Although the potential to monetise 5G remains uncertain, China is swiftly executing a nationwide 5G rollout, with commercial launches announced this week. Operators in the country are determined to push ahead with the development of standalone (SA) 5G, even though it will likely be more expensive than the alternative of leveraging LTE in support of non-standalone (NSA). The three Chinese operators have talked-up plans to build more than 130,000 5G base stations, covering more than 50 cities by the end of 2019, with Beijing, Shanghai and Guangzhou getting contiguous coverage in their core urban areas. Over the following year, operators will provide coverage for all cities and begin working on SA network upgrades.

If this seems like a big commitment to a nascent technology, that’s because it is. Why, then, does China seem so confident in 5G?

Increasing consumer data demands
Chinese operators are, in part, turning their attention to 5G as a cost-efficient solution to increasing data traffic demand. Data from the China Internet Network Information Centre showed mobile data consumption stood at 7.2GB per user per month in June 2019, some 20 per cent higher than the global average. This grew to 8.4GB in September, meaning operators need to increase the capacity of their mobile networks just to keep up with demand. They can stick to existing 4G technologies, but upgrading to a 5G network provides long-term economic benefits as it operates at a lower cost per bit.

At the same time, 5G will further boost the demand for data, assuming that lower costs result in a reduced price for large data packages (particularly if they can be shared among family members). For example, early indications of 5G pricing plans for the Chinese operators show a 30GB bundle will be 23 per cent cheaper compared with 4G, while a 60GB (or more) bundle will be 50 per cent lower.

Content providers, then, should help spur consumer upgrades to 5G. Video content is a clear 5G sweet spot, particularly as more 4K and 8K content is produced and distributed. The sharing of short videos and live streaming from individual broadcasters in China has been gaining popularity on social media, but the length and quality of videos are currently held back by network performance and data price. In addition, there are about 620 million mobile gamers in China, who generated CNY77 billion ($10.8 billion) in revenue in H1 2019, the China Audiovisual and Digital Publishing Association said. Many of the country’s most popular mobile games are real-time, competitive multiplayer games which suffer from poor image quality and frame rates when network conditions are not ideal. Here the value of 5G is obvious.

Operators can make 5G data more affordable, but they still need consumers to buy 5G handsets. This means consumers need to be able to afford 5G devices. Currently, the cheapest 5G model in China costs around $525 from Xiaomi: in comparison, the lowest-priced model in the UK is the Samsung Galaxy A90 5G at £600 ($770). Going forward, however, China Mobile and China Telecom predict 5G handsets in China will fall below $280 in 2020. Price aside, China offers more phone brands in the market than any other countries. The release and promotion of new handset models by myriad suppliers should also stimulate 5G migration.

Enterprise revenue opportunities
Consumer revenue growth from large data bundle sales cannot be sustained in the long term: ARPU levels will eventually decline as data prices fall. GSMA Intelligence forecasts annual consumer revenue in China will decrease by more than $900 million between 2023 and 2025.

On the other hand, enterprise revenue will become increasingly important for Chinese operators. While NSA 5G can enable enhanced mobile broadband (eMBB), enterprises require greater network flexibility. This provides impetus for operators to develop 5G SA networks.

Smart manufacturing is one key focus area for potential revenue uplift. China’s economy is highly reliant on the industrial sector (41 per cent of GDP compared with 19 per cent in the US) and contributes more total economic value of the industrial sector than the US, Japan and Germany combined. Research by GSMA Intelligence and TMG showed 5G will contribute $470 billion to GDP growth in China by 2034, half of which will come from manufacturing. It’s no coincidence that South Korea, another market with a highly industrial economy (39 per cent of GDP), is likewise pushing forwards aggressively with SA 5G. For example, consider SK Telecom’s work with Samsung to launch SA 5G services commercially within the first half of 2020.

China’s first smart manufacturing production line was built by China Mobile and China Information and Communication Technologies Group Corporation (CICT) in Optics Valley, Wuhan. Using mobile robotic arms to produce massive MIMO antennas, the production line exemplifies a mixed application use case for 5G. Each year it produces half a million products, with CICT claiming an increase in efficiency of 30 per cent due to automation. The factory’s robotic arms, with connected processors and sensors, can move automatically between production processes with data transmitted on 5G. As these are “mission-critical” applications, the operation of the arms requires network slicing and low-latency features which become possible with 5G. Meanwhile less time-sensitive applications, such as video calls and security equipment, are served by eMBB.

Of course, Optics Valley is a highly suitable location for operators to deploy 5G enterprise services: enterprise customers in this area are packed closely together, easily reachable with 5G networks. In addition, operators can manage infrastructure and energy consumption collectively here, reducing costs. China has 168 High-Tech Industrial Development Zones (HTDZ) on a similar scale to Optics Valley, along with a further 20,000 smaller industrial parks. While many of these industrial parks are less developed than the HTDZs, 5G solutions can still potentially be deployed at these locations.

Public service
Manufacturing may be one of the most visible industrial 5G use cases, but it’s not the only one. In China, 5G is also expected to provide solutions for public services. As with most developing markets, China suffers from an imbalanced allocation of welfare resources. In healthcare, the best medical specialists and equipment are usually concentrated in provincial capitals, and people in lower-tier cities may have to travel hours to their provincial capitals, or even outside of their provinces, for medical treatment. All three Chinese operators have seen opportunities in this space and begun to act.

  • China Mobile collaborated with Huawei in March 2019 to allow a chief neurosurgeon in Hainan to supervise brain implant surgery for a Parkinson’s disease patient in Beijing, 2,900km away. The operation took three hours using a network with ultra-high speed and ultra-low latency: the peak transmission rate was 1Gb/s for single users and 10Gb/s for the stations, while latency was under 5milliseconds. The low latency supported by an SA 5G network is crucial for remote healthcare.
  • China Telecom partnered with the Orthopaedic Surgery Robot Application Centre to enable remote orthopaedic surgery using robots and 5G. Multiple remote surgeries have been completed successfully this year, and another 20 hospitals have since joined the programme.

Beyond healthcare and manufacturing, there are more 5G applications on the way. This year, the China Academy of Information and Communications Technology held its second 5G application competition and received 3,731 project ideas. The orthopaedic surgery programme was one of the top-ten winners. However, ideas at the event included applications for smart cities; consumers; manufacturing; healthcare; media and cloud platforms; connected vehicles; and VR/AR.

The demand for innovation continues to drive Chinese confidence in 5G and, with many vendors both inside and outside of China working on 6G, clearly innovation never ends.

Gu Zhang – senior analyst, Forecasting, Strategy, 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.