There are some early indications of what 5G pricing is going to look like…and it’s all over the map. AT&T, which was first out of the gate with a 5G mobile service (even though it’s not commercially available), is pricing its 5G+ hotspot service at $70 for 15 GB, which is not exactly communicating the message of "5G has much more capacity and costs less per GB to deliver than 4G." T-Mobile has said it does not plan to charge a premium for its 600 MHz-based 5G service on smartphones, at least initially, when it launches later this year. We don’t know what Sprint (or T-Mobile if the Sprint deal goes through) will charge for the 2.5 GHz-based, "metro" 5G service. Verizon said it plans to charge a $10 premium over a traditional LTE Unlimited Plan for its 5G Ultra Wideband in its initial launch markets.
Of all the announcements so far, Verizon’s makes the most sense. Users are comfortable with a modest premium for faster speeds. It’s a common model for fixed broadband, where there are different prices based primarily on download speed. It’s also familiar in other corners of the digital domain – for example, Netflix charges an extra $2 for 4K, while some of the music streaming services offer a premium tier for higher fidelity audio.
I think operators should charge a modest premium price for real 5G services. Given the capex required to roll out a quality 5G network, the idea of flat ARPU for the foreseeable future is not a very sustainable model. It’s one of the main reasons behind industry consolidation. That said, I don’t think any operators should charge a premium for 5G until coverage is at critical mass in a given market, which I subjectively define as 25% of a downtown core, or other "served" area.
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The pricing discussion gets a lot more interesting when latency is considered. Significantly improved latency is one of the game-changing aspects of 5G. Average latency in the United States on a good 4G LTE connection is in the 50 millisecond (ms) range. Over the next couple of years, especially with the implementation of URLLC, we could see latencies in the 5 ms range. More than a 2-3x improvement in speed, this leap in latency performance opens up a whole new range of potential uses for both consumer and enterprise users.
Interestingly, there has been very little discussion of how to price a lower latency service. We all get the idea of paying a premium for faster speeds, if it is available and reliably delivered. But latency is a different sort of beast, for three reasons: First, the language of low latency is foreign to the average user, sitting squarely in geek-land. I don’t see Verizon, for example, touting a “A Ten Millisecond Service” in Wall Street Journal ads a year from now. Second, the source of a lower latency experience is difficult to isolate. Why does a round-trip ping of Website A seem zippier than from Website B, from the same spot and on the same LTE connection? About a zillion factors go into that. And third, most users will not need that low latency experience for the lion’s share of their use, no matter what "G" they’re on. A good wireless connection on an available network with 200 Mbps+ download or 100 Mbps+ upload speeds will seem like a terrific, home broadband–esque experience for most users, most of the time. It is going to take awhile for the applications universe to catch up to the devices and networks.
4K presents an interesting example: TVs aren’t priced at a big premium any longer, and 4K content is either free or incurs a very modest upcharge. On the other hand, there isn’t that much 4K content available, yet (and consumers don’t seem to be clamoring for it).
I think a few things will have to happen if the 5G low latency experience is going to be effectively harnessed, and monetized, especially in these early years of 5G. More than with 4G LTE, wireless operators are going to have to work more closely with content producers and app developers to deliver some marquee experiences that demonstrate the value of low latency. Interactive gaming, AR/VR, entertainment, and e-sports are fertile areas for potential cooperation.
Operators are going to have to think differently about pricing for these low latency services, as well. Now, perhaps we’ll see it thrown in with the marketing bundle (i.e. “Enjoy 5G+ with faster speeds and faster response times”). But I think a far more preferable model would be some app- or content- specific pricing, with some level of revenue split. If there’s a great new premium-priced game or VR app that both leverages (and potentially taxes) the 5G network, why shouldn’t the operator get a cut of the action? Maybe Apple will even relinquish a bit of its traditional "app tax," which could help it sell more 5G phones.
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Greater flexibility and creativity in pricing structure will have to be another aspect of this. Ideas here include charging a premium for certain apps and experiences that deliver/require lower latency performance, sort of like the HD or 4K model consumers have become accustomed to in the entertainment space. Or, it could be a time-based service, such as “buy a day pass for XYZ game or app” that enables a demonstrably and visibly different experience. This borrows from the basic vs. premium Wi-Fi model that seems increasingly prevalent at hotels, airports, and certain other public venues these days.
Some of this will also be in the marketing. I’m certainly hoping that “URLLC” remains an intra-industry acronym, since from a consumer perspective it sounds closer to the next pay-per-view World Wrestling event than it does a next generation wireless service.
There’s a great opportunity to monetize the low latency capabilities of 5G. But this will not sell itself. It will require operators and other ecosystem players to work more closely with the content and app development community. And if the last major leap in wireless pricing was unlimited plans, the next major leap will require greater creativity, flexibility, and sophistication when thinking about how to market low latency capabilities.
"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 the editorial board.