The deployment of 5G networks and the sale of compatible smartphones are growing rapidly, reaching 1 billion 5G subscriptions by the end of this year, according to the GSMA forecast released at MWC. In Europe, however, the adoption of new mobile networks remains unexcited, neither in companies nor in consumers. Only large European manufacturing industries are expected to have 5G networks, and private ones, to improve their processes in a relatively short time. The situation worries mobile operators, especially European ones, because they have not yet found a way to make the investments they must make profitable, as was made clear at the MWC in Barcelona.
Global mobile telephony currently has 1,400 operators, with 80 large groups, and the GSMA estimates that there are 5,000 networks, with 30 million data points that are updated daily. This mobile phone industry served, by the end of 2021, some 4.2 billion mobile Internet subscribers worldwide. This means that 53% of the entire world population is subscribed to mobile Internet.
The GSMA, the association that brings together the majority of mobile phone operators and is responsible for organizing the MWC last week, estimates that by the end of 2025 there will be 5,000 million mobile Internet subscribers, with a penetration of 60 % of the world population, according to the report The Mobile Economy 2022 presented during the MWC Barcelona.
The GSMA report forecasts that European mobile operators will invest 120 billion dollars in networks between 2022 and 2025, 91% in 5G, but the economic uncertainty derived from Ukraine could delay these plans
This figure is logically much higher if all mobile phone subscribers are counted. The GSMA estimates that there are now 5.3 billion unique subscribers, two-thirds of the world’s population, and by 2025 there will be 5.7 billion, 70% of all people. This means that between the end of 2021 and the end of 2025 there will be 400 million new mobile phone subscribers. A high figure, but reduced in relation to the growth experienced at the beginning of the last decade. The already very important degree of penetration means that in the coming years the annual growth of mobile subscribers will be very low, at 1.8% per year.
Mobile Internet subscribers will grow a little more, 4.5% per year until 2025. It is expected that there will be 800 million new mobile Internet subscribers in 2025 (from 4,200 to 5,000 million) and there will still be 700 million users with a mobile phone without Internet. There will be twice as many new mobile Internet subscribers as mobile subscribers in the coming years because many of the latter will switch to mobile Internet with smartphones, from 2G and 3G to 4G and from 4G to 5G.
The growth margin for mobile Internet is therefore high, as it is for the industry as a whole. That mobile Internet penetration is 60% in 2025 means that 40% of the world population will not have it by the middle of this decade; that is, there is a total potential market of 3.33 billion (human) users for the second half of the decade and beyond. Users who will not have their own mobile in 2025 will be logically lower, 2,630 million, with the previous population assumptions.
The GSMA also uses another parameter to measure the scope of the mobile industry: it is the usage gap, referring to those people who live in areas covered by mobile Internet services but who are not subscribed to these services. In 2021, the association estimates that the usage gap was 3.2 billion people, about 41% of the world’s population. This is a high figure considering that the investments in mobile infrastructure made by operators in the last ten years have meant that people living outside the area covered by mobile broadband networks have gone from being a third of the total to 6% of the world’s population today.
The reasons why there is a relatively high number of the population that do not use mobile Internet are varied and vary widely from region to region but, in general, GSMA points out, it is due to the lack of economic availability, relevance, knowledge and skills, apart from of the fears to use it and the lack of security. In the report, it is highlighted that there are segments of the population that are especially disadvantaged and, especially, in sub-Saharan Africa. Access to digital technology is considered important, but it must also be taken into account that other services are equally or more necessary, such as drinking water or electricity, not to mention health and respect for the environment.
This year will end 1,000 million 5G subscriptions
The mobile industry foresees high growth in mobile telephony over the next four years, especially for 5G connections. As has been said, by the end of this year there will be 1,000 million 5G connections and by the end of 2025 twice as many, 2,000 million. This year, however, 4G adoption will begin to decline, while 3G adoption will fall below 20%, while 2024 will see 20% 5G adoption.
The GSMA estimates that by the end of 2025 a quarter of mobile connections will be 5G, three times more than by the end of 2021, which was around 8% globally. The percentage of 4G connections will drop slightly in the coming years, from 58% in 2021 to 55% in 2025, as will 3G connections, which will remain at 16% in the middle of this decade compared to the current 20% and 2G , which will fall from the current 13% to 5% in 2025, as indicated by the graph below.
The outlook for the global mobile industry is relatively rosy, because there is room for growth, and 5G networks should keep the momentum of recent years greased. We must not forget, however, that the most profitable markets are highly exploited and saturated and that 4G networks make mobile telephony work perfectly and cover most of the needs of consumers in the short and medium term, added to the strong expansion of fiber optics for fixed broadband networks where they are scarce. The profit margins for operators to continue investing and for the market to continue to grow are therefore getting smaller.
The macro figures of the world mobile industry also hide a very worrying reality for European operators. According to last February’s update to Ericsson’s mobility report, last year closed with 660 million 5G subscriptions globally, the same as forecast in the same company’s November report; therefore, the bulk of 5G growth has already occurred, especially in 2021.
This year, there should be 340 million new 5G subscriptions, reaching the 1 billion forecast by the GSMA, a figure similar to that of 2021. For the next three years, between 2023 and 2025, the GSMA report points out that there will be 1,000 million new 5G subscriptions, until reaching 2,000 million, as seen in the upper graph of the key figures for the industry until the middle of this decade. Grosso modo, therefore, the average number of 5G subscriptions in this first half of the decade will be around 330 million per year.
The number of 5G subscriptions so high in the last two years is due to a single country: China. In Ericsson’s report from last November, it is detailed that China had 228 million 5G subscriptions at the end of 2020 and by the end of 2021 the company forecast 460 million. In North America (United States and Canada) there were 80 million 5G subscriptions at the end of 2021 and only 31 million in Western Europe, and another two million in Central and Eastern Europe. In Northeast Asia (basically South Korea and Japan, because China is separate) there were 57 million 5G subscriptions in 2021, up from 19 million a year earlier.
The previous global figures of 5G subscriptions admit many nuances, because different frequencies are mixed, 5G networks very dependent on 4G at the trunk level, especially in the West, 5G subscriptions that are not used because they do not have compatible smartphones or there is no coverage where they would need, apart from the fact that it is not clear if the DSS are accounted for. What is indisputable is China’s current supremacy in 5G is undisputed, having more than twice as many 5G subscriptions as the entire rest of the world, according to Ericsson.
In Europe, 4% of subscriptions are 5G, compared to 29% in China
In the GSMA report, it is said that 29% of mobile networks in greater China (including Taiwan) are already 5G, and almost all the rest, 69%, are 4G, leaving a meager 2% for 2G and 3G. In contrast, in Europe, only 4% of current mobile connections are 5G; 75% are 4G, 15% 3G and the remaining 6% 2G, as the chart below indicates in this year’s GSMA Industry Economic Report.
In North America, the presence of 5G is higher than Europe, with 13% of the total connections, although it must be taken into account that the vast majority are low-frequency, from T-Mobile US and AT&T. 4G represents 78% of mobile connections in the American region, 3G 6% and 2G 3%. In Asia Pacific, only 2% of connections are 5G and 64% 4G in the GSMA classification, where South Korea and Japan join India, Pakistan, Australia and Mongolia and all the countries of Southeast Asia, for what the 5G data lacks real meaning when compared, for example, with North America.
The same GSMA report indicates, however, that 5G subscriptions will be very high in Europe and North America at the end of 2025. In other words, in the coming years there will be a very significant increase in 5G subscriptions, in relation to the population. and with the current mix expressed in the graph. In Europe as a whole (without Russia, Ukraine and Belarus) 44% of connections will be 5G in 2025, while 4G will be only slightly higher, 51%, and 3G and 2G will be a minority, 5%. Mobile phone penetration will hardly change in Europe in the coming years, from 86% to 87%, but smartphone adoption will rise from 79% to 83%.
In Europe as a whole, only 4% of current mobile connections are 5G and 75% are 4G, although the GSMA forecasts for 2025 suggest that 44% of subscriptions would be 5G and 51% 4G
In the United States and Canada, the presence of 5G will be overwhelming in the middle of this decade, with 63% of connections 5G and 31% 4G, while the presence of 2G and 3G will be very similar to today. In Asia Pacific as a whole, 5G connections will grow from 2% in 2021 to 14% in 2025, while 4G will go from 64% to 69%. In the countries of the Soviet orbit, the CIS, with Russia, Ukraine, Belarus and Central Asia, the presence of 5G is now testimonial and by 2025 it will be 9%, according to the GSMA, with forecasts made naturally before the invasion of Ukraine from Russia. In Latin America, the percentage mix of 5G will be slightly higher than that of the CIS by 2025, 11%, and much more in the region of North Africa and the Middle East and Turkey and Iran (MENA in the report), from 1% in 2021 to 17% in 2025. In sub-Saharan Africa 4% of subscriptions will be 5G in 2025.
The evolution to 5G will be very different according to the regions and the number of connections will also be very varied, as indicated in the graph above. The global average of 5G connections may be 25% in 2025, but with a high dispersion depending on the region of the globe. In developed Asia Pacific (Japan, South Korea, Australia and Singapore) the forecast is that there will be 195 million 5G connections, with 64% penetration, and 892 million in China (with Taiwan) with 52% penetration. In the rest of Asia Pacific, although 5G penetration will be low at 8%, there will be 222 million 5G subscriptions.
Altogether, of the 2,000 million 5G subscriptions in 2025, Asia will have 1,309 million, 65% of the world total, with a penetration greater than 50%. In the United States and Canada, 5G penetration in 2025 will be 63%, almost as much as in Japan, South Korea, Australia and Singapore, but with 272 million subscriptions, 14% of the total. In Europe, although the penetration will be lower than in the United States and Canada, at 44%, there will be more 5G connections, 304 million, as seen in the graph of the GSMA report. Penetration will also be high in the Arab countries, with 41 million connections and a penetration of 49%.
An investment of 620,000 million until 2025, 65% in 5G
Mobile operators will invest a total of 620 billion dollars in networks between 2022 and 2025, as the graph below indicates, and 85% of this total will go to 5G networks. In Europe, the investment in these three years will be in the order of 120,000 million dollars, and 91% of this Capex will be 5G. The investment in the United States and Canada will be much higher than that of Europe, almost 200,000 million, and 98% 5G.
In Asia Pacific, the investment in networks will be proportionally quite low in relation to the population, about 270,000 million dollars, and with 84% destined for 5G. The vast region that Asia Pacific represents and its great variety, as well as a large part of the investments in 5G have already been made, especially in China and South Korea, justify this relatively low investment compared to the United States and Europe.
These high investments necessary for the massive deployment of 5G are of particular concern to European operators, because they do not see a quick return on investment, due to the little interest shown by consumers and companies in general, even in large markets such as France, Germany , Great Britain, Italy and Spain.
At last week’s MWC, the large European operators expressed concern about the state of the industry, despite the typically euphoric climate that prevails at these events. As stated in last week’s analysis, the heads of Telefónica and Vodafone publicly demanded an honest assessment of the financial health of the telecommunications sector in Europe and the necessary collaboration in which governments and industry jointly develop a comprehensive digital plan and of course so that Europe remains competitive.
The worsening of the situation in Ukraine in recent days is wrecking recovery plans now that the pandemic is more under control, but the telecommunications situation continues to be a priority, like other of the many challenges Europe is facing. Just yesterday, the Spanish subsidiary of Orange and MásMóvil announced a negotiation process to create a joint operator in Spain, controlled equally by both companies, which would place it just behind Telefónica and well ahead of Vodafone. Spain would then have three large mobile operators, although Digi, a Romanian operator that is growing a lot lately, could become a fourth of some importance, if, as expected, the divestments that Orange and MásMóvil will have to face are done so that give the green light to this process of concentration.
The mobile telephony situation in Europe is so complex that, in Italy, the dominant operator, TIM, has been forced to split into two to deal with plans by the US investment fund KKR to segregate its fixed telephony networks into one new entity. Last year, TIM had a loss of 8.7 billion euros, largely due to the write-down of assets totaling 7.9 billion euros.
If the momentum of 5G was expected to be weak for this, due to the sluggishness of consumers and industrialists to subscribe massively, the forecast of the increase in inflation, the increase in the price of raw materials and now the crisis in Ukraine and the more than two millions of refugees further cast a shadow over a roll-out of 5G networks in Europe that should take place from the middle of this year and that will now probably be delayed by a few months.