How 5G ARPU is Increased Indirectly

To the extent that there is revenue uplift from 5G, the issue for virtually all mobile service providers is how to accomplish that objective. The common way we ask the question is “whether consumers or businesses will pay more for 5G.” 

As always in the consumer segment of the business, the optimistic answer is “maybe.” The realistic answer, based on history, is that a small premium might be possible at first, as was the case for 4G in some markets, with the premium vanishing with fuller deployment and competitive responses by competitors, so long as the price comparison was “like for like.”

In other words, where the same usage plans were compared head to head, was there a price difference? Yes, in some cases, at least initially. At scale, the premium tends to vanish.

In the U.S. mobile market, T-Mobile has a firm policy of “no incremental price increases to use 5G.” All major service plans include use of the 5G network with no price increase. 

That tends to limit the usefulness of a 5G price increase. But 5G is expected to lift revenue for AT&T and Verizon, despite those limitations. How? 

So far, the revenue boost has been accomplished by enticing customers to buy higher priced plans not specifically because of 5G, but to get “unlimited usage.” The value proposition is not 5G per se but unlimited usage. 

In the context of the Covid-imposed changes in mobile data usage, that is ironic. Most workers and students have been staying at home, which means consumption has largely shifted to Wi-Fi, reducing overall mobile data consumption. 

So right at the point where mobile data usage is declining, service providers are pushing unlimited-usage plans. To be sure, the lockdowns and stay-at-home rules will be lifted. Patterns will tend to revert to the mean. 

But if the predictions of greater and permanent work from home come to pass, then the demand curve will be permanently shifted to some degree. There will be less demand for mobile data than before, in the same locations and times of day and days of week.

Some urban cells will have less demand than before, while some suburban cells might see an increase. But much more traffic will shift to Wi-Fi as well. So one has to wonder how successful the “shift customers to unlimited-usage plans” will be, longer term, as a way of incentivizing use of 5G. 

In fact, one might infer from Verizon’s fourth-quarter earnings report that the effect of unlimited usage adoption was to offset other negative trends in the consumer mobility market. “For the full year (2020), consumer wireless service revenue was $53.6 billion, relatively flat from 2019 levels,” Verizon noted. 

In other words, the way Verizon expects to achieve consumer account revenue lift is to switch customers to higher-price unlimited plans that, oh by the way, is how 5G is made available. 

“Our competitive position is based on compelling unlimited plans that provide choice to consumers, paired with the best devices and attractive promotions, all built on the country's best network,” said Hans Vestberg, Verizon CEO. 

“We have now more than 60 percent of our customers on unlimited,” Vestberg noted. “But more important, I mean if you look in the fourth quarter, 90 percent of the net adds took unlimited, and out of those, 55 percent took premium.”

“And the premium is, of course, where we are adding in the 5G,” he said.