From the SPACE matrix, is 5G on the road to success?

In September 1830, the world's first intercity passenger railway was built between Liverpool and Manchester. This 56-kilometer railway connected the port of Liverpool with the textile industry of Manchester, forming the first industrial chain of the Second Industrial Revolution. Subsequently, the British Isles entered the famous railway boom era in industrial history, and by 1945, more than 1,000 railway projects had been proposed.

But if we go back to the historical scene, we will find that in the early days of railway development, a large number of newspapers, speakers and salon critics have raised various negative opinions on railway investment, believing that too much and too fast, relatively advanced, but the railway with nothing to transport will only lead to huge waste. In the end, history gave the answer to the railway, and by then, no one remembered what the critics said.

In fact, many investments in deterministic technologies will encounter this problem during the development stage. Even if the technology direction and value prospects are fixed, there are always people who question whether the investment can be recovered in the short term and whether the construction can be applied - such as 5G.

Today, China has taken the lead in the world in terms of the scale and quality of 5G network construction, the number of 5G terminals, and the use of 5G traffic. However, both at home and abroad, many voices have questioned whether 5G investment is reasonable and whether 5G is necessary for consumers. However, the problem is that such debates often fall into a deadlock where everyone has their own reasons and it is difficult to reach a consensus.

As for whether 5G investment is on the road to success, we may need a more comprehensive and standardized basis for judgment. Fortunately, there are many business analysis models in business science that can help us solve this problem. Instead of repeatedly arguing whether 5G is successful based on the few cases around us, it is better to use scientific coordinates to take a comprehensive view of the real landscape of 5G.

Many people know the SWOT business model. However, this model is more inclined to the internal development of enterprises and technologies, lacking external judgment factors. Therefore, the SPACE matrix, namely the Strategic Position and Action Evaluation Matrix, was created on the basis of SWOT. It is mainly used to comprehensively analyze the internal and external environment of business behavior, so as to derive the strategic combination that enterprises should adopt.

Let's start with a brief introduction. The SPACE matrix has four quadrants, which represent the four strategic modes adopted by the enterprise: aggressive, conservative, defensive and competitive. The two axes represent the two internal factors of the enterprise, financial advantage (FS) and competitive advantage (CA); and the two external factors: environmental stability (ES) and industrial advantage (IS).

If we treat today's 5G as an industrial behavior and business goal and analyze it in the SPACE matrix, we may be able to more scientifically determine whether 5G is on the road to success. When it comes to 5G investment, should we just wait and see or be proactive?

FS (Financial Advantage) Coordinate: 5G Business Return Model

The core of the internal factors in the SPACE matrix is ​​financial advantage considerations, which include investment returns, leverage ratios, liquidity, business risks and other considerations of business behavior.

In 2021, after 5G has been commercialized on a large scale in China for some time, we can get a glimpse of 5G's business feedback model from the financial data of operators.

Not long ago, China's three major operators released their first quarter financial reports. It can be seen that operators generally achieved positive growth in revenue and profits, and the performance of the 5G consumer market was summarized as an important supporting factor in the financial reports.

• For example, China Mobile has a total of about 940 million customers, of which 189 million are 5G package customers and 92.76 million are 5G network customers. 5G has promoted the upgrade of China Mobile's information and communication consumption, achieving a mobile ARPU of 47.4 yuan, a year-on-year increase of 0.9%.
• China Unicom's financial report shows that with the support of 5G innovation, its mobile bill users increased by 3.48 million to 309.29 million, and its 5G package users increased by 21.02 million to 91.85 million, effectively driving the ARPU of mobile bill users to increase by 11.5% year-on-year to 44.6 yuan.
• China Telecom's financial report data shows that the number of 5G package users has reached about 111 million, with a penetration rate of 31.2%, and the number of mobile users has reached about 356 million, with a net increase of 5.23 million. The total mobile Internet traffic increased by 43.9% year-on-year, and the ARPU of mobile users was 45.6 yuan, an increase of 2.7% year-on-year, achieving a stabilization and recovery.

It can be basically concluded from the first quarter financial report data of the three major operators that the revenue brought by 5G has become a key part of the operators' financial reports, and has become a key indicator supporting the overall improvement of the operators' performance.

It is not difficult to find from business data that the commercial feedback from 5G arrived earlier than market expectations, which is completely different from the direction identified by many negative opinions.

The reason is that 5G has irreplaceable competitiveness in the consumer space.

CA (Competitive Advantage) Coordinates: Real 5G Competitiveness

The coordinate of competitive advantage mainly examines market share, product quality, user loyalty, and product life.

Judging from these factors, 5G has a high competitive advantage in the current wireless communication network. The reason may be that the video interaction mode opened in the second half of the 4G network actually requires the basic network upgrade.

Emerging application areas that users are very concerned about, such as live e-commerce, large-scale games, and live variety shows, must rely on the deterministic experience brought by 5G. Large bandwidth, large uplink, and low latency are becoming the key fulcrum for users to upgrade their video and gaming experience. In other words, even in the current consumer demand supported by short videos, live broadcasts, and mobile games, 5G can bring a cross-generational experience that 4G cannot meet. Specifically in terms of network experience, China's current 5G network is built according to the 100MHz bandwidth standard, which means that the experience of 5G users when using 5G is several times better than that of 4G.

This cross-generational competitiveness has brought about a general increase in consumer willingness. According to GSMA's statistics at the beginning of 2021, Chinese consumers have the highest willingness to upgrade to 5G in the world, reaching 62%. The smooth experience of 5G promotes users' in-depth use in multiple fields such as video, social networking, games, and live broadcasts. The proportion of high-resolution video traffic in the total video traffic under the 5G network is higher than that of 4G, reaching 29.3%, which is about 14% higher than that of 4G. This is the most direct inherent competitiveness of 5G.

Supported by this cross-generational network capability, many 5G pioneers, such as telecom operators in South Korea and Saudi Arabia, have reaped the value of 5G to a great extent and achieved industrial breakthroughs compared to 4G networks. For example, in South Korea, with the explosive growth of AR/VR applications during the epidemic, the traffic of LG U+ VR business increased by 27% compared to 2019. At the end of last year, LG U+'s 5G user penetration rate had reached 20%, contributing more than 40% of network traffic. In January this year, South Korea's monthly new 5G users exceeded 1 million for the first time, which is quite impressive for South Korea's population and users.

In Saudi Arabia, operator Zain took the lead in CITC's 2020Q4 network evaluation by building a low-latency 5G network. Based on the 5G network, it has greatly improved its service capabilities and user base in the gaming field.

These cases prove that 5G has real competitiveness that is different from 4G and can attract a wide range of users. On the other hand, the industrial cycle of 5G is still very long. Users will have a higher degree of switching to 5G, which will affect other users to switch and use. The competitive advantage of 5G in mobile networks is a diversified and aggregated state of development.

ES (Environmental Stability) coordinate: consistent 5G environment

After examining these two aspects, let's take a look at the external environment of 5G. The ES coordinate mainly observes the stability of the external environment of a business model and business behavior, such as technical certainty, possible demand changes, and stable value of related products.

Whether in China, East Asia, West Asia or Europe, we can see that the attitudes and recognition of the development direction of 5G by various countries, industrial organizations, operators, software and hardware companies are very stable.

In China, we have seen the introduction of 5G-related policies over the past two years, and the industrial environment has stabilized and improved. On May 4 this year, the Ministry of Industry and Information Technology drafted and compiled the "5G Application "Sailing" Action Plan (2021-2023)". It pointed out that by 2023, the penetration rate of 5G individual users will exceed 40%, the number of users will exceed 560 million; the proportion of 5G network access traffic will exceed 50%; there will be more than 18 5G base stations per 10,000 people, and more than 3,000 5G industry virtual private networks will be built...providing good policy endorsement for the next stage of China's 5G development.

Another key external environment for the development of 5G is the terminal market. As of 2020, the number of global 5G connections has reached 230 million, with more than 400 commercial terminals, and the average price of 5G smartphones has dropped by 1/3. In 2021, as several major Chinese mobile phone brands continue to promote low-priced 5G products to the market, the price of global 5G mobile phones will continue to drop significantly in the foreseeable future, creating a solid terminal-side foundation for network use.

With the prosperity of network construction and terminal market, 5G network will significantly reduce the cost per bit, which basically means a certain surge in traffic. This will provide a solid foundation for the development environment of 5G.

At this stage of the industry in 2021, favorable 5G policies continue to be released, spectrum resources are stable, and the goals of operators and terminal manufacturers in the industry are clear and unified. As a technology industry, the development environment of 5G should be unquestionable.

IS (Industry Advantage) Coordinates: 5G’s Growth Potential

Finally, let’s take a look at the industrial advantages of 5G in the IS coordinates.

The so-called industrial advantage focuses on the development possibilities of a business behavior in a wide range of industrial chains, such as growth potential, sustainable profitability, value feedback brought by technology, etc. The characteristic of 5G is that it has not only released energy in extremely popular business types such as live e-commerce, video variety shows, and mobile games, but also is related to a wide range of industrial possibilities. For example:

• Low threshold for hardware: 5G mobile phones are falling in price, and the cost for consumers to use 5G terminals is constantly decreasing.
• Refinement of services: Operators' 5G operation capabilities are being further strengthened, and 2021 is becoming a key period for the refinement of 5G services.
• Increased willingness to develop: The infrastructure for APP developers to develop new functions with the help of 5G is constantly improving, and 5G development has become a new hot word.
• AR and VR are brewing a mid-term singularity: VR devices became popular again in 2020 and have continued to explode this year, bringing more industrial space to 5G networks. The price of VR devices has begun to drop to 2,000 yuan, and the popularization period of VR and AR seems to be in sight.
• Long-term value compensation of 5G toB: In the long run, the scaled commercial potential of 5G toB cannot be underestimated. 5G factories, 5G terminals, and 5G multimedia have all launched scaled solutions, opening up new market space.

Considering the growth potential of various 5G industries, we can see that 5G industry investment can be released in a variety of ways, and there are no obvious problems or challenges in the industry advantages.

Finding the path to 5G success from the SPACE matrix

A comprehensive analysis of the current 5G situation from the SPACE matrix can clearly show that the aggressive form and the completion of broader investment in construction are currently the most appropriate 5G investment and development methods.

From the perspective of the SPACE matrix, the development characteristics of 5G today combine the following features:

• Technological certainty: The development path is unified. We cannot stay at 4G nor can we take a detour to 6G.
• Application connectivity: The application value of video takes over the development bottleneck of 4G. Live broadcasting, mobile games, and VR must be improved on the basis of 4G. The application connectivity of 5G is very sufficient.
• Preemptive nature of commercial feedback: Judging from traffic, usage, and commercial feedback, the 5G business model is more ideal than expected, and the commercial benefits to operators are obvious.
• Aggregation of industrial momentum: Hardware, software, operators, and B-side customers, multiple aspects of momentum constitute a new aggregation space for the industry, and 5G has sufficient synergy to succeed.

In the late 1980s, the Clinton administration launched the famous information superhighway plan in the United States. However, at a time when home computers were still in their infancy and the Internet was nowhere to be found, many media and critics believed that the information superhighway was pure hype and worthless. However, the final result was that the information revolution was imminent, and the United States once again took the lead in the world because of this investment.

Let us go back to 5G and think about what is the significance of investing in advance and taking the lead in development? In the face of those deterministic technologies that are bound to be digested and absorbed, do we need to have more short-sighted doubts?

Embrace the future, it will provide answers to many questions.