5G Will be as Extensive as 4G in Five to 10 Years

Based on where 5G is in Gartner’s enterprise networking hype cycle, “5G is five to 10 years away” from the point at which the real-world benefits are demonstrated and accepted, and the rapid growth phase of adoption begins, Gartner says. 

Another way of describing where we are is that 5G will be as ubiquitous as 4G in five to 10 years. We also can expect a period of diminished expectations, as the 5G hype fails to match expecationsm as fast as some expect. 

source: Gartner

5G Adoption Rates to 2025, by Region

source: GSMA

Can U.S. Low Earth Orbit Internet Access Shave $30 Billion off Supplier Revenue?

Researchers at Broadband Now believe low earth orbit satellite services provided by firms such as Project Kuiper (Amazon) and Starlink (SpaceX) in the United States alone could shave about $30 billion annually off internet service provider revenues, primarily by forcing incumbents to shave prices to meet the threat of new competition. 

Some of us  believe that is perhaps wildly high, for a few reasons. The mere presence of a new competitor would not drive prices so much as that new competitor’s ability to take market share from incumbents. So revenue impact depends on LEO providers taking significant market share. 

If it turns out that most customers for any new LEO service come from areas where a wired network cannot be sustained, no actual pricing response from rival fixed network suppliers would be expected. They do not expect to compete in very low density areas in any case.

And even where fixed providers do start to see customer erosion, incumbent pricing behavior will hinge on which customers are deserting. If the churn comes from promotionally-priced accounts, incumbents might not feel too threatened, especially if they do not want such accounts. 

The lower pricing effect would be greatest if any new LEO service starts to take away customers in the broad middle range of plans (not the slowest, not the gigabit services at the high end). 

Still, we are likely to find out what the impact is as at least one of the proposed constellations--Project Kuiper--plans a global network that launches first across the United States. 

source: BroadbandNow

But to cause savings as big as $30 billion, Project Kuiper would have to attract good numbers of customers in urban and suburban areas as well, areas where the present number of people reached by one to three fixed networks includes roughly 260 million people, or perhaps 113 million households,  

source: BroadbandNow

With the caveat that I have not independently verified the estimates, the methodology for estimating savings would simply be to assume the additional LEO competition increases the number of competitors in a market by one, and thereby leads to lower average revenue per user characteristic of a market with one additional competitor. 

Where an existing market with a single fixed network supplier has ARPU of $68, ARPU would drop to $59. In a two-supplier market where ARPU is $59, the new level of ARPU with three providers would decline to $58.83. 

Number of Wired Providers	Population Covered	Number of Zip Codes	Mean Lowest Priced Wired Broadband Plan
0	9,836,029	8,989
1	104,142,401	12,259	$68.38
2	75,548,052	6,246	$59.14
3	83,380,772	3,760	$58.83
4	32,520,715	1,250	$56.27
5+	15,563,255	485	$46.59
Grand Total	320,991,224	32,989	$63.40

source: BroadbandNow

One issue, of course, is that fixed network internet access is not bought by persons, but by locations. One would have to make assumptions about how “population” relates to the number of households. Then one also would have to make assumptions about which plans actually are purchased by households.

The BroadbandNow data makes a comparison based on the “mean lowest priced plans.” That is almost certainly not the type of plan the overwhelming majority of households buy. So the revenue impact is skewed, to the extent that we would have to compare the “most-often purchased” plans in each area, not the lowest price plans. 

source: Space News

Much will hinge on how the new LEO providers price and package their services. But price, rather than speed, is likely to be the strategy. The reason is that the easiest market entry strategy is “same product, lower price.”

And though “better product, same price,” or “better product, lower price” might work in some cases, faster speeds will appeal most to some segments of the customer base. For those with no fixed network access, “availability” is the greatest value. 

For homes with access, but at slow speeds, “speed” will be the primary draw. For most urban and suburban buyers, the value proposition will be key. LEO service might not so frequently represent higher speeds, though it could represent lower price for a given speed. 

The point is that speed, in most cases, will not be a huge driver of value. 

In tests of internet access services used by 53 of its journalists, the Wall Street Journal has concluded that most people do not use but a fraction of the capacity they pay for as buyers of fixed network internet access. 

Is faster better, for most people? “For most people, the answer is no,” say a team of writers including Shalini Ramachandran, Thomas Gryta, Kara Dapena and Patrick Thomas, writers for the Wall Street Journal. 

The big caveat is that this study looked at applications such as video streaming, gaming and other common apps, and were not specially focused on downloading. 

As this chart suggests, experience is improved most at the lower end of the speed scale, say 55 Mbps or so. “For a typical household, the benefits of paying for more than 100 megabits a second are marginal at best, according to the researchers” say. 

source: Wall Street Journal

These sorts of results would not be unexpected or unusual by anybody who actually studies such matters. 

The upshot is that LEO services are likely to have to compete on price. 

5G Will Have Practical, Expected Benefits, Some that are Unexpected

Part of the challenge of 5G, as was the case for 4G and 3G before it, is the creation or discovery of products that do not yet exist, using technologies that might not fully exist, solving problems we possibly have not identified. Internet of things nicely encapsulates all that. 

Sensors and analytics will be deployed to provide value we cannot now capture, using network elements not yet fully commercialized, creating new revenue sources for a variety of ecosystem contributors. 

The point is that contingency has been part of the reality for 3G and 4G. Some level of uncertainty about what might develop is hardly new for 5G.

On the other hand, since end user bandwidth demand increases steadily, the bottom line justification for 3G, 4G or 5G might well be said to be that each is an answer for the problem of supplying ever-more bandwidth at ever lower costs per bit. 

Over time, new use cases and revenue drivers emerge, even if they cannot precisely be quantified at the start. Text messaging came as a surprise to virtually everyone in the 2G era. 

The popularity of mobile internet and mobile email--compared to other use cases--was something of a surprise in the 3G era. Many thought more-exotic use cases would develop. 

The use of entertainment video on 4G networks has dominated bandwidth growth on that platform. 

The point is that each successive next-generation network can be justified purely for bandwidth supply, even if somewhat unique use cases did develop in each era. 

Looking only at data use cases, in the 2G era mobile was a reasonable choice only for messaging. In the 3G era, mobile internet access improved, but Wi-Fi still offered higher throughput. Consumer web surfing became a tolerable experience, but video streaming remained a challenge.

The 4G era was the first where mobile user experience of web applications actually became comparable to fixed network experience, for most apps, including streaming video.

The Long Term Evolution 4G network also became the first mobile network to routinely offer higher performance than Wi-Fi.

In the coming 5G era, the mobile network will, in many cases, become a fully-functional substitute for the fixed network, for all applications.

In the 3G era, Wi-Fi’s main attractions were better performance and better value (mobile users did not incur mobile usage charges). In the 4G era, this has changed.

For users with very-large or unlimited usage plans, there is no advantage to switching to Wi-Fi for access, either in terms of performance or cost. Also, 4G access tends to outperform Wi-Fi, so there is no advantage to switching to Wi-Fi, in terms of user experience.

In the 5G era, at least some 5G fixed wireless services will be full and direct substitutes for fixed network cabled access. At the same time, mobile access will likely continue to offer higher value for internet access, in more use cases, compared to alternatives such as Wi-Fi.

source: OpenSignal

The 5G era also is likely to be the first where the business model changes again. In the 2G era, voice and text messaging drove value and revenue. In the 3G era, mobile internet access emerged as the growth driver.

In the 4G era, streaming video was the revenue driver, largely because video drives so much data usage, shaping demand for both larger-usage plans and unlimited plans or video-exempt plans.

In the 5G era, incremental revenue is likely to shift from consumer to enterprise apps, returning to a pattern first seen in 1G and early 2G, where business accounts drove growth.

What will be different in the 5G era is that the incremental new accounts will be driven by enterprises and organizations deploying sensors, not human users. Those internet of things and machine-to-machine use cases will not be based primarily on human users, their smartphones, tablets, internet TVs or PCs.

The point is that each generation of mobile networks has had different and new revenue growth drivers. The coming 5G network will not be any different, in that sense.

What will be new is a shift to incremental growth driven by non-human use cases.

5G Performance is Simply a Linear Extrapolation of Existing Trends

One always can get a good debate going about the implications of 5G, compared to prior mobile network generations. Better performance is among the oft-cited differences, but it also is fair to note that speed metrics have grown by an order of magnitude every mobile generation since the first digital network (2G). 

Latency, at the same time, also has dropped by an order of magnitude. So performance-wise, 5G operates as one would expect: more bandwidth, faster speeds, lower latency. 

source: Visual Capitalist

And though expectations are high for new revenue sources and use cases driven by internet of things, it might also be fair to note that every mobile platform has had unique--and new--use cases and revenue models. 

One might argue that mobile voice was the killer app for 1G. Texting and low-speed data capabilities came with 2G. The 3G platform added mobile internet access and mobile email. One might argue 4G added video entertainment. We will have to see what develops with 5G. 

But performance-wise, 5G represents a linear extrapolation from existing mobile performance trends. 

U.S. 5G Covers Less than 1% of U.S. Population

As of July 1, 2019 less than one percent of the U.S. population has 5G coverage available at their home or business, according to consultants at PwC. And less than 0.5 percent  of mobile devices in use are 5G enabled.  

PwC predicts that on January 1, 2020 some 10 percent of the U.S. population will have access to 5G network coverage and two percent of devices will be 5G enabled.

source: PwC

How Big a Cost Premium for 5G Phones?

If 5G capabilities are made available first on high-end devices, it is logical to expect device costs to be high as well. And that is what an analysis by IHS Markit concludes. According to Joshua Builta, IHS Markit senior principal analyst, 91 percent of surveyed consumers  expect to pay more for 5G devices compared to existing 4G LTE smartphones. 

Three quarters of respondents stated they expect to pay an additional 10 to 25 percent for a 5G-capable phone. But that expectation likely is based on average sales price of a smartphone of $319, notes Builta. So a 10 percent higher cost adds $32. A 25 percent increase would boost price by $80.

Of course, early 5G models are top of the line devices. Samsung’s S10 5G phone is retail priced at $1,300, a 335 percent premium compared to the $388 average for the company's existing 4G smartphone models, he says. 

But consumers who buy high-end phones, early in the cycle, are not the same as consumers who buy budget models. 

“Newer technologies almost always come first to premium smartphones, which typically are two to three times as much as industry ASP,” Builta notes. 

Will “sticker shock” be an issue. Yes, but not as much as one might think. Early adopters always are willing to pay more. But prices also will fall, as usual. And 5G network capabilities will roll out to less-costly devices as well. 

Source: IHS Markit

Will 5G Boost ARPU?

Will 5G command a price premium? Almost certainly, in the early going, as the early adopters will tend to be business customers, who can, and will, pay more, as well as early adopter consumers, who likewise have a propensity to pay more for their technology products, compared to later adopters. 

“On average, smartphone users globally state that they are willing to pay a premium of 20 percent over and above what they pay today for the benefits of 5G,” says Ericsson. 

“Half of all early adopters who are familiar with 5G's promises could pay as much as 32 percent more than they do today,” Ericsson also believes. Correctly, Ericsson cautions that such statements of willingness to pay tend to diverge from actual behavior.

In the U.S. market, Ericsson found  consumers saying they can pay a price premium for 5G of 15 percent, which translates to $9 a month. Whether that becomes a widespread fact is hard to say. 

The clear trend, in the early going, is that business customers are buying 5G, and for that there tends to be a price premium, if only because the service is being used as a  backup internet access connection for business locations, in AT&T’s case.

source: Ericsson

If, as seems likely, much of the early demand for Verizon 5G also comes from business customers, that also suggests potential higher early 5G revenue per account.

5G Speeds Will be Hard to Compare

Speed measurements on a cross-country basis--both fixed and mobile--have been contingent; affordability assessments even more so. All of that will become more complicated in the 5G era, when virtually any spectrum can be used to support 5G services, with clear and distinctive coverage and capacity profiles, depending on which frequencies are used. 

Both 4G and 5G spectrum also can be used to support a 5G device, further complicating matters. 

That perhaps already is clear in South Korea, where 5G uses the  mid-band frequencies to support 5G, but where, in many cases, it is a combination of mid-band and 4G spectrum that actually supports usage, although 28-GHz also is authorized and will be used, at some point. 

3G 4G blog

Some recent tests have used devices able to access 1.5 Gbps of 5G bandwidth using SK Telecom’s 3.5 GHz spectrum, plus 1.15 Gbps of 4G bandwidth at 1.8Ghz, 2.1Ghz, and 2.8GHz frequencies. 

The point is that 5G access is going to be quite heterogenous. There will be many ways of supplying 5G access, and performance will vary based on how the access is supplied. Even when 4G spectrum is not used (dynamic spectrum sharing, spectrum aggregation), 5G capacity will vary based on which bands of spectrum are used, and especially when millimeter wave or mid-band spectrum is available. 

Low-band 5G will be faster than 4G, but less so than when mid-band and high-band assets are used. 

But many early 5G deployments will aggregate 4G with 5G. In other cases 5G might be aggregated with unlicensed spectrum. In other cases, access might default entirely to 4G, when on 5G handsets in rural areas. 

And 4G will keep getting faster, closing the gap with 5G using the coverage frequencies (low-band and mid-band). So even when a 5G device defaults to 4G, the speed experience might not vary too much from 5G. 

The point is that interpreting 5G speeds is going to become highly contingent. Stand-alone 5G is going to be different than non-stand-alone (using 4G). 5G experience will hinge on which frequency bands are used, and what types of spectrum aggregation are possible at specific locations.

Will Dish Network Prove Sustainable?

“Owner’s economics,” the financial advantages for firms able to own--rather than rent--key inputs, often figures into service provider strategy. Quite often, ownership at scale is impossible for nearly all firms in the fixed networks business, though it has been possible for multiple mobile contestants to compete using owned facilities. 

In most markets, it is thought unfeasible for multiple fixed networks to compete at scale, even if in some local markets that might be possible, to an extent, especially for specialized networks serving enterprise customers. 

That has resulted in a reliance on wholesale policies to support retail competition, and in many markets, this has materially supported retail competition. What has proven much harder are incentives for investment on the part of the wholesale provider, not to mention other potential competitors. 

Up to this point, both wholesale and facilities-based models have worked in the mobility segment of the business. The big question for policymakers has been the sustainability of facilities-based competition, and impact on consumer prices, between three or four contestants. 

That was part of the review process for the T-Mobile US merger with Sprint, for example, leading to a compromise allowing the merger, on the condition that a fourth national contestant (Dish Network) also be created. 

Dish Network has its own spectrum assets, but also will be able to rely on wholesale access to the T-Mobile US network for a period of time deemed long enough for Dish to build its own network. 

Whether this happens, and what else might need to change to enable the creation of that network, is the issue. The approach is reminiscent of the “wholesale to encourage investment” strategy once undertaken by the U.S. Federal Communications Commission in deregulating the U.S. telecom market. That effort failed, which is the cautionary statement. 

Telecom service provider wholesale policies can make or break business models. Back in the early years of the 21st century, U.S. regulators briefly relied on robust wholesale discounts--below actual cost, in many instances--for network service customers, in hopes of stimulating more competition in telecom services markets. 

The policies allowed competitors to buy and use complete services--provisioned lines--to support competitive voice services. The framework allowed firms such as the then-independent AT&T and MCI to grow their retail phone services businesses. 

It all collapsed when the Federal Communications Commission changed its rules and allowed network services suppliers to negotiate market-rate prices. 

Australia seems to be suffering from a related problem with its National Broadband Network, as there is but one supplier of wholesale network services, leading Telstra to experience a 40-percent drop in profits, year over year.

The country’s largest service provider (which accounts for 41.5 percent of the telco industry’s market share) saw its profits plummet 40 per cent in the 2018-2019 financial year, largely because of NBN wholesale tariffs. 

Telstra’s largest rival, Optus, similarly saw profits fall by 32 per cent in the same period. 

source: Telstra

That is one clear danger for all telecom regimes relying on a single wholesale network services supplier.The brief U.S. policy reliance on wholesale service supply--seen as a stepping stone to facilities investment--rather quickly was replaced by the alternative of facilities-based competition, and essentially worked because cable TV operators were able to use their own networks to compete in voice and internet access services. 

The 1996 Telecom Act's focus had two goals: to open the local exchange market to competition (by stimulating facilities-based investment) and to promote expanded competition within the long-distance marketplace.

In retrospect, the focus on voice services--at a time when the internet was emerging--seems misplaced. A fundamental change in policy aiming to change voice market share was unveiled precisely at the point that voice services began a long-term decline. 

The primary goal was to provide residential customers with choice and innovation in their local voice telephone service. After nearly seven years, though choice increased for urban customers, investment by the incumbent and competitive carriers was virtually nonexistent.

The problem is compounded by the decline of every legacy revenue stream the wholesale infrastructure is supposed to enable, with declining average revenue per user now a global trend. 

Under such conditions, wholesale prices “need” to be reduced, as retail value is less, so retail price needs to decline. Whether that is possible, and to what extent, is the issue for the NBN. 

Longer term, one has to ask whether that will be an issue for Dish Network as well. Dish will begin life with less than two percent market share, based almost exclusively on prepaid customers, the least desirable customer segment for any of the other three leading contestants. 

What T-Mobile does fear--but many would argue must eventually happen--is the emergence of a deep-pocketed, strong brand name, new investor in Dish with a revenue model complementary to connectivity services. 

Some believe that if Dish survives as a viable fourth competitor nationwide, it will because that new investor or owner emerges.