The Senate Commerce Committee held a recent hearing in Sioux Falls, South Dakota talking about the benefits that 5G will bring to the state. The hearing was chaired by Senator John Thune, who’s one of the primary telecom-related members of Congress.

A local paper quoted Thune as claiming that 5G is going to transform the economy of the country and of the state. He cited the same 5G talking points used by the FCC in their recent order that mandated cheap and fast connections to poles for 5G transmitters. Thune also said we’re in a race with China, Japan and South Korea and that we can’t afford to lose the 5G race.  FCC Commissioner Brad Carr was at the hearing and said that 5G could bring hundreds of millions of dollars of economic benefit to the state. He also estimated that realizing the benefits of 5G would require hundreds of thousands of small cells mounted on poles and light poles in the state.

The numbers cited in this hearing stun me. What would it mean to have hundreds of thousands of 5G transmitters on poles in South Dakota and could such a network create hundreds of millions of benefits for the state? I decided to try to put those numbers into context.

I still don’t know what a 5G transmitter on a pole will cost. I’ve heard that a full-blown small cell site currently costs more than $15,000 – but I have to assume that in order to make this even reasonably profitable that most of the devices in a 5G network will have to cost far less (and likely have far less functionality than a full-blown small cell site). Assuming thst that manufacturers will somehow get the installed price down to $2,500 each, then deploying on 200,000 poles (derived from “hundreds of thousands of poles”) equates to a cost in the state for just for the pole electronics of $500 million. This doesn’t include the cost of the fiber and other backhaul costs needed to support the 5G gigabit network.

I look at that $500 million number, knowing that it’s only a portion of the cost of deploying 5G and I wonder who is going to make that kind of investment in South Dakota. It’s not going to be the two primary incumbents, CenturyLink or Midco, the primary cable TV incumbent. It’s unlikely that Verizon owns any significant amounts of fiber in the state and they are not likely to do much there. I look around the industry and I can’t see any major player who would make a $500 million investment in a state with so few people.

Consider the demographics. South Dakota is one of the least populated states and the Census estimates the population to be around 870,000 with almost 400,000 housing units. The biggest city is Sioux Falls with a population of 176,000, Rapid City has 70,000 and cities are much smaller after that. When you get outside the cities it’s one of the least densely populated states.

Even if somebody made that kind of investment in South Dakota, how do they make their money back? Very few large public companies today are willing to earn infrastructure returns on investments, which is one of the primary drivers of our infrastructure crisis. Almost nobody other than governments are willing to invest in projects that have 10 and 20-year paybacks. This is the primary reason why no big ISPs are building residential fiber-to-the-home. It’s hard to envision the paybacks for 5G being much faster than fiber.

If I do the math on a $500 million investment, it would require a new revenue stream of $35 per month for every one of the 400,000 households in North Dakota to repay that investment in 3 years. Even at 6 years that’s still $17.50 per month for every household in the state. When you consider that only a much smaller percentage of people would somehow pay for some sort of theoretical 5G product, the cost per potential customer becomes gigantic – if 25% of the people in the state somehow bought a 5G product that would require a new expenditure of $70 per home per month to pay this investment off in the six years that Wall Street might find acceptable.

Of course, the investment is not just $500 million because there are a lot of other costs to bringing a widespread 5G network. To build the kind of network envisioned at the Congressional hearing has to cost far north of a billion dollars, any possibly several billions if a lot of fiber has to be built. That makes me wonder what the 5G hype is all about. It’s hard to envision anybody making this kind of investment in South Dakota. I’m not busting on South Dakota because this same cost to benefit applies to any place outside of large NFL cities with a high density of households.

I don’t have a crystal ball and I can’t say that somebody won’t invest in 5G in states like South Dakota. But I understand business plans and paybacks and I can’t foresee any of the current big ISPs in the industry making the needed investments where housing density is low. Smaller ISPs can’t raise the huge amount of needed money. It’s certainly possible that some of the neighborhoods a few cities in the state might see some 5G, but that’s probably not going to be on anybody’s radar for a while. I’m skeptical because I just can’t see a way to make the math work.