5G trial progress a highlight of Verizon Q4 results as the telecom giant suffered under competitive strain from T-Mobile, AT&T and Sprint.
Verizon Communications is looking to maintain its position near the head of “5G” network development, noting it’s currently moving on “commercial-scale pilots” in about 10 different locations across the country.
Speaking during the telecommunication operator’s fourth quarter conference call, Verizon EVP and CFO Matt Ellis said the carrier was moving onto the next phase of its 5G plans having concluded a number of technical trials and lab tests in 2016. The carrier had previously stated plans to begin commercial trials of next-generation wireless technologies in 2017, which are expected to revolve around a fixed-broadband use case.
Verizon was one of the first domestic operators to announce its 5G network plans, unveiling efforts in late 2015 towards initial trials in 2016. The carrier has since moved on rolling out technical specifications for its vendor partners and is also in a bit of a battle with AT&T concerning standards timing.
Verizon noted last summer it was seeing 5G network speed tests showing results in excess of one gigabit per second.
However, research firm Mobile Experts recently released a case study on broadband-based 5G services focused on return on investment for deployments, noting current technology tied to the limited propagation characteristics of the 28 GHz band come up short in terms of supporting a business case.
The firm said it calculated the potential ROI for operators investing in a pre-5G network using the 28 GHz band compared with LTE costs and “the potential costs for a sub-6 GHz network using 5G technology,” and found at “historical prices, 5G will not be successful.” To reach the necessary ROI, Mobile Experts said the market would need inexpensive access to large spectrum blocks.
“The business case for 5G fixed broadband is not a slam dunk,” said Joe Madden, principal analyst at Mobile Experts. “We expect pre-5G deployment to be a very targeted investment by mobile operators, addressing very specific neighborhoods instead of nationwide deployment.”
Madden noted millimeter wave links at 50 meters created a “challenge to the business case, because the number of customers served by each radio will be too small.” The firm noted links of at least 200 meters would be required to reach enough users to support sufficient ROI.
“Link distance is a key factor in the pre-5G business case at 28 GHz,” Madden explained. “We’ve conducted some in-depth link budget calculations and compared our results to trial results reported by Samsung, Ericsson, Intel and others. Based on this deep technical work, we have some concerns about the power, linearity and heat dissipation in pre-5G infrastructure. The laws of physics will limit these pre-5G networks.”
Mobile Experts noted the 28 GHz band and fixed wireless broadband services will be a starting point, “but a combination of low-band and high-band spectrum will be important to reach mobile gigabit performance.”
Carriers have acknowledged the challenges of high-band spectrum for commercial wireless services.
“If you put a hand in front of a transmitter you will see degradation of performance,” said Thomas Keathley, SVP of wireless network architecture and design at AT&T, during a panel discussion at the recent CTIA Super Mobility event. “It’s going to be a very different implementation than traditional cellular networks.”
Adam Koeppe, VP of access technology planning at Verizon, noted that indeed propagation characteristics of high-band spectrum will be a challenge, but those “issues are not anything new.” Instead he noted what is different is the use of beamforming and beamtracking technology that allows the use of those bands in access-type deployments.
“Our trials have been to take those out of the lab and into real world scenarios,” Koeppe said of the carrier’s 5G network trials.
As for its eventual 5G deployment plans, Ellis attempted to provide some cost color on how the operator plans to use its technology and embedded infrastructure to support a business case for 5G. The embedded technology includes the fiber and spectrum assets it’s picking up from the acquisition of XO Communications, which is expected to close during the current first quarter.
Verizon is also looking at early 5G deployments outside of its wireline footprint as a gateway to eventual commercial service offerings.
Plans to bolster LTE ahead of 5G
The move towards 5G could help Verizon alleviate some pressure on its current LTE network, which during Q4 of last year witnessed an approximate 49% increase in overall data traffic. Ellis noted the carrier was focusing its LTE spending on adding capacity using new technology, the continued refarming of spectrum assets and increased use of fiber for backhaul, which were central to Verizon Wireless rolling LTE-Advanced services in 2016, with expectations to further enhance the network this year.
“We expect additional features to come through in the close of this year,” Ellis said. “And we will continue to expand our architecture. So within wireless you should expect to see the spending continue to move to make the network more efficient on a cost per-gig basis going forward.”
Disappointing Q4 results
Outside of updating its network plans, Verizon in general posted a disappointing operating quarter.
The carrier posted a 57.3% year-over-year dive in direct connection additions for its wireless service, adding 582,000 total net connections during the most recent quarter. The growth involved 591,000 postpaid net additions, which came in below expectations and included just 167,000 net “phone” additions, and a loss of 9,000 prepaid customers, which was actually a significant improvement compared with the loss of 157,000 net prepaid connections in Q4 2015.
For the full year, wireless growth dropped 45.5% to 2.2 million direct connection additions, with the carrier ending 2016 with 114.2 million direct connections on its network.
The dip in growth was highlighted by an increase in customer churn from 1.23% in Q4 2015, to 1.34% in 2016, while postpaid churn increased above the 1% mark in the latest quarter to 1.1%.
Customer spending was also challenged, with postpaid average revenue per account dropping 4.3% year-over-year to $141.89, but increased 2.9% when taking into account device payments.
However, with device payments still a smaller percentage of overall revenues compared with services, Verizon Wireless’ total operating revenues dropped 1.5% in the quarter to just under $23.4 billion. For the full year, revenues were down 2.7% to $89.2 billion.
Operating expenses for the quarter increased .8% to $17.1 billion, but were down 3.8% for the full year, which resulted in a 7.2% quarterly drop in operating income to $6.3 billion and a .4% full-year drop to $29.9 billion.
Verizon management said it expects its financial picture to turn around beginning in 2018 as it drives deeper into transitioning its cost structure towards a greater reliance on device revenues, though had previously said it expected the change to begin in late 2017.
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