Monday, January 28, 2019

Will 5G Be "Too Expensive?"

Some observers suggest (in advance of any concrete information) that 5G will be expensive. Some consumers worry about that as well. Some in the mobile industry might wish that was going to be a problem. But history suggests “high cost” is not going to be an issue for 5G as deployed in the U.S. market, or elsewhere, for that matter.

For starters, in most developed markets, mobile data access simply is not expensive.

Of course, one might make the argument that a bandwidth boost of as much as 1,000 times sometime in the 5G era will have consequences. To keep retail prices about where they are today, the implication is that costs per delivered bit would have to drop drastically by 1,000 times as well.

That ignores history. Since the start of the internet age, internet access bandwidth costs have dropped. That has been true for both fixed and mobile networks.

With massive amounts of new spectrum coming (millimeter wave bands alone will increase physical capacity at least 10 times. Massive use of small cells will increase effective capacity another 10 times. Spectrum aggregation, use of unlicensed spectrum, better radios and modulation techniques will increase effective bandwidth by perhaps another 10 times.

Add it all up and supplying three orders more bandwidth is possible, both technically and in terms of the existing business model, though not easy.

One might note that most countries cluster in a range of usage around four gigabytes per user SIM per month, and prices around $5 per gigabyte per month. The countries with higher consumption per user also tend to have lower-than-average prices, say researchers at Tefficient.

Granted, posted retail rates for mobile data can run about $10 per gigabyte, for some providers, on plans with lower usage allowances. For plans supporting bigger data allowances, costs are $5 per gigabyte or less, depending on plan and carrier.

And then there is the statistical reality. If a user pays for 30 GB, and uses just 5 GB a month, the effective data cost is far higher. Buying the right to use 30 GB is one thing. When actual usage is lower, the effective rate of “consumed” data is far higher.

Almost nobody actually thinks about data prices that way, though. Instead, people tend to compare only the sunk cost per month, so long as the plan covers the anticipated usage.

Prices less than $5 per gigabyte are viewed by some as “too high.” In the U.S. market, it is easy to find a supplier selling such usage at perhaps $5 to $7 per gigabyte, for just a few gigabytes per month (3 GB to 5G, for example), and bigger packages at lower prices per gigabyte.

With the caveat that developing nation prices might be higher, expressed as a percentage of income to buy the rights to use a gigabyte of mobile data, in developed markets, communications costs are pretty low, as a percentage of income.

The point is that even if there is some price premium early on for 5G mobile data, the premium is likely to be slight, and diminishing over time.

Nor, given the new spectrum resources, including huge amounts of millimeter wave spectrum, small cell  architectures, modulation techniques and radios, plus use of unlicensed, shared and aggregated spectrum, are suppliers going to need to raise prices by three orders of magnitude.

No, 5G prices will not be “too high.”

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