5G is Not a Waste, but Might be Overkill, for Most Consumers, at First

“I don’t feel the difference,” says one South Korean user of 5G services. That is not to say there are no use cases for consumer 5G. Another user “notices a difference on the superfast network only when downloading files or images on his phone,” according to a Wall Street Journal report. 

But that already seems to be one huge difference between 4G and 5G user experience: 4G provided a noticeable improvement in experience, compared to 3G. Whether the use cases was simple web surfing or entertainment video, 4G was experientially better than 3G. 

People used to switch to public Wi-Fi, when possible, because Wi-Fi provided a better experience than 3G. In many cases, that now is reversed, and the mobile network provides a better experience. Most users still rely on Wi-Fi when indoors, sometimes to reduce mobile data consumption, sometimes for performance reasons, sometimes for reasons of coverage (the Wi-Fi signal is stronger than the mobile signal). 

Though 5G will generally be faster than 4G, the experiential benefits may not--with the exception of downloading--actually be detectable. That poses a different adoption challenge than did 4G. Where 4G offered a difference users could see, that will not generally be the case for 5G, simply because the applications people use will not benefit from the higher 5G speeds. 

So adoption might well be driven by other sources of value, including new devices people want that happen to use 5G; service plan inducements mobile providers will introduce (higher or unlimited usage, for example); prestige in some cases. 

Netflix recommends minimum internet access speed of 25 Mbps per stream for viewing 4K video, 5 Mbps for high-definition video. But it also is questionable whether 4K viewed on a smartphone offers resolution a user can actually detect. In other words, 4K is probably not detectable by the human eye. 

Virtual reality is the use case where 5G might really matter, but few such use cases are yet common on smartphones. 

You might ask “what is the point?” Eventually, 5G will prove its value, if for no other reason than allowing service providers to supply the bandwidth customers want at prices they are willing to pay. 

Eventually, other developments, ranging from edge computing to virtual and augmented reality, plus internet of things, eventually will make 5G more compelling, creating use cases and revenue models for device, app and service providers. 

Still, for the moment, consumer value will be limited to downloading speed.

Spectral Efficiency Often Hinges on Channel Width

There are always some test results one cannot readily explain. In principle, spectral efficiency should be higher when channels are bigger, at least in part because less bandwidth is “wasted” on guard bands. That does not appear to be the case for a test of 2.6-GHz 5G spectrum on Sprint’s network in Chicago, which found 2.6-GHz spectral efficiency greater than on millimeter wave spectrum. 

“Based on RB-normalized throughput and MCS allocations, the Band 41 spectral efficiency was at least 50% higher than 5G millimeter wave for most test scenarios in Chicago when compared with testing did in New York City late this summer,” according to a study of Sprint’s network.

source: T-Mobile US

But there are notable elements of the test that likely account for the finding that 2.6-GHz efficiency was higher than that of millimeter wave networks. The Chicago test used some form of spectrum aggregation, where both the 2.6-GHz 5G channels and also 4G LTE bandwidth could be used by the phones tested. 

In principle, that means the effective 5G bandwidth theoretically could use 120 MHz of spectrum across the 4G and 5G networks. It seems likely that the millimeter tests used channels of less than 120 MHz.

No Mobile-Only Position is Sustainable at the Top of U.S. Consumer Markets

Eventually, the U.S. connectivity business, at least the part selling services to consumers, is going to be dominated by a small set of suppliers, perhaps two with telco roots and two with cable TV roots. Most likely believe that AT&T and Verizon have reached a natural limit in terms of their U.S. operations, and would not be allowed to get much bigger by acquisitions of rival firms serving the consumer market.

Comcast and Charter Communications, on the other hand, should be able to grow vertically (acquiring mobile assets) without overwhelming regulatory opposition, though those firms likely would face tough to impossible barriers expanding horizontally (acquiring more fixed network accounts by acquisition).

At least some of us have long believed the “best” set of merger outcomes would be for Sprint and T-Mobile US to be merged with (pick one combination) Comcast and Charter Communications, allowing four suppliers to sustain themselves in a market where “mobile only” seems unsustainable in the consumer market. 

Now there are indications that is what T-Mobile US might be thinking, assuming its merger with Sprint is approved. Many now believe a "mobile-only" company cannot sustain itself at the top of the market, and that an integrated approach with ownership of both mobile and fixed network assets is required.

The long-term sustainability argument has been that integrated service providers serving the U.S. consumer market would have to own both fixed and mobile network assets. 

The proposed T-Mobile US merger with Sprint, creating a big mobile-only company. That has therefore seemed the first of at least two mergers. Create a big mobile-only entity, then merge again with Comcast or Charter, Charter the more-likely candidate. 

The long-term sustainable structure for the U.S. consumer connectivity business has seemed to be four firms, including assets clustered around AT&T, Verizon, Comcast and Charter Communications, each with both mobile and fixed network facilities ownership. 

Such cable-mobile combinations have a rather lengthy history, with Cox Communications and Cablevision Systems Corp. having tried a go-it-alone regional approach, with several of the biggest U.S. cable firms having partnered with Sprint decades ago for spectrum purchases and other possible uses of that spectrum. 

Cablevision Systems, in fact, was considering a non-mobile wireless service about 20 years ago, essentially modeled on Japan’s Handy-phone Handyphone wireless service, supporting voice communications at pedestrian speeds, but not full mobility at high speed. 

Cablevision’s thinking was that its hybrid fiber coax network would allow it to build such a system without the cost of acquiring licensed spectrum and building a full mobile network. That same sort of approach is used by Comcast to support its voice on Wi-Fi network using hotspots with public as well as private access. 

Such strategic scenarios also illustrate why the entry of Dish Network into the mobile market also is the first of at least two transactions. Dish has to replace its declining satellite video business with another big key driver, which it hopes will be mobility. 

But that only creates yet another mobile-only company, and that is unsustainable in the U.S. market, some would argue. So the eventual path will be a combination of Dish assets with another entity, especially if, eventually, every leading internet service provider owns its own mobile and fixed networks, save one. 

If the Sprint merger with T-Mobile US is approved, we might well see that as only the first of two big transactions. The second will merge the mobile-only assets of new T-Mobile with the fixed assets of a cable company.

Where are the Big New Consumer Market Growth Opportunities?

Among the reasons many observers and industry executives hope internet of things actually will produce many big new use cases and revenue streams is that most consumer lines of business are declining, saturated or perhaps nearing saturation. Even video services, perhaps the newest area connectivity providers have entered (after voice, messaging, internt access and mobility), might be closer to maturity than is commonly supposed.

source: PwC

Researchers at PwC believe the highest connectivity provider growth rates will come in the over-the-top video subscription business, which is a classic “new market” being created. But some observers believe some markets--such as the United States--already are well along the product life cycle. 

source: Parks Associates

Growth rates remain high in the mobile internet access space but low in fixed network internet access. 

Traditional linear TV services have negative to zero growth rates. 

The strategy implications are pretty clear. Subscription TV services really involve harvesting revenue from a flat to declining business. Fixed network broadband is mostly a “take market share” exercise.

Mobile service providers will likely find growth from a combination of market share gains and average revenue per user growth. And over-the-top video streaming will be an opportunity for some tier-one service providers, almost entirely based on segment growth, though market share issues will become important as the new market matures. 

One reason many are hoping internet of things does lead to big new enterprise markets is that there are few candidates for big new revenue streams in the consumer segment of the mobile or fixed markets.

Mobile Service Spectrum Holdings are Changing Fast

U.S. mobile service provider spectrum holdings and spectrum strategies are changing very rapidly, in part because of the proposed T-Mobile US merger with Sprint, the emergence of Dish Network as a new provider, and very-active spectrum auctions.

Though scale is a clear advantage of the proposed T-Mobile US merger with Sprint, spectrum acquisition is key. A merged Sprint plus T-Mobile US would have huge spectrum assets, compared to all other leading mobile providers.

Also, Verizon’s relative spectrum paucity also is clear. Verizon has more customers to support on its network than does T-Mobile US or Sprint, for example, and arguably the most to gain from using small cells to intensify its spectrum reuse. 

Also, spectrum holdings have changed over the past couple of years, particularly because of millimeter wave holdings added by Verizon.

source: New Street Research

By some estimates, Sprint has the most mid-band spectrum (labeled by Cowen as "high band"). 

source: Cowen

Though Verizon in 2018 had about the same amount of spectrum as T-Mobile US, it had twice the number of subscribers, and three times the number of Sprint, which had almost twice the spectrum. 

source: Statista

Spectrum Prices are Hard to Evaluate, Using Traditional MHz-POP Metrics

Spectrum prices might be a bit hard to evaluate using the traditional dollars per MHz per potential user, in part because the amounts of spectrum are so much greater for millimeter wave auctions. Where low-band spectrum with much more limited capacity once sold for prices above $1 per MHz POP, millimeter wave spectrum appears so far to be selling for $.01 per MHz POP, and should cost even less, on a MHz-POP basis, as frequency increases.

The reason is that higher frequencies feature much-greater capacity (orders of magnitude more MHz per POP). As with any business or consumer budget, there is only so much money to spend on any particular product. 

As consumers now pay between $40 and $80 for internet access for hundreds of megabits per second, where they once paid the same amounts for a few megabits per second, so too mobile service providers can only afford to pay so much for new blocks of spectrum.

So prices will fall, on a price per MegaHertz per POP basis.

source: Spectrum Financial Consulting

Perhaps 17% of U.S. Customers Still Use 3G

Mobile operators launch a new next-generation network about every decade, and therefore eventually must decommission older networks. That has happened globally at least once, when the analog network was shuttered.

In some markets 2G networks are closed, or will be over the next few years. We also now are reaching the point where 3G will be shut down. 

Since 4G arrived roughly a decade ago, it has been clear that both 2G and 3G networks eventually would be turned off. Here is an estimate of the expiration dates on some of those networks in Europe. Very soon, there will be less 2G or 3G left in Europe. 

Country	Operator	2G/3G sunset date
Norway	Telia Norge AS	Final 3G shutdown 2021, phasing out starts in 2019
Norway	Telenor Norge AS	2G shutdown 2025, 3G shutdown 2020
Sweden	Three	3G shutdown 2020
Sweden	Telenor Sverige AB	3G shutdown 2020
Sweden	Tele2 AB	3G shutdown 2025
Sweden	Telia Company AB	3G shutdown 2025
Denmark	Three	3G shutdown 2020
Netherlands	KPN B.V.	3G shutdown Jan 2022
Germany	Vodafone GmbH	2G shutdown 2025, 3G shutdown 2020
Austria	Three	3G shutdown 2020
Liechtenstein	Telecom Liechtenstein AG	2G shutdown Jan 2021
Switzerland	Swisscom Ltd	2G shutdown 31.12.2020
Switzerland	Sunrise Communications AG	2G shutdown 31.12.2021
Switzerland	Salt	2G shutdown 31.12.2020
United Kingdom	EE Limited	3G shutdown 2022
United Kingdom	Three	3G shutdown 2020
United Kingdom	BT	3G shutdown 2021
Ireland	Three	3G shutdown 2020
France	Orange	3G shutdown 2021
Italy	Vodafone Italia S.p.A	2G shutdown 2025, 3G shutdown 2020
Italy	Three	3G shutdown 2020

source: IoT Business News 

It never is pain free, as some customers stubbornly prefer older networks, and must either be migrated to more-modern networks or lost. The GSMA says 17 percent of U.S. subscribers, and 19 percent of U.S. mobile connections were used 3G at the end of 2018.

Opensignal says there are three main reasons some users continue to prefer 3G networks.

Opensignal says 83.2 percent of 3G-only users in the United States do not buy a 4G rate plan. 

Some 12.7 percent of 3G-only users spent time exclusively in areas where 4G does not reach, and just 4.1 percent of 3G-only users lack a 4G-capable smartphone. 

 

source: Opensignal

Convincing the few remaining customers on legacy networks to migrate never is completely painless, but has been done before, so mobile operators know what to do.