Thursday, July 12, 2018

Millimeter Wave Could be Revolutionary

It is easy to underestimate the impact of commercialized millimeter wave spectrum. Since supply and demand always matters in any market, the sheer amount of millimeter wave spectrum, as well as its cost, is going to enable new business strategies.

The impact will be intensified as well by other related developments (small cells, spectrum sharing, massive multiple-input multiple output radios, better modulation techniques) that will greatly expand spectrum availability and also lead to lower prices for spectrum.

Though it is generally underestimated, millimeter wave spectrum and the other associated technology trends will enable wireless networks--for the first time--to directly challenge fixed networks for internet access customers, with features that are at least as good as fixed networks (and sometimes better), and with retail pricing that also is comparable.

Conversely, that is going to be a key business model challenge for tier-one operators of fixed access networks, which might well see accelerated market share loss, and greater stranded asset problems for their fixed network operations.

That is worth keeping in mind as Verizon readies its 5G strategy. Verizon has the smallest fixed network footprint among tier-one internet access suppliers in the U.S. market.

Comcast passes (can actually sell service) about 54 million homes. Charter Communications passes some 50 million home locations.

AT&T’s fixed network passes perhaps 62 million U.S. homes. Verizon, on the other hand, passes perhaps 27 million locations.

What that means is that Verizon has a clear interest in using 5G fixed wireless to expand its addressable market by more than 35 million U.S. homes that it cannot reach today, giving Verizon a fixed network footprint that is comparable to its key rivals.

And that attack will be based on use of 5G millimeter spectrum and fixed wireless mode. That might make Verizon a rarity in the U.S. market: a tier-one service provider that actually can earn lots of incremental 5G revenue by taking fixed internet access network share away from other key competitors.

Many observers believe 5G will rely mostly on 5G value for internet access, in the early years.

For the most part, though, it is likely that all mobile operations will largely replace 4G accounts with 5G accounts, offering some incremental new revenue, but not too much.

But even if 5G does not immediately lead to huge new revenue streams and new internet of things and ultra-low latency use cases, it is likely to enable a key near-term Verizon growth strategy, namely growth by taking market share now held by competitors in fixed network internet access markets.

While that might not address other long-term issues, taking market share is a proven way for attackers to boost growth and revenues in the near term. That is precisely what cable TV operators did in voice, are starting to do in mobile services what some telcos now are doing in video (both access and content).

Long term, gaining additional market share in internet access does not address what Verizon and other service providers must do to replace shrinking revenues in their legacy connectivity and linear video subscription businesses.

Nor does that same strategy make as much sense for Verizon’s other fixed network competitors. Comcast is focused on international growth; AT&T on content and other “up the stack” opportunities, with some international growth; Charter Communications has to upgrade its access networks and figure out what to do about “up the stack” content or other growth strategies.

Sprint and T-Mobile US do not have the resources or will to do much more than try and gain share in the core mobile business, for the time being. CenturyLink already has made a huge transformation into an enterprise services company with a big legacy consumer telecom business.

The point is that there is no single, universal strategy for 5G. Each company will move ahead based on its perception of other elements of its growth strategy.

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