European phone companies and politicians are sparring over introduction of so-called 5G mobile networks, robust and speedy enough to steer millions of self-driving cars or download movies in seconds. Matthias Schmitz is still waiting for 3G.
The wireless signal in Kell, the village an hour’s drive south of Cologne where the 41-year-old marketing executive lives, is so weak that it can barely send traffic conditions to his smartphone, let alone drive his car.
“They always tell us that network coverage will improve, but I think it’s just blah blah,” said Schmitz. “I’d rather have a reliable network now than something supposedly super-fast somewhere down the line.”
That’s the choice Europe’s phone companies face as mobile technology evolves: embrace the latest developments in anticipation of a future payoff, or perfect the clogged and patchy networks already in the field to keep today’s customers happy.
When Schmitz built his house in 1999, Kell was no worse off than Tokyo or New York. Europe was the pioneer of wireless technology, and local heroes such as Nokia Oyj (NOK1V) and Ericsson AB ruled the industry. Fifteen years later, even as politicians urge them to forge ahead with 5G, the region’s phone companies say they can’t afford to position Europe as the world’s front-runner in the technology.
Carriers are still licking their wounds from 3G, the first wireless generation to put an emphasis on data. In the early 2000s, phone companies bid hundreds of billions of dollars to win spectrum for such services. Phones and apps, though, weren’t yet advanced enough to make 3G very appealing, leaving operators swimming in debt and few customers willing to stump up the cash needed to pay it off.
It took the arrival of Apple Inc. (AAPL)’s iPhone -- seven years after the first auctions -- for networks to begin filling with the data the technology was designed to handle. By the time 4G licenses were sold, at the height of the region’s debt crisis, Europe’s phone industry was on the decline. There were more wireless accounts than people, and regulators had capped roaming payments and other fees operators were charging to boost profits.
After the 3G debacle, Europe lost the 4G battle. Nine in 10 Americans have a 4G signal at home, versus just over half of Europeans, according to GSMA, a wireless industry group. With better networks, Americans are willing to spend more. In the past 10 years, the average monthly mobile bill in the U.S. has jumped 8 percent to about $70 while the European average has dropped by a fifth, to below $40.
“The rollout costs of 4G are prohibitive of any 5G deployment before 2020,” said Dan Warren, head of technology at GSMA.
Even as European carriers start research on 5G, they’re bracing for Asia to take the lead. The new technology will allow transfers 1,000 times faster than today’s systems and response times of less than a millisecond -- fast enough to guide cars through heavy traffic and control billions of objects, from wristwatches to power plants.
South Korea is the leader in Asia. The country has the world’s fastest average Internet connection speeds and became the first major wireless market to reach full 4G population coverage. Consumers routinely tap the technology to shop, work or watch videos while in cars, on the streets or in the subway.
With that level of enthusiasm, the Korean government has committed $1.5 billion to get 5G test networks ready for the 2018 Winter Olympics in PyeongChang. The government is working with Samsung Electronics Co. (005930), which sees 5G as an opportunity to expand its dominance in handsets into network equipment.
“Koreans tend to jump onto a new technology as soon as it comes out,” said Pierre-Alain Allemand, head of networks at French carrier SFR, who advocates research on 5G but no deployment until at least 2020. “In Europe, people don’t adopt new services as fast, so it’s not a surprise Europe hasn’t done 4G yet, let alone 5G.”
Though it’s too early to say how much 5G might cost, it’s going to be expensive. Deploying 4G has cost carriers as much as $53 billion in the U.S., Deloitte estimates. In France, the bill for 4G licenses and networks will top 33 billion euros ($44.5 billion) over 15 years, the national telecommunications regulator predicts.
“There’s no social reason or consumer need today that would justify Europe accelerating 5G,” said Nicolas Demassieux, chief of carrier Orange SA (ORA)’s research facility, Orange Labs. “We can’t afford to rush into deployment without knowing what the market opportunity is or what our return on investment will be.”
The European Commission in December contributed 700 million euros, to be matched by companies, to an effort to define 5G’s technological standards. It inked a deal last month to share research progress with South Korea, and it says it's in talks with the U.S. over a similar agreement.
5G will likely build on 4G, complementing it with high-capacity boosters, especially in cities. Using small antennae that act as local reinforcement for areas as small as a few dozen meters in diameter, 5G will provide more capacity and help the network adapt whether it’s, say, streaming a movie or navigating a self-driving car, according to Jacques Stern, a member of the executive committee of French telecom regulator Arcep.
“Yes, carriers need to start worrying about 5G so Europe doesn’t play catchup,” Stern said. “But let’s just do 4G first and let consumers benefit from its better speeds, then we can move to deploy 5G.”