Though the big upside from 5G, for mobile service providers might eventually come from new applications requiring ultra-low latency or support for internet of things sensors, the near term revenue will come largely when phone users switch from 4G to 5G for internet access, assuming there is some initial price premium for doing so.
The other areas where we should be watching for incrementally-new revenue sources, however, will come outside internet access, in the form of mobile-optimized video streaming and use of 5G fixed wireless to take market share from fixed network suppliers.
That seems most germane for AT&T, Verizon and T-Mobile US at the moment (it is hard to say what happens if the Sprint merger with T-Mobile US is not approved). All three of those service providers are likely to launch video entertainment services, while two or all three will launch fixed wireless assaults on fixed network internet access providers as well.
So the initial revenue boosts for 5G might come from consumer upgrades to 5G internet access (with some incrementally-higher revenue), new video services and internet access market share gains taken from fixed networks.
If Verizon and T-Mobile US launch as expected, it is conceivable they might take 15 to 20 million accounts from fixed network internet service providers by about 2024.
Sure, the big hope is that 5G will lead to huge new revenue sources in the internet of things ecosystem. But the immediate revenue will come from phone users upgrading internet access plans, entertainment video and fixed network internet access market share.
It now seems clear that T-Mobile US acquisition of Layer3, the video streaming platform, though premised in part on creating “up the stack” opportunities for T-Mobile US as a supplier of mobile service. But it appears there also was some thinking about how such an asset could support any future T-Mobile US assault on fixed network connectivity markets, including a bundling of internet access with entertainment video for consumer accounts.
“What's really interesting and we went into Layer3 with the idea in the back of our heads of the new T-Mobile (a proposed merged Sprint plus T-Mobile US),” said Mike Sievert, T-Mobile US COO.
“What's really interesting is what component it could become when the 5G network of the new company starts to unfold, because this 5G network is a network where we intend to plunge into broadband, not just mobile connections like today, but in the in-home broadband, because this network has the depth and breadth of 5G that's simply unprecedented in the market,” said Sievert.
In fact, Sievert went so far as to predict a bigger T-Mobile (with Sprint assets) could gain as many as 10 million fixed network accounts by about 2024. Some of those gains would come because T-Mobile US intends to offer service at lower prices.
Assume the market is about 96.5 million existing fixed network internet access accounts. If so, then 10 million accounts represents about 10 percent market share, almost all of which would be taken from a telco or cable TV supplier.
If those losses were equally split between telco and cable suppliers, incumbent market shares stand to fall about five percent each, overall, in the medium term (six to eight years).
T-Mobile US clearly expects to grab market share from incumbent telcos and cable operators. Severt says 50 percent of the U.S. fixed network market has only one--and in some cases zero--suppliers offering “broadband” service. The minimum definition is 25 Mbps, but T-Mobile US seems to be viewing the “broadband” market as services in the hundreds of megabits per second.
Verizon, for its part, thinks it has an opportunity of about 39 million U.S. households (about 30 percent of all U.S. households for its out of region fixed wireless business, and a bigger share of housing that actually is occupied, or occupied full time).
Were Verizon to capture 20 percent share where it operates, the potential share shift nationwide could be 7.8 million households. At a 30-percent capture rate, Verizon could shift 11.7 million homes from other existing providers.
Call the gains 10 million. Combined with a share loss of 10 million to T-Mobile, some 20 million accounts out of a base of 96.5 million accounts represents a shift of nearly 21 percent of the market. Split equally, and ignoring for the moment all other providers, that would drop telco share to perhaps 30 percent, and cable share to perhaps 50 percent or less.
That would be painful, and for telcos, puts them close to the threshold of profitability, as 30 percent tends to be the level at which operations are sustainably profitable.
If T-Mobile US expects to take that share, video entertainment likely is a necessary component of the offer.
“The TV is even more interesting because you're offering the broadband and you can offer the TV on top of it,” said Sievert. “So that's a big piece of the future of the new T-Mobile.”
The big unknown is whether T-Mobile would take this move even if the Sprint merger does not happen. There is a reasonable possibility it still would move forward with its assault on fixed network internet access and video service markets.
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