The global bandwagon for 5G has undoubtedly left the station in the first half of 2018. One can hardly blame the anticipation among global telecom operators and handset manufacturers after they experienced the first flat year in global smartphone shipments since the category was introduced. Worldwide, the fifth generation of mobile communication could revive the global smartphone market, while creating new monetization opportunities in innovative spaces such as mobile video, augmented reality, and autonomous vehicles.
CCS Insight believes that there could be 1.3 billion global subscribers to 5G networks by 2023. However, the vast majority of the early users will likely be scattered across China and the U.S. While China may have an early lead on the U.S. in terms of 5G preparedness, perhaps no market has more to win or lose with 5G than America.
A Critical Juncture for U.S. Operators
The U.S. telecom industry entered into 2018 looking for some signs of positive momentum. Nine years after the rollout of 4G, the industry kicked off 2018 facing a slowdown in wireless customer growth. Furthermore, Verizon and AT&T needed to manage a spike in data traffic — brought on by unlimited plans — that slowed their network experience of their users in 2017.
Fortunately, scattered among the mergers and acquisitions, there have also been signs of a solid turnaround in the first half of the year. Our most recent OpenSignal State of Mobile Networks: USA (July 2018) Report released this week illustrates that almost all U.S. wireless networks are speeding back up since the introduction of unlimited plans. U.S. Operators are beginning to cross the 20 Mbps barrier for 4G download speed and in urban cities 4G connection speeds are now in excess of 30 Mbps.
This follows our Global State of LTE Report from February, which found the U.S. officially became one of five countries to join the 90% club in early 2018 — providing 90% 4G availability nationwide. Achieving this is no small feat for a country the size of the US, which has traditionally had a bigger challenge to roll out coverage than denser countries in Asia and Europe. In addition to that network momentum, nearly all of the U.S. carriers posted subscriber numbers for Q1 that were better than Wall Street estimates.
Of course, with the proposed T-Mobile and Sprint merger, and AT&T buying Time Warner, the four U.S. operators could soon become three more powerful players, and that may pay dividends for both consumers and the remaining trifecta. With a merged network, T-Mobile’s average LTE connection speed could easily double, while Sprint’s could more than triple. Furthermore, combining T-Mobile’s low-band 600 MHz spectrum and Sprint’s mid-band 2.5 GHz should give the combined company solid ground for rolling out 5G nationally.
That development, will likely spur more early 5G consumer adoption for each of the remaining ‘big three’ operators. In fact, a recent report from Strategy Analytics predicts that a T-Mobile and Sprint merger will result in a 17 percent surge in the uptake of 5G services in the U.S. by 2023 as the three similar-sized competitors equally invest in the new technology.
Still, despite this positive momentum and the colossal 5G opportunity ahead, America’s geography, unique competitor landscape and anticipated stumbles out of the gate as 5G first-mover will pose significant challenges. Here are the three biggest that I see today for U.S. operators.
Selling 5G in a Puck, Not a Phone
While it is hard to underplay the transformative potential of 5G speed, the new revenue streams it could create through innovations such as augmented reality are more than a few years out for U.S. telecom providers. Mobile phones with 5G chips won’t arrive in the U.S. until at least 2019, which means the first usages of 5G in the states will be with a hotspot or ‘puck’, rather than a phone. Therefore, those pegging 5G as a revolution should think of it more along the lines of the Atlantic Revolutions, which were long-drawn-out changes.
The more likely scenario is that 5G is an evolution for the U.S. telecom industry. While AT&T has committed to providing 5G ‘pucks’ in 12 cities this year, including Dallas and Atlanta, and Verizon plans to bring 5G wireless home internet to five cities including Sacramento, these are more likely placeholders to larger developments in 5G infrastructure that build off already existing network infrastructure.
The base of the infrastructure that 5G elements will be built off of is 4G and LTE, two already existing technologies. As T-Mobile Chief Technology Officer Neville Ray recently noted in their approach to building a backbone for 5G, “Every dollar we invest in our network is a 5G dollar. All the LTE Advanced work we do is 5G work.” T-Mobile itself intends to be in New York, Los Angeles, Dallas and many other cities by 2019.
With serious potential, but no current “killer app” for 5G, this approach by telecom companies to strengthen their overall network for now and the 5G future, makes perfect sense. However, operators shouldn’t expect consumers to dive headfirst into the 5G waters as they merely dip their toes in with a slow and steady rollout.
Can I Watch A Video Now? Back to A Map of Limited Nationwide Coverage
With a country the size of the U.S., providing coast-to-coast coverage for 5G will once again be a logistical nightmare. Even with a focus on coverage over speed, it took the U.S. nine years to reach 90% coverage of 4G. With 5G, it’s going to need to be speed and coverage – simultaneously – as the rallying cry will be “can I watch a video now” versus “can you hear me now?”.
The initial focus by wireless providers on more densely located small cell hotspots will increase capacity for urban mobile traffic by as much as 4x by 2021 according to Deloitte. This will drastically increase the need for the use of fiber. According to that same Deloitte report, this will eventually end up costing U.S. telecoms between $130-$150 billion over the next seven years. Fortunately, it appears that the U.S. government is willing to pick up some of the tab. But will that budget stretch coast-to-coast?
The initial 5G rollout plans for U.S. operators are focused on urban areas where it can be more easily implemented and monetized. It’s not a coincidence that fiber dense cities like Dallas and Atlanta are on the 5G radar of most operators.
Deploying 5G in these urban areas could leapfrog U.S. cities into territory currently held by countries like South Korea, where the average 4G speed of 40 Mbps has dwarfed the U.S. to date. However, questions remain on how 5G will be deployed in rural U.S. areas and if the rollout could create an even wider digital divide between the coastal U.S. and vast stretches of the rest of the country. If rural implementations are not nationalized or at least championed by the government (see what is happening in the UK), U.S. wireless carriers will once again be left with some tough math. Past studies have found that the potential for a wireless carrier in a major urban center is $248,000 per square mile of service. By contrast, in the least densely populated areas, the potential revenue per square mile drops as low as $262 per square mile.
The frequent use of (often overly optimistic) coverage maps and the ‘can you hear me now’ guy over the last nine years has demonstrated how of 4G coverage has been such a critical battlefield for the wireless behemoths. With 5G and its higher bandwidths and lower latencies, these coverage maps will take on a new ring. Consumers will be worried about being able to stream video with no interruption and use technologies like augmented reality wherever they go, rather than simply being able to hear the person on the other end of the phone.
Comeback Competition from Cable Companies
One other major challenge for U.S. telecoms in initially rolling out 5G, and something that may hold it back from revolutionizing U.S. telecom businesses and revenue streams, is increased competition from wired cable companies. U.S. telecoms have been encroaching on companies such as Comcast over the last several years as they become OTT video networks.
Of course, the latest and greatest example of that is AT&T buying Time Warner and its stable of media properties. Prior to that, AT&T had pioneered its DirectTV Now mobile video service and with its acquisition of Time Warner it has already launched WatchTV, a low cost streaming service. Verizon on the other hand, is frequently rumored to be partnering with some OTT service in the second half of 2018.
However, the reliance wireless has on fiber in the early innings of 5G may open the door for companies like Comcast and Charter to fight back against U.S. telecoms. These companies are much more wired-into urban areas. In fact, Charter, which is already callings itself a wireless company, plans to offer its own wireless service this year and is already testing 5G in several cities. Comcast, on the other hand, is the elephant in the room that is playing things somewhat close to the vest in terms of its future plans with 5G.
Although it isn’t often talked about, the company grew its Xfinity Mobile wireless service to 380,000 customers in less than a year. Recent reports note that the company is now drawing closer to 600,000 customers as it attracts many subscribers from AT&T and Verizon. Of course, at Mobile World Congress earlier this year, Comcast teased future plans about giving consumers the ability to bring their own phone to the service and allowing them to integrate with other Comcast home entertainment services.
This cable entrenchment is yet another challenge U.S. operators will have to overcome in rolling out 5G. While there are numerous opportunities in rolling out the new wireless technology, there are also a plethora of risks and potentially negative outcomes.
U.S. telecom providers that best understand the current and future capacity and coverage needs of their customers, and upgrade their respective network infrastructure to meet those needs, will once again be best positioned to win with 5G. In that sense, not that much has changed from rolling out 4G in 2011.
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