At least in the US, we are bombarded by advertisements extoling the need for consumers to attach themselves to 5G networks, with a similar situation in Europe and Latin America, while in China all three 5G carriers are state-owned, and while they compete for customers, that competition is overseen by the government.  With the considerable pressure the US has put on Huawei (pvt), once the largest telecom supplier globally, it has been difficult for the company to maintain its lead in the 5G base station market, but recent data from Trendforce indicates that Huawei maintained that lead in the 5G space last year and despite the US pressure, is expected to maintain that lead again this year.
The data also suggests how narrow the 5G base station market is in terms of vendors, with the top 3 5G base station brands capturing 73.5% of the market last year, increasing to 74.5% this year, even with a 1% share decrease for Huawei this year, and when including the top 5 5G base station providers, the share increases to 89.5% last year and 89.0% this year.  There has been a drive to reduce the global reliance on this relatively limited number of 5G base station suppliers by creating ‘Open RAN’ alliances that would enable the use of COTS hardware and non-proprietary software, however given the concerns over security fomented by anti-Chinese politics in the US, such movements have difficulty addressing security protocols that would create open RAN networks that would be considered as safe as those developed by those indicated in Figure 1, along with the fact that not every country implementing 5G is convinced that Chinese 5G base station providers (Huawei and ZTE (000063.CH)) have created a system by which the Chinese government may eavesdrop on conversations or data moving across the network, and with China growing its base station count and coverage faster than any other country, Huawei and ZTE and be assured they have access to a growing market, even if they are excluded from the US and other allied countries.  Its good to have a population of 1.45b in some cases.

Back in  February we noted the continuing shut-down of 2G and 3G services in the US as carriers try to reallocate resources to 4G and 5G spectrum, while reducing costs associated with these older technologies.  The bulk of 3G network users would be for older smartphones but there are also older tablets, watches, medical devices, SOS (“I’ve fallen and I can’t get up”) services, and security systems that still operate on 3G, so there can be some fallout as these networks are shut down, but the shut-down process is not only happening in the US. 
According to data collected by GSA, at the half year mark there were 149 global carriers in 68 countries that had completed, planned, or were in progress of shutting down their 2G and 3G networks, with 32.2% of those completed.  As seen in Figure 7 Europe is considerably further along in the process while emerging regions are far behind, still relying on 2G and 3G for mobile systems and less aggressive on converting older technologies to 5G, but 53% of those upgrading older networks chose a combination of 4G and 5G, likely using 4G infrastructure as a mechanism for 5G transport, rather than building out 5G only (13%), which would limit the customer base until more of the population was able to convert to mobile devices that had 5G capabilities.
All in, as the availability of 4G and 5G phones continues to rise globally, more carriers will begin planning for 2G/3G shutdowns, with GSA predicting that while 2022 will see the highest rate of 2G/3G shutdowns thus far, 2025 will be the peak year, with over 3x the number of 2G shutdowns as this year.  Given the pervasiveness of 5G at that time, we expect 5G to be the most popular upgrade technology.

While the challenges facing the smartphone market are considerable and well-documented in our notes, 5G has been the only shining light in a sea of smartphone darkness and June results continue that trend.  5G smartphone offerings grew 5% m/m in June, putting y/y growth at 85.6%, while overall 5G device growth continued at 3.7% m/m and 79.0% y/y.  As expected, the number of 5G form factors (types of 5G devices) has stabilized at 24 as has the number of 5G vendors at 193, while CPE device offerings increased 1.9% for the month and 51.4% for the year.
We expect that customer transitions to 5G are among the few justifications that consumers are using to purchase a new or replacement smartphone currently, with the release of the iPhone 14 series later this year the only seminal event that will empower consumers to return to the smartphone market.  That said, it is also essential that Apple differentiates the iPhone 14 from the iPhone 13 enough to justify an upgrade, or, although a lesser possibility, offer the ‘same’ phone for less and is able to deliver devices on a reasonable schedule.  Thus far we have not heard of any ‘leaked’ iPhone 14 features that might move the needle, but while iPhone aficionados might take umbrage with that comment because of a slight variation in camera setup or ‘notch’ placement, we hope there is something in Apple’s iPhone 14 arsenal that might bring back a bit of life to the smartphone market.  Since Apple is already 5G compliant (both Sub6 and mmWave) there would be no 5G based incentive for iPhone users to upgrade.
 

5G is typically touted as a mobile technology, giving us faster and more reliable connections while we move from one location to another, however the technology is certainly not limited to mobile to connectivity that is provided through a cable or fiber for the last mile, particularly where the cost of such fiber or cable is prohibitively expensive or faces limited access.  LTE (4G) FWA has been around for a number of years but has proven to be costly to deploy and is relatively inefficient when compared to wired broadband, so FWA LTE has not become the solution originally hoped for years ago.  5G however, should be able to offer broadband FWA to subscribers at data rates equal to or better than those provided by copper or fiber transport technologies, particularly when using mmWave spectrum.
That said, there are issues that surround 5G, especially mmWave, and understanding what is necessary to create a FWA system in a home or business is essential.  Instead of a connection to an external fiber line through an ONT (Optical Network Terminal) an FWA system has an antenna that is mounted outside of the home or office, with the height of the antenna determining the number of obstacles that might block a line-of-sight view of the 5G transmitting tower.  The issue of signal blockage increases with the frequency being used by the 5G carrier, with low sub6 bands providing the greatest ability to be transmitted over large distances, but provide slower speeds, while higher frequencies, such as those used by mmWave systems, are more easily blocked by everyday items such as trees or building, but can provide much higher transmission speeds.
Before we go further, it is necessary to address the 5G distance limitations noted above, as they are different than those for 4G.  4G signals can  travel ~ 10 miles if unblocked, which allows for a relatively sparse network of towers, while 5G signals can travel considerably less before they need to be captured, amplified, and retransmitted, and while 4G signal distances are well known, 5G transmission distances are very dependent on the frequency being used, which can vary considerably by carrier and location. The table below gives some indication as to the relative speeds and signal distance for each of the three primary 5G spectrum bands, although these vary considerably based on terrain, with mmWave urban distances as low as 250 feet.  That said, in urban or suburban areas, small cell repeaters can be placed on existing street light or traffic poles, which allows for extending a grid network without the expense of unsightly towers in urban or local communities.

Once the antenna has picked up the 5G signal, it is sent to CPE (Customer Premise Equipment) and a Wi-Fi router, which can sometimes be contained in the same box.  At that point, the 5G signal would be distributed around the home or office as Wi-Fi, as would a typical wired broadband signal.  In larger installation Ethernet cable can be used to spread the 5G signal to other local routers, which then create a larger Wi-Fi footprint at speeds that are up to 100 times faster than 4G at far lower latency rates.   Given the fact that 4G has been around for many years more than 5G there are a significant number of operators across the globe that provide 4G (LTE) FWA services, which as noted, is a rather inefficient transport system, with 5G FWA offerings representing about 1/5 the number of 4G FWA offerings, but there are regions where 5G FWA has quickly become the preferred FWA technology, such as in the Mid-East, Eastern Asia, or Western Europe, where the number of FWA offerings represents up to 87% of  combined 4G and 5G offerings.
Given that FWA CPE equipment that is installed outside usually requires an expensive truck roll for initial provisioning, operators almost uniformly prefer indoor installations, which rely on installation by the customer and equipment delivery by mail rather than by the carrier, but the 5G CPE market being relatively new, has seen relative little growth in equipment vendors recently, after big spurts in 2020 and 2021.  Both the 4G CPE and now the burgeoning 5G CPE equipment market are extremely fragmented, with no company controlling more than a 6.2% share for 4G and a 5.6% share for 5G, with the ‘other’ category representing 55.1% share for 4G and 47.7% share for 5G, leaving FWA equipment an open field for larger communications companies, and based on a study by Ericsson (ERIC), at the end of 2021 there were almost 90m FWA connections, which is expected to grow to over 100m this year and to more than double to 230m by 2027, or about 15% of all fixed broadband connections, while FWA data traffic represented almost 20% of global mobile data traffic by the end of last year.  FWA traffic is estimated to grow by almost 5x by 2027.
While there are certainly challenges to the expansion of 5G generally, and some more specific to FWA, the need for speed, bandwidth and low latency across both commercial and residential customers is a fact of continued technological advances across a wide spectrum of components and CE products and a generational acceptance of the fact that life without high speed data is an uncomfortable situation for many consumers and an almost necessity for businesses.  While wired broadband is well deployed in many environments, and mobile broadband is an integral part of life in almost every corner of the globe, FWA, particularly 5G FWA is the new kid on the block who has a Audi RS 7, while everyone in the neighborhood has a Honda CR-V.  Sooner or later everyone else is going to want the same, laying the groundwork for 5G FWA, along with the soon-to-be hundreds of sensors that will be sending and receiving data from everything in homes and businesses.  With 6G on the horizon a few years out, which will carry with it similar distance challenges, building out 5G infrastructure for both mobile and FWA is a necessary path for carriers who find the cost of laying cable or fiber to outlying customers too expensive to justify, and for those that are anticipating what their networks will need to support 10 years out.  Resistance is futile…

In our note of 5/19/22, we indicted that while March smartphone shipments in China were strong m/m (up 44.4%), they were down significantly y/y (down 40.6%) and underperformed typical March seasonality by a large amount.  With April typically showing another m/m gain (5 yr. avg. up 21.8% m/m), our expectations for Chinese smartphone shipments in 2Q remain under pressure, with our concern that 5G smartphone shipments, which have seen better than industry growth on the Mainland, would fall prey to the general smartphone ennui.  Our first data point for 5G smartphone shipments in China indicated a strong April (up 42.3%) on a m/m basis, but down 41.4% y/y against a very strong post-New Year holiday bounce back last year, which gave us little on which to gauge the impact on 5G smartphone shipments. 
Recent data for Chinese domestic smartphone SoC (System on Chip) brands seems to indicate that the overall weakness is continuing into April.  The top 3 SoC brands in China represent ~94.2% of the total, so the extreme y/y weakness at HiSilicon (pvt), an affiliate of Huawei (pvt) that remains under US trade sanctions, and the large y/y increase at UNISOC (000938.CH) have relatively little impact on the metrics.  While SoCs are used in many applications, the data here is specific to smartphones, which would point directly to production levels and indicate another weak month for Chinese smartphone production in April.  While we expect this could produce another weak month for Chinese 5G smartphone shipments, we expect the 5G market in China to be the only real growth driver this year, even if growth is more moderate. 
With a number of global smartphone brands reducing earlier optimistic shipment targets, it is no surprise that the weakness in the global smartphone market continues, with the hope that Chinese brands follow through on target reductions and start working down inventory levels.  Hopefully Chinese small panel display producers will lower utilization rates in keeping with the reduced demand and also lower inventory levels, but that has not been the case with Chinese large panel LCD display producers, who maintain high inventory levels and have made only token production reductions.  It is hard to imagine what more Chinese panel producers must see to ‘encourage’ them to take more realistic steps toward reducing inventory, but we expect the fear of not being able to maintain share if the market rebounds in 2H is a major factor in their reticence. 

Not surprisingly 5G vendor growth remained relatively flat during what would be considered a difficult period for the CE space, although overall 5G device count was up 2.9% in April and 5G phone offerings grew 5.6% m/m, albeit the slowest growth for 5G phones in April since we began tracking the data.  April tends to be the strongest month in 2Q for 5G phone offerings so we would expect to see relatively little 5G phone offering growth in May.  Most other 5G device metrics remained flat in April with lockdowns in China, the war in Ukraine and inflation all contributing to a general lack of growth in the CE space and some hesitancy about the timing of product releases. 
China’s original goal for 2022 was to install an additional 600,000 5G base stations, a 42% increase in the total base station count over last year and while China’s carriers saw strong 5G subscriber growth early this year, we expect COVID lockdowns have slowed both base station installs and potential subscriber growth since then.  This might slow China’s longer-term plan to have 3.64m base stations active by the end of 2025, or 26 for every 10,000 Chinese citizens, up from 5/person in 2020.  We do note that while lockdowns have slowed 5G base station installation growth in the past, the fact that the government has set these goals for the country and that the carriers must comply, we have seen a rapid return to installations as soon as restrictions are lifted, so we see the possibility that China will still meet its short-term and long-term 5G base station goals, despite the lockdowns.

While smartphone shipments are mired in component shortages, logistical challenges, and increased silicon costs, 5G continues to grow, with all key metrics showing growth in March.  5G device growth was up 3.3% m/m (89.8% y/y), 5G form factors (the number of 5G device types) grew 4.3% m/m (9.1% y/y), and the number of 5G vendors (brands carrying 5G product) grew 2.7% (56.6% y/y) during the month, all staying above trend lines.  The number of 5G smartphones grew 5.3% m/m (92.9% y/y) after a slow February during the Chinese New Year holiday, and CPE devices grew 1.4% m/m (61.4% y/y). 
5G smartphone m/m growth seems to have settled into a ` 4% to 5% monthly increase level, which is consistent with the limited 5G monthly data we have already accumulated, and sub- 6 bands on a global basis seem to be the spectrum of choice for at least over 50% of 5G smartphones[1].  Typically, and again this only includes two years of data (3 starting in May) April should see higher 5G smartphone growth, although we expect much of that to be tempered by weakness in China due to COVID-19 lockdowns.  All in, despite the broad slowdown in smartphone sales, 5G continues to grow both in absolute numbers and as a percentage of smartphone sales.
 


[1] This includes only those 5G smartphones that we know are sub-6.  Mm-wave and those that do not specify are considered non-sub-6, which means the number for sub-6 is likely higher.

5G is really two things, the 5G that is commonly used by carriers, which is based on sub6 spectrum bands, and mmWave, which is based on higher frequency bands.  As we have noted in the past, while 5G overall allows for faster connection speeds and lower latency than 4G systems, that performance is directly based on the spectrum used, with the speed increasing as the frequency increases.  The thought would be “why use lower frequencies when higher ones are faster?” and that is logical except for the fact that as the frequencies increase the signal loses strength, with the lower 5G frequencies being able to broadcast over miles, while mmWave frequencies, despite their very high speed, can travel less than a mile and are easily blocked by buildings and even trees. 
This creates a significant problem for carriers that want to provide mmWave service to commercial customers who require the highest possible speed and lowest latency as bringing the mmWave 5G signal into an office or factory can prove challenging with the building itself blocking the signal.  There are antenna receivers for mmWave 5G that can be mounted outside a window to bring in such service but they block the view and reduces light.  One solution has been to install the antenna and the CPE equipment directly to the window glass, but was found to generate enough heat to crack the glass, especially in cold climates.  It seems that Asahi Glass (5201.JP), aka AGC, has developed a 5G mmWave phased array transparent antenna that uses liquid crystal[1] and therefore does not block the window or generate enough heat to break the glass.  The liquid crystal is used to change the direction of the incoming RF, in the same way it is used to block or allow light to pass through an LCD display.
That’s the good news however AGC does not expect to have a mmWave product out until 2024, although they have a similar product for sub^ 5G, which is unfortunate as mmWave is a technology that actually fulfills the promise of high speed 5G for businesses.  There are less attractive ways of bringing in mmWave signals to an office, but most involve bulky antennae or similar configurations mounted to buildings or nearby structures, but they will have to do until AGC is finished with their development.  Then we can say, ”What light through yonder window breaks?”


[1] Actual LC phased array antenna design comes from ALCAN Systems GmbH
 
 
 
 
 

The 5G ecosystem continued its growth in February in many categories, although 5G smartphone growth was modest at 1.6%, the lowest since January 2020.  While seasonality data for 5G is relatively new and is therefore more sensitive to shorter-term variations, we believe the shower growth in the 5G smartphone space is a function of two factors in China.  First, the Chinese New Year holiday, which occurred on February 1 and lasted the entire week during which much business activity is limited, and second, the COVID-19 breakouts and resulting lockdowns in a number of major cities on the Mainland which curtailed both business activity and consumer shopping.
Over the last three months, while primary indicators are still well above trend line, as they have been since July of last year, they have begun to level off a bit.  Again as the seasonal data is still relatively small, it is difficult to tell whether this is a global trend, a Chinese trend, or just a more typical seasonal trend as 5G matures, however while global seasonality should pick up in 2Q, Chinese 5G seasonality should see a more significant bounce in March and April data if the seasonal data is an indication, so we should be able to get a better picture for 5G trends over the next 60 days.
As 5G continues to expand its global footprint, we look at a number of factors that give some understanding as to how prevalent the technology has become around the globe.  In Figure 5 we show the countries where 5G is commonly available and a combination of both the amount of time 5G is available (Figure 6) and the download speed (Figure 7), which is called the ‘5G experience’.  South Korea, while they are almost exclusively sub6 (low and mid 5G bands) has the highest download speeds by quite a bit, and makes 5G available to a large part of the population on mobile networks, meaning as you roam, the 5G signal remains rather than dropping back to 4G.  We do note that while the US ranks 4th in 5G availability, we do not know how the statistics from Open Signal take into consideration the area of the country, so we are cautious about using that particular data set as a basis for understanding deployment across the globe.  That said, given that China has considerably more 5G base stations than any other country but does not show in Figure 5, we assume that area or population is considered in some way.
Download speed however is not conditional on area or population but on the spectrum used and equipment and in most cases is focused only on 5G low and mid band spectrum (sub-6 – in red).  While the table below does not show 5G connection speed, the rule of thumb is that the potential connection speed increases with the frequency range but the transmission distance decreases as frequency increases, so for those carriers interested in coverage, the tendency is for using the lower 5G bands, allowing for less base station, while those looking for speed would emphasize the higher bands, although the number of base stations would increase.  Each carrier in the US and other countries took an initial stance as to what kind of customer they were initially interested in attracting in the early days of 5G but most have migrated toward mid-range frequencies as the provide a mix of higher speeds and extended coverage.  This makes some of the country speed statistics a bit less valid as a carrier using a lower 5G band would be able to gain coverage albeit at a slower speed, however as even the low band 5G speeds tend to be higher than 4G, and the incremental cost to consumers is low in most instances, carriers only need to meet customer expectations, which in the residential/mobile world are relatively low.

5G offers users a number of functional changes over existing 3G and 4G/LTE transport modes.  Higher speed, lower latency, expanded capacity, and increased bandwidth have all been bandied about as to the advantages that 5G provide for consumers and business, but there is another way in which 5G is an improvement over 4G/LTE and 3G, and while it might seem a bit subtle, it is of great importance to service providers who must find ways to justify the cost of building out 5G service and that is network slicing.  4G networks are essentially ‘one size fits all’, meaning that while a network can be divided segments for customers, each segment provided the same services.  If a customer was interested in a particular type of service, such as guaranteed availability for emergency services, they would receive the same network services as other customers or they would have to create a separate network.
5G architecture allows both the network bandwidth itself and its services to be ‘sliced’ according to the requirements of the customer, which will allow carriers to provide specific service packages for each customer.  This is particularly important for use in manufacturing and logistics where functional network needs vary considerably.  In logistics traffic notification requirements require low latency and high reliability, while infotainment would require higher bandwidth but less need for low latency and in manufacturing the ability to move large amounts of tool or process data would be key. 
While the above are just examples, the ability of 5G to be sliced gives it a flexibility that was not available in 3G or 4G and the design of 5G itself also allows carriers to automate the slicing process dynamically, meaning the ability to create a ‘slice’ in minutes.  So in the case of a traffic accident, a network operator could create a network ‘slice’ for first responders separate from that used by the general public for live streaming to social media, and then close the slice when the accident is cleared.  Much of this will be done under SLA’s (Service Level Agreements) that will specify the needs of customers while adjusting to the variabilities of traffic, performance needs, and other variables, and while 5G a more complex architecture than 4G such networks are ‘virtual’ in the sense that they are ultimately programmable, allowing automation to take over once the initial settings are made.  This allows for changes to be made easily and cost effectively for the carrier.
Industry estimates concerning the network slicing market are to say the least, unreliable, as inclusions and exclusions in terms of hardware and services can make a vast difference.  Figure 1 shows five estimates for the network slicing market, showing how considerable the variations are between estimates for the 2025 – 2027 periods and even the variability for past periods, such as 2019, where the estimate differences are between $105m and $270m.  While we expect to arrive at a more detailed market value for the network slicing market as we can make additional determinations as to what should be included, we have created an ‘baseline average’ from the existing estimates to lessen the effect of outliers.  The baseline average sets 2019 at $187m and 2027 at $1.189b with a CAGR of 22.8% for the network slicing market.
A study done by Arthur D Little looking at more than 400 digital use cases in 78 industries indicated that six of those industries would have 90% of revenue potential addressable for network slicing and that one or two use cases would account for much of the revenue in each industry.  This gives carriers a better understanding of where to focus their attention, with the total revenue potential for these six industries ~$180b out of a ~$200b potential market.  Figure 2 shows the relative breakout by industry and sub-segment for each of the top six.  While we expect there is some question as to how the potential revenue for each segment is determined, it does show which segments and industries have the most potential for generating network slicing revenue.
All in, the network slicing market is growing as 5G rollouts continue, represents a key source of service revenue for carriers and is almost completely hardware agnostic, allowing network slicing systems to allocate network services using AI and predictive algorithms while still meeting SLA requirements. Carriers and network operators can oversee the networks and make ad hoc changes but the cost of changes and short-term requests or allocations would be low relative to private networks or ‘one size fits all’ 4G provisioning, and initial SLAs could be easily tailored to the specific needs of each customer without building a ‘network’ for those specific prerequisites.  While network slicing will not be something that shows up in headlines as 5G service expands, we expect businesses, network operators, and carriers will be focused on ways in which they can offset the cost of building out 5G service to mobile customers by using network slicing to create new types of SLAs and use applications scenarios for their business customers.