Verizon is Optimistic About 5G; Others are Skeptical. Both are Right

As always, public company perceptions of upside from new markets is conditioned by their own view of ability to capitalize on those new markets. In many regions and markets, heavy recent investments in 4G mean service providers have less appetite for another round of investment to support 5G, as you would expect.

In other regions, where profits in the 3G and 4G era have been tough, there is some caution about revenue and profit upside from 5G. In addition, specific contenders have their own business reasons for seeing potential or danger. In other words, skepticism about the size of the 5G market opportunity, as well as optimism, are specific to particular firms, in particular geographies, for reasons having to do as much with current business environment as anything else.

For U.S. service provider Verizon, a relatively-small fixed line footprint, and the ability to compete in new markets with mobile-based alternatives to fixed network service, are a clear upside.

“We continue to be very excited about the opportunities that 5G has,” said Matthew Ellis, Verizon CFO. “I don't think in the U.S. we've seen people pulling back from 5G at all.”

Simply, Verizon sees many ways to grow its business with 5G. Residential broadband, fixed and mobile, is part of the expectation. But the biggest upside is expected from new internet of things and business-to-business apps, many of which can only be supported by ultra-low-latency networks.

In many quarters there is concern or belief that 5G will require huge capital investment boosts, beyond what was required for 4G. That is debatable. Verizon, for example, does not see capex exceeding the typical and expected annual range.

Though some seem convinced 5G capex will be double or triple what 4G cost, others believe 5G capex could actually be lower than required to create 4G. Some believe 5G could be built with only modest single-digit increases in overall capex. And yet others believe 5G will even cost less than 4G cost.

A variety of new approaches, including open source, virtualization, huge increases in use of unlicensed spectrum, shared spectrum and aggregated spectrum, new radio technologies and ability to leverage existing fixed network investments all will contribute to cost profiles for 5G using lots of small cells and new amounts of backhaul.

On the revenue side, Verizon has ability to compete for new revenues outside its current fixed network footprint. Also, the U.S. market is among those expected to lead in early internet of things deployments.

Also, unlike some other markets, the U.S. has a relatively robust supply of fiber and capacity “deep into the access network,” provided by two or more access providers in nearly every significant market (cable, telco, independent ISP, mobile infrastructure companies,  independent business bandwidth suppliers).

That means small cell backhaul facilities are arguably better positioned, in terms of facilities in place and the number of partners to supply such backhaul.

The point is that a range of opinions exist--for good reasons--about upside for 5G. There is no single pattern that fits every market.