5G is either the biggest change to our wireless world in decades or the most overhyped marketing spin from carriers in as long - and it all depends on just who you’re asking. Cynical tech journalists like me have real reason to downplay the technology’s importance and relevance to ordinary consumers, but we needn’t get into all that here. Carrier and phone manufacturers, meanwhile, believe it will usher in a new age of devices and use cases we can’t yet fully imagine. The reality is probably somewhere in the middle - closer to the cynical end, I’d argue! - but I think regardless of how 5G plays out, it means very bad things for struggling phone manufacturers.
The three companies in question are easily guessable: Sony, LG, and HTC. All three have smartphone divisions that have struggled chronically for years, and none have been able to turn their fortunes around. LG is by far the biggest of the trio, and the most able to weather a stormy market. Its core financials are sound, it has vast research and development resources, access to markets globally, and brand recognition among consumers. Sony and HTC are, by comparison, on far more precarious ground. HTC is the most fragile of the three, with its smartphone business withering away before our eyes with each passing quarter. Sony’s fall has been more elongated, but just as damaging - constant downward revisions of shipment and revenue estimates point to a business that is fundamentally failing. So why does 5G finally spell the end for each of them? Frankly, it’s the money.
5G is expected to far outstrip 4G in terms of cost to carriers in deploying the necessary technology and equipment to get networks online. That cost will fall on consumers and partners as operators attempt to recoup their large capital expenditures over the coming years. That means carriers will want higher prices on 5G phones and lean inventory, in order to offset the risk inherent with any first-generation technology. Because carriers will be demanding 5G handsets - oftentimes in the form of operator exclusives - LG, HTC, and Sony will almost assuredly bet the farm on 5G to reverse their failing fortunes. And equally assuredly, I believe, it will be unable to do so.
Developing a 5G handset will be an expensive proposition. An entirely separate, discrete modem - only available from Qualcomm, meaning they get to pick a price without consideration to competitors - will be required for these first-generation handsets, and possibly beyond, depending on the exact implementation. New antennas and industrial design to support technologies like millimeter wave will be necessary, putting significant engineering costs into smartphones that manufacturers haven’t had to deal with much since LTE become relatively standardized almost a decade ago. There is also a strong chance that these first 5G phones will be… very bad. Battery life and connection reliability are major concerns, and there’s a real sense that 5G won’t be deployed in a significant enough sense for most people to even use it for years.
For companies like Samsung, Apple, and Huawei - this isn’t really a problem. All of them sit on such vast piles of cash that they can afford for 5G phones to be not-very-good and sell not-very-well for a good long while. Meanwhile, their profitable 4G phone businesses will continue, in all likelihood, to be profitable - just less so. LG, Sony, and HTC can’t afford to be more unprofitable than they are - that’s a fast-track to failure. And yet, they’re all too likely to rush headlong into death, because 5G represents their first chance in years to potentially disrupt the market and stand out among competitors. Make no mistake: 5G is make or break for these three companies, and there is absolutely no good reason to think it will do anything but break them. Disruptive momentum in the smartphone world is at historical lows - successful companies are becoming slightly less successful, but failing ones are failing at a greater level - and there has been no credible argument offered suggesting that 5G will change this trend. If anything, it will amplify it: the companies that can afford to absorb the tremendous R&D, supply chain, and marketing costs necessary to sell 5G devices will be able absorb them. Their competitors will not. This is not complicated, nor should it be controversial: it’s logic.
When will LG, Sony, and HTC finally give up the ghost? Your guess is as good as mine. I expect HTC will be toppled first, as its financial situation is the most dire, followed by Sony shortly thereafter (or, at least, a retreat to its domestic Japanese market, allowing it to avoid the shame of a total exit from the business). LG will like trudge onward for some time, but its poor performance in the market is undoubtedly a source of immense frustration for executives at an otherwise very successful brand. Cutting the failing mobile division loose would allow LG to focus on the areas where it is dominant or, at least, competitive, and avoid the embarrassing, almost ritualistic quarterly write-down of the smartphone division’s losses.
In a way, 5G will disrupt the mobile industry - by eliminating even more players from the board. Some may argue it was long overdue, but the consolidation of market power into an ever-smaller group of companies rarely bodes well for consumers. Let’s hope, for once, that historical truth is bucked.