Typical investment hurdle rates exist in every business, but 5G might represent a challenging hurdle for most mobile operators. The hurdle rate is the rate of return above which an investment makes sense.
In that regard, some argue that many telcos have failed to earn that rate of return on investments in fiber-to-home networks. Mobile operators arguably have done better than fixed network operators, as a rule.
Some say telcos generally have failed to recover the cost of capital for perhaps a couple of decades.
Still, there occasionally are big investment decisions that are not directly bound by that logic. Sometimes strategic investments are made, even when the normal payback models are stretched. Whatever the typical investment hurdle rate, strategic considerations sometimes compel investment even below the hurdle rate.
Some of us remember roughly similar questions and answers asked about fiber to the home investments as well, back before the turn of the 21st century.
One CEO, asked privately and off the record about the magnitude of FTTH investments, said the upside was “we get to keep our business.” Note: the argument was not “we will make more top-line revenue.” The justification was existential: “we get to stay in business.”
Similarly, one might argue that traditional rate of return considerations are not necessarily and directly driving the effort by mobile operators to acquire C-band spectrum to support 5G. As FTTH was viewed as a “do it or lose your business” investment, so might mid-band spectrum be viewed as the necessary price of competing in the U.S. 5G business.
Strict hurdle rate considerations might be secondary to the necessity of acquiring mid-band spectrum, and lots of it, to remain competitive in the 5G era. There is risk in overbidding, but also risk in underbidding.
It reminds me very much of the justification for FTTH deployment.
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