I have seen the 5G future in China… and most towercos are not ready

Are international towercos ready to innovate and evolve for the 5G era?

Read this article to learn:

  • New tower build in China before and after the issuance of 5G licenses
  • How much of the densification requirement for 5G will be delivered by small cells on street furniture, as opposed to by new macro sites?
  • What proportion of network capex will be deployed indoor instead of outdoor?
  • New capabilities and competencies: from energy to IBS, edge computing and fibre – provision of contiguous, low latency network-as-a-service
  • Restructuring towercos to serve a new breed of tenants emerging to take space on our towers: from IoT to sensors and advertisers

There are already over 100,000 5G base stations deployed in China. By the end of 2020, there are likely to be over a million 5G base stations in the country – more than the rest of the world combined. The relatively young Chinese tower industry had been remarkable for the pace and volume of new site build: over 570,000 sites were built in China Tower’s first five years to July 2019. But since the issuance of 5G licenses, new build volumes have reduced by two thirds. The focus has shifted to enabling the industrial applications of 5G. What can the international community learn from the deployment of 5G enabling infrastructure in China?

TowerXchange recently returned from our latest trip to China, where we met with the MIIT, the leadership teams at China Tower Corporation and the country’s independent towercos, as well as with communications infrastructure leaders of Huawei and the Shanghai Municipal Commission of Economy and Informationization. We thank them for their hospitality!

As we moved from meeting to meeting, and enjoyed informal conversations with some of the most important stakeholders in Chinese communications infrastructure, a simple fact became clear: 5G is having, and will have, a more transformational effect on the tower industry than perhaps any of our readers have foreseen.

Let me backup that statement with a few salient facts. Despite all the hype that 5G was going to require massive cell site densification, implying amplified new tower build, China’s towercos have almost significantly slowed their building of new ground based towers. China Tower Corporation (CTC) deployed RMB 2bn (US$285mn) to build a staggering 570,000 towers in its first five years to July this year. Since China’s 5G licenses were issued in that same month, July 2019, CTC have built just 20,000 new towers – their new build rate has dropped by almost two thirds. And it’s not simply the case that someone else is building towers: China’s MNOs don’t build towers any more, and China independent towercos report that 2019 has been a slow year for new build for them.

CTC Chairman Mr Jilu Tong openly talks about how analysts will soon stop talking about the remarkable scale and growth of CTC’s tower portfolio – the focus is shifting to co-location growth. CTC’s tenants have already deployed 100,000 5G base stations (roughly 5% of their total tower stock), rising to 150,000 by 2019 year end. There could be close to a million 5G antenna arrays on China’s towers by the end of 2020, all contributing to CTC’s impressive tenancy growth: CTC has doubled the number of tenants on China’s towers since absorbing 1.4mn towers with 1.5mn tenants in 2015.

Much of the heralded densification for 5G is coming from small cells rather than macro sites in China, where 85% of small cells use ‘social towers’ (primarily lamp posts, power towers and monitoring poles).

Much of the heralded densification for 5G is coming from small cells rather than macro sites in China, where 85% of small cells use ‘social towers’ (primarily lamp posts, power towers and monitoring poles)

5G is proving to be at least as much about indoor coverage as outdoor. According to Huawei, more than 50% of new network capex in China (and an even greater proportion of network strategist’s attention) has moved from outdoors to indoors. This is in stark contrast to the forecasts of many stakeholders in 5G in the West, who predict the early stages of 5G will be characterised by overlay on existing outdoor macro structures, with little increased attention paid indoors. Yes the overlay on macro towers will be there, but the continuing denial of the importance of indoor coverage smacks of complacency. The industry use cases for 5G are largely predicated on low latency indoor coverage, and to those who say that those use cases are unproven, I say: visit China, and see the proof for yourself!

The great preoccupation of communications infrastructure stakeholders in China is with enabling the use cases for 5G. Smart airports are being opened, driverless vehicles swoop around smart ports, hospitals are enabling remote medicine – these aren’t concepts on the drawing board in China – you can visit 5G airports, 5G railway stations and smart factories.

So, with attention and network capex shifting from the towercos’ outdoor heartland to indoors, and with MNOs focusing on enabling emerging 5G services, international towercos with an adversarial relationship with their MNO customers need to be acutely aware that they risk being disintermediated from the 5G network equation. New ecosystem partnerships are being forged between industry verticals, municipalities and operators – towercos have got to figure out how they can add value to those relationships, and they’ve got to figure it out fast.

Sure, as an industry we can lean back, stay in our comfort zone of building, buying and leasing macro infrastructure, and we can get a nice boost to our tenancy ratios, tower cash flows, margins and valuations from 5G. But just how much money would that require leaving on the table? Does the tower industry want to become marginalised, removed from the frontline of future network innovation, design and deployment?

Towercos need to evolve into holistic digital infrastructure service providers that enable the 5G revolution. That evolution requires a change in DNA from steel and concrete to signal and service. The tower industry can’t keep ignoring requests to provide services that make the deployment of 5G faster and more efficient. To use just one example: 5G is going to increase the power load on many sites by 2-3x. That’s going push shared backup power systems onto the agenda, even in good grid markets. CTC provides shared backup power as a service to its 3mn tenants. This undertaking makes CTC, specifically its recently formed subsidiary China Tower Energy, the largest consumer of energy storage solutions in the telecom world. And China Tower Energy is a hotbed of innovation in power, from re-using electric vehicle batteries to provision of power exchange cabinets. China Tower Energy wants to extend its footprint to provide backup power solutions beyond the telecom industry: to courier firms, banks, factories and schools. China’s communications infrastructure could become an essential part of the EV charging ecosystem – are you ready to address this opportunity?

Towercos will need new capabilities in the 5G era, their staff will need new competencies. The day 5G commercial rollout begins is the day towercos will experience the unleashing of latent demand for new capabilities and services. Any towerco lacking a robust capability to plan, deploy and manage in-building coverage is at risk of dereliction of duty to stakeholders. Any towerco without a roadmap to leverage their cell sites for edge computing is likewise at risk. Any tower not fiberized will quickly become a liability not an asset in the 5G era.

No-one ever wanted to lease space at one of your locations: that was only ever a means to an end. In the 5G era, your customers, old and new, want to buy ultra-fast, low latency, reliable, contiguous network-as-a-service from outdoor to indoor – and even that will be a mere commodity to enabling the 5G applications which MNOs are depending on to drive future growth.

A new breed of tenants are emerging to take space on our towers: where will towercos play in the IoT equation? Will we lease space or run our own white label IoT services? Where will towercos play in smart cities? Will we host a new array of civic sensors? Will we be a ‘dump pipe’ for raw sensor data, or will we leverage Big Data to aggregate and develop a processed, integrated solution for industrial and agricultural data?

Will towercos learn to sell advertising on their cell sites?

in a 5G world, 33% of CTC’s growth is anticipated to come from services which, for most of CTC’s global peers, are at best at proof of concept phase

If this all sounds a bit ‘leftfield’ and non-core for a towerco, then consider that CTC are not alone in establishing new subsidiaries to explore these opportunities. Many of the aforementioned innovations in China are concentrated in CTC’s TSSAI (Trans-sector Site Application and Information) department, from which CTC foresees deriving 25% of their growth in 2019. A total of a third of CTC’s growth will come from ‘non-tower’ businesses: from TSSAI, from small cells and from enabling ‘intelligent connections’ through CTC’s new Tower Zhilian subsidy. Let me restate this another way: in a 5G world, 33% of CTC’s growth is anticipated to come from services which, for most of CTC’s global peers, are at best at proof of concept phase.

Sceptical readers will claim: 5G won’t come as fast in the rest of the world as it has in China. And yes, we’re all on a different timeline. Sceptical readers will say: CTC has unique access to 7.7mn street light poles, 3.5mn power towers, and 1.1mn monitoring poles in China, and other towercos do not have the luxury of such access to ‘social towers’ or what we would call in the West ‘street furniture’.  But don’t let the unique structure of the tower industry in China lull you into complacency: 5G is going to transform the tower industry. I humbly suggest you listen to and learn from TowerXchange’s friends in China to learn about how 5G will affect YOUR business!

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