5G – Juicy fruit.

Apple decides the roll-out time table.

• While Qualcomm is busy setting the scene for 5G with its latest silicon releases, it is Apple (and to some degree Samsung) that is going to determine the real time-table for 5G getting into the hands of users.
• This is because Apple will sell millions of the next generation of iPhone meaning that if it has 5G included, the market will be in the process of being quickly seeded even if people don’t make use of it yet.
• This would depend on Apple making a full commitment to 5G and deploying it in every phone that it launches next year which I think is very unlikely.
• The problem with this approach is cost as almost all implementations next year are likely to use a discrete 5G radio baseband chip rather than the one chip that does all radios widely in use today.
• The radio transmission and reception system will also need changes to cope with the 5G bands making it more complicated and hence more expensive.
• Together, this means that adding 5G to a handset makes it significantly more expensive to make which is obviously reflected in the price.
• It is here where I think that Apple has a problem because it has already reached the limit in terms of what people will pay for an iPhone.
• This was seen in the somewhat disappointing performance of the iPhone Xs and variants where one of the biggest criticisms was price.
• Since the launch of the original iPhone, Apple has maintained a 70% margin between the BOM (bill of materials) and the price of the device.
• This means that adding 5G to an iPhone creates a dilemma because Apple is widely seen to have already hit the ceiling with pricing.
• This is why I suspect that there will be the normal slate of releases in 2020 which feature LTE and then one or two variants that have 5G added.
• Doing it this way will enable Apple to call out the 5G versions as special (much like folding screen devices) and therefore it will be able to increase the price an maintain the traditional 70% margin.
• Adding 5G to every model would require margin compression (unthinkable) or increasing the price which it looks very much as if the market will not tolerate.
• Having a specific 5G model enables those that want to pay up for the latest and greatest to do so, but also give iOS users the choice.
• Given the state of the roll-out, I suspect that volumes of 5G iPhones in 2020 will be very small and the same is likely to go for Samsung.
• It is not until these vendors include it across the entire range of high-end devices that we will see the technology really begin to take-off.
• This will require an integrated baseband that covers all the radio systems in use which is only just beginning to come to market now.
• Hence, I think that this will happen in 2021 or 2022 meaning that 5G’s rapid take-up is unlikely to happen for a few years yet.
• I still remain pretty sceptical on the use case for 5G as there appear to be very few use cases where 5G represents a real value-added and tangible improvement over 4G (see here).
• Hence, I see the roll-out being pretty slow but it will get there in the end.