Readers might think I spent too much time writing about 5G. However, I’m asked about 5G almost every day. Existing ISPs want to know if 5G is a real threat. Potential ISPs want to know if they should pause their business plans until they understand 5G’s impact. Cities want to know what to expect. The cellular companies have made such a huge deal about 5G that they’ve spooked the rest of the industry.
Today I ask perhaps the most fundamental question of all – is there a business case for 5G cellular? I’m not talking about 5G wireless loops to homes – I’m just asking if there is a financial justification for the cellular companies to upgrade their cell sites to 5G?
Before answering that question, it’s good to remember that the cellular companies badly need to implement 5G because their 4G networks are facing a crisis. After years of training customers to be stingy in using cellphone data, they are now encouraging users to stream video. The result of this shift is that total cellular data usage is now doubling every two years. Any network engineer will tell that that is deadly growth, particular for a cellular network. The existing 4G network can’t handle this growth for more than a few more years. While some of this growth can be temporarily mitigated by inserting small cell sites into the network, that doesn’t look like it is more than a band-aid fix if broadband keeps growing at this fast pace. Small cell sites will be overwhelmed almost as quickly as they are built.
The carriers need 5G because it will expand the capacity of each cell site by allowing many more customers to use a cell site simultaneously. By taking advantage of frequency slicing and the ability to mix and match multiple frequencies a 5G cell site will be a huge step-up in efficiency. The cellular carriers have not publicly admitted that they need 5G just to keep their networks running – but they really don’t have a choice.
The question, though, is if there is a new revenue stream to help pay for the 5G upgrades? To be honest, I can’t find any early 5G cellular application that will generate much revenue in the near future. The obvious new revenue source would be to charge a premium price to use 5G data on a cellphone. There might be some people willing to pay extra in the early stages of the 5G roll-out, but as 4G morphs over time into 5G, any willingness to pay more for data will melt away.
I also wonder if customers will really value faster cellular data speeds. First, we aren’t talking about a ton of extra speed. Forget the recent trials of millimeter wave 5G – that’s a gimmick for now that will not be available anywhere other than in dense urban centers. The 5G specification that matters to the real world is the goal for 5G speeds to increase over a decade to 100 Mbps.
Good 4G data speeds today are in the range of 15 Mbps and that is more than enough speed to stream data while performing any functions we want from a cellphone. Faster speeds will not stream video any faster. Over time perhaps our cellphones will be able to create augmented reality universes, but that technology won’t be here for a while. Faster data speeds are vitally important in a home where we run multiple large data streams simultaneously – but a cellphone is, by definition, one device for one user.
The real advantage of 5G is the ability to make large numbers of connections from a single cell site. It’s also hard to see an immediate path to monetize that. I talk to a friend many mornings as he commutes and he always gets disconnected at the Eisenhower bridge on the DC beltway – there are not enough cellular connections there to allow for handoffs between Maryland and Virginia. 5G will finally fix that problem, but I can’t see anybody paying extra to not be cut off on the bridge – they will finally be getting what they’ve always expected.
Eventually 5G will have big potential as the connection for outdoor sensors, IoT devices, smart cars, smart streetlights, etc. There is also likely to eventually be a huge market for wearables that might include fitness monitors, medical monitors, smart glasses, and even smart clothes. However, all of these applications will take time to come to market – there is a bit of chicken and egg in that these technologies will likely never take off until there is universal 5G coverage. There is very little revenue likely in the next few years for outdoor applications – although this might eventually be the primary new source of 5G revenue.
I look back to last fall when Ronan Dunne, an EVP of Verizon Wireless, made his case to investors for the potential for 5G. He included the outdoor sensors I mention above. He also cited applications like retail, where holograms might spring up near merchandise in stores. He talked about stock trading that takes advantage of the low latency on 5G. He mentioned gaming, which would benefit from lower latency. Most of these applications offer eventual potential for 5G. But none of these applications are going to produce giant revenues over the next three or four years. In the short run it’s hard to imagine almost any immediate revenue from these applications.
Predicting technology is always a crap shoot and perhaps new applications will arise that need 5G that even Verizon hasn’t imagined. The list of applications that Verizon gave to investors is underwhelming and reflects the fact that there is likely no 5G application that will significantly add to the bottom line of the cellular carriers in the immediate future.
This really brings home the idea that as a nation we are not in a worldwide 5G competition. The carriers need 5G soon to stop the collapse of the 4G data networks in busy neighborhoods. I have a hard time thinking they need it immediately for anything else – although eventually we will be surrounded by 5G applications.