Here’s a news item that did not get enough attention in the non-MWC media storm recently: Verizon announced a boost in 5G investment for the U.S. market. Ho hum. Who cares?
Actually, if you look at the details of this announcement, it’s a big deal. We have been watching 5G development in millimeter wave (mmWave) bands, and for the past five years we’ve been saying that it will be an uphill battle. The network is expensive and the radio links are weak. Consumers don’t want to pay more for a mmWave phone when they can buy a “5G” phone at 600 MHz for a low price. The typical consumer simply cannot distinguish the difference between a 4G phone at 100 Mbps and a 5G phone at 800 Mbps. If the apps look the same to the human eye, there’s no real benefit for the consumer.
On the other hand, there is a major benefit for the operator to move customers to 5G. The operator gains flexibility and lower cost. The cost to deliver each GB of data drops to below $0.05 using a 28 GHz base station. So there are tremendous benefits for the operator to move customers up to mmWave spectrum.
Verizon’s recent announcement carries some subtleties that indicate a solid understanding of the economics of 5G. Here are the really important points:
- Verizon is stepping up to deploy 5X as many mmWave small cells in 2020, compared with 2019. Note that this decision was made after they had launched and tested commercial services for nine-plus months, so it’s not an experiment at this point.
- Verizon is strong-arming its handset and other device vendors to offer mmWave. UE suppliers have been reluctant to move into mmWave, because it’s an expensive and touchy feature to add. (Yuk, it requires over-the-air testing!). Verizon has successfully convinced Samsung, Apple, Dell, and others to provide at least 20 devices during 2020.
- Verizon has chosen not to offer the Samsung Galaxy S20 handset, even though it’s available from other carriers now. Verizon wants to be sure that its customers have very few non-millimeter wave choices, and they’re choosing to risk losing customers that really want the latest Galaxy phone.
- One point is not really clear yet: We believe that Verizon will be offering mmWave handsets for the same price as a low-band 5G handset from competing carriers. We should be able to verify this in about three months. If this part is true, then our conclusion is that Verizon is actually subsidizing mmWave adoption by accepting a lower margin on the mmWave phones.
To me, Verizon’s announcement brings a sigh of relief. I’m kicking our 5G mm-wave forecast into growth mode. Watching the ads on TV, it’s easy to think that the operators really believe that higher speed solves all problems. It turns out that (surprise!) the TV ads are only marketing fluff. Behind closed doors, they acknowledge the hard truth: Operators need 5G more than consumers need it, and 5G will require investment in all areas to succeed.
Joe Madden is principal analyst at Mobile Experts, a network of market and technology experts that analyze wireless markets. The team provides detailed research on small cell, base station, carrier Wi-Fi, and IoT markets. Madden currently focuses on trends in 5G, IoT, and enterprise markets for wireless infrastructure. Over 26 years in mobile communications, he accurately predicted the rise of digital predistortion, remote radio heads, small cells, and a mobile IT market. He validates his ideas with mobile and cable operators, as well as semiconductor suppliers, to find the match between business models and technology. Madden holds a physics degree from UCLA. Despite learning about economics at Stanford, he still obeys the laws of physics.
"Industry Voices" are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of FierceWireless.