While the New York Stock Exchange’s 10-stock FANG+ Index has risen more than 300 per cent in just the last five years, an index of U.S. telecommunications companies has risen only 20 per cent over the same period.Sean Kilpatrick/The Canadian Press
Erik Bohlin is chair in telecommunication economics, policy and regulation at the Ivey School of Business.
Ten years ago, when 5G was in the early stages of standardization, industry expected it to be transformational and disruptive in markets and business models. The expected disruption is now replaced by a more sinister one, challenging the foundations of the telecom system.
An investment paradox has emerged in the last several years, both for wireline and wireless networks. While relying on the telecom infrastructure, the so-called Big Tech companies are winning the attention of the consumers and capturing the economic benefits in a value chain with telecom networks as its base.
The tech companies’ innovative and strong platforms and applications wield substantial market power, resulting in stunning market capitalization values. In just the last five years, the New York Stock Exchange’s 10-stock FANG+ Index, which includes the likes of Apple and Amazon, has risen more than 300 per cent.
Over the same period, an index of U.S. telecommunications companies has risen only 20 per cent. An index of Canadian telcos has fared even worse, falling 5 per cent. The introduction of 5G has failed to provide the expected financial benefit to telcos that previous innovations gave them.
The emerging digital ecosystem has become pyramidic in terms of value generation. The telcos at the base serve the internet platforms in the upper application level with value generation and fundamental infrastructures, but the base captures just remnants of the value chain.
Now the emerging problem is that the base will become increasingly porous and hollowed-out because of long-suffering telcos’ inability to invest enough in upgrades and maintenance.
And it is here that 5G is a turning point. Telecom planners have traditionally conceived of a set of generations in mobile networks that have spread around the world, and each generation up until 5G represented a time of intense investment and strong growth. However, 5G may become the last “G”, as any future mobile generation will need the current to succeed.
Government policy needs to recognize how this value paradox affects more core and fundamental concerns of government affairs. The government’s policies, which focus on regulation, seeking to curtail and discipline carriers, will be outdated. Increasingly the public policy priority will need to be focused on investment in telecoms infrastructure.
Otherwise, the erosion of the base in the value pyramid will result in completely new challenges when it comes to resilient infrastructures. It could even affect the tech companies, as the upper layers are dependent on the lower levels in the value hierarchy.
There is no magical technology solution that will solve these concerns. For example, while satellite networks will support resilience and add coverage in remote areas, they will continue to be dependent on mutual investment in fibre broadband and wireless networks. Finding the right mix of policy support for these mutually reinforcing networks is paramount.
There is a fork in the road for government. Canada, with its huge geography and vulnerable population, has challenges when it comes to infrastructure.
The lack of success with 5G signifies a new and unexpected disruption, with potential far-reaching impacts. What is needed is an increased dialogue between industry and government in terms of objectives and long-term development of its infrastructure on welfare, even on climate change and resilience. This dialogue is of increasing importance for Canada, with its infrastructure needs, complex regulatory conditions in telecoms, and sometimes acrimonious debate.