U.S. carriers are several years away from making 5G network services suitable for enterprises.
American carriers have been slow to invest heavily in the next-generation wireless technology because they haven't found an enterprise application that will make 5G profitable, experts said at this week's RSA 2020 security conference. Meanwhile, carriers have yet to reap a full return on their investments in 4G networks.
Once carriers begin 5G construction in earnest, they'll need three to four years to bring security alone to a level acceptable to enterprises, Srinivas Bhattiprolu, senior director of software at 5G vendor Nokia, said. Getting 5G ready for businesses will require "a huge Capex" by carriers.
Attracting enterprises in large numbers is pivotal to achieving a return on 5G investments, he said. "The real value and the profitability of 5G will only come when they start implementing the enterprise use cases."
However, which customer segment will be most lucrative is an unknown, experts said. Markets showing the most promise include healthcare, the auto industry and industrial manufacturing.
Carriers' cautious approach to 5G deployments has had an impact on U.S. manufacturers of networking gear. Without a strong customer demand, they've yet to provide soup-to-nuts 5G technology. Critical components, such as the radio access network (RAN), are only available from foreign suppliers. They include Ericsson and Nokia in Europe, Samsung in South Korea and Huawei in China.
"Part of the reason that happened is the future of 5G [profitability] is not quite as clear as you read in the headlines," Dennis C. Blair, the former director of U.S. National Intelligence, said in an RSA panel discussion on 5G security.
The uncertainty has had an impact on the financials of bellwether networking vendors like Cisco. For the quarter ended Jan. 25, Cisco Systems, the largest maker of networking gear, reported an 11% drop in service provider sales and a 4% decline in overall revenues. CEO Chuck Robbins told investors he did not anticipate much improvement in service provider sales until 2021.
Carriers embracing 5G on a 4G core
U.S. carriers are inching toward 5G by first swapping their 4G RANs with 5G RANs. That provides a relatively inexpensive way to boost existing mobile broadband for consumers and businesses buying 5G smartphones, Bhattiprolu said. Also, the radio swap doesn't require more than an incremental improvement to existing security.
Dennis C. BlairFormer director of National Intelligence
Meanwhile, the Chinese government is betting big that 5G's speed and capacity will remake operations on the factory floor, provide new forms of home entertainment and change how the medical industry delivers services. Rather than wait for market demand, China is taking a build-it-and-they-will-come approach to 5G.
To juice the local market, the country provided tax credits and liberal spectrum licensing. Homegrown companies like Huawei were able to expand their domestic business into the global market. The government support and Huawei's competitive prices have made it the leading provider of 5G telecommunications equipment, experts said.
Countering China's head start in 5G will require a partnership between the U.S. government and businesses, experts said.
"I think what we're saying is that it's too dangerous a bet to say the Chinese [strategy is] wrong and just leave it to the market," Blair said.
If the United States fails to change its 5G strategy, then it will essentially cede 5G manufacturing to Huawei, said Art Coviello, a partner at Rally Ventures and the former CEO of RSA Security. "On the trajectory that we're on, it's heading Huawei's way."