5G - Rise of the Machines

Equity Research Telco

See important disclosure at the back of this report www.danareksa.com

Wednesday,19 June 2019

Telco OVERWEIGHT

5G - Rise of the Machines

We observed 5G technology firsthand at Ericsson’s exhibition courtesy of Indosat and note that 5G may dramatically change the user experience and business productivity. Equipment makers and 3GPP are in midst of developing the technology to create viable & lasting use cases for telcos. The power struggle for control of 5G technology is ongoing and we are tentatively neutral as this may affect 5G rollouts even in laggard countries such as Indonesia. 5G leap in improvement for the user experience and industrial productivity. 5G will not replace 3G/4G, but create more usage using 4G foundation blocks. 4G continually evolves; hence the name long-term evolution LTE, but with 5G there will be a quantum leap improvement in throughput, latency, number of devices served, and reliability. 5G use cases are expected to radically transcend communication boundaries in the lives of people with augmented and virtual reality in gaming, shopping, and communication. The global number of vehicles is ~1.4bn representing a largely untapped market in 4G, while industrials look for greater efficiency, automation, big data and analytics for smarter business and manufacturing. 5G is not cheap, is a lengthy and complex process - yet enticing. For starters, 5G requires network transformation by decentralizing the computing and storage functionalities across network and a shift more towards the “edge” to serve IoT cases. The network needs to be softwarized, virtualized on the cloud envisioning zero-touch networks and minimizing human intervention. Most importantly, it will require further investments in new BTS and antenna elements, further network densification with towers and microcells, major improvements in backhaul/transport network and new spectrum. For sure, telcos are working towards a 5G-ready network. Indo providers are expanding 4G, fixed broadband, backhaul and radio to the greatest extent possible while waiting for new spectrum. Overall, we don’t think telcos find 5G use cases compelling currently except for the gaming and FWA applications in our opinion. Instead telcos may be more convinced with 5G cost/GB coming down even tenfold as per Ericsson expectation. The Huawei turmoil may or may not end early. Huawei gained market share becoming the top player in network gear and is now a prominent contributor in 5G research gaining share over Nordic and US makers in patents and influence in setting 5G standards. Another battle ensues when the setting of 5G spectrum standards is due in late 2019. Western countries are taking steps to limit Huawei’s influence. All in all, we think the power struggle is rooted in China 2025’s ambition to become 70% technology independent and to isolate western companies from the markets that it controls. We are neutral on 5G and the ongoing power struggle. Telcos are currently shopping around for the latest technology. Banning Huawei from Western markets may force Huawei to sell network gear at lower prices, but telcos may opt to pay a premium in return for politically safer options. Banning Huawei from using Android OS and chipsets will force Huawei to release its own solutions leading to market fragmentation and reconfiguration of the global value chain to possibly drive production and logistic costs higher.

TLKM relative to JCI Index

xxxx

EXCL relative to JCI Index

xxxx Source : Bloomberg

Niko Margaronis

(62-21) 2955 5888 ext. 3512

[email protected]

Target

Price Market

Cap. P/E (x) P/BV (x) ROE (%) Company Ticker Rec (Rp) (RpBn) 2019F 2020F 2019F 2020F 2020F

Telkom TLKM IJ BUY 4,300 375,445.8 19.5 18.5 3.4 3.1 17.7 XL Axiata EXCL IJ BUY 3,600 30,674.4 73.2 43.3 1.6 1.6 3.7 Indosat Ooredoo ISAT IJ BUY 3,100 17,116.9 n/m n/m 1.8 2.2 (18.0)

2 www.danareksa.com See important disclosure at the back of this report

5G quantum leap to enhance productivity

5G is a quantum leap in connectivity with tremendous opportunities for users, but it also sets the stage for large-scale improvements in business and industrial productivity. Industries such as healthcare, manufacturing, and the auto industry are already adopting technologies and would become more connected thanks to 5G’s much lower latency and faster data rates, significantly higher reliability and ability to support an increasing number of user equipment UE.

Exhibit 1. Key 5G expectations

Source : Ericsson

5G and 3GPP* (The 3rd generation partnership project) define the specifications of 5G driven by certain requirements:

Extremely low latency and full autonomy against loss of network connectivity that requires computing capacity in the device itself, eg. self-driving cars. Autonomy and security secure ownership of the network. Computing capacity and storage resources stay in own areas enabling a better sense of control and security, eg. factories and assembly lines. Resilience facilitates the handling of failure cases in cost effective ways. More decentralized functions lessen the impact of failures, eg power plants. Network scalability is possible in 5G, by avoiding the sending of massive volumes of data all the way to centrally located datacenters, eg. surveillance cameras real time processing on the edge, instead of in the core server. Regulation requires data to be stored within national/regional borders or business facilities, eg. financial data to be stored within a country.

*3GPP is the Third-Generation Partnership Project, an international body of representatives from telcos, equipment makers and seasoned technical expert groups who collaborate and decide on wireless standards incl. 5G. 3GPP designs how 5G networks are built and check on the essentiality of declared patents. Owning verified patents in 5G will secure fees/royalties for equipment makers for their use.

1-10Gbpspeak data rates

≥ 1mn devices /km21000x more data volumes

Low costDevice cost reduction

3xSpectral efficiency

5xNW energy efficiency

5xLower latency down to 1ms

Enhanced MBB

Enterprise and

Industry

Massive IoT

Broadband IoT

Critical IoTIndustrial

Automation IoT

Network slicing

3

www.danareksa.com See important disclosure at the back of this report

Exhibit 2. The driving forces for 5G

Source : Ericsson

Exhibit 3. Industry to serve 3 distinct families of use cases as proposed by 3GPP

Source : Ericsson

Enhanced (extreme) mobile broadband & Fixed Wireless (eMBB): 5G Builds on LTE's Speed and Efficiency to be rolled out first and to use the functionalities of existing 4G LTE architecture. This gives users much higher download speeds for smartphones and other devices, up to 10x faster using augmented and virtual reality AR/VR as well as full duplex /simultaneous video calls between many parties. AR/VR is ideal platform for many applications incl. gaming, hologram call, advertising/promotion. Ericsson identifies 31 such use cases and their timeline to go mainstream (pls see graph).

Critical - uRLLC

4


Exhibit 4. Use cases and timeline to go mainstream

Source : Ericsson

- Households with FWA; use case with immediate results. FWA offerings

for stationary internet have been on the market for several years worldwide. 5G may provide 10-100x more capacity and higher data throughput rates than 4G (currently ~1Gbps peak) and enable cost-efficient last mile connections on a larger scale as 5G can serve more UEs within a radius.

- Turkish Turkcell launched the 4G FWA premium service Superbox in August 2017. aiming to serve customers with no access to fiber-based fixed broadband or those dissatisfied with copper-based ADSL connections. Verizon (US) deployed 5G based FWA in 11 cities in the US using Millimeter wavelength spectrum in the 28/39GHz bands. In combination with massive MIMO and beamforming, it achieved 300-1,000Mbps in a radius of 1km from the site.

- Exhibit 5. Wireless Fixed Access solution FWA

Source : Samsung electronics

5


- Immersive gaming with 5G and advertising opportunities. A niche

market but excitement is there for playing graphically complex titles on low-powered devices thanks to the cloud and fast internet. Google and Microsoft are making their bets on cloud gaming by showcasing their products at the E3 annual gaming convention in Los Angeles. Microsoft’s xCloud gaming service will be launched in October while Google Stadia is expected to come in November. Low or zero latency from 5G is a key catalyst which will allow immersion through virtual or augmented reality with no delays which would lift gaming to another level. Marketeers can target game-centric advertising with esports sponsorships, interactive content or product placements.

- Health Care. 5G can advance more personalized, data-driven medicine, partly via wearable technologies to monitor the physical, emotional and mental condition of patient in real time. Currently Grab Singapore tests drivers for mental fatigue. In 5G remote robotics-assisted operations can be performed, even partially automated surgeries.

uRLLC and mMTC to get traction when networks fully adopt 5G in 2024-26 Ultra-reliable low-latency communications (uRLLC): this standard employs robotics to operate autonomous machines with no gaps in communication for mission-critical applications such as autonomous vehicles and manufacturing. This type of services requires high investments to get the capacity and antennas nearer to roads and buildings or edge of the network. Massive machine-to-machine communications (mMTC): This segment is designed to handle up to millions of sensors and other “edge” devices that will communicate with each other. Sensors and drones with cameras will constantly check temperature, pressure, vols, damages, attacks and other gauges sending the data to the control room for analytics and decision making.

Ericsson’s equipment maker portfolio

5G is the latest network generation technology and we looked firsthand at the 5G services offered by Ericsson. We made use of their knowledge and materials to showcase the benefits of 5G. Ericsson has lost market share in recent years from Huawei mainly and ZTE. However, Ericsson is a long-standing player and key contributor for patents and the formulation of 5G specifications.

Exhibit 6. Global Mobile – equipment market share

Exhibit 7. Global LTE Mobile Infrastructure revenue share

Exhibit 8. Worldwide Service provider equipment market

*Equipment includes Broadband access, microwave, mobile RAN, Optical, routers, Wireless packet core etc.

Source: HIS, Bloomberg Source: HIS, Bloomberg Source: Del’Oro Group

6


Ericsson portfolio of key network services

Exhibit 9. Ericsson end-to-end network offerings

Source : Ericsson

Ericsson offers design expertise of end-to-end 5G network, decentralized across its radio access, transport, in cloud native environment. It features the two networking architecture functionalities in 5G: a) software-defined networks SDN and b) network function virtualization NFV. Essentially the network is run based on data analytics and Artificial Intelligence, while the network orchestration between radio, transport and core network is evolving dynamically which will eventually lead to zero touch involvement. The beauty of 5G core network – serving many based on agile architecture. The 5G Core is service-based architecture to support all the 5G use cases. We think the key attribute is the shared data layer, the evolved packet core EPC, 4G’s main function – enabling multi-edge computing, allowing for the distribution of user traffic closer to the edge according to needs for low latency requirements. (see figure).

Exhibit 10. Network decentralization to serve many use cases

Source : Ericsson

Beamforming process

Layer 1 Processing

Layer 2 Processing

Pocket Processing Function

Radio Control Function

MBB

eMBB+

FWA

Massive IoT

CriticalIoT

Distributed cloud

Cloud Core

7


Network slicing innovation. Breaking down core network processes, 3GPP and Ericsson are able to “slice the network”. This way, telcos will have capability and capacity to address business needs with adjustable SLAs and billing. It becomes economically viable and technologically possible to address smaller niche market opportunities to serve based on bandwidth requirements and latency using the same spectrums.

5G to be deployed in two phases: A) Bridging 4G with 5G

A) is the non-standalone 5G and adds potentially breakthrough capabilities to existing 2G/3G and 4G Evolved Packet Core EPC mobile infrastructure. The dual mode (4G/5G) network, is steppingstone to telcos to deploy 5G radio access (5G BTS) alongside 4G BTS and introduce 5G technology faster to the market. B) Machine Revolution with standalone 5G The second, full standalone 5G (SA) includes the ultra-reliable low-latency and massive machine-to-machine (M2M) communications for their full automation and connectivity in IoT environments. Below is a diagram of available options for connecting the core network with radio access. 3GPP & Ericsson offer the flexibility to use LTE evolved packet core EPC using two radio access networks (RANs), the 4G BTS and a 5G BTS. One RAN acts as master BTS and the other as secondary to communicate with each other. Exhibit 11. 5G architecture – to rely on 4G evolved packet core (EPC)

Source : Ericsson

8


Exhibit 12. Network slicing financial benefits as per BT – 5yr base case results

*Contribution: revenue – impacted opex and capex

**Subset of opex that can be influenced by network slicing

Source : Ericsson mobility report 2016, BT Telecom

Speed Boosters in 5G Ericsson Massive MIMO and Beamforming solutions for different scenarios Network access is offered via 5G new radio that encompasses massive MIMO (Multiple input – multiple output) technology as well as beamforming. MIMO already supports local telcos using the 4T4R variation in 4.5G, but it will be significantly scaled up in 5G by increasing antenna elements significantly more. It uses larger scale antenna systems focusing on smaller regions of space to bring huge improvement in throughput using same amount of frequency spectrum. Network throughput = Sites density x Spectrum x Spectral efficiency Adding more sites is expensive. Also, spectrum is a scarce resource. Improvements in spectral efficiency are feasible by improving technology and upgrading the base stations with MIMO.

9


Spectrum The 2G,3G and 4G technologies have primarily used sub 6GHz (allocated 450/850/900/1800/2100/2300 MHz) - carrier frequencies but 5G is expected to use centimeter waves (10GHz-30GHz) and millimeter waves (30GHz-300GHz) which opens room for more devices UEs to come into the market. The more spectrum availability in C.meter and M.meter bands opens room for multi-gigabit wireless data communications.

Exhibit 15. Millimeter wave spectrum to use higher bandwidth and provide room for more devices

Source : CB Insights

5G Territory: 24-86 GHz

3

AM Radio 500 - 1700 kHz

2 GHz

Broadcast television

500 - 800 MHz

GPS1.2 - 1.5 GHz

Satelite Radio2.2 - 2.4 GHz

Bluetooth2.4 GHz

Wifi2.4 GHz

Weather Radar2.4 GHz

5 GHz

Satelite TV13 - 18 GHz

30 GHz

Police Radar12 - 37 GHz

50 GHz

Government and Industry Line50 - 300 GHz

300 GHz

Penetrable Line-of-SightSemi-Penetrable

Lowest Radio Waves Microwaves Infrared Light Ultraviolet X-Rays Gamma Rays

3 kHz 300 GHz

Exhibit 13. Massive MIMO technology Exhibit 14. Beamforming

Source: Ericsson Source: Ericsson

10


IoT – Ericsson meeting a diverse set of use cases by slicing the network

Devices and machines are no longer just end points with end users, but they are becoming integral parts of the networks. Ericsson has outlined cellular IoT evolution in four market segments:

Exhibit 16. Ericsson cellular IoT portfolio

Source : Ericsson

Massive IoT. This includes wide-area use cases, connecting massive numbers of low-complexity, low-cost devices with long battery life and relatively low throughput. Support is already being provided in today’s LTE networks with narrowband NB-IoT and 5G will further massive IoT to cover a lot more devices and provide seamless connectivity with the cloud.

Broadband IoT. Broadband IoT and M2M (machine-to-machine) will be a big chunk to account 35% of Cellular IoT connections by 2024 to improve user experience. Its already getting traction with 4G LTE with room for more innovation in smart home to include multimedia entertainment, energy management and home security. Lots of information waiting to be collected from users with sensors and drones, analyzed and act on it using AI.

- Transport & Logistics. 5G and autonomous vehicles will revolutionize shipping and logistics with vehicle to everything communications (V2X). It may mean that autonomous trucks and "ghost" cargo ships maybe linked/connected, with room to improve efficiency in fleet management. The Port of Hamburg has begun installing sensors on ships to track movements and environmental data in real time, enabling employees equipped with smart glasses to visualize the action, via augmented reality, improving traffic flow and efficiency.

Critical IoT. This segment includes both wide-area and local-area use cases that have requirements for extremely low latency and ultra-high reliability for complex use cases such as interactive transport systems in the automotive industry, utilities, smart grids with real-time control over energy consumption levels.

11


Exhibit 17. Cellular IoT to find number of applications in Connected vehicles

Source: Ericsson

- Autonomous driving. The automotive sector is likely to see some of the biggest changes. Everyone from Apple Inc. to Uber Technologies Inc. is looking to build self-driving cars. These are expected to generate enormous amounts of data in real time which will need 5G speed and capacity to fully process the information and act on it in low latency.

Exhibit 18. Vehicle-to-Everything communication applications

Source : Kocaeli university, Electronic & Communications dissertation, 3GPP

Industrial Automation IoT. This segment consists of very specific use cases influenced by Industry 4.0, with the most demanding requirements from manufacturing and industrial sites. Time-sensitive networks, industrial protocols and very precise execution are needed. The factory of the future will also rely on 5G to enable augmented reality, autonomous mobility, sensor networks and machine learning. The result will be "extreme automation" and dramatic advances in productivity.

Exhibit 19. Eg. Cellular IoT for Smart manufacturing – all to form one private network

Source : Ericsson

Industrial IoT

Critical IoT

Massive IoT

Broadband IoT

Inventory Management Trucking and logistics Audio/Video Cam (AR/VR)

12


Exhibit 20. Future private networks

Source : Arthur D. Little

Reality checks for 5G in Indonesia

The end-to-end 5G standalone rollout is expected to be a long project taking more than a decade to develop as it will be the most complex and expensive generation technology. SDN networks and NFV functions will not happen overnight. The pace of 5G deployment for a developing nation such as Indonesia will depend on local and universal factors. 5G deployment will largely depend on: a) 5G commercial launches and smartphone/devices availability coming from abroad (US, South Korea, Japan and Spain launched 5G commercial service with more expected launches to come forth in 2019-20), b) success criteria for the available use cases in Indonesia, c) the ability to manage annual spending budgets to support 4G/5G and FWA. The recent turmoil from attempts to exclude Chinese makers from future technologies may weigh on the latter.

Exhibit 21. Ericsson 5G deals

Source : Ericsson

13


There are a few factors before launching 5G.

- Spectrum availability in Indonesia is scarce, and any new spectrum will be valuable for running the existing networks, let alone for 5G. The choice and amount of 5G spectrum for later auctions is strategic for telcos to determine future 5G business models. Also, conditions might make it necessary to allow roaming or other forms of network sharing incl. spectrum to accelerate deployment. In this framework, virtual operators’ MVNOs might come to the fore to serve niche markets operating on leased capacity.

Exhibit 22. 3GPP releases

Source : 3GPP

- Indo telcos may not be far away from 5G-readiness, as they have already launched extensively 4.5G - equivalent for 4G LTE Advanced Pro with advanced MIMO but with rather limited throughput. Theoretically, the telcos’ networks are 5G-ready, as they are 1-2 steps before non-standalone 5G implementation.

- Fixed broadband/fiber household penetration is catching up in a mobile-first country, particularly since the launch of Telkomsel Indihome with extensive rollouts. Home connectivity is the predecessor phase prior to smart home and smart city applications in 5G. This should be considered the predecessor phase of smart home and smart city applications in 5G. If telcos are reluctant or if it is not feasible to roll out fiber for the last mile, 4G/5G based FWA may enable the connection.

- 4G BTS antennas are added/upgraded consistently by all telco players based on company data, a prerequisite for non-standalone 5G solutions. They are soon expected to surpass the number of 2G/3G BTS as 4G adoption grows in Java and ex-Java. However, network density is stretched to the bare minimum to save costs.

- Telkomsel announced deal with Ericsson to install NFV for virtualization of its network. Equipment makers work closely with operators to streamline operations as the 5G roadmap ahead is complex. In the MWC Barcelona congress, the Indo telcos returned back with deals to enhance their networks. Indonesia receives strong interest as it becomes the 3rd largest smartphone country surpassing the US, and because Indonesia has structural inefficiencies in infra where IoT can maximize benefits.

Exhibit 23. Country Smartphone connections by 2025

Source : GSMA

2025

rankCountry

Smartphone

connections, 2025 (mn)

Change in rank

since 2018

1 China 1,458 -

2 India 1,171 -

3 Indonesia 410 +1

4 USA 346 -1

5 Brazil 204 -

6 Russia 187 -

7 Japan 162 -

8 Pakistan 146 +14

9 Nigeria 143 +11

10 Bangladesh 134 +11

14


- …The IoT can potentially raise Indonesia’s productivity. For IoT, Indonesia has unique requirements and is gaining knowledge with narrowband IoT applications in line with the 4.0 industry. IoT sensors and devices can be imported from China where IoT is blossoming in a number of applications, and help transfer knowledge in manufacturing those.

- 5G calling for more fiber, tower sites & microcells, data centers. Telkomsel has incorporated budgets to build data centers, while XL Axiata financial leases increased considerably last year for fiber and tower orders, while racing to fiberize transport networks. Data centers, towers & small cells, and fiber are all prerequisite elements for non-standalone and later standalone 5G around 2025. In the higher frequencies over 6GHz propagation needs clear line of sight path – i.e. the signal cannot travel through buildings, trees, rain or other obstacles. Thus, more small cells or sites are needed to reroute the traffic. Telkomsel has the most resources and financial might to finance those leases while smaller telcos will be pressured to deepen partnerships, consolidate, or share their networks. Palapa ring installations is by no means negligible backbones.

- Ability to raise ARPU. ARPU levels have remained compressed compared to neighboring countries predominantly due to intense competition even during the 4G era. This may change in 5G due to larger capex commitments required and because of the additional use cases that telcos can offer with 5G. Dimensions in 4G pricing lie on data rates and vols. subject to rationality of the competitive landscape but with 5G the latency, differentiation of specifications and QoS should increase the pricing power thanks to network slicing (Pls see PWC models). Nonetheless, our impressions with local telcos is that the near term 5G use cases do not yet look so compelling for them with the exception of gaming. 4G offered and still offers (as many users are still on 2G/3G) dramatic improvements in user experience in video content and apps but with 5G the upside appears limited while target groups seem to lack scale currently.

Exhibit 24. Generic revenue models in 5G

Source: PWC

Typical 4G business model 5G "connectivity" model 5G "solution enabler" model 5G "solution creator" model

Telco

Customer Third party

Flow of service Flow of money

Pricing dimensions• Speed• Allowance

Digital multichannels

Telco



Pricing dimensions• Speed• Allowance• Latency• Quality of

service/reliability


Telco




Telco




Pricing dimensions• Speed• Allowance• Latency• QoS/reliability

Pricing dimensions• Speed• Allowance

• Latency• QoS/reliability

15


- Cost savings might be the strongest argument yet for 5G. Indonesia is a laggard country when it comes to adoption of new generation technology primarily because telcos wait for the technology and devices to become more affordable. However, they might have one strong incentive this time related to cost savings. Ericsson claims that with 5G, the cost per GB can come down tenfold. An Ericsson case study from Verizon, shows cost/GB savings with the use of micro cells and MIMO technology.

Exhibit 25. 5G economics, case study Verizon

Source: Ericsson

Telco-geopolitics of the 5G standards - Power struggle among superpowers

We think a) economic motives and b) national security concerns are strong reasons for concern among leading countries,when it comes to 5G technology ownership & control related to autonomous vehicles, smart cities, factory automation, private networks, big data and AI.

Previously, US firms dictated the 3G and 4G tech developments, while China was largely relegated to the sidelines in their standards-setting process. But with the “China 2025” plans, the country has gained global influence in the 5G standards process. The plan is aimed to support China with key technologies and exclude Western companies that offer competitive technology. The plan calls for China to achieve 70% "self-sufficiency" in key high-tech sectors by 2025.

China leads in the IoT deployment era. The US is in the process of banning the outsourcing of US technology to Huawei and ZTE, and reducing sales of Huawei phones in an effort to slow their growth. If uprooting of the global value chain is enforced, sales of US tech firms will drop and China will be forced to develop its own software which takes time. Even if that happens, Huawei has built a substantial first mover advantage in 5G. Firstly, leading telco China Mobile is moving quickly to standalone 5G to gain valuable time in testing/validating the technology and business models in IoT. China Tower raised ~US$7bn from its IPO to build fiber backhaul to help towards full deployment of 5G standalone. According to Berg Insight research firm, there were 1.2bn IoT devices in 2018, and China accounted for the 767mn devices in connected cars, fleet management, smart metering, asset monitoring as well as bike sharing or 63%. The total number will hit 9bn by 2023 as the Chinese govt. actively pursues more IoT to achieve economic policy goals and implement its vision for urban life in the 21st century. If China successfully capitalizes on 5G standalone and IoT, Huawei and sister companies can export 5G systems along Belt and Road countries as part of the Digital Silk Road which aims to construct communications networks across the developing world.

16


The key point here is that the US-China tech cold war may decelerate the growth of a China competitive 5G alternative option for telcos especially in developing countries with lower ARPU. Ericsson, NOKIA and other makers stand to benefit in this setting.

Security concerns.

Breaches in security is a universal concern, but controlling the technology helps to manage the risks. The risks inherent in 5G are software-based on the cloud, making use of SDN and NFV functionalities. 5G pushes networks outwards to the “edge”, with benefits as well as risks on 5G network security. The huge growth in connected devices and larger bandwidths offer more opportunities for unsecured or trojan devices to enter and compromise the networks (5G network decentralization is naturally mitigating, but still the outcomes cannot always be predicted). The rapid data traffic expansion deteriorates the ability to detect malicious traffic. Moreover, as the number of connected devices and the amount of data explodes, a greater share of total global economic output will come to rely on global data networks increasing the size of GDP at risk.

The US and Australia – part of the 5 eye intelligence alliance are working towards barring Chinese firms from installing networks. Canada and the UK are under pressure to join the efforts, while Germany, France, Japan and New Zealand seem to be weighing their options. Limiting business activity with China is complicated by the presence of substantial Chinese equipment in their existing commercial mobile networks.

China to gain share in patents China is increasingly gaining influence at 3GPP and expanding its presence in the top ranks. The number of Chinese representatives serving as chair or vice chair of a group or subgroup was 10 in 2018 from a total of 60 or up from 8 in 2013, based on research. There are almost 60 leadership positions in total. The IPlytics market intelligence firm based in Berlin has covered the patent developments in 5G. The research results suggest 5G patents are not widely accepted yet but often cited.

Exhibit 26. Top 5G declared Standard essential patent families owner

Source: IP Lytics

17


Other sources say no single country’s companies will dominate the allocation of SEPs. 3GPP works to that end as part of its goals, but overall China’s influence in the 5G standards-setting process is likely to expand considerably compared to its marginal role in 4G standards. Huawei, ZTE, Lenovo, and others, held about 10% of SEP patents in 2017 according to estimates quoted by Eurasia and this may rise to about 40%. Given that China has built significant knowhow in 5G recently, while western countries have always been at the forefront in innovation and technology, the chances are ownership and control of 5G will be spread equally among China and western countries. If the tech cold war persists then it is very likely differing approaches in technology will ensue leading to lower economies of scale.

Where 5G spectrum has been auctioned so far.

Currently, China favors using low frequencies near 3.3-3.6GHz for core communications. Finland, Italy, Spain, South Korea, the UK, and Ireland auctions were made for 3.4-3.8GHz spectrum. The US prefers the high 28GHz band that is not yet part of the original International Telecom Union ITU allocation. South Korea auctioned 28GHz and used it for 5G during the 2018 Winter Olympics. Japanese players are split, with DoCoMo favoring high frequencies and Softbank low frequencies. The EU attempts to allocate spectrum for both frequency ranges and strike a balance among member states. The ITU will hold its World Radio Conference (WRC) in 2019 to consider spectrum allocation for 5G in light of developments since 2015.

Based on global & regional trends and device considerations, the mid band 2.5GHz, 3.4 – 3.8 GHz, & high band 24.25-29.5 GHz will gain the most momentum. Based on ecosystem readiness, the initial bands to be supported will be 3.5GHz and 28GHz.

Exhibit 27. Companies submitting technical contributions for 5G standards

Exhibit 28: Top companies attending employees at 5G meetings

Source: IP Lytics Source: IP Lytics

18


Exhibit 29. Frequencies at which 5G devices are tuned in

Source: Ericsson

What will happen in Indonesia? Upcoming auctions? Indonesia’s best case for mid-band 5G spectrum lies in the 2.5-2.6GHz frequency and 3.5GHz. Key potential spectrum bands for Indonesia depicted in blue:

Exhibit 30. Spectrum availabilities in Indonesia

Source : Telcos, Ericsson, media publications

a) In terms of the 2.6GHz, local authorities continue to evaluate available schemes to migrate DTH services which occupy 150MHz from this band to Ku-band (12-18GHz).

b) In terms of 3.5GHz, this is heavily used by satellite services. Authorities are evaluating some win-win schemes between satellites and telcos on how to use this band collectively.

c) In 2.3GHz there is 100MHz available for mobile services, of which 60MHz is utilized by Telkom and Smartfren. The rest is occupied by local BWA players whose licenses end this year (except BOLT -Internux whose spectrum was returned).

Exhibit 31. Current allocations in 2.6GHz

Source : Ericsson, media

1 Ghz 2,6 GHz 3,4 - 3,8 GHz 4 GHz 5 GHz 20 GHz 30 GHz 40 Ghz

700

MHz

3,3

GHz 26 GHz 28 GHZ

3 GHz

1,4

GHz

1,9

GHz

Existing

Key potential band

19


Documents

5G - Rise of the Machines