5G is Needed in U.S. Market to Supply Consumer Smartphone Capacity

Not every mobile market “needs” lots of additional internet access capacity now, and will need it in the next two years. The U.S. market is among the places where more capacity is an immediate issue, and the issue is whether 5G in new spectrum, spectrum refarming, smaller cells, spectrum sharing, spectrum aggregation, broader advanced 4G deployments or all the above are required.

“4G networks in the U.S. are becoming heavily loaded,” says Opensignal. So “consumers and operators alike will need 5G to relieve pressure on existing networks, otherwise the overall mobile network experience will worsen. In other words, faster speeds made possible by 5G are important, but perhaps the equally-important value is capacity reinforcement.

“Today, 4G networks are very inconsistent in terms of speed with average connections at the busiest time of day often being half that of speeds during the quietest times of day,” Opensignal says, citing its 5G Opportunity report.

In the U.S. market, average 4G download speeds varied between 15.3 Mbps to 28.8 Mbps, depending on the time of day and congestion levels on a network.

The variation in speeds throughout the course of the day are even more pronounced in the largest cities. In Miami, average 4G download speeds were as low as 17 Mbps and as high as 43.2 Mbps over a 24-hour period. Baltimore, Chicago and New York City variations of 20 Mbps or more occurred between fastest and slowest hours.

“5G will not only provide extremely fast speeds but also a solid bedrock of capacity, to even out the consistency issues we are seeing with current 4G networks,” says Opensignal.

In other words, in some markets, 5G is a major tool for supplying the increasing demand for mobile data, which in the U.S. mobile market is growing 46 percent annually, according to Cisco.

source: Cisco

5G Phone Sales Will be Lead by Devices Operating in the 3.5 GHz to 4.5 GHz Range

Sales volumes of 5G smartphones will be lead by devices optimized for sub-6-GHz frequencies over the next several years, particularly for the 3.5 GHz to 4.5 GHz frequency range, predicts the Petrov Group, with devices using millimeter wave spectrum hitting an inflection point in 2022.

source: Petrov Group

The early volume of devices optimized for 3.5 GHz to 4.5 GHz is a reason some urge U.S. lawmakers to move fast to free up more spectrum in those ranges, to take advantage of scale economies for handsets.

Reliance Jio 4G Coverage Better than U.S., Japan, Netherlands, Taiwan

Reliance Jio has been a 4G mobile operator for less than three years, but has completely disrupted the market with its rapid network rollout and unlimited data plans, reaching 97.5 percent coverage in that time.

To put that into context, consider that Reliance Jio’s 4G availability score of 97.5 percent is the highest Opensignal has ever recorded at the country level.

In the United States, two operators have scored over 90 percent 4G availability, while in Taiwan four are over this mark,  but none in either market have yet passed 95 percent coverage.

Even in the Netherlands, arguably Europe's most advanced mobile market, all the operators have 4G Availability scores over 90 percent, but only one has passed 95 percent.

Japan has two operators over this benchmark.

“In a country with the sheer geographical size and population base of India, where the landscape ranges from huge cities to high mountains and vast agricultural plains, Jio's achievement of reaching 97.5 percent 4G availability in such a short time is truly astonishing,” Opensignal says.

Jio’s coverage is putting pressure on the other service providers to improve coverage as well.

Airtel's 4G Availability score has jumped by well over 10 percentage points in only six months to reach 85.6 percent, according to Opensignal. The other main LTE operators have grown their 4G availability scores by at least three percentage points each over the last five months or so.

5G Does Not Require New Use Cases to Drive Value

Will service provider executives and firms be significantly better at predicting 5G use cases and new revenue streams than they were at predicting 3G and 4G use cases and revenue streams? Probably not.

What probably matters more is that there are practical, affordable reasons to deploy 5G networks that do not rely on new use cases or revenue streams to drive deployment. And that is precisely what is happening.

Service provider executives, expecting nearly all the early value to come from supporting existing data services, are almost uniformly keeping their 5G plans within the limits of existing capital budgets, even if many observers (most, actually) have expected huge increases in spending.

In fact, some estimate 5G capex could be lower, far lower, than was the case for 4G. Better technology is part of the reason for lower capex than some had feared. Phased deployment also will help, with 5G being most valuable in a minority of total cell sites where capacity demand is greatest.  

That is true for Telenor, Verizon and AT&T, Swisscom and Three UK, for example.  

source: 451 Research

The point is that mobile capacity has to be increased--in many cases vastly increased--every year. And we are reaching a point, in many markets, where 4G will not support what is needed. So 5G can be viewed as “merely” a way of supplying that capacity supply. So long as capex budgets do not increase, all the other new use cases are opportunity at no extra cost.

Go Slow on 5G? Yes, in Some Ways

Opinions about the cost of deploying 5G--even the need for 5G--continue to generate controversy in some quarters. But 2018 is not 2019, and actual infrastructure investment in 5G, at commercial levels, show there is a wide variance of attitudes about the business model.

In some markets, service providers might be correct that demand does not yet exist. In others, 5G simply provides the capacity supply 4G soon will be unable to support. In some markets, the terrestrial infrastructure for backhaul will prove a challenge; it other markets, the need to support higher capacity demand already has created much of that infrastructure.

In some markets, millimeter wave capacity likely will be optional for some time; in other markets, it is among the few tools available to boost capacity dramatically.

Back in 2018, the International Telecommunications Union noted “concern that 5G is premature.” A report indicated “operators are sceptical about the commercial case” and  “high-levels of investment.”

The report suggested that “industry and policy-makers should remain cautious and should consider enhancing the availability and quality of existing 4G networks in the run up to 5G.” That is a rational approach. Not every market yet requires the capacity or other features of 5G. But in some countries, 5G is simply the best way to supply capacity that 4G soon will be unable to provide.

“The need for 5G is not immediate,” the ITU said. That is true in many, perhaps most, markets. It actually is a practical capacity-boosting tool in a few markets.

In arguing that policy-makers and operators “should only consider deploying 5G networks where there is demand or a robust commercial case in favor of doing so,” the ITU report makes sense.

But the ITU report also contains the rationale for 5G. Simply, a new mobile next-generation network is introduced about every decade. That does not mean it gets introduced everywhere, nor at the same time. But nothing is going to stop 5G from being deployed, simply because network capacity demand drives it.

source: ITU

New use cases always are a feature of each touted digital network, but the practical reality is that, of the two main tools for increasing capacity--smaller cells and new spectrum--each next-generation network has brought additional spectrum resources.

Also, despite much concern that millimeter wave communications will be too hard to deploy commercially, even the ITU has noted that 5G--and all subsequent networks--will have to use millimeter wave assets.

Though many spectrum bands will support 5G--lower frequency including 600 MHz or 700 MHz, mid-band assets in the 3 GHz to 4 GHz region and millimeter wave region--capacity needs, even after spectrum refarming, will leave only the millimeter bands available for most of the future capacity supply.

source: ITU

What is Demand for 5G Speed Tiers?

Will 5G allow mobile operators to create speed tiers as fixed networks routinely offer? And, if so, what happens to mobile service provider revenue and profit expectations? So far, nobody is really able to say. It is not yet clear how much consumer demand could exist for 5G services featuring speed tiers that run with some minimum floors of performance.

But such plans clearly have some revenue upside in the fixed network internet access business. In principle, three main sources of 5G revenue lift exist in the consumer segment: a higher price for 5G plans that offer usage similar to 4G. Verizon plans to rely on that tactic.

T-Mobile US plans to offer 5G for no price premium, in which case the revenue lift is from subscriber account gains and reduced churn (fewer lost accounts).

The third source of potential revenue lift is any demand from consumers for 5G services that offer a higher minimum speed, as is the case for consumer internet access plans, where consumers can buy plans at lower speeds for less cost, or faster speeds at higher cost. Though it is hard to quantify mobile consumer demand for higher speed tiers, in the fixed network domain that segment could represent 20 percent of accounts.

While an argument can be made that perhaps 10 percent of consumers will buy the fastest speed tier, most would agree that it is logical for some 20 percent of accounts to have interest in a tier of service that is faster than average. Where multiple speed tiers, sold for different prices, are available, most consumers buy the standard or middle tier of service.

There is little reason to believe such behavior will be different for 5G customers able to buy tiers of service that offer a differentiated and higher speed, compared to standard best effort.  

Some logic also exists for possible tiers featuring low latency, for gaming apps, for example. That is harder to foresee, based strictly on 5G access performance, which will be ultra-low by definition. The key to gaming tiers of service might be edge computing, not 5G, as it is the localized edge computing that is the key factor in assuring ultra-low latency for gaming.

You might wonder why mobile operators have not offered such speed tiers in the past, assuming it was lawful to do so.

Technology actually was an issue. On a fixed network, the router controls speed tiers. Think of your home internet access gateway and router, or the router in your office’s communications or server closet.

In those cases, it is easy to set up speed tiers, as each location has its own router.

How to set up individual user accounts with different speed privileges on a mobile network is more complicated, since a mobile tower will typically have one or more routers that serve all the radios on a tower. In principle, some way has to be created for each user device connecting with radios on a single tower to have its own “virtual router.”

According to Cisco, the solution includes an intelligent core network, policy suite that can control charging and apply the service tier rules, plus analytics and network orchestration.

Perhaps another way is to use network slicing to create several different virtual access networks, supporting access at differing rates, and directing customers to connect with the virtual network corresponding to their rate plan.

In that case, each speed tier corresponds to a service instance.

source: Happiest Minds Technologies

We shall see. The big question is what use cases actually benefit from higher-speed-assured tiers, or latency-assured tiers of service, when basic 5G will offer both speed and low-latency performance to begin with.

5G Sales Mostly to Businesses Right Now, AT&T Says

In the very-early days of 4G deployment, when routers were available, but not yet phones, hotspot and data access use cases obviously drove early sales. That appears to be the case for 5G as well.

As often was the case for early 4G, when enterprise and business user applications were dominant, early 5G might be lead by business use cases.

source: The Edge of the Cloud

“Right now from a 5G standpoint, what we're seeing in terms of adoption tends to be business,’ said Randall Stephenson, AT&T CEO. “In fact it's exclusively business for us right now.”

In keeping with the mobile substitution framework, AT&T finds early business buyers often are using 5G as a substitute for fixed network access.

“It’s serving as a land replacement product,” said Stephenson. Also, AT&T expects 5G service plans for business will start to look more like fixed network plans, where users can buy services of differing speeds at different prices.

“We expect that there is going to be...price differentiation for speed as you move into a 5G environment,” he said.

4G for Coverage, 5G for Capacity

With coming dual connectivity capabilities, allowing a single 5G device to use capacity resources from two radio sites, we can point to one new way 5G can build on 4G: 4G often will provide coverage, while 5G provides capacity, for any single user or device.

The point is that 5G NR, whether in sub-6 GHz or mmWave bands, can leverage much of the existing 4G infrastructure. 4G for coverage, 5G for capacity is one way to view the matter.

Dual connectivity is key, in that regard. Where carrier aggregation allows a device to use more than one capacity asset (different spectrum) at a single radio site, dual connectivity allows use of assets from two radio sites simultaneously.

In other words, a device can use capacity from two cells, not just one. That is another way of saying both 4G and 5G capacity can be used, at the same time, by a device connected to two different cell sites.

source: Nokia Bell Labs

source: Qualcomm

Just siting 5G NR radios at 4G towers is one simple example. And while that approach works better when 4G is paired with 5G in mid-band spectrum, even use of millimeter wave spectrum provides significant coverage and cost results, says Qualcomm.

source: Qualcomm

Even when co-siting millimeter wave 5G, Qualcomm says it “saw significant mmWave outdoor coverage for both downlink and uplink just by co-siting with existing LTE infrastructure, and as expected with mmWave, the median burst rate is well over 1 Gbps with many cities delivering beyond 2 Gbps.”

“Even at the cell edge, with suboptimal signal quality, mmWave can deliver throughputs of over 300 Mbps, which is remarkable compared to just a few Mbps that today’s networks are capable of at the cell edge,” Qualcomm has noted. “In fact, many operators have been deploying small cells to leverage capacity and performance benefits from technologies like LAA (licensed assisted access), and this dense heterogeneous deployment allows delivering near-ubiquitous outdoor coverage.”

That means a more-graceful way to use both 4G for coverage and 5G for capacity.

Some observers are critical of 5G deployment hype, capital investment dangers, use case uncertainty and therefore business model risk. That is reasonable enough.

But we often forget that 5G uses many new techniques for reusing existing 4G assets, including signaling networks, radio sites, backhaul, changes in network architecture, radios and spectrum aggregation that allow a more-graceful approach to 5G deployment. And that means the feared capex dangers are far less than some have predicted.

In fact, in the early days, the primary value of 5G is to augment 4G smartphone capacity demands, within existing capex budgets, for the most part, often reusing existing physical assets. In fact, one now-obvious key is that advanced 4G networks will essentially become the coverage complement to capacity-focused 5G.

Comcast and Charter Will Not be Leaders in U.S. Mobile Without Acquisitions

Some idea of potential cable TV provider mobile market share can be estimated by looking at cable’s current share of internet access accounts (a proxy for landline accounts), assuming the strategy stays as it is for the moment (selling only to existing or potential landline customers) and comparing those numbers with total mobile accounts in service.

Comcast and Charter, the two largest cable TV companies, have about 52 million internet access accounts, and represent about 81 percent of all U.S. cable customers. Total U.S. mobile accounts stand in excess of 440 million accounts.

In principle, were Charter and Comcast able to sell mobile service to half of their total landline accounts, they would garner 26 million accounts (making the two firm share roughly half of what Sprint holds right now). That would represent mobile account share of about six percent.

For the sake of argument, assume Charter and Comcast eventually are able to sell mobile service to 75 percent of their accounts. That would represent 39 million accounts, or about nine percent mobile account share, assuming U.S. accounts do not grow.

Most believe mobile accounts will keep growing, on the strength of internet of things connections, so the shares could change when IoT mobile connections become the largest percentage of accounts in service. Revenue is another matter, though. IoT accounts will garner recurring revenue that is a fraction of what a smartphone represents.

The bottom line is that, so long as cable is content to sell mobility services only to its own customers, mobile market share will be quite limited, probably in the six percent range for the foreseeable future.

That is one reason why some believe the ultimate outcome is acquisition of both T-Mobile and Sprint. That is the only way Charter and Comcast are likely to emerge as among the leaders of the mobile segment of the market.

For the moment, cable seems content to view mobile as a revenue-generating and profit-generating means of protecting the landline customer base, though.  

Will AT&T Lead Another Revolution in Mobile Pricing?

One of the obvious commercial ramifications of virtualized networks featuring network slicing is the ability to create customized features related to bandwidth, latency, security and quality of service. Prices and service levels for mobile internet access should be an early place to look for evidence of such customization.

At the most basic of levels, standard practices in fixed networks, such as the ability to buy faster or slower services, with bigger or smaller usage allowances, are commonplace. That has not been possible in the mobile segment of the business, but will be. We refer here not to the setting of tariffs for 5G than might be higher than 4G, for the same amount of usage.

What likely will be new is the ability to create speed and usage tiers on an account-by-account basis. That is new. But so far, the leading mobile service providers announcing 5G service have chosen not to introduce such plans.

To be sure, Verizon charges about $10 a month extra for data plans with comparable 4G usage allowances. And since 5G is faster than 4G, there is an effective price premium for 5G. What Verizon has not done is create speed tiers for mobile access that resemble fixed network access.

In other words, customers cannot buy 5G plans with “speeds up to 150 Mbps” as one plan, and “speeds up to 300 Mbps” as a different plan, as is the norm for fixed network access.

But AT&T might choose to do so, at least eventually. So, too, will Verizon, in all likelihood.

“I will be very surprised, if as we move into wireless, the pricing regime and wireless doesn’t look something like the pricing regime you see in fixed line,” said Randall Stephenson, AT&T CEO.

“If you can offer a gig speed, there are some customers that are willing to pay a premium for 500 meg to a gig speed and so forth,” he said. “So I expect that to be the case.”

But it will not happen right away. “We are two or three years away from seeing that play out,” said Stephenson.

Network slicing most often is thought of in the context of customized virtual networks for enterprise customers. It might also be the way mobile operators create, for the first time, speed tiers for mobile internet access that are differentiated by speed, not just usage allowance.

Whether other quality of service metrics also become standard features of some plans or not--for consumers--remains to be seen.

But this is a big potential change, and will likely create higher revenue potential for the firms that offer such speed-differentiated or possible QoS-based service plans.

Ruckus President Ian Whiting on Private LTE

Some critics obsess over nomenclature, or who has the "first" something related to 5G. More important is the fact that 5G builds directly on 4G, while advanced 4G is becoming more important as well. Private 4G and private 5G might actually become substitutes for Wi-Fi in some settings, including industrial use cases.  

Ruckus Director Dave Wright discusses CBRS

How Will Verizon Provide 5G Coverage, Not Just Capacity?

No 5G service provider in the mobile business can escape an iron law of bandwidth, namely that lower frequency spectrum is better for coverage, while higher frequency spectrum is better for capacity, and mobile service providers need both.

That means operators always must balance coverage and capacity. But there are lots of moving parts. End user demand always changes, but most of the demand for capacity happens when users of smartphones are stationary, at home or at work. So most of the demand for capacity happens at home and at work.

“Remember, the majority of all the traffic is in dense urban areas, where we are now initially are focusing” its millimeter wave deployments, said Verizon CEO Hans Vestberg.

Observers have noted for years that Verizon “needs more spectrum.”

Verizon’s answer has been to use millimeter wave spectrum, small cells and spectrum sharing, in addition to acquiring new millimeter wave assets and refarming 3G spectrum. There is an unsaid ability to possibly augment with other assets as well, but Verizon is moving ahead on the assumption it must do so without spectrum asset acquisitions from other service providers.

“One of the most important features that I have talked about is of course the dynamic spectrum sharing that will come during next year, where you basically also can use, deploy wherever you are with 5G and then you don't need to allocate certain spectrum to certain technology,” said Hans Vestberg, Verizon CEO.

Some have noted that Verizon has less capacity per account than does AT&T, and “needs” more mid-band spectrum. Verizon technologists have run the numbers and concluded that small cell architectures--always a practical way to expand bandwidth--will do much of the job. Millimeter wave spectrum and spectrum sharing will help: the former with capacity needs, the latter for coverage.

But none of that is essential. Every 5G service provider eventually has to supply both coverage and capacity. Capacity has to come in different ways than coverage. Verizon knows that.

An important point is that there are a growing number of ways to increase effective bandwidth beyond buying spectrum licenses. Small cells, dense fiber networks, spectrum sharing and spectrum aggregation all can expand capacity.

That said, both AT&T and Verizon have committed to lots of new spectrum in the millimeter wave regions. Some have criticized such moves, arguing that volume production of radios and devices eventually be strong in the mid-band spectrum areas. There is some merit to such arguments.

But it also is true that future 5G capacity growth will have to come from the millimeter wave region, and that this will be a global trend, not something mostly limited to the United States.

Verizon realizes millimeter wave spectrum “is not the coverage spectrum,” Vestberg said. That is one reason why “spectrum sharing will be the next step for us to see that we have all the assets to deploy our strategy on 5G to meet the different type of use cases.”

Where Will 5G Innovation Happen, and How Does That Relate to Millimeter Wave?

Even as some argue 5G will be spectrum agnostic and can use “all frequencies,” some insist there is a real disadvantage to using millimeter "versus" lower-frequency spectrum. Ignore for the moment the obvious marketing stances taken by firms with different assets. Firms will tout what they have.

Some larger realities are not changed by 5G. There always is a trade off between capacity and coverage, when using wireless spectrum at any frequency. Networks always can get more-extensive coverage using lower frequencies, at the expense of potential bandwidth. Conversely, they always can get greater capacity, at the expense of lesser reach, with higher frequency spectrum.

And since “everyone” agrees a wide variety of low, medium and high frequency spectrum will be used by 5G operators, it makes sense to figure out what use cases (beyond coverage and capacity in general) are best suited to which frequency bands.

The area of greatest discovery will be in the millimeter wave bands, which have never been commercially viable for mobile services in the past. Millimeter wave spectrum will enable the greatest changes in capacity (bandwidth), and likely will be the area where the greatest number of new use cases will be developed.

Generally speaking, the gigabit speeds touted by 5G backers will be possible only when using millimeter wave assets. Generally speaking, lower-frequency spectrum will offer speeds higher than 4G, but perhaps not typically more than twice as fast.

That might suggest it is fruitful to look at 5G using lower or mid-band spectrum as important for supplying faster mobile internet for smartphone users, but not, in itself, a huge driver of new applications. One might argue that the higher bandwidth will make visual apps more compelling, and that is correct, so long as tariffs allow the higher usage.

In other words, much-faster speeds will not lead to as much innovation unless tariffs for usage are low enough that barriers to usage are not created. As one example, 5G might enable mobile TV. But consumers will constrain usage unless tariffs and usage plans encourage--or at least do not discourage--such usage.

Different use cases beyond “faster consumer smartphone access”  will tend to require millimeter wave. It will be hard to make a decent business case for fixed wireless--as a substitute for fixed network internet access--without using millimeter wave assets. There simply is no way to replicate the low cost per bit of fixed network services without millimeter wave capacity gains.

Latency performance should not vary between services at any frequency, but will be affected by the presence or absence of infrastructure edge computing facilities. Enterprises using their own edge computing platforms and private 5G will not generally have to worry about latency.

Visual applications and real-time control operations likewise are areas where millimeter wave should have relevance, often in conjunction with edge computing to control overall latency when analytics must be applied.

What sometimes is overlooked in discussions of “millimeter versus lower-band spectrum” is that many new use cases depend as much on edge computing as they do on bandwidth or latency. Millimeter wave communications will have a huge advantage where bandwidth intensity is high, but also will tend to be use cases where local processing also is necessary, hence edge computing will be necessary.

And many use cases said to be candidates for millimeter wave and edge computing (virtual reality, augmented reality, visual health applications) also will occur either indoors or in stationary or low-speed settings ideally suited to private 5G or small cell supported public networks, with local processing (edge computing).

The point is that many of the brand-new use cases (beyond faster mobile internet) will happen in settings where millimeter wave coverage is not a great issue. Most usage happens in a small number of cell sites for any network (2G to 5G). Those cell sites always are in urban areas. So 5G “coverage” is a bit of misplaced concern.

Even when wide area 5G coverage is supported, the really-high bandwidth features (gigabit or higher) will not be supported everywhere. The trade offs of coverage versus capacity remain.

So the place to look for truly-new use cases is in areas other than “faster smartphone access.” It is the urban places, indoors and outdoors, where millimeter wave and edge computing exist, where the new use cases and revenue opportunities will emerge.

The point is that ubiquitous 5G coverage is not necessarily required for the development of most new 5G-enabled apps and use cases. Those are going to happen in the dense urban areas--or inside enterprise facilities--where most economic activity takes place.