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European 5G roadmap slowed by market fragmentation, industry skepticism

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European 5G roadmap slowed by market fragmentation, industry skepticism

As telecom operators in the U.S. and Asia charge ahead in rolling out next-generation 5G wireless networks in 2019, most of their European counterparts are lagging behind amid challenging market dynamics that make investing in costly network upgrades more difficult.

Despite early efforts in the U.K., Germany and France — markets that are expected to lead Europe's 5G rollout — many European operators plan to wait until 2020 to launch 5G. While the next-generation networks promise of faster mobile speeds and increased capacity, years of depressed margins and declining profitability have most European operators waiting on the sidelines to see how 5G pans out for early adopters.

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Leading the U.K.'s 5G deployments are BT Group-owned EE, which plans to switch on 5G sites in 16 cities this year, starting with London, Cardiff, Edinburgh and Belfast, and Hutchison 3G UK Ltd, which plans to deploy next-generation mobile services in the second half of this year. Vodafone Group PLC announced that seven cities would become trial areas at the end of 2018, with 1,000 5G sites expected by 2020, while O2 launched a 5G test bed in London last year.

Vodafone CEO Nick Read said in November 2018 that the company would prefer to "co-lead" the transition to 5G rather than set off an arms race for first-mover status. "We're not going to push them into an arms race. I don't think it's healthy for the industry," Read said during a company earnings conference call.

Dampening enthusiasm for the transition is market fragmentation and relatively low 4G network penetration.

"The European industry has lost 30% of its revenue mobile industry in the last 8 years," Liberty Global PLC CEO Mike Fries said at an industry conference in December 2018, adding that spectrum allocation and licensing are "much more complex" in Europe than in other regions. Europe's mobile operators have long argued that market fragmentation and greater regulation put them at a competitive disadvantage compared to Asian and North American network operators.

Research firm Analysys Mason in a report last year said that the European markets have not made "substantive progress" on 5G, noting that few operators had committed to launching the new technology by 2020. In addition to EE, Vodafone and Hutchison, 5G early movers in Europe include Italy's Telecom Italia SpA and Switzerland's Swisscom AG, which plan on making 5G a commercial reality as early as this year. Finnish operator Elisa Oyj claimed to have launched the world's first commercial 5G network last year. But operators such as France's Orange SA, Germany's Deutsche Telekom AG, Spain's Telefónica SA, and Norway's Telenor ASA are choosing not to launch commercially 5G before 2020.

"In the EU, the decline of the telecom sector has meant massive job losses, reduced research and development budgets, and less investment — not a great set of factors for a region that wants to win in 5G," said John Strand, CEO of telecom consultancy Strand Consult.

Early efforts to prepare for 5G have proven expensive: Italy raised €6.55 billion in the 2018 auction for 5G spectrum, 164% higher than the value of initial offers, according to a government statement, while the U.K.'s most recent 4G and 5G spectrum auction raised a total of £1.36 billion, also above the market consensus of between £630 million and £1 billion. More spectrum auctions are scheduled in the U.K., France, Germany and Spain in 2019.

Despite the high cost to launch 5G, analysts said European mobile carriers have little choice but to join the global race toward the technology.

Independent analyst and former CCS Insight Vice President Paolo Pescatore said there is a supplier-led push for 5G network vendors, semiconductor companies and handset manufacturers, among other stakeholders.

"5G will happen because network vendors and the rest of the players in the value chain are extremely bullish on rolling it out. But do consumers need it right now? Probably not," he said in an interview.

Dean Bubley, independent analyst and founder of industry consulting firm Disruptive Analysis, estimates it will take three to five years for the industry to deliver on the expected advantages of 5G, including increased speed, capacity and better coverage.

"What this means for an application developer or a device manufacturer, is they will not be able to rely on 5G for a long time," he said. "There will be no new 5G applications simply because they will not be able to rely on a 5G connection for some considerable time."