What Does "5G" Strategy Mean, for Verizon?

The appointment of Hans Vestberg as the new CEO of Verizon has been interpreted as a focus by Verizon on “5G,” as opposed to some other strategy, such as getting into content ownership in a bigger way, beyond the Oath brands.

That might not necessarily mean Verizon has in mind a strategy something like “doubling down” on connectivity services as a driver of growth, which is one way the strategy might be interpreted.

To be sure, Verizon does have a bigger opportunity than AT&T, for example, in using 5G-based fixed wireless to attack other carriers in the consumer internet access business. Verizon believes it can address about 30 percent of  U.S. homes, mostly out of territory, that way. And that is potentially important.

If there are some 130 million U.S. homes, that implies access to about 39 million potential new accounts, a significant new opportunity if one assumes each new account could generate $80 a month in recurring revenue or more.

Were Verizon to get 20 percent of potential customers as new accounts, 5G-based fixed wireless could generate $960 per account, per year, on a base of 7.8 million locations, it could realize $7.5 billion a year in additional annual revenue.

That is about 5.5 percent incremental revenue lift for Verizon. That is possibly enough to fuel Verizon revenue growth of about four percent a year for a decade, assuming the rest of the business simply remains flattish.

To be sure, many would predict pressure on the legacy lines of business. So it is likely that all other things will not remain equal.

So Verizon likely views a move into other parts of the value chain built on 5G, including internet of things apps, as necessary. The amount of new connectivity revenue from IoT likewise will be interesting, but not transformational. Indeed, GSMA has predicted that connectivity revenue will be about five percent of the total IoT revenue opportunity.

That might work out to as much as $50 billion in annual global revenue. Verizon’s opportunity is a fraction of that. If U.S. revenues are a third of total, that implies $16.5 billion in connectivity revenue. If Verizon gets a third of that, it might realize $5.4 billion in annual incremental revenues.

That might well be enough to offset an equal amount of deterioration from all the other legacy lines of business.

So 5G fixed wireless might well be a foundational move for Verizon.