Europe’s largest consumer technology show, IFA 2019, has wrapped up for another year in Berlin. Although the show is based in Germany, its focus is global. That said, it is important to understand that while the show is global in scope, local market conditions are an important factor in any analysis of emerging technologies and trends.

So, let’s look at the German market, both because it is the host country and to draw attention to the uniqueness of Germany in the global consumer electronic market landscape.

Most consumer tech ecosystem players were on hand to showcase their latest creations, platforms, and products, giving press and the public a glimpse at the future of connected homes, entertainment, transportation, the latest in gaming technologies and, of course, the latest smartphones. Among announcements from nearly all major consumer electronics brands, several key themes emerged which showed what consumers can expect in the near future, both in Germany and globally.

5G
The next-generation technology was omnipresent at IFA 2019. Discussions around the impact of 5G in 2019 have increased relevance, as numerous countries have launched services this year. And no two companies were more passionate in evangelising the advent of 5G than Huawei [1] and Qualcomm [2] in their respective opening keynotes.

While Huawei emphasised the all-encompassing power of 5G to connect everyone and everything, Qualcomm was eager to note the potential for fixed wireless access (FWA) that could be positioned to eventually replace traditional wired broadband internet configurations in the home and in the workplace.

The potential of 5G to replace fixed broadband is good news for operators and consumers alike: as household devices are increasingly connected, the bandwidth and speeds offered by 5G can enable a seamless smart home (or workplace).

And what does Germany look like on this front? Brand new data from the GSMA Intelligence 2019 Global Consumer Survey suggests only 21 per cent of German consumers intend to upgrade to 5G when it becomes available. Moreover, any attempt to transition to FWA 5G in the home will face fierce competition from legacy players in the fixed broadband market. To generate interest, some operators are considering bundling 5G services with IoT or gaming to entice consumers. Unfortunately, this initiative may have limited impact: found that in Germany, only 10 per cent of consumers would be likely to invest in a 5G subscription if IoT devices were bundled with the offer.

Nevertheless, one clear takeaway from IFA 2019 is that 5G is not only on its way, it is here to stay. Consumers can expect the rapid proliferation of 5G enabled devices in 2020 and beyond.

Ubiquitous connectivity in the home
IFA 2019 is a showcase for connected everything: washing machines, ovens, dishwashers, vacuums, and even a connected closet from Samsung. While each vendor in Berlin seemed fully invested in connected devices in the home, the Consumer Survey data indicates the German market is actually among the slowest to adopt connected smart home devices (see chart, below, click to enlarge).

[3]

While in markets such as the UK and the US, connected devices hover around a 50 per cent adoption rate, ironically, Germany, the host of IFA 2019, lags significantly behind. Among the reasons cited by German consumers for their reluctance to adopt connected devices in the home are privacy and security concerns (31 per cent), and a lack of understanding of the value of connected devices (54 per cent). Given consumers privacy concerns and their overall indifference to the smart home, vendors will have an uphill climb in growing the smart home market in Germany.

Another significant takeaway from the chart is that across all the markets shown, adoption of smart home devices has stagnated year-over-year, with no new uptake since 2018. This raises some concerns for vendors at IFA and beyond, which have invested heavily in their “connected everything”.

Digital assistants
[4]The slogans “works with Google Assistant” and “works with Amazon Alexa” may well be my most lasting impression of IFA 2019, mirroring the experience from CES for many people. These slogans were emblazoned across a seemingly unending array of product types, from coffee machines, to dishwashers, televisions and clocks.

When I asked Amazon if it hoped Alexa would be the default access point for connected devices inside and outside the home, my question was met with some equivocation. Yes, basic functionality could be accessed with Alexa-enabled devices, but for more granular instructions to different devices, the proprietary application included with the device in the home would need to be used. The fundamental problem here is obvious: as these connected devices proliferate, each with their own associated application, it will become extremely unwieldy to sort through a dozen applications to find the controls for the device or appliance that a consumer is looking for. This constitutes a major customer pain point.

Furthermore, there is the issue of a digital assistant usage patterns. Our survey showed the proportion of users accessing their digital assistants on a daily basis is, with the exception of the US, very low (see chart, below, click to enlarge).

[5]

For digital assistants to become the portal through which a consumer accesses connected devices, these numbers will need to increase in the coming years, which will perhaps be the inevitable consequence of the increasing number of partnerships between Amazon, Google, Apple and ecosystem vendors, as they embed their digital assistants into a multitude of new products.

Final word
As planned, IFA 2019 had something (insights, at least) for everyone. For operators, the prospect of FWA 5G as an alternative to fixed broadband is an enticing new revenue opportunity. For ecosystem vendors, while there remain significant hurdles in adoption for “connected everything”, the industry is nonetheless pursuing this objective, even in markets which are more resistant to new technology adoption such as Germany.

For us at GSMAi, IFA provided a lens through which to view our 2019 Consumer Survey results: look for more from that soon.

Jason Reed – lead analyst, Consumer and Survey Insights – GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

[1] https://www.mobileworldlive.com/featured-content/home-banner/huawei-sets-5g-battlelines-with-latest-kirin-launch/
[2] https://www.mobileworldlive.com/featured-content/top-three/qualcomm-pushes-for-mass-market-5g-access/
[3] https://www.mobileworldlive.com/wp-content/uploads/2019/09/Home_Connected_Devices_Ownership.png
[4] https://www.mobileworldlive.com/wp-content/uploads/2019/09/Google_Assistant_IFA2019-e1568286341347.png
[5] https://www.mobileworldlive.com/wp-content/uploads/2019/09/Digital_Assistant_Use.png

Last week, following a two-hour interview of Huawei’s CEO and founder (Ren Zhengfei) by The Economist [1], the vendor’s 5G network solutions became the buzz of the mobile tech industry, yet again. For much of this year, those solutions have been in the news because of a potential (and, in some cases, real) prohibition against operators deploying them. The news last week was different.

Over the course of the interview, Ren said he would be willing for Huawei to license its 5G technology (existing patents, code, production techniques), allowing a third party to control and alter the code, building 5G kit based on these assets and ensuring that Huawei would have no control over any infrastructure that results.

And, over the course of the week that followed, various folks weighed in on what this all means. To their credit, the punditry generated a lot of great insight into why Huawei would make such an offer. That’s an important question. But it’s not nearly as important as questions around what comes next and how the market (including operators and other vendors) might react to Huawei’s offer.

What’s the Huawei strategy behind all of this?
This is an easy one, if only because it’s been discussed so much already.

The concept of licensing existing 5G assets (patents, code, technical blueprints) and giving a buyer permission to alter the source code is all about building trust while monetising existing R&D. If another company can leverage Huawei’s core 5G assets in order to build its own solutions, that company can (in theory) ensure that it’s secure. The licensee benefits by capturing business based on Huawei’s 5G know how. Customers benefit from equipment they know is safe (without dependency on a party they don’t trust). Huawei benefits by generating revenue that it wouldn’t otherwise have access to. Win-Win-Win.

There is another angle here too. We’ll come back to that at the end.

Who would buy third party kit powered by Huawei?
Past performance, as they say, is no guarantee of future results. Putting that aside for the moment, Huawei claimed earlier this month that it had secured more than 50 commercial 5G contracts. In other words, there’s a good body of empirical evidence suggesting that Huawei’s 5G kit is compelling, and not just in price sensitive markets. If another vendor could replicate these products, then their offer should be compelling as well.

And if there was ever a time for a new vendor to enter the market with a compelling product offer, that time is now.

[2]In a poll of 100 operators across the globe (think the vast majority of mobile connections and capex), the GSMA Intelligence team checked on whether or not 5G was going to be an occasion to bring on new network suppliers (see chart left, click to enlarge). The verdict? More than half plan to do just that. Just as importantly, only about 20 per cent think it’s unlikely that they’ll bring on new suppliers in their 5G builds.

What’s been holding back operators from introducing new vendors to date? From integration issues to corporate culture and tepid RoI expectations, a plethora of considerations keep incumbents in place. But the number one factor conspiring against new suppliers? Network security concerns. If trust is the issue Huawei is looking to solve with a potential licensing scheme, it seems well-aligned with operator thinking around new suppliers.

Who would license Huawei’s 5G know-how?
Of course, before any product based on Huawei’s 5G assets gets built, there would need to be an interested licensee. On this front, two factors come into play: costs and future R&D.

It’s no major insight to note that a 5G licensing agreement with Huawei would find many more takers if priced at US$5 million vs. US$5 billion. But given the investments (time and money) Huawei has already made in 5G, it’s likely that the vendor would be looking for something closer to the latter sum. And there are only so many companies who would be interested and able to pony up that amount of money.

Start-up 5G infrastructure players? The cost would be prohibitive.
Incumbent 5G infrastructure players? They aren’t exactly flush with cash and the marginal value of additional 5G assets would be questionable.
Webscale and enterprise players? This might make more sense: they’ve got money and 5G solutions could play into virtualisation and enterprise digital transformation trends.

But then there’s the question of future R&D.

If Huawei is only offering up its current patents, code and processes, any licensee would need to be ready to invest heavily in future development. Huawei will certainly be investing on this front; any third party products based on a Huawei license circa 2019 will quickly be uncompetitive without similar investments. This is probably the biggest sticking point in the plan. Given Huawei’s R&D scale, it’s unclear that a licensee could keep their offer competitive going forward. And if the goal is to assuage government fears over security, there’s no real assurance that Huawei won’t alter its code going forward in a way that isn’t transparent – or that third party licensees could be trusted.

Presumably, Huawei and its CEO know all of this and understand the slim odds of this actually moving forward. If so, then the licensing proposal needs to be looked at from a different perspective. Rather than looking at it as a clear, easy, workable solution, it needs to be seen as an attempt at a solution. It might not be a great (or even viable) solution, but it’s a signal that Huawei – in the middle of a seemingly intractable problem – is actively looking for ways to get past current trust concerns and potential geo-political technology splintering. That’s got to be worth something.

– Peter Jarich – head of GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

[1] https://www.mobileworldlive.com/featured-content/home-banner/huawei-mulls-radical-plan-to-sell-5g-assets/
[2] https://www.mobileworldlive.com/wp-content/uploads/2019/09/new-suppliers.jpg

[1]With 18 5G trials across the region to-date and a live 5G-ready network (Fixed Wireless Access) in Uruguay there is a fair amount of 5G activity in Latin America (LatAm). Despite these developments, the reality remains that LatAm will lag behind most regions in the world with a conservative 8 per cent adoption rate by 2025 (see chart above right, click to enlarge. Source: GSMA Intelligence. *Developing APAC excludes China).

LatAm is a large region with a mix of developing and developed markets that can behave as highly volatile economies. Thus, the future of 5G in this region will predominantly lie in the hands of its macroeconomic trends, the life that is still in 4G and the policies its governments set out to create opportunities for investment.

Macro impacts versus 4G
Stagnating economies and hyperinflation make it difficult to justify 5G investment.

Argentina saw a 27-year high inflation rate reaching 47.6 per cent in 2018, while in Venezuela hyperinflation will likely reach 10 million per cent by year-end 2019. Brazil seemed to be the poster boy for LatAm in the early noughties as a fast growing developing market, leading to a boom in foreign investments in the market. But limited progress in adoption of economic reforms caused a deceleration in the economy and slowdown in foreign investments.

These developments, together with mobile service and device taxation, represent a fair indication of consumer purchasing power. Income levels and affordability of newer (and 5G) devices will be likely hampered as a result. Current mobile device pricing as a percentage of GDP per capita is already high across the region, not only in the expected smaller countries but also in the larger economies. Whereas device cost as a percentage of GDP per capita lies at 0.1 per cent in UK and US for instance, it is 2 per cent in Bolivia and Brazil, and 1 per cent in Argentina.

There is still a lot of life in 4G – this is good news!

Whilst those macro impacts have partially resulted in slow LTE growth to-date (44 per cent adoption rate, Q2 2019), MNOs in LatAm are still working on network performance and deployment of 4G and 4.5G.

With 4G still growing, it will remain the dominant technology in the long-term (67 per cent by 2025) and until after 5G is launched. There is a gap of >10 percentage points between smartphone adoption versus 4G adoption rates (2019). This creates an upsell opportunity to operators especially now that 3G pricing has completely vanished from LatAm, allowing for 4G investments to be recouped over the next few years.

Spectrum, spectrum, spectrum – yes we need to talk about it!  
Ok, so 4G still has a lot going for it but we need more spectrum. With consumer readiness in place – nearly 90 per cent of mobile subscribers are mobile internet users – what is lacking is sufficient spectrum dividend per operator i.e. volume of MHz per operator. This remains low in LatAm, impacting network performance (up/download speeds).

With the ignition of 5G, governments and policy makers have the chance to reform policies and help foster investment and innovation in their markets.

To take an example from the largest economy in LatAm, spectrum dividend fares very low in Brazil with almost no change over the last four to five years, according to the Mobile Connectivity Index (MCI [2]). This has impacted network performance over time, keeping Brazil at an “emerging” market level in this category. Any upcoming auction will need to allow for sufficient spectrum dividend as well as consider auction fees and coverage obligations.

Vendors seek opportunities in Brazil
Brazil’s upcoming spectrum auction could potentially become the largest in the world: the national regulator (Anatel) is currently consulting on the 2.3GHz, 3.5GHz frequency tenders next March. There is speculation amongst vendors that 26GHz and 700MHz could be added to the same auction, making it the world’s biggest 5G auction to come. This not only would attract all eyes on Brazil but also could provide higher spectrum dividend per operator, allowing network performance improvements. Further testimony to vendor optimism is Huawei’s plan to invest in an $800-million-dollar factory in Brazil for the rollout of 5G.

With Brazil the obvious foster child, where else in the region can we turn to for opportunities?

Outside of the larger economies, in Peru 4G adoption rate is forecast to reach 73 per cent by 2025 and 4G availability[1] [3], measured by Open signal, shows an impressive reach in excess of 80 per cent. GSMA Intelligence forecasts show a fair growth for 5G by 2025 with 6 per cent adoption (with affordability of mobile services, relevance and availability of local content all faring well in Peru). Further, with growing competition operators have started investing in LTE-Advanced and the majority of upgrade deployments took place across 2018.

But where will 5G use case opportunities sit for LatAm?

5G use cases remain a significant discussion point across many major markets, with the top use cases evolving around enterprise, enhanced Mobile BroadBand (eMBB) and Fixed Wireless Access (FWA) in Europe, US, and China. In LatAm, two in particular could become successful.

Considering low fixed broadband penetration rates, FWA could take up well as it poses an opportunity to replace low bandwidth xDSL and in smaller range spaces, e.g. production plants and hot spots, as well as reach the unconnected.

Further, eMBB could make a good use case considering the high number of mobile internet users in the region as percentage of mobile subscribers, as discussed earlier. Additionally, per smartphone, Ericsson forecasts mobile data traffic growth of 481 per cent in LatAm to year 2024, reaching 18GB per month.

But what is indisputable for 5G success in LatAm is the need for adequate infrastructure, which includes sufficient spectrum as well as tax reforms to support 5G New Radio. Without that, 5G will be a 4G déjà vu.

– Armita Satari, Analyst – Core Mobile Research, GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

[1] This is not equivalent to population penetration. Instead, Opensignal measures the real-world experience of consumers on mobile networks.

[1] https://www.mobileworldlive.com/wp-content/uploads/2019/08/Picture1.png
[2] https://www.mobileconnectivityindex.com/
[3] https://www.mobileworldlive.com#_ftn1