Michelle Donegan is a tech writer who has covered the communications industry for more than 25 years on both sides of the pond. Having worked for various industry titles, including Communications Week International, Total Telecom and Light Reading, she specializes in mobile network technology trends.
New research from McKinsey Global Institute examines how 5G and other connectivity can drive business growth in key sectors and assesses that it will take more than technology to realize the economic benefits.
McKinsey looked at the impact of digital connectivity use cases in four industries: mobility, healthcare, manufacturing and retail. These four sectors represent about a third of global GDP. By implementing connectivity use cases in these areas, global GDP would increase by $1.2 trillion to $2 trillion by 2030, according to McKinsey.
The report classifies connectivity options in two categories: “advanced” and “frontier.” Advanced refers to new generations of existing technology, including fibre/DOCSIS 3.x; Wi-Fi 6; non-standalone, low- to mid-band 5G network overlays on 4G; LPWAN, Bluetooth and RFID. Frontier technologies are more revolutionary, such as high-band, millimetre-wave 5G or Low-Earth Orbit satellites.
McKinsey estimates that of the potential GDP gains from use cases in the sectors covered in the report, 70 to 80 percent can be realized with advanced connectivity technologies that are already available. The remainder can be achieved by implementing frontier technologies.
This finding leads to the report’s central “puzzling” question: “Why is so much potential still sitting on the table, and will new technologies alone be enough to realize it?”
Business Benefits of Connectivity
Here are brief highlights for how each of the four sectors can benefit from connectivity:
- Mobility: In addition to the automotive industry, this includes carsharing, public transit, infrastructure, hardware and software that are involved in moving people and goods around. Connectivity could drive new revenue from such services as preventative maintenance, while vehicle-to-everything (V2X) communications can improve safety and traffic flows, for example.
- Healthcare: Connected devices and sensors can enable at-home patient monitoring in real time, while faster and more accurate diagnoses could be aided by artificial intelligence (AI) as well as data analytics.
- Manufacturing: Low-latency and private 5G networks support precise operations, remote control and automated guided vehicles in factories and warehouses.
- Retail: Connectivity can remove need for checkout, provide better in-store product information and offer real-time personalized recommendations. Sensors and trackers also improve warehouse operations and supply chain coordination.
Challenges Go Beyond Technology
The report notes that “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.” This is due to a number of persistent market barriers as well as the high cost of providing connectivity, according to McKinsey, as follows:
Value chain coordination: Multiple players in a use case ecosystem that usually don’t collaborate will have to start working together
Use case fragmentation: Potential value is spread across many use cases and sectors with no strong, unified source of demand, resulting in companies taking a “wait-and-see” approach
Misaligned incentives: This is the classic monetization conundrum – that is, the company assuming project cost and risk might not be the one that benefits from the value.
Data complexities: There are not yet cross-industry standards for data privacy, security, ownership and system interoperability.
Deployment constraints: Adoption might be slowed by physical roll-out barriers, regulatory uncertainty and long investment cycles.
Providing connectivity is an expensive business. For example, advanced mobile network connectivity – i.e., what McKinsey refers to as low- to mid-band 5G coverage – could cover 80 percent of the world’s population by the end of the decade and it would cost $400 billion to $500 billion.
The report raises a host of questions that will need to be answered to overcome these challenges. In particular, McKinsey notes that the questions that still must be solved are “who makes the required investments, who benefits, and how to coordinate multiple players?”
- Read the full report
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