Exactly 2 years ago this month I wrote an op-ed for Mobile Magazine entitled Countdown to 5G: Innovation & Intervention , where I compared the continent to a loved one in need of an intervention. Then, as today my concern for the long term fate and prospects for economic growth in the Eurozone can be best described as sanguine. As someone who has been in this industry for all of my professional career, primarily in Europe (though I spent some years in the valley and southern California to launch my company Cloudstreet, a Nokia spinoff), my concern over Europe’s long term prospects also is tightly tied to my doubts about its ability to competitively harness the next wave of digitization, summed up in 5G.
Interestingly, back in early 2017, Europe seemed to be on something of a rebound, post global economic crisis and its very own, Euro crisis. Today we see the gap between Europe and its closest ally and competitor the US, widening significantly as the US takes off and Europe flounders.
In the article I argued that Europe’s decided lag on 5G wasn’t merely another example of letting China and the US lead, but perhaps the last best chance to stage a competitive front to the commercial and tech super powers of FAANG and BAT in the US and China respectively. Keeping in mind that aside from Huawei (now on the Western blacklist), Europe is home to the world’s leading and most trusted 5G technology vendors. They also have the largest number of leading carriers, but that’s part of the problem. To understand how Europe got here and take a fair and honest look at how 5G is progressing and what gains it will bring, we have to look at the historical and economic factors that have driven communications technology .
First, it’s important to understand that 5G is much more than merely the next G. In the Mobile Magazine piece I positioned telecom, but specifically this watershed, as by any definition a General Purpose Technology beginning with a quote from
Brynjolfsson and McAfee’s “The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies”
“Are we alone in thinking that information and communication technology (ICT) belongs in the same category as steam and electricity? Absolutely not. Most economic historians concur with the assessment that ICT meets all of the criteria given above, and so should join the club of general purpose technologies.”
While ICT naysayers contend that the value of these technologies has already been extracted, they haven’t yet seen the truly mind-blowing use cases to come with 5G. As the ICT of the previous generation shape-shifts into an ether of ubiquitous intelligent connectivity, we can say that we have strong evidence that 5G is essential to global economic growth, and is critical to the EU’s survival.
So far we’ve built single purpose networks and so the GPT label may very well have been premature. 2G was for voice, 3G was an attempt to provide browsing (as a “best effort” data network) and, finally 4G the delivered on that. And as exciting and life changing as the iPhone was it still pales in the company of the printing press or steam engine. In fact, rather than having a General Purpose Technology, to date our telecom networks represent a hodge-podge of single purpose networks.
Europe provides an excellent, and telling case in point as a collage of proprietary networks for many different purposes. TETRA is used in Public Safety, Satellites for TV productions, microwave links to connect electricity stations and in some places we can still find dedicated voice services (CB) for taxi and lorry drivers. Oh, and lets not forget about communications for Air traffic, high seas shipping and a slew of unique military applications.
In purely economic terms these dedicated networks are woefully expensive to use and maintain, and prohibitively so to upgrade. If 4G was our first kick at the can for an economically viable, multi-purpose network and today, it is most certainly the adult in the room. But 4G networks also happen to be very inefficient when it comes to data rates. 5G will be more efficient by factors and dramatically drive down the cost of moving bits from point A to B. That’s good news because the arrival of 5G coincides with the expectation (once but a dream) that in our new, Industry 4.0 paradigm, everything will be automated. This is not merely an incremental development but a game-changing improvement in productivity.
Now considered the jewel in the crown of 5G, Industry 4.0 will certainly happen but it will require a communication network that is reliable, provides high bandwidth speeds, blanket coverage and most importantly, low cost. This is the challenge 5G tries to answer; “one ring to rule them all, one ring to find them” – in this case, industry verticals served by a single network that combines all proprietary networks and at significantly lower cost.
It’s hard to overstate the importance of this for Europe. A manufacturing powerhouse (particularly Germany and Scandinavia), it will come as no surprise the term “Industrie 4.0” was coined in Germany where manufacturing makes up a whopping 25% of the nation’s GDP. This isn’t just about being first to floor on modern factory automation that 5G will enable, it’s key driver is a continent with the highest manufacturing labor costs in the world, and there’s but one path out of that cul de sac; namely taking to the air. Think so called ultra Reliable Low Latency Communications (uRLLC) and massive Machine Type Communications (mMTC) powering countless sensors and gizmos all humming in a concert orchestrated by software. And yet, ironically it is not Bavaria leading the 5G meets x4.0 revolution, but rather Asia where already low labour costs are no less a driver.
So with all of that motivation and native technology advantage what’s holding Europe back. Sure there are those who say the news of Europe’s 5G failings and the US’s lead is all but a lot of bluster. Without getting too deep into the weeds on this debate, and without a doubt Light Reading’s Iain Morris is among the industry’s most reliable observers, his nay saying of any US 5G advantage seems to hinge on less on continental powerhouses DT, (who’s 5G plans begin with a fiber roll out (really?) and Orange’s Definitely, Maybe. Rather, support for the argument seems to hinge on a contention that US companies (specifically their CEOs) are good at marketing, and that Britain’s BT and Vodafone appear to be taking the bull by the horns. Perhaps needless pointing to Britain as an example of Europe’s 5G advances is a bit like showing the bank your ex-wife’s pay stub when re-negotiating your mortgage.
So what are the unique challenges that have put Europe in this pickle? To get there it’s important to frame the main technology differences between 5G and 4G, and, for that matter every G before it. As standalone, purpose built networks, they are a lot more like Frankenstein than, say SIRI or Alexa. They have been designed really only to do what their creator (owner) have decided they should. Although in the case of 4G there is much, much more general control possible, but these features haven’t been widely understood, used or publicized. As it stands, our current mobile air interfaces (4G Radio) aren’t be controlled in anything like the manner that is envisioned for their 5G offspring. In a 5G network for example, you* can order whatever service you need. *It’s important to note that in the language of telecom, you may well be a device, a robot or piece of software. As such, rather than being some monolithic clock, 5G will be driven by APIs (commanding conduits) that are part of a larger ecosystem. This is already the way that we (us and our machines) interact with and experience the Cloud.
So to the rub. Why is this so problematic for Europe? There are two major issues.
- While the US has but 4 major carriers, and soon likely but 3, Europe has over 90 telecom operators. This number, and logic of it carries into the other major markets in India (3) and China (3). For some added background, you may be interested in another of our recent blogs, The Future of Telecom in Europe and the Magic of 3. For Europe, this not only means significantly higher costs, but also lack of innovation. And despite the EU’s yeoman efforts to counter these factors and drive toward a Digital Single Market, regulation remains different in every country and each holds significant power. In sum, Europe is very fragmented market with over regulation and so the “one ring (network or API) to rule them all” vision that isn’t essential to 5G simply doesn’t play well in Europe.
- Another reason why API-based ecosystems are difficult for European companies is based on culture differences. For example, we in Finland are recognized as world leaders in timber extraction. Even Donald J. Trump knows that. Being constant, even obsessive innovators our equipment for forestry harvesting has improved incrementally for decades, uniquely and on its own. This is perfect for Finland, but not necessarily anywhere else in heavily regulated Europe. This kind of small, incremental (Kaizen) approach to product development simply doesn’t fly If we’re talking software, and our Operating System and Database centered technology ecosystem. The software product life cycle is, even in the best case scenario 20 years for companies like Microsoft or Oracle and most of the projects will fail. Thus, there is a major risk that if I start developing the next generation OS or DB it won’t succeed, or if it might seem to it will simply be acquired out of play by any one of the dominant players. As technology will always come before regulation, this poses significant risk in the European context, Those who are success full have taken significant risk.
Though this is an area for another article we can look at two recent effects, and telling examples of both Europe’s relative backwardness and susceptibility to colds from US sneezes. The first was Net Neutrality, first sparked in the US under the Obama administration, and now dead as a doornail. Strangely, however Europe has seemed to have been able to let it go. And now, Huawei, who’s US led blacklisting one might argue will have the largest single and immediate impact on the pace of 5G in Europe. They were the most affordable game in town in a telecom market (Europe) that really needed a price break.
Because the value in the 5G value chain is not in network hardware or devices or even software and virtualization, but in the data devices will generate, if we look at the US and now Asia’s ascendance in the Cloud how can Europe possibly make a dent. Is it even possible for Europe to develop fast enough to capture their fair share? Perhaps the sad answer to this is part of the calculus. If you think about Finnish tree harvester, the value is in the trees the machine will collect. So too with data, and we can safely say that whoever has that data is the one who will win.