Connected world: An evolution in connectivity beyond the 5G revolution

The promise of 5G has captured the attention of business leaders, policy makers, and the media. But how much of that promise is likely to be realized anytime soon?

With the first true high-band 5G networks already live, we set out to gain a realistic view of how and where connectivity could be deployed and what it can enable over the next 10 years. But 5G is not appearing in isolation. A new discussion paper, Connected World: An evolution in connectivity beyond the 5G evolution (PDF–10.3MB),  takes a more expansive look that ranges from fiber and satellites to Wi-Fi and short-range technologies.

To illustrate what is possible, this research looks at how connectivity could be deployed in mobility, healthcare, manufacturing, and retail. The use cases we identified in these four commercial domains alone could boost global GDP by $1.2 trillion to $2 trillion by 2030. This implies that the value at stake will ultimately run trillions of dollars higher across the entire global economy.

Most of this value can be captured with advanced connectivity, using technologies that have been available for some time now. This raises a puzzling question: Why is so much potential still sitting on the table, and will new technologies alone be enough to realize it? This research looks at the issues holding back the market and what it will take to create momentum.

Beyond the implications for industry, connectivity also has ramifications for equity and society. Enabling more people to plug into global flows of information, communication, and services could add another $1.5 trillion to $2 trillion to GDP, over and beyond the economic value of the use cases identified in the four commercial domains highlighted in this research. Although gaps will remain, this trend could unlock greater human potential and prosperity in many developing nations.

Existing connectivity technologies are expanding their reach as networks are built out and adoption grows. At the same time, the next generations of these technologies are appearing, with upgraded standards (Exhibit 1). Both of these trends are expanding and improving what we refer to as “advanced connectivity.” In addition, a new type of more revolutionary (and more capital-intensive) “frontier connectivity” is emerging, although it is likely to have a more limited geographic footprint in the decade ahead, barring the mass-market deployment of satellite coverage.

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• Advanced connectivity: Existing connectivity technologies continue to proliferate and evolve, from backbone networks to the last mile that meets the end user. In the network, for instance, providers are upgrading existing 4G infrastructure with low- to mid-frequency “non-standalone” 5G network overlay.¹“Low- to mid-band” refers to the use of frequencies between 600 MHz and 6 GHz, which offer a good balance of throughput, capacity, and coverage. “Non-standalone” 5G refers to the use of an existing LTE network for signaling and network-control functions, with the 5G component exclusively focused on user traffic. In contrast, “standalone” 5G refers to a network that uses 5G cells for both signaling and information transfer. The results of these upgrades will vary significantly depending on the spectrum used and density of supporting infrastructure such as cell towers. But in general, these low- to mid-frequency 5G networks can offer significant improvements in speed and latency while supporting a greater density of connected devices. Meanwhile, fiber optic networks continue to expand, and the introduction of the new DOCSIS 3.X standard promises to bring the performance of cable broadband closer to that of fiber—and to do so over existing infrastructure. In the last mile of access, the next generation of Wi-Fi (Wi-Fi 6) will improve speeds while supporting many more connected devices. Technologies that use radio signals for tagging, tracking, and contactless short-range communication between devices (such as Bluetooth, NFC, and RFID sensors) are becoming more sophisticated. Low-power wide-area networks (LPWANs, with competing standards such as LoRa, NB-IoT, and SigFox) provide connectivity over broader areas and longer ranges. All of these technologies continue to improve in terms of affordability, functionality, and adoption.
• Frontier connectivity: Frontier technologies like high-band 5G and low-earth orbit satellite constellations represent a more radical departure.²“High-band” refers to the use of frequencies above 24 GHz (also referred to as millimeter-wave spectrum), which offer the ultra-high broadband speed envisioned for 5G. Designed to be the most ultra-fast mobile option, high-band 5G (often in the form of standalone 5G) promises to put the speed, latency, reliability, and security of fiber in the air, expanding what mobile devices can do. It offers a significant step change in overall network performance from low- to mid-band 5G. Low-earth orbit (LEO) satellites could also deliver a breakthrough—not necessarily in network performance but in breadth of coverage. By essentially beaming broadband down from space, they could bring coverage to remote parts of the world where the economics do not work for laying fiber or building networks of towers. However, providing coverage requires a constellation of many satellites orbiting at once, making viability uncertain. OneWeb and SpaceX are the only companies to launch test satellites (as of this writing), and no commercial services are yet available.

The advances described above are occurring alongside an expansion of hardware and software capabilities. Cloud computing will provide a processing backbone and storage capacity for use cases that require significant computational power. Edge computing will do the same while removing latency limitations. The new architecture of connectivity will also include private corporate networks. These connectivity and computing advances will enable cheaper and much more efficient “thin” devices connecting with the cloud and localized servers; they could become mainstream at the end of the decade for both consumers and businesses.

Today consumers still power the internet. Online video accounts for some 70 percent of the world’s internet traffic, with only small differences across regions. By 2030, we expect that share to exceed 80 percent. By some estimates the world will consume 20 times more data than it does today, with much of this growth driven by new users, more time spent watching video, and higher-definition content.³Based on Cisco’s projections through 2022, and extended to 2030. For Cisco’s 2022 projection, see Cisco Visual Networking Index: Global mobile data traffic forecast update, Cisco, February 2019.

Connectivity will enable businesses to do more in the next decade as well. Enhanced broadband will make streaming, downloads, and data exchange lightning fast. Because they require less power, LPWANs can extend the battery life of the devices and sensors they connect, making it viable for the Internet of Things to scale up like never before. Ultra-low latency and strong security will create the confidence to run “mission-critical” applications that demand absolute reliability and responsiveness—even in vital infrastructure systems and in matters of life and death. LEO satellites could provide true global coverage.

Based on extensive research and expert interviews, we have identified hundreds of use cases in commercial domains that would run on both advanced and frontier networks. These are independent of the many consumer-driven entertainment and internet applications that are possible. To convey the sheer diversity of use cases, as well as some of the opportunities and implementation challenges, we profile four commercial domains with some of the largest potential to capture higher revenues or cost efficiencies. The use cases we describe in this research are meant to be illustrative rather than exhaustive, and others will likely emerge over time.

• Connectivity will be the foundation for increasingly intelligent mobility systems. While the automotive industry is at the heart, mobility is a broader concept that includes car-sharing services, public transit, infrastructure, hardware and software, and more—in short, all of the actors and enablers involved in moving people (and goods) from one point to another on the ground. Connectivity could open up new revenue streams through preventive maintenance, improved navigation and carpooling services, and personalized “infotainment” offerings. Vehicle-to-infrastructure and vehicle-to-vehicle communications can prevent collisions, enable various levels of vehicle autonomy, and improve traffic flow. We estimate the GDP impact in mobility to be $170 billion to $280 billion by 2030.
• Connected devices and advanced networks could transform healthcare. Low-latency networks and high densities of connected devices and sensors make it possible to monitor patients at home in real time, which could be a major boon in the treatment of chronic diseases. Data can flow seamlessly throughout entire medical systems to smooth operations and coordinate care. AI-powered decision support tools can make faster and more accurate diagnoses, and many tasks can be automated so that caregivers can spend more time with patients. The ability to aggregate and analyze enormous data sets could yield new treatments. Together these use cases could free up additional investment capacity in healthcare and generate $250 billion to $420 billion in global GDP impact by 2030.
• Manufacturing and other advanced industries can run highly precise operations using low-latency and private 5G networks. Smart factories powered by analytics, artificial intelligence, and advanced robotics can run at maximum efficiency, optimizing and adjusting processes in real time—not only on select assembly lines but across multiple plants. A growing number of factories will incorporate features such as automated guided vehicles and computer-vision-enhanced bin picking and quality control; these functions require the kind of speeds and ultra-low latency that high-band 5G networks provide. The GDP impact in manufacturing could reach $400 billion to $650 billion by the decade’s end.
• Retailers can use sensors, trackers, and computer vision to manage inventory, improve warehouse operations, and coordinate along the supply chain. Connectivity can support frictionless in-store experiences—for example, eliminating checkout and adding augmented reality for better product information. Real-time personalized recommendations and promotions can increase sales. Some innovative retailers have already begun experimenting with and implementing some of these use cases, and advances in technology and affordability should lead to broader adoption by the decade’s end. These use cases in retail could boost GDP by $420 billion to $700 billion.

The use cases we identified in the four commercial domains described above could boost global GDP by an estimated $1.2 trillion to $2 trillion by 2030. This would be equivalent to 3.5 to 5.5 percent of the expected GDP in these domains. Over and above the value generated in the four domains described in this research, use cases running on advanced and frontier connectivity could generate trillions of dollars in value across the entire global economy.

In the four domains we studied, advanced connectivity can enable some 70 to 80 percent of the economic potential. A great deal can be achieved without investing in frontier connectivity. This is because even in the wealthiest economies, only a relatively limited set of leading companies are deploying the most ambitious use cases that can run even on today’s networks, from sensor-enabled inventory management to logistics tracking. As connectivity improves and hardware and applications become more affordable and mainstream, there is much more room for adoption to spread across domains, driving bigger productivity gains.

By contrast, use cases that require frontier connectivity such as high-band 5G could eventually generate some 20 to 30 percent of the potential impact, based on the use cases we have sized. High-band 5G will create greater network efficiency, boosting speeds and lowering latency even as providers accommodate more consumer-driven traffic and more devices. Existing use cases can run on a bigger scale while becoming more sophisticated and reliable. It is possible that the value of use cases running on frontier connectivity could exceed our estimates, depending on whether some high-potential but still speculative use cases like augmented reality and self-driving vehicles reach mass adoption by decade’s end. A stronger digital backbone can also support new applications we cannot predict today.

On top of industry use cases, bringing more of the world online could boost global GDP by up to $2 trillion, with most of value generated in the developing world.

In addition to the potential in these four commercial domains, advances in technology, coverage, and affordability can bring more of the world online. Aging or inadequate networks will be upgraded in future investment cycles, while new digital networks will reach some regions for the first time. Today 40 percent of the global addressable adult population is still under-connected (in other words, not yet using 3G-capable data networks or better) or altogether offline due to inadequate coverage, affordability, or relevance. By 2030, that share could be cut in half. This will be enabled by a combination of trends, including not only wider network coverage but also the growing affordability of devices and data plans, the development of more relevant internet content, and demographic and social shifts (like increasing urbanization rates). This newly online population will benefit from intermediate connectivity via 3G or 4G/LTE cellular networks for basic web browsing, consumer mobile phone applications, e-commerce, and online video.⁴We use the term “intermediate connectivity” to refer to access to 3G and 4G/LTE cellular networks (with speeds of 1 to 50 Mbps and latency of ~50 milliseconds or more). Compared to advanced and frontier connectivity that we defined previously, intermediate connectivity features different technical capabilities, supported applications, and subscriber populations. Global GDP could increase by another $1.5 trillion to $2 trillion as a billion people gain better access to digital information, tools, and services.

While connectivity is full of promise, progress has yet to take off. In a world where future economic growth depends on improving productivity, the hurdles slowing both connectivity investment and the widespread adoption of use cases urgently need to be addressed. While the barriers vary somewhat in each commercial domain that we analyzed, many of the issues can be categorized into five groups.

• Value chain coordination: Multiple players across an ecosystem may have to cooperate in order to implement a given use case. Many have never collaborated before, but they will need to work together on issues such as agreeing on technical standards. In mobility, for instance, vehicle-to-infrastructure and vehicle-to-vehicle warning systems involve public infrastructure providers, rival automotive manufacturers, connectivity providers, technology players, and equipment manufacturers. All must align on technical standards in the hardware for the system to work—but standards are still evolving, even in the most developed markets.
• Use case fragmentation: The value at stake from enhanced connectivity is substantial when viewed cumulatively across the entire economy, but it requires aggregating many small pockets of potential across hundreds of use cases and domain participants. Connectivity use cases are not always core priorities for participants, especially those who are not as far along in their digital transformation journey. All of this can contribute to companies taking a “wait-and-see” approach or stalling in never-ending “pilot purgatory.” Retailers and manufacturers, for example, could both benefit from advanced computer vision, but the value it could produce may not be significant enough for companies in these sectors to create strong demand for someone to deliver these services right away. In such cases aggregators may be needed to create enough viable scale in demand.

• Misaligned incentives: This is the familiar monetization question. The actor assuming the cost and risk of investment (and doing the heavy lifting of implementation) in a domain may not be the one who captures the ultimate financial gain. In healthcare, for instance, several connectivity-enabled use cases have the potential to increase efficiency and improve health outcomes. But while hospitals and health providers may be the ones to make such investments, train workers, and change their day-to-day operations, the financial benefits may accrue to health insurers. Similarly, consumer internet, media, and advertising companies have long profited from offering “over-the-top” services that run on networks built and maintained by connectivity providers, but the providers themselves have struggled to monetize this activity in a proportional way.
• Data complexity: Many use cases require data sharing across firm and industry boundaries. But standards to ensure privacy, security, ownership, and interoperability are still evolving. Protecting data is paramount for both companies and consumers to guard against ever-evolving risks. In addition, machine-to-machine transmissions (for example, between a hospital’s health informatics system and a patient’s home health monitor, or between equipment in a remote production plant and an operations hub) requires interoperability between IoT systems.
• Deployment constraints: Some of the issues holding back progress include physical barriers slowing network enhancement and use case adoption. Connectivity providers and domain users alike may have an extensive legacy asset base that will be expensive to upgrade. Regulatory uncertainty also needs to be resolved around broad issues as well as domain-specific questions in areas such as mobility and healthcare. For connectivity providers, practical constraints like spectrum availability, access rights to public infrastructure, and power density limits are persistent challenges that often have to be overcome at the local level. Even among commercial customers such as retailers, manufacturers, or wholesalers, adopting connectivity-enabled use cases can be delayed by long capital investment cycles. In the past decade, many firms have postponed asset upgrades due to weak growth and an uncertain investment outlook.

These are thorny issues that cannot be solved by technological advances alone. But they are also not insurmountable challenges. Fragmentation presents an opportunity for an actor—whether government, connectivity providers, tech giants, or industry coalitions—to play a coordinating role. Likewise, current business models may have to evolve to allow for more cross-sector partnerships, realignment of incentives, and risk sharing. In most countries, governments can play a coordinating role or set standards, but the private sector will shoulder most of the weight of forming smoothly functioning ecosystems.

Even if the market issues described above are resolved, connectivity will not be uniform across different regions. Deployment will be influenced by each market’s revenue potential, its existing telecom infrastructure, its urban density, and local market dynamics including competition and regulation. Connectivity providers’ own ability to undertake and monetize major capital investment is crucial. Another consideration is the evolution of demand and its distribution across users, applications, and geographies. As a result of all these factors, the business case for deploying advanced connectivity, and especially frontier connectivity, looks very different across markets.

The evolution of connectivity will vary across four country archetypes

We define four country archetypes based on differences in revenue dynamics, such as average revenue per user and level of data usage; cost dynamics, such as the quality and extent of existing telecom infrastructure as well as urban density; and market dynamics, including differences in regulation and competition. Based on these characteristics, we classify countries as being pioneers, leaders, followers, or trailing in connectivity today. We consider China and India as two unique cases in addition to these four archetypes.

The countries that are out in front today can continue to expect superior performance and new capabilities that may remain out of reach for years for those that trail in connectivity today. The countries that stay in the forefront of connectivity could have a first mover’s advantage and position themselves to be the innovators.

These four sets of countries are progressing along the connectivity continuum at varying speeds and are likely to continue to do so:

• “Pioneers,” including the United States, Japan, and South Korea, have consistently led the pack in connectivity. They are already beginning to deploy high-band 5G networks in cities, taking advantage of mature fixed infrastructure and the relatively strong capital positions of their providers. In these markets, competitive dynamics are forcing providers to race ahead.
• “Leaders,” typified by markets such France, Germany, and the United Kingdom, are consistently close behind the pioneers. But operator investment may be constrained in these markets since price competition has reduced margins.
• “Followers,” such as Brazil, Poland, and Turkey, are starting with less adept infrastructure, and their providers will find it hard to support the large capital investment needed to build more sophisticated networks. They are expected to lag a few years behind in deployment, especially for frontier connectivity, which will likely be limited to major urban cores only.
• “Trailing” markets, such as Pakistan, Bolivia, and many African nations, are unlikely to gain widespread advanced or frontier connectivity in the near term. Although LEO satellites may provide connectivity options in these markets (and in rural areas of follower markets), the cost of deployment and the affordability of user devices will be limiting factors.

In addition to the four archetypes above, China and India retain their unique status:

• China has poured huge investment into its fixed and cellular networks for the past several years. It is building out this backbone at a faster rate than any other country, with the aim of offering 5G in all major cities and switching a quarter of mobile subscriptions to 5G by 2025.
• India is digitizing faster than any trailing market. Although it is rapidly modernizing mobile networks, they are likely to have performance limitations outside of a few major cities. The country’s connectivity providers have come under pressure from price wars, and it will likely take price increases or government action to spur buildout.

Over the next decade, connectivity providers will continue to build and upgrade networks, but the rate of progress will vary across these archetypes, with pioneers and China consistently leading the pack.

Upgrades and expansions using existing technologies could give 80 percent of the world enhanced coverage at a lower cost.

Advanced connectivity—in particular, advanced connectivity that relies on mobile networks, in the form of low- to mid-band 5G coverage—could reach as much as 80 percent of the global population by decade’s end. This would come at a cost of some $400 billion to $500 billion. Yet significant gaps will remain. While coverage rates might exceed 90 percent in most of the world, they will likely reach only around 60 percent on average in trailing countries.

Advanced connectivity that relies on fixed networks is a different story. Today, pioneer countries and China enjoy very high fiber coverage rates relative to the rest of the world, due in large part to various private- and public-sector investments. In the years ahead, connectivity providers may not have a strong business case to expand fiber coverage further in many markets without subsidies from governments or other third parties. Without additional investment, fiber coverage is not likely to grow substantially in many parts of the world, although it could more than double in follower markets as they pursue catch-up growth. Overall, we estimate that fiber coverage rates could reach 90 percent or higher in pioneer markets and China, 65 to 70 percent in leader and follower countries, and 5 to 10 percent in trailing markets and India by 2030.

Frontier connectivity (that is, high-band 5G) drives the required investment much higher, creating a tougher business case to do so on a comprehensive scale. Yet in certain dense urban areas with very high per capita data consumption, providers may find that the network efficiency benefits alone justify deployment. Covering roughly a quarter of the world’s population by the decade’s end would require some $700 billion to $900 billion. While China and pioneer markets are projected to cover up to 55 percent of their populations, the corresponding share is projected to reach 35 percent in leader markets, 30 percent in follower countries, and 10 to 15 percent in trailing markets and India.

Despite the fact that huge populations stand to gain coverage for the first time, the digital divide that separates urban and rural populations and trailing countries from the rest of the world appears likely to persist in the decade ahead. If LEO satellites are successfully deployed, they have the potential to change the game and almost erase the gap. Yet they remain a wild card—and other barriers such as readiness and the affordability of devices and data plans would need to be addressed in addition to coverage.

Where will the value associated with these use cases flow?

Some $1.2 trillion to $2 trillion is at stake in mobility, healthcare, manufacturing, and retail alone. But the pie will not be divided evenly across country archetypes (Exhibit 2).⁵We estimate this distribution based on each archetype’s GDP share, its current and expected evolution of fixed and wireless connectivity, its urban density, and the demand for use cases and their economic viability in the region. These differing outcomes stem from the expected availability of advanced and frontier connectivity—and the coverage gap will be especially pronounced for frontier connectivity.

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In terms of advanced connectivity use cases, we estimate that 60 to 65 percent of the value could go to pioneer markets and China, 20 to 25 percent to leader markets, 10 to 15 percent to followers, and just 5 percent to India and trailing countries. The share going to China and pioneers would slightly exceed their expected weight in the global economy in 2030, while the share going to India and trailing markets would fall below.⁶It should be noted that significant value and GDP gains are possible in India and trailing markets from a range of use cases enabled by an expansion of intermediate connectivity, along with foundational digital identification infrastructure and digital payment systems. See Digital India: Technology to transform a connected nation, McKinsey Global Institute, March 2019. Leader and follower markets stand to make gains that are largely in line with the share of global GDP they are expected to generate.

For use cases running on frontier connectivity, the dispersion of value is more striking. We estimate that 70 to 75 percent would go to China and pioneer markets, 15 to 20 percent to leaders, 5 to 10 percent to followers, and only 2 to 5 percent to India and trailing countries. China stands to capture an outsized share that could be 40 to 50 percent higher than its share of global GDP, while the share going to pioneer markets could be 20–30 percent higher. The story is not as positive for the rest of the world. Leaders might capture a share that is 20 to 30 percent lower than what the expected size of their economies would indicate. Followers might punch 30 to 40 percent below their weight, while trailing countries and India could capture a share of the anticipated value that is 70 to 80 percent below their share of global GDP.

Unlike the value produced within commercial domains, approximately half of the $1.5 trillion to $2 trillion associated with bringing a larger share of the population could be concentrated in India, trailing countries, and follower countries. This is because the affordability and network availability gaps that can be closed over the next decade are most prevalent in these types of countries. An additional one-third would stem from China.

Providing connectivity is a tough business that could get tougher

The question of how to monetize usage has dogged connectivity providers (notably telecom operators) in previous technology cycles, and now the same issue threatens to carry over into the next. It will not be resolved solely through investing in new networks. Those networks will create major opportunities, but it will take new strategies to capture them.

The road for many connectivity providers has been rocky in recent years, and it does not look much smoother in the decade ahead. Build-outs and upgrades will demand major investment at a time when mature markets are saturated, and competition is leading to price wars. Many providers will struggle to find the required capital and make investments pay off with conventional revenue models. In some countries, competitive pressures or regulation are forcing connectivity providers to plunge ahead with build-outs and upgrades even before the economics have become clear.

Connectivity providers that have already invested heavily in laying digital infrastructure foundations will likely be able to maintain stable ratios of capital investment to earnings even as they continue with their rollouts. But the pressure will be acute for those that have not yet invested heavily and now find themselves facing a game of catch-up with new technologies. Those outside of pioneer markets and China will collectively need to find significant additional annual revenue growth to deliver adequate returns to their shareholders while continuing to cover the costs of advanced connectivity upgrades—let alone frontier networks.

Advanced and frontier connectivity will give companies in every domain a powerful new platform for innovation. The full range of new use cases that can be developed on top of this digital backbone will become apparent in the decade ahead, including some that we cannot imagine today. Turning all of this potential into reality depends on whether connectivity providers, end users in multiple domains, and public officials can forge new models and clear away some of the barriers. The world could soon be more connected—setting the stage for both innovation and disruption along the way.