Verizon’s decision to go commercial with 5G services will be similar to any major investment it makes—it will depend on a combination of factors, including deployment costs, speeds and how many homes can be covered by a given node, the carrier’s CFO said during the fourth-quarter earnings conference call with investment analysts.
Verizon made good progress in 2016 with 5G technical trials, and now it’s moved to commercial-scale pilots in about 10 markets around the country. “We’ll see how those trials go,” said Matt Ellis, the EVP and CFO who replaced former CFO Fran Shammo, who retired late last year.
Asked about key metrics that Verizon will consider before greenlighting commercial deployment, Ellis said it’s going to be the same as any major investment, such as “what’s the cost to roll out 5G, we get into questions about the distance from the node, how many homes can you cover from a particular node, what speeds can we get, what’s the cost of putting that there, et cetera et cetera.”
The acquisition of XO assets, which is expected to close this quarter, will see Verizon gain a fiber network in 40 major U.S. markets. “XO obviously brings something to that by adding additional fiber to the base as we think about rolling out the infrastructure needed for 5G, but it’s the same as any investment, we’re going to look at the revenue opportunity we think we can get based off of the results of the tests that are underway right now and compare that with the costs and if it provides a great return for shareholders, we will certainly move ahead with launching commercially and … it will be the same as any other investment,” Ellis said.
Verizon has not identified all of the 10 markets where it is conducting the precommercial 5G tests, but Ellis said the company is not just focusing on its ILEC footprint. “It’s across the country and we certainly see the opportunity to deploy 5G solutions across the country as well, once we get comfortable that they’re ready to be launched out on a commercial basis,” he said. “Certainly, we’re looking at how we would support the 5G network across the country, both in and outside the ILEC footprint.”
In December, Verizon CEO and Chairman Lowell McAdam said the operator would be bringing up relatively small towns in a precommercial architecture in the first quarter and would not be charging for the service but would learn from it. He also held up Boston as the prototype for the way networks are built; Verizon worked with the City of Boston to get access to city infrastructure while it expands FiOS there.
As for its continued investments, Ellis acknowledged that Verizon’s capex number hasn’t changed much from year to year but within that, it changes over time. Within LTE, spending continues to transition from coverage to densifying the network, and “that continues to evolve as we leverage new technologies around radio and hardware and software and refarming our spectrum within 4G and densifying with small cells,” he said.
“So you’ll continue to see that densification of the 4G network and that includes how we put fiber out there, which obviously is needed for the 4G network but also is something we think about for prepositioning for 5G, so you’ll continue to see that,” Ellis said. “You’ll see us continue to launch additional parts of LTE Advanced … We expect additional features to come through the course of this year and we’ll continue to expand our C-RAN 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,” he said, adding that fiber will continue to be an investment.
As for the wireless business that Comcast is expected to pull the trigger on later this year, Ellis reiterated that the company would sign that MVNO deal again if given the opportunity and he doesn’t expect that to have a big impact on Verizon’s competitive landscape this year. “They’ve got a lot of work to do there,” he said.