glasses from Nreal. The video quality was quite good but the white bridge above the nose pads was too hot for sustained usage. Clearly, there are some kinks to be worked out but this is a very promising area for innovation.
Robots and automation will be a crucial driver for China’s new Digital Economy
There were way too many robots, AGVs and other “vehicles” on several booths at the show. The dancing robot at the China Mobile booth that was mimicking the person standing behind that was struggling a little with latency issues. The automated guidance vehicle (AGV) that was part of a pilot deployment at a hospital in Guizhou province for dispensing hospital supplies…(turns out that it was sporting a Huawei fixed wireless CPE under the hood for connectivity). The automated barista robot developed by ABB that was dispensing espressos through Nespresso capsules. The RoboTechnik AGVs at the Ericsson booth that were performing tasks in synchronized routines.
The list goes on. China’s installed base of connected devices and endpoints, ubiquitous mobile coverage, application, and consumer software and payments are all coming together in a perfect storm of innovation and co-creation that are powering the digital transformation of traditional industries and vertical segments in China.