U.S. Mobile Needs 5G Just to Maintain Consistent User Experience

Not every mobile market “needs” lots of additional internet access capacity now, and will need it in the next two years. The U.S. market is among the places where more capacity is an immediate issue, and the issue is whether 5G in new spectrum, spectrum refarming, smaller cells, spectrum sharing, spectrum aggregation, broader advanced 4G deployments or all the above are required.

“4G networks in the U.S. are becoming heavily loaded,” says Opensignal. So “consumers and operators alike will need 5G to relieve pressure on existing networks, otherwise the overall mobile network experience will worsen. In other words, faster speeds made possible by 5G are important, but perhaps the equally-important value is capacity reinforcement.

A shift to unlimited usage plans by all four national U.S. mobile service providers also has driven capacity demand.

source: Opensignal

“Today, 4G networks are very inconsistent in terms of speed with average connections at the busiest time of day often being half that of speeds during the quietest times of day,” Opensignal says, citing its 5G Opportunity report.

In the U.S. market, average 4G download speeds varied between 15.3 Mbps to 28.8 Mbps, depending on the time of day and congestion levels on a network.

The variation in speeds throughout the course of the day are even more pronounced in the largest cities. In Miami, average 4G download speeds were as low as 17 Mbps and as high as 43.2 Mbps over a 24-hour period. Baltimore, Chicago and New York City variations of 20 Mbps or more occurred between fastest and slowest hours.

“5G will not only provide extremely fast speeds but also a solid bedrock of capacity, to even out the consistency issues we are seeing with current 4G networks,” says Opensignal.

In other words, in some markets, 5G is a major tool for supplying the increasing demand for mobile data, which in the U.S. mobile market is growing 46 percent annually, according to Cisco.

source: Cisco

The point is that 5G is needed, in the U.S. market, especially by AT&T and Verizon, the two networks with the most customers and therefore capacity demand to support.

U.S. Mobile Prices are Not "High"

One often hears that U.S. mobile internet access prices are among the highest in the world. As Samuel Clemens (Mark Twain) is reported to have said, there are lies, damned lies, and statistics. And cross-country internet access prices arguably are included in the sphere of such realities.

The problem with comparing prices for anything globally is that price levels are different from one country to the next. So it should not be surprising that mobile internet access prices vary as well.

Economists use a concept known as purchasing power parity to normalize for such differences, removing distortions based on the differing value of currencies (and therefore purchasing power) as well as differences in cost of living.

Once prices are measured using the PPP method, it turns out that mobile internet access prices are significantly lower than the world average in places such as Europe, the United States and the developed world in general .

As you might expect, prices are below world averages in all developed nations and U.S. household spending on communications is among the lowest in the world. That arguably is true for fixed network internet access as much as mobile access.

One sees the same trend if internet access cost is adjusted for gross national income, another way of removing price distortions.

source: ITU  

The point is that endless repetition of false statements does not make them true, no matter how often one hears those claims.

Full 5G Coverage Not Until 2028, or Later, in Some Markets

Service provider executives surveyed by 451 Research believe 5G deployment will occur by 2021 or 2022 at the latest, with full network coverage happening by 2028 or even later.

The majority of respondents said they will not achieve total 5G coverage until 2028 or later. North America is expected to have the highest percentage of early deployments, driven by AT&T, Verizon, Sprint and T-Mobile. Some 47 percent of North American respondents say they will have total 5G coverage by 2025 to 2027.

More than 78 percent of respondents from the rest of the regions, excluding the Middle East and Africa, said they don’t expect to complete 5G deployment until beyond 2028.

Those predictions are mostly in line with actual experience of earlier mobile generation network deployments.

The analysts predict deployment will occur gradually, with North America setting the pace and the rest of the world playing catch-up.

source: 451 Research

Critics are Wrong About Millimeter Wave

One hears a lot of noise, much of it uninformed, about use of millimeter wave spectrum to support 5G (and all subsequent mobile next-generation networks). A growing number of voices warn that millimeter wave spectrum is the “wrong way” to implement 5G.

Such comments have a point: all other things being equal, lower-frequency 5G signals have a coverage advantage. Wider coverage, at lower cost, will be possible when sub-1 GHz assets can be used.

But coverage and capacity always are trade offs. A 5G network using sub-1 GHz assets will not be able to provide the capacity of millimeter wave assets.

Also, millimeter wave assets are the future of all future mobile networks. The need will not be as obvious in some markets as in others, but it represents the future.

That is obvious, even when voices question its use in early deployments.

What observers often forget is that mobile networks must offer both coverage and capacity. And there are a limited number of spectrum assets available to support coverage requirements. There is, however, a nearly-infinite requirement for increasing capacity.

And that capacity can only come from use of millimeter wave assets, as the International Telecommunications Union, even when urging circumspection about where 5G will make sense, attests.

Back in 2018, the International Telecommunications Union noted “concern that 5G is premature.” A report indicated “operators are sceptical about the commercial case” and  “high-levels of investment.”

But the report also contains the rationale for 5G. Simply, a new mobile next-generation network is introduced about every decade. That does not mean it gets introduced everywhere, nor at the same time. But nothing is going to stop 5G from being deployed, simply because network capacity demand drives it.

source: ITU

New use cases always are a feature of each touted digital network, but the practical reality is that, of the two main tools for increasing capacity--smaller cells and new spectrum--each next-generation network has brought additional spectrum resources.

Also, despite much concern that millimeter wave communications will be too hard to deploy commercially, even the ITU has noted that 5G--and all subsequent networks--will have to use millimeter wave assets.

Though many spectrum bands will support 5G--lower frequency including 600 MHz or 700 MHz, mid-band assets in the 3 GHz to 4 GHz region and millimeter wave region--capacity needs, even after spectrum refarming, will leave only the millimeter bands available for most of the future capacity supply.

source: ITU

Much of the concern about millimeter wave assets, and the supposed “path to 5G,” is misplaced. Millimeter wave assets will anchor every generation of mobile network from now on, for capacity. There are a limited number of coverage bands, and those bands will not be able to support capacity requirements easily.

Some of us might draw the opposite conclusions others do related to the wisdom of early user of millimeter wave technology and platforms. Specifically, millimeter wave is the future. Also, millimeter wave is the best way to supply needed capacity, going forward.

Some worry Verizon and AT&T err in emphasizing millimeter wave. On the contrary, some of us might argue, it is a tool those two carriers must use, as a practical matter. With most of the subscribers, those two firms have the greatest needs for additional capacity and spectrum.

Longer term, both will acquire operating experience that might well prove useful in the future, since all mobile generations from now on will have to rely on millimeter wave for capacity requirements.

Could AT&T FTTH Footprint Reach 44 Percent by End of 2019?

What does it mean that AT&T will have 14 million fiber to the home passings by about the end of 2019? In a broad sense, FTTH means a chance for AT&T to retake market share from cable TV operators, which have about 65 percent of the installed base of total U.S. consumer internet access connections.

“Whenever we go into a neighborhood and turn up fiber, 25 percent (take rate) comes fast and 50 percent is eminently achievable,” said Randall Stephenson, AT&T CEO. “And we actually think we can hopefully get beyond 50 percent as we continue to get this build completed.”

AT&T’s fixed network could represent--on the high side--perhaps 62 million consumer locations passed. That figure has to be interpreted. It could mean physical locations passed. It could mean dwelling units reached.

My own understanding is that this figure refers to dwelling units, not buildings. Here’s the difference: the U.S. housing stock is divided between detached houses and multiple dwelling units and other types of housing.

In 2000, detached housing represented about 60 percent of all U.S. housing units, according to the U.S. Census Bureau. In 2017, detached homes represented nearly 62 percent of housing.

So if AT&T’s fixed network is the same as the national average, AT&T’s network might pass 37.2 million single family homes. The rest of the housing units are apartments, condominiums, other forms of attached housing, mobile homes, boats and trailers.

So assume there are 24.6 million attached dwelling units in AT&T’s fixed network footprint. One has to estimate “locations” to be served from the dwelling unit counts. We will exclude boats, trailers or mobile homes as feasible FTTH locations. Assume that “locations” (buildings) represent about 28 percent of dwellings (by definition, an MDU is one location with multiple dwellings).

In that case, there might be some 6.9 million MDU locations in the AT&T fixed network service territory. That blends MDUs of all sizes into a composite average of 3.5 units per building. So make the universe of residential locations 31.5 million.

AT&T says it will have 14 million FTTH locations in service by the end of 2019. Assuming 100 percent of those locations are single-family homes, AT&T FTTH locations would be about 44 percent, with most of the rest served by fiber to the neighborhood. It is unclear how many all-copper lines remain in service, but it is possible there are as few as a million.

Still, AT&T’s interest in high-capacity access that costs less than FTTH remains. For even if it were able to boost its market share (installed base) of consumer internet access to as much as 50 percent, half the assets would still be stranded, producing no revenue.

For AT&T no less than Comcast, lower-cost infrastructure provides two benefits: fewer stranded assets and a lower-cost base, which provides more room to either lower retail prices or boost profit margins.

Keep in mind that 25 percent take rates also imply 75 percent stranded assets. Fixed wireless built on the 5G mobile network has clear potential advantages, including lower incremental cost to supply the equivalent of fixed access and lower total capex, with lower stranded asset risk.

Will 5G be Adopted Faster than 4G?

Will 5G subscriptions grow slower than 4G, faster or at the same rate? It is anybody’s guess right now. Researchers at CCS Insight believe 5G subscriptions will grow slightly faster than 4G. Others believe the uptake will be noticeably slower.

But even the CCS estimate anticipates that the number of 5G mobile connections will surpass one billion in 2022, taking a year less than it took 4G connections to pass the same number.

If I had to guess right now, I’d err on the side of slower uptake of 5G, for several reasons. Handset prices now are higher than when 4G first launched, so that is slowing handset replacement cycles.

source: CCS Insight

source: The Edge of the Cloud

Also, the performance advantage of 5G, though perhaps as much as an order of magnitude over 4G, does not arguably enable new apps that most users will want to engage with. In part, that also is because 4G speeds are getting fast enough to support streaming video easily, and that seems to be the one consumer app that really drives bandwidth consumption and is most affected by slow speeds.

But many users will find 4G getting so much better than 5G will not actually produce a noticeable difference. In other words, the app value or use case enablers are not so clear, for most users.

It actually is not clear to some of us that mobile 5G actually provides noticeable advantages in experience for users in the markets where it is being deployed. It is a bit like gigabit fixed network speeds. It is a bragging right and is “nice to have,”  but does not actually enable any new consumer app anybody can point to.

For mobile 5G, that might well be the case as well. The one area where 5G really could produce a new use case is fixed 5G, as a substitute for a fixed internet access connection. That might also be true for some mobile connections as well.

“Right now from a 5G standpoint, what we're seeing in terms of adoption tends to be business,’ said Randall Stephenson, AT&T CEO. “In fact it's exclusively business for us right now.”

In keeping with the mobile substitution framework, AT&T finds early business buyers often are using 5G as a substitute for fixed network access.

“It’s serving as a land replacement product,” said Stephenson.

Digital One Rate Changed the Industry

Few now recall it, but AT&T Wireless once drove rapid mobile adoption by consumers by revolutionizing the way consumers paid for--and how much they paid for--long distance calling.

Back in 1998, AT&T unveiled a major new pricing plan for mobile users that priced all domestic calls for 10 cents a minute. That Digital One Rate plan effectively erased the distinction between local and long distance calling and provided a major incentive for consumers to buy mobile service.

Even many astute industry watchers did not appreciate the revolutionary nature of the plan. Technology pundit Walt Mossberg once called Digital One Rate “marketing hype.”

“It promises to make your cell phone as simple and affordable to use as a landline phone, so that you'll use it even for casual calls without a second thought,” said Mossberg. “The actual service behind the marketing isn't good enough to really allow that. I've been frustrated with it again and again.”

Digital One Rate was anything but hype. It really did revolutionize the way consumers and businesses made calls. It really did begin the mass adoption of mobile phones and the demise of landline service.

Beyond that, Digital One Rate changed the key profit drivers in telecom, from long distance revenue to mobile service. Within a decade, the industry profit driver changed from long distance to mobility. The shift from voice to data would follow.

In the ensuing years after Digital One Rate was introduced, long distance revenue plummeted, as did use of landline phone services. Digital One Rate was the driver, as the whole industry shifted pricing and packaging.

source: Technology Policy Institute

Could such a shift occur again, in a new context?

One of the obvious commercial ramifications of virtualized networks featuring network slicing is the ability to create customized features related to bandwidth, latency, security and quality of service. Prices and service levels for mobile internet access should be an early place to look for evidence of such customization.

At the most basic of levels, standard practices in fixed networks, such as the ability to buy faster or slower services, with bigger or smaller usage allowances, are commonplace. That has not been possible in the mobile segment of the business, but will be. We refer here not to the setting of tariffs for 5G than might be higher than 4G, for the same amount of usage.

What likely will be new is the ability to create speed and usage tiers on an account-by-account basis. That is new. But so far, the leading mobile service providers announcing 5G service have chosen not to introduce such plans.

To be sure, Verizon charges about $10 a month extra for data plans with comparable 4G usage allowances. And since 5G is faster than 4G, there is an effective price premium for 5G. What Verizon has not done is create speed tiers for mobile access that resemble fixed network access.

In other words, customers cannot buy 5G plans with “speeds up to 150 Mbps” as one plan, and “speeds up to 300 Mbps” as a different plan, as is the norm for fixed network access.

But AT&T might choose to do so, at least eventually. So, too, will Verizon, in all likelihood.

“I will be very surprised, if as we move into wireless, the pricing regime and wireless doesn’t look something like the pricing regime you see in fixed line,” said Randall Stephenson, AT&T CEO.

“If you can offer a gig speed, there are some customers that are willing to pay a premium for 500 meg to a gig speed and so forth,” he said. “So I expect that to be the case.”

But it will not happen right away. “We are two or three years away from seeing that play out,” said Stephenson.

Network slicing most often is thought of in the context of customized virtual networks for enterprise customers. It might also be the way mobile operators create, for the first time, speed tiers for mobile internet access that are differentiated by speed, not just usage allowance.

Whether other quality of service metrics also become standard features of some plans or not--for consumers--remains to be seen.

But this is a big potential change, and will likely create higher revenue potential for the firms that offer such speed-differentiated or possible QoS-based service plans.

Perhaps that will not be as revolutionary as Digital One Rate was. But few innovations are.