The Big Emerging Opportunity – 5G in Industrial Operations

This article was originally published in Business Standard and has been reproduced here with permission.

It is said that when it rains, it pours. That is more or less the story of the development of India telecom. After years of constrained data growth, the entry of Jio and its competitive pricing has ensured the rapid deployment and uptake of 4G enabling India to leapfrog from 2G networks to 4G. But, technology development does not rest easy.

The age of 5G, the latest generation of mobile networks, is around the corner. SK telecom in South Korea and Verizon in the US have already launched their 5G services commercially, while operators in many other western countries are gearing up to launch their 5G services very soon. Our recent study, 5G in industrial operations, found out that 72% of telco operators across the globe are planning to launch 5G networks within next two years.

The Indian telecom industry is also gearing up for the 5G adoption. While the specific timelines are yet to be declared, there have been reports that the Government is likely to auction the 5G spectrum before end of 2020. Telecom operators and network equipment manufacturers have already started setting up joint initiatives. In India, there are two aspects for 5G adoption – regulatory and financial and the actual market development.

Indian telecom providers have been saddled with large quantum of debts historically. These operators are required to pay huge sums of money to the government for using spectrum. This licensing process, which started with 2G spectrum has continued till the 4G spectrum was auctioned a few years ago. Through this process, the operators have amassed big debt. In fact, with operational difficulties, the space has seen some mergers and acquisitions too, with the industry consolidating to three large private players.

Additionally, Indian banks have been coming out of a credit and liquidity crunch cycle, which started a few years ago. As the banks grapple with high levels of non-performing assets (NPAs), they will be cautious about lending to the telecom operators. This situation is likely to change in the next year as the NPAs in the system have started to decline in the last quarter of the financial year 2018-19. For any 5G auctions to succeed, the telecom operators will have to work together with the banks closely. Even after the auctions, the banks will need to support the capex requirement for 5G roll-out.

The government on its part has also created a committee to explore the feasibility of reducing the cost of spectrum auction. This committee may recommend moving towards a revenue sharing model with the government rather than an upfront royalty structure. If this happens, telecom operators will be able to invest in 5G with greater financial ease.

The second aspect to focus for telecom operators is the actual market development. While 5G’s features, such as enhanced speed, ultra-reliable and low latency connectivity and guaranteed quality of service, promise to transform digital experience both in the industrial and consumer space, they are of particular interest to a subset of organizations – industrial manufacturers.  Our research found a strong business case for 5G adoption in smart factory or industry 4.0 initiatives. Globally, 75% of industrial companies, feel that 5G will be a key enabler for their digital transformation initiatives in the next five years. This is surprisingly higher than the share of executives who feel the same for artificial intelligence or advanced data analytics. Not just that, nearly 2 out of every 3 industrial companies are ready to implement 5G in their operations within 2 years of availability in their respective market.

Such a strong level of interest from industrial companies can partly be explained by the fact that nearly half of the industrial companies feel that connectivity issues, such as signal reliability and lack of speed, are a significant hindrance for their digital transformation initiatives. Our research also found that industrial companies are ready to pay a premium over their current connectivity costs for 5G features.

The use cases for 5G in manufacturing are many. They range from video surveillance of remote production lines to real-time service and breakdown alerts in shop-floor operations, and remote monitoring of shipment conditions such as temperature and humidity to virtual testing of parts and packing from suppliers in supply chain operations. In countries such as Germany, the large industrial giants are actively considering acquiring regional licenses for 5G so they are in better control of their destiny when it comes to smart factories. In fact, our research found that a third of industrial companies are considering applying for their own 5G license, assuming the regulator allows that.

With the growing focus on manufacturing in India, smart factory and industry 4.0 domain can provide telco operators a stable revenue stream. In our earlier research on smart factories, we found that 70% of the organizations in India either already had an ongoing smart factory initiative or they were planning to have one soon with big investments flowing-in from multinationals like GE and Bosch. Moreover, in areas such as supply chain, we found that over 50% of organizations in India were already experimenting or implementing robotics and IoT (75%). 5G technologies can be a shot in the arm for all such industrial manufacturers.

In order to tap the industry 4.0 opportunity, telco operators need to evolve from being a plain service provider to being digital transformation partners for industrial companies. This would require understanding business requirements, translating the requirements into solutions, and taking lead in the implementation of the solutions. Co-innovation projects with industrial companies and close collaboration with the entire 5G ecosystem can facilitate the journey of telco operators to become trusted digital solution partners.