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McKinsey: Connectivity evolution to drive global GDP past $2tn

McKinsey Global Institute report on 5G and the connected world predicts huge contribution from advanced communications to global GDP

McKinsey Global Institute has predicted that next-generation communications, including 5G, could increase global gross domestic product (GDP) by $1.2tn to $2tn by 2030.

Its report, Connected world: an evolution in connectivity beyond the 5G revolution, states that the world’s digital connections are about to become broader and faster, providing a platform for every industry to boost productivity and innovation. And even though the analyst identified hundreds of use cases across more than 17 commercial domains that can run on an enhanced digital backbone, the research focused on mobility, healthcare, manufacturing and retail – the four domains representing roughly one-third of global GDP.

While stressing that consumer demand for entertainment and internet applications will continue to drive most network usage, McKinsey said connectivity enables new capabilities across the whole economy. It highlighted a number of promising use cases in four commercial domains. In mobility, it said vehicles will in future communicate with infrastructure, other vehicles and networks, improving safety and traffic flow.

In healthcare, connectivity-enabled innovations can make it possible to monitor patients remotely, use artificial intelligence (AI)-powered tools for more accurate diagnoses, and will automate many tasks so that caregivers can spend more time with patients. Manufacturers and other industrial companies could run highly precise, high-output and largely automated operations using low-latency commercial and private 5G networks.

McKinsey said that if, by implementing the most promising use cases it identified in just these four areas could increase global GDP to $2tn, with the countries most connected today capturing much of the value, it implied that there are opportunities to create further trillions of dollars in value across other sectors. It noted that with some two billion new users set to come online worldwide, mostly in the developing world, a further $1.5tn to $2tn in GDP impact could be generated.

Yet out of the $1.2tn to $2tn potential in these four domains, McKinsey calculated that 70-80% could be achieved with existing advanced connectivity technologies. With its improved speed, efficiency, latency and coverage, what it called “frontier connectivity” can produce the remainder by taking many existing use cases to the next level – and paving the way for entirely new ones that cannot be seen at present.

However, McKinsey stressed that the economics of deploying high-band 5G do not work everywhere and that, as a consequence, coverage and the geographic distribution of economic value will be uneven. It estimated that a quarter of the world’s population could have high-band 5G coverage by 2030, at a cost of $700bn to $900bn. But $400bn to $500bn could give 80% of the global population enhanced connectivity coverage, it said.

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McKinsey’s report also cautioned that despite the optimism, most providers and industry players are not “bolting out of the starting gate” and that in many places, investment has yet to materialise at the scale of the opportunity.

For that to happen, several issues that are clouding the market will need to be solved in each of the four domains, said the analyst. These include coordination across value chains, something it regarded as a critical challenge. Second, the potential value is fragmented across many use cases, but lacking a clear aggregator to provide scale.

McKinsey also felt that incentives are often misaligned. There are also deployment constraints in the form of regulatory barriers, capital availability, and long investment cycles, which are leading connectivity providers and industry players to put upgrades on hold in many regions, it said.

Tackling all these issues could unlock trillions of dollars across all domains, McKinsey concluded.

“In a world where future economic growth depends on finding new avenues for improving productivity, the hurdles slowing both network deployment and the widespread adoption of use cases urgently need to be addressed,” said Eric Kutcher, senior partner at McKinsey and leader of the firm’s global tech, media and telecommunications practice.

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