Almost nothing about 5G is completely certain; especially the new business models, revenue sources and cost structures that might emerge. For several decades, revenue and customer growth has been the province of mobile operators. But 5G creates new demands for radio backhaul and radio density (small cells), suggesting a boost in value for owners of fixed network infrastructure.
At the same time, more value will accrue to fixed networks that are efficient about backhaul: the lowest-cost provider wins, in other words. And, ironically, for the first time in a couple decades, owners of multiple or “integrated” platforms (mobile and fixed) might fare better than “mobile-only” or “fixed-only” contestants.
A simplistic phrase describing the shift is “the fundamental value of a fixed network is backhaul.” It’s a simplification, but a useful concept. Backhaul is the biggest, or among the biggest, operating costs for many mobile operators, somewhere in the “25 percent of total operating cost” range, typically. In some cases, backhaul might represent 30 percent of operating costs, for mobile operators who do not own fixed network assets.
The move to small cells is going to increase the number of backhaul sites by an order of magnitude or more, so any retail provider with the ability to attack that cost will have an advantage. That is why cable TV operators are so optimistic about the value of their networks, which over the past few decades have shown an ability to deploy lots of bandwidth at lower cost than telcos have been able to accomplish.
If you think about Comcast’s “homespots,” they essentially function as small cell sites, able to support mobile connections and data offload to the fixed network. The “fiber deep” deployments required to support consumer internet access also will allow cable operators to leverage those assets to support small cell backhaul, either for “own use” or as a wholesale connectivity product for third parties.
So there will be tighter integration between fixed and mobile networks in the 5G and coming eras, as dense radio networks (wireless fixed and mobile) require huge numbers of high-capacity fixed links.
That sort of thinking is behind Verizon’s “One Fiber” strategy, which aims to leverage a single optical fiber transport and distribution network to support a range of services and customers, from residential broadband to business data services to small cell backhaul.
So one might predict that, in a growing number of cases, financial returns for “integrated” service providers will exceed returns for mobile-only or fixed-only operators, once the 5G era has begun.
We might already see some glimmers of that, as some analysts note that financial performance by integrated operators, compared to mobile-only operators, has oscillated.
From 1998 to 2011, mobile-only operators in emerging markets, especially, outperformed integrated operators in developed markets, according to J.P. Morgan equity analyst James Sullivan. From 2012 to about 2016, developed market integrated operators performed better. But Sullivan thinks the emerging market mobile segment is improving as consolidation trends take hold.
What remains to be seen are developments in developed markets, where the 5G era will value backhaul assets. Also, fixed network capabilities might improve with new fixed wireless business models.