5G: regulatory impact of network slicing and densification
February 18, 2020
Three decades and four generations of mobile networks have passed with varying effect on markets and regulation. What started as an expensive analogue mobile voice service is now a data-centric all-IP network, with traffic dominated by video, social media and mobile apps. From a business perspective, the biggest shock to mobile network operators (MNOs) came from external over-the-top (OTT) service providers such Skype and Facebook. MNOs met this threat with new price structures, relying more on subscriptions and prepaid packages for voice-data bundles. Despite the technological innovations and trends, the competitive structure and regulatory paradigms of the mobile market have been relatively stagnant.
However, with the advent of 5G the impact of new mobile technologies on market structure and regulation may be far more reaching. Unlike past mobile generations, which were mainly intended for everyday consumer voice and data communications, 5G is designed to accommodate a wider range of applications with varying functional and performance requirements. These range from high-capacity broadband to latency constrained applications such as remote surgery and inter-vehicular communications. These requirements will be met with an extensive network transformation with unprecedented levels of flexibility and efficiency across all network resources. This transformation will rely on three key technologies: millimetre wave (mmWave) communications, Software Defined Networking (SDN), and Network Function Virtualization (NFV). The latter two techniques allow for the replacement of specialised hardware by software running on commodity hardware.
Network slicing, which is a form of virtual networking technology enabled by SDN, is widely considered as one of the key enablers of 5G’s vision. Network slicing allows the formation of virtual networking paths (network slices) on top of a shared physical infrastructure (Exhibit 1). In other words, each service is allocated a unique set of optimised resources and topology to satisfy its connectivity needs in a dynamic manner. Many critical services in vertical industries, such as health, energy and automotive, will benefit from this feature. Content and over-the-top (OTT) applications may also seek virtual channels (network slices) with certain service level agreements (SLA). As much as this presents a dramatic step towards better network performance and flexibility, it also constitutes a form of traffic discrimination on commercial grounds and comes into conflict with network neutrality rules.
Exhibit 1: Network slicing can span across all segments of the network and allows establishment of end-to-end virtual connections with customised QoS [Source: Network Strategies]
While some regulators do acknowledge the need of specialised services (such as IPTV) for certain quality of service (QoS) guarantees, this is usually allowed under the condition that the network capacity is sufficient to provide these services in addition to ordinary traffic. Even under these rules, conflicts can arise when the operator demands a surcharge from the content or application providers to guarantee adequate service quality even in the absence of congestion. Whether optimisation is necessary and network capacity is sufficient is relatively easy to judge in a fixed network, however, it would require constant assessment in a wireless propagation environment. Offering network slices with differentiated pricing will necessarily require defining these specialised services and the conditions of pricing. How network slicing will fit into the existing regulatory framework is not yet clear.
Network slicing, in conjunction with the introduction of cloud computing in mobile networks, will achieve unprecedented degrees of resource sharing across all segments of the network. This will inevitably lower entry barriers for new service providers by converting many of the capital costs into operating expenses that can be scaled according to business needs. Mobile operators may find themselves competing with many new entrants that are providing services in an integrated manner. This may lead to significant change in the mobile market over time, as MNOs risk losing their direct link with end users and eventually become wholesale suppliers of communications infrastructure. Access regulation may also need to be to be redefined accordingly, as network slicing will span across multiple stakeholders and network segments.
Higher frequencies reduce transmission range, and therefore many more base stations will be required – a process which has been named as ‘densification’. Densification is driven by the need for speed and the need to connect more devices. Network densification will require substantial investment in new small cell deployments. Removing regulatory obstacles to 5G small cell installations – such as easing and reducing the cost of access to existing street facilities – is essential for the timely and cost-effective deployment. On the other hand, the financial burden associated with the densification of the radio access network (RAN), including fibre backhaul, will only be bearable by operators with substantial market power. Nationwide RAN operators will be limited in number, resulting in a natural oligopoly. As 5G emerges to become a universal connectivity platform, regulators may need to be more intrusive in regulating wholesale access to RANs.
The increased densification of the RAN raises also some issues with regard to the spectrum licensing practices. Mobile spectrum, typically awarded using auctions, is an expensive and scarce resource. This has traditionally limited the number of licensees to those who can afford it and fulfill coverage obligations. It is important to highlight that 5G was specified taking vertical industries in mind. As such, there will likely be many cases where enterprises and facility owners will want to deploy and operate their own 5G networks to provide tailored services, such as automation in factories. Technically, the use of millimetre waves for these cases is very convenient due to its limited coverage. Reserving unlicensed millimetre wave bands for these applications might not always be an optimal solutions, as some applications are intolerant to interference. New spectrum sharing models for local authorisation of spectrum will be essential to integrate these micro-operators in the mobile ecosystem and support innovation in the vertical industries.
Exhibit 2: Trends in the 5G business environment [Source: Network Strategies]
5G is different from previous technologies, not only due to the radical change in connection speed but also the scope of applications and the degree of network resource sharing that will reshape the business environment (Exhibit 2). Formulating long-term ex ante regulatory rules based on past experience will be quite challenging, as the new technical features may jeopardise regulatory objectives, or conversely, their full potential will be restricted by regulation. One certainty, however, is that satisfying the full vision of 5G calls for a much more dynamic and adaptive regulatory framework where market monitoring and re-assessment of implemented policies has to occur at a much shorter periods than previously.