Verizon’s Residential 5G Broadband

We finally got a look at the detail of Verizon’s 5G residential wireless product. They’ve announced that it will be available to some customers in Houston, Indianapolis, Los Angeles and Sacramento starting on October 1.

Verizon promises average download data speeds of around 300 Mbps. Verizon has been touting a gigabit wireless product for the last year, but the realities of wireless in the wild seems to have made that unrealistic. However, 300 Mbps is a competitive broadband product and in many markets Verizon will become the fastest alternative competitor to the cable companies. As we’ve seen everywhere across the country, a decent competitor to the big cable companies is almost assured of a 20% or higher market penetration just for showing up.

The product will be $50 per month for customers who use Verizon wireless and $70 for those that don’t. These prices will supposedly include all taxes, fees and equipment – although it’s possible that there are add-ons like using a Verizon WiFi router. That pricing is going to be attractive to anybody that already has Verizon cellular – and I’m sure the company is hoping to use this to attract more cellular customers. This is the kind of bundle that can make cellular stickier and is exactly what the Comcast and Charter have in mind as they are also offering cellular. Verizon is offering marketing inducements for the roll-out and are offering 3 months free of YouTube TV or else a free Apple TV 4K or a Google Chromecast Ultra.

Theoretically this should set off a bit of a price war in cities where Comcast and Charter are the incumbent cable providers. It wouldn’t be hard for those companies to meet or beat the Verizon offer since they are already selling cellular at a discount. We’re going to get a fresh look at oligopoly competition – will the cable companies really battle it out? The cable companies have to be worried about losing significant market share in major urban markets.

We’re also going to have to wait a while to see the extent of the Verizon coverage areas. I’ve been speculating about this for a while and I suspect that Verizon is going to continue with their history of being conservative and disciplined. They will deploy 5G where there is fiber that can affordably support it – but they are unlikely to undertake any expensive fiber builds just for this product. Their recently announced ‘One Fiber’ policy says just that – the company wants to capitalize on the huge amount of network that they have already constructed for other purposes. This means it’s likely in any given market that coverage will depend upon a customer’s closeness to Verizon fiber.

There is one twist to this deployment that means Verizon might not be in a hurry to deploy this too quickly. The company has been working with Ericsson, Qualcomm, Intel and Samsung to create proprietary equipment based upon the 5GTF standard. But the rest of the industry has adopted the 3GPP standard for 5G and Verizon admits it will have to replace any equipment installed with their current standard.

Verizon also said over the last year that they wanted this to be self-installed by customers. At least for now the installations are going to require a truck roll, which will add to the cost and the rate of deployment of the new technology.

Interestingly, these first markets are outside of Verizon’s telco footprint. This means that Verizon will not only be taking on cable companies, but that they might be putting the final nail in the coffin of DSL offered by AT&T and other telcos in the new markets. Verizon is unlikely to roll this out to compete with their own FiOS product unless deployments are incredibly inexpensive. But this might finally bring a Verizon broadband product to neighborhoods in the northeast that never got FiOS.

It’s going to be a while under we understand the costs of this deployment. Verizon has been mum about the specific network elements and reliance on fiber needed to support the product. And they have been even quieter about the all-in cost of deployment.

Cities all over the country are going to get excited about this deployment in the hope of getting a second competitor to their cable company which are often a near-monopoly. It appears that the product is going to work best where there is already a fiber-rich environment. Most urban areas, while having little last mile-fiber, are crisscrossed with fiber used to get to large businesses, governments, schools, etc.

The same is not necessarily the same in suburbs and definitely not true of smaller communities and rural America. The technology depends upon local last-mile fiber backhaul. Verizon says that they believe their potential market will be to eventually pass 30 million households, or a little less than 25% of the US market. I’d have to think that the map for others, except perhaps for AT&T largely coincide with the Verizon map. It seems that Verizon wants to be the first to market to potentially dissuade other entrants. We’ll have to wait and see if a market can reasonably support more than one last-mile 5G provider – because companies like T-Mobile also have plans for wide deployment.

Massive MIMO

One of the technologies that will bolster 5G cellular is the use of massive MIMO (multiple-input, multiple-output) antenna arrays. Massive MIMO is an extension of smaller MIMO antennas that have been use for several years. For example, home WiFi routers now routinely use multiple antennas to allow for easier connections to multiple devices. Basic forms of the MIMO technology have been deployed in LTE cell sites for several years.

Massive MIMO differs from current technology by the use of big arrays of antennas. For example, Sprint, along with Nokia demonstrated a massive MIMO transmitter in 2017 that used 128 antennas, with 64 for receive and 64 for transmit. Sprint is in the process of deploying a much smaller array in cell sites using the 2.5 GHz spectrum.

Massive MIMO can be used in two different ways. First, multiple transmitter antennas can be focused together to reach a single customer (who also needs to have multiple receivers) to increase throughput. In the Sprint trial mentioned above Sprint and Nokia were able to achieve a 300 Mbps connection to a beefed-up cellphone. That’s a lot more bandwidth than can be achieved from one transmitter, which at the most could deliver whatever bandwidth is possible on the channel of spectrum being used.

The extra bandwidth is achieved in two ways. First, using multiple transmitters means that multiple channels of the same frequency can be sent simultaneously to the same receiving device. Both the transmitter and receiver must have the sophisticated and powerful computing power to coordinate and combine the multiple signals.

The bandwidth is also boosted by what’s called precoding or beamforming. This technology coordinates the signals from multiple transmitters to maximize the received signal gain and to reduce what is called the multipath fading effect. In simple terms the beamforming technology sets the power level and gain for each separate antenna to maximize the data throughput. Every frequency and its channel operates a little differently and beamforming favors the channels and frequency with the best operating capabilities in a given environment. Beamforming also allows for the cellular signal to be concentrated in a portion of the receiving area – to create a ‘beam’. This is not the same kind of highly concentrated beam that is used in microwave transmitters, but the concentration of the radio signals into the general area of the customer means a more efficient delivery of data packets.

The cellular companies, though, are focused on the second use of MIMO – the ability to connect to more devices simultaneously. One of the key parameters of the 5G cellular specifications is the ability of a cell site to make up to 100,000 simultaneous connections. The carriers envision 5G is the platform for the Internet of Things and want to use cellular bandwidth to connect to the many sensors envisioned in our near-future world. This first generation of massive MIMO won’t bump cell sites to 100,000 connections, but it’s a first step at increasing the number of connections.

Massive MIMO is also going to facilitate the coordination of signals from multiple cell sites. Today’s cellular networks are based upon a roaming architecture. That means that a cellphone or any other device that wants a cellular connection will grab the strongest available cellular signal. That’s normally the closest cell site but could be a more distant one if the nearest site is busy. With roaming a cellular connection is handed from one cell site to the next for a customer that is moving through cellular coverage areas.

One of the key aspects of 5G is that it will allow multiple cell sites to connect to a single customer when necessary. That might mean combining the signal from a MIMO antenna in two neighboring cell sites. In most places today this is not particularly useful since cell sites today tend to be fairly far apart. But as we migrate to smaller cells the chances of a customer being in range of multiple cell sites increases. The combining of cell sites could be useful when a customer wants a big burst of data, and coordinating the MIMO signals between neighboring cell sites can temporarily give a customer the extra needed bandwidth. That kind of coordination will require sophisticated operating systems at cell sites and is certainly an area that the cellular manufacturers are now working on in their labs.

Going Wireless-only for Broadband

According to New Street Research (NSR), up to 14% of homes in the US could go all-wireless for broadband. They estimate that there are 17 million homes which are small enough users of bandwidth to justify satisfying their broadband needs strictly using a cellular connection. NSR says that only about 6.6 million homes have elected to go all-wireless today, meaning there is a sizable gap of around 10 million more homes for which wireless might be a reasonable alternative.

The number of households that are going wireless-only has been growing. Surveys by Nielsen and others have shown that the trend to go wireless-only is driven mostly by economics, helped by the ability of many people to satisfy their broadband demands using WiFi at work, school or other public places.

NSR also predicts that the number of homes that can benefit by going wireless-only will continue to shrink. They estimate that only 14 million homes will benefit by going all-wireless within five years – with the decrease due to the growing demand of households for more broadband.

There are factors that make going wireless an attractive alternative for those that don’t use much broadband. Cellular data speeds have been getting faster as cellular carriers continue to implement full 4G technology. The first fully compliant 4G cell site was activated in 2017 and full 4G is now being deployed in many urban locations. As speeds get faster it becomes easier to justify using a cellphone for broadband.

Of course, cellular data speeds need to be put into context. A good 4G connection might be in the range of 15 Mbps. That speed feels glacial when compared to the latest speeds offered by cable companies. Both Comcast and Charter are in the process of increasing data speeds for their basic product to between 100 Mbps and 200 Mbps depending upon the market. Cellphones also tend to have sluggish operating systems that are tailored for video and that can make regular web viewing feel slow and clunky.

Cellular data speeds will continue to improve as we see the slow introduction of 5G into the cellular network. The 5G specification calls for cellular data speeds of 100 Mbps download when 5G is fully implemented. That transition is likely to take another decade, and even when implemented isn’t going to mean fast cellular speeds everywhere. The only way to achieve 100 Mbps speeds is by combining multiple spectrum paths to a given cellphone user, probably from multiple cell sites. Most of the country, including most urban and suburban neighborhoods are not going to be saturated with multiple small cell sites – the cellular companies are going to deploy faster cellular speeds in areas that justify the expenditure. The major cellular providers have all said that they will be relying on 4G LTE cellular for a long time to come.

One of the factors that is making it easier to go wireless-only is that people have access throughout the day to WiFi, which is powered from landline broadband. Most teenagers would claim that they use their cellphones for data, but most of them have access to WiFi at home and school and at other places they frequent.

The number one factor that drives people to go all-wireless for data is price. Home broadband is expensive by the time you add up all of the fees from a cable company. Since most people in the country already has a cellphone then dropping the home broadband connection is a good way for the budget-conscious to control their expenses.

The wireless carriers are also making it easier to go all wireless by including some level of video programming with some cellular plans. These are known as zero-rating plans that let a customer watch some video for free outside of their data usage plan. T-Mobile has had these plans for a few years and they are now becoming widely available on many cellular plans throughout the industry.

The monthly data caps on most wireless plans are getting larger. For the careful shopper who lives in an urban area there are usually a handful of truly unlimited data plans. Users have learned, though, that many such plans heavily restrict tethering to laptops and other devices. But data caps have creeped higher across-the-board in the industry compared to a few years ago. Users who are willing to pay more for data can now buy the supposedly unlimited data plans from the major carriers that are actually capped between 20 – 25 GB per month.

There are always other factors to consider like cellular coverage. I happen to live in a hilly wooded town where coverage for all of the carriers varies block by block. There are so many dead spots in my town that it’s challenging to use cellular even for voice calls. I happen to ride Uber a lot and it’s frustrating to see Uber drivers get close to my neighborhood and get lost when they lose their Verizon signal. This city would be a hard place to rely only on a cellphone. Rural America has the same problem and regardless of the coverage maps published by the cellular companies there are still huge areas where rural cellular coverage is spotty or non-existent.

Another factor that makes it harder to go all-wireless is working from home. Cellphones are not always adequate when trying to log onto corporate WANs or for downloading and working on documents, spreadsheets and PowerPoints. While tethering to a computer can solve this problem, it doesn’t take a lot of working from home to surpass the data caps on most cellular plans.

I’ve seen a number of articles in the last few years talking claiming that the future is wireless and that we eventually won’t need landline broadband. This claim ignores the fact that the amount of data demanded by the average household is doubling every three years. The average home uses ten times or more data on their landline connection today than on their cellphones. It’s hard to foresee the cellphone networks able to close that gap when the amount of landline data use keeps growing so rapidly.

Verizon’s Case for 5G, Part 4

Ronan Dunne, an EVP and President of Verizon Wireless recently made Verizon’s case for aggressively pursuing 5G. This last blog in the series looks at Verizon’s claim that they are going to use 5G to offer residential broadband. The company has tested the technology over the last year and announced plans to soon introduce the technology into a number of cities.

I’ve been reading everything I can about Verizon and I think I finally figured out what they are up to. They have been saying that within a few years that they will make fixed 5G broadband available to millions of homes. One of the first cities they will be building is Sacramento. It’s clear that in order to offer fast speeds that each 5G transmitter will have to be fiber fed. To cover all neighborhoods in Sacramento would require building a lot of new fiber. Building new fiber is both expensive and time-consuming. And it’s still a head scratcher about how this might work in neighborhoods without poles where other utilities are underground.

Last week I read of an announcement by Lee Hick’s of Verizon for a new initiative called One Fiber. Like many large telecoms Verizon has numerous divisions that own fiber assets like the FiOS group, the wireless group and the old MCI business CLEC group. The new policy will consolidate all of this fiber under into a centralized system, making existing and new fiber available to every part of the business. It might be hard for people to believe, but within Verizon each of these groups managed their own fiber separately. Anybody who has ever worked with the big telcos understands what a colossal undertaking it will be to consolidate this.

Sharing existing fiber and new fiber builds among its various business units is the change that will unleash the potential for 5G deployment. My guess is that Verizon has eyed AT&T’s fiber the strategy and is copying the best parts of it. AT&T has quietly been extending its fiber-to-the-premise (FTTP) network by extending fiber for short distances around the numerous existing fiber nodes in the AT&T network. A node on an AT&T fiber built to get to a cell tower or to a school is now also a candidate to function as a network node for FTTP. Using existing fiber wisely has allowed AT&T to claim they will soon be reaching over 12 million premises with fiber – without having to build a huge amount of new fiber.

Verizon’s One Fiber policy will enable them to emulate AT&T. Where AT&T has elected to build GPON fiber-to-the-premise, Verizon is going to try 5G wireless. They’ll deploy 5G cell sites at their existing fiber nodes where it makes financial sense. Verizon doesn’t have as extensive of a fiber network as AT&T and I’ve seen a few speculations that they might pass as many as 7 million premises with 5G within five years.

Verizon has been making claims about 5G that it can deliver gigabit speeds out to 3,000 feet. It might be able to do that in ideal conditions, but their technology is proprietary and nobody knows the real capabilities. One thing we know about all wireless technologies is that it’s temperamental and varies a lot by local conditions. The whole industry is waiting to the speeds and distances Verizon will really achieve with the first generation gear.

The company certainly has some work in front of it to pursue this philosophy. Not all fiber is the same and their existing fiber network probably has fibers of many sizes, ages and conditions using a wide range of electronics. After inventorying and consolidating control over the fiber they will have to upgrade electronics and backbone networks to enable the kind of bandwidth needed for 5G.

The Verizon 5G network is likely to consist of a series of cell sites serving small neighborhood circles – the size of the circle depending upon topography. This means the Verizon networks will  not likely be ubiquitous in big cities – they will reach out to whatever is in range of 5G cell sites placed on existing Verizon fiber. After the initial deployment, which is likely to take a number of years, the company will have to assess if building additional fiber makes economic sense. That determination will consider all of the Verizon departments and not just 5G.

I expect the company to follow the same philosophy they did when they built FiOS. They were disciplined and only built in places that met certain cost criteria. This resulted in a network that, even today, bring fiber to one block but not the one next door. FiOS fiber was largely built where Verizon could overlash fiber onto their telephone wires or drag fiber through existing conduits – I expect their 5G expansion to be just as disciplined.

The whole industry is dying to see what Verizon can really deliver with 5G in the wild. Even if it’s 100 Mbps broadband they will be a competitive alternative to the cable companies. If they can really deliver gigabit speeds to entire neighborhoods then will have shaken the industry. But in the end, if they stick to the One Fiber model and only deploy 5G where it’s affordable they will be bringing a broadband alternative to those that happen to live near their fiber nodes – and that will mean passing millions of homes and tens of millions.

Verizon’s Case for 5G, Part 3

Ronan Dunne, an EVP and President of Verizon Wireless recently made Verizon’s case for aggressively pursuing 5G. In this blog I want to examine the two claims based upon improved latency – gaming and stock trading.

The 5G specification sets a goal of zero latency for the connection from the wireless device to the cellular tower. We’ll have to wait to see if that can be achieved, but obviously the many engineers that worked on the 5G specification think it’s possible. It makes sense from a physics perspective – a connection of a radio signal through air travels for all practical purposes at the speed of light (there is a miniscule amount of slowing from interaction with air molecules). This makes a signal through the air slightly faster than one through fiber since light slows down when passing through fiberglass by 0.83 milliseconds for every hundred miles of fiber optic cable traversed.

This means that a 5G signal will have a slight latency advantage over FTTP – for the first few connection from a customer. However, a 5G wireless signal almost immediately hits a fiber network at a tower or small cell site in a neighborhood, and from that point forward the 5G signal experiences the same latency as an all-fiber connection.

Most of the latency in a fiber network comes from devices that process the data – routers, switches and repeaters. Each such device in a network adds some delay to the signal – and that starts with the first device, be it a cellphone or a computer. In practical terms, when comparing 5G and FTTP the network with the fewest hops and fewest devices between a customer and the internet will have the lowest latency – a 5G network might or might not be faster than an FTTP network in the same neighborhood.

5G does have a latency advantage over non-fiber technologies, but it ought to be about the same advantage enjoyed by FTTP network. Most FTTP networks have latency in the 10-millisecond range (one hundredth of a second). Cable HFC networks have latency in the range of 25-30 ms; DSL latency ranges from 40-70 ms; satellite broadband connections from 100-500 ms.

Verizon’s claim for improving the gaming or stock trading connection also implies that the 5G network will have superior overall performance. That brings in another factor which we generally call jitter. Jitter is the overall interference in a network that is caused by congestion. Any network can have high or low jitter depending upon the amount of traffic the operator is trying to shove through it. A network that is oversubscribed with too many end users will have higher jitter and will slow down – this is true for all technologies. I’ve had clients with first generation BPON fiber networks that had huge amounts of jitter before they upgraded to new FTTP technology, so fiber (or 5G) alone doesn’t mean superior performance.

The bottom line is that a 5G network might or might not have an overall advantage compared to a fiber network in the same neighborhood. The 5G network might have a slight advantage on the first connection from the end user, but that also assumes that cellphones are more efficient than PCs. From that point forward, the network with the fewest hops to the Internet as well the network with the least amount of congestion will be faster – and that will be case by case, neighborhood by neighborhood when comparing 5G and FTTP.

Verizon is claiming that the improved latency will improve gaming and stock trading. That’s certainly true where 5G competes against a cable company network. But any trader that really cares about making a trade a millisecond faster is already going to be on a fiber connection, and probably one that sits close to a major internet POP. Such traders are engaging in computerized trading where a person is not intervening in the trade decision. For any stock trades that involve humans, a extra few thousandths of a second in executing a trade is irrelevant since the human decision process is far slower than that (for someone like me these decisions can be measured in weeks!).

Gaming is more interesting. I see Verizon’s advantage for gaming in making game devices mobile. If 5G broadband is affordable (not a given) then a 5G connection allows a game box to be used anywhere there is power. I think that will be a huge hit with the mostly-younger gaming community. And, since most homes buy broadband from the cable company, lower latency with 5G ought to be to a gamer using a cable network, assuming the 5G network has adequate upload speeds and low jitter. Gamers who want a fiber-like experience will likely pony up for a 5G gaming connection if it’s priced right.

Verizon’s Case for 5G, Part 2

This is a second in a series of blogs that look at Verizon’s list of ways that the company thinks they can monetize 5G. The first blog looked at medical applications. Today I look at the potential market use for 5G for retail.

Verizon’s retail vision is interesting. They picture stores that offer an individualized shopping experience that also uses augmented and virtual reality to communicate with and sell to customers. This is not a new idea and the idea of using 3D graphics and holograms in stores was one of the first future visions touted by augmented reality developers. We are just now on the verge of having technology that could make this possible.

Verizon obviously envisions using 3G bandwidth to enable these applications. Stores will want the flexibility to be able to put displays anywhere in the store, and change them at will, so doing this wirelessly would be a lot cheaper than stringing fiber all over stores. Streaming holograms requires a lot of bandwidth, so this seems like a natural application for millimeter wave spectrum. Our current cellular frequencies are not sufficient to support holograms.

The new 5G standard calls for the use of millimeter wave spectrum to deliver gigabit data paths wirelessly indoors. These frequencies don’t pass through walls, so transmitters in the ceilings could be used to beam down to displays anywhere in a store.

Verizon envisions companies using Verizon licensed spectrum. However, the FCC has already set aside several bands of millimeter wave spectrum for public use and there will soon be a whole industry developing millimeter wave routers for use as WANs – likely the same companies that today make WiFi routers. I have a hard time seeing how Verizon will have any market advantage over the many other companies that will be developing millimeter wave WANs using public spectrum.

The personalized shopping experience is a different matter. Verizon is envisioning a network that identifies customers as they enter the store, either through facial recognition, through cell phone signals, or perhaps because customers voluntarily use an app that identifies them. Verizon envisions using the 5G network tied into big data applications to enable stores to craft a unique shopping experience for each customer. For regular customers that would meaning using a profile based on their past shopping history, and for everybody else it means using a profile cobbled together from the big data all of the ISPs are gathering on everybody.

Verizon and the other big ISPs have invested in subsidiaries that can crunch big data and they are hungry to snag a piece of the advertising revenue that Google has monetized so well. Using big data to enhance the shopping experience will likely be popular with the kinds of shoppers who use in-store apps today. Customers can be offered live specials as they walk down aisles, with offers personalized to them. This could be tied into the holographic product displays and other in-store advertising systems.

However, this application could quickly get creepy if it is done for all shoppers. I know I would never visit a store a second time that recognizes me as I walk in the door and that uses a cloud-based profile of me to try to direct my shopping. Perhaps my distaste for this kind of intrusion is a generational thing and it might be attractive to younger generations of shoppers – but I would find it invasive.

There are physical issues to consider with this kind of network. I tried to use my cellphone from the rear of a grocery store yesterday and I had zero bars of data and couldn’t connect to the voice network. Dead spots can be fixed by installing one or more small cell sites inside a store to reach all parts of a store – something that will become more affordable over time.

Verizon will have an advantage if smartphones are a needed component of the customized shopping experience. But the shopping applications don’t necessarily require smartphones. For example, screens built into shopping carts could fulfill the same functions and not tie a retailer to pay Verizon.

One of the biggest hurdles I see for Verizon’s vision is that retail stores are slow adapters of new technology. This kind of application would likely start at the big nationwide chains like Target or Walmart, but it’s a decades-long sales cycle to get stores everywhere to accept this. Verizon’s vision also assumes that stores want this – but they are already competing for their own survival against online shopping and fast delivery and they might be leery about using a technology that could drive away a portion of their customer base. From what I can see, stores that provide a personal touch are the ones that are competing best with online shopping.

To summarize, Verizon is espousing a future vision of retail where the retailer can interact electronically with shoppers on a personalized basis. The first big hurdle will be convincing retailers to try the idea, because it could easily go over the top and be viewed by the public as invasive. More importantly, licensed 5G from Verizon isn’t the only technology that can deliver Verizon’s vision since there will be significant competition in the indoor millimeter wave space. This is one of those ideas that might come to pass, but there are enough hurdles to overcome that it may never become reality.

Verizon’s Case for 5G, Part 1

Ronan Dunne, an EVP and President of Verizon Wireless recently made Verizon’s case for aggressively pursuing 5G. On an investor call he talked about potential ways that the company might monetize the new technology. Over a series of blogs I’m going to look at the various market applications of 5G envisioned by Verizon.

Mr. Dunne thinks 5G cellular can be used to develop advanced networks to provide better long-term patient monitoring. The solution he envisions would use cellular technology to power medical monitoring devices worn by patients or used in homes.

This one application gets to the heart of Verizon’s vision of the future with using 5G as the primary technology to connect to IoT devices. Today there are already health and medical devices connected through the cellular network. For example, there are GPS-enabled running watches today that require a cellular subscription. These devices communicate 2-way with the cloud through cellular. They can upload a runner’s statistics like heart rate and can also download things like a map of the runner’s location.

However, there are huge numbers of similar devices that don’t use cellular. For example, there are running monitors that provide the same features by connecting through a runner’s smartphone, which the runner must carry to get the same kind of feedback. Many of the most popular devices like Fitbit don’t require cellular at all and can store runner’s statistics until they can sync with their home WiFi network. There are also many in-home medical monitors that connect only through WiFi.

Verizon wants to capture the IoT market, and medical devices are just one of the many market niches they envision. In their vision of the future, all medical monitors would come with a cellular subscription. For medical devices that need to be connected 24/7 this application makes a lot of sense. For example, out-patients after surgery could be monitored at all times and wouldn’t be restricted to being in range of a WiFi network.

But this comes with a cost, at least today. Currently WiFi and Bluetooth technology is cheap and there is very little incremental cost of building these technologies into the chips in devices – many common chips already have built-in WiFi. It’s more expensive today to provide a 2-way cellular device.

There are also weaknesses with cellular coverage that would need to be addressed. For example, I can see a weak Verizon signal from my upstairs office, but I have zero bars of coverage on the first floor or in my yard. There are still a lot of homes today who have no cellular coverage, or coverage only outside or in some parts of their home.

Like many of the applications that Verizon has in mind, the goal is for them to sell many more cellular subscriptions. Practically everybody in the country now has a cellphone and Verizon envisions IoT-monitoring subscriptions as a way to boost sales. But this is going to require a public willing to pay more for the extra connectivity. In the case of medical monitoring, a device that can connect to WiFi in the home or to a smartphone outside the home can provide the same connectivity at zero extra cost to the consumer. My guess is that Verizon will be pushing sales of medical monitoring through doctors and hospitals, because a lot of consumers would choose the cheaper alternative if they are given a choice.

The battle to connect to in-home medical devices will be an even harder sale for Verizon to win because most homes today have WiFi. Verizon pictures a future world where all of our IoT devices connect using cellular. This connectivity is made easier with 5G since the new specification calls for allowing 100,000 simultaneous connections to devices from each cell site. However, WiFi already has a huge market lead in this area and IoT devices come WiFi enabled, I foresee a huge uphill fight for Verizon to try to capture this business. I know personally that, given a choice, I’m going to buy an appliance with WiFi connectivity over a model that requires an additional cellular subscription, no matter how small the extra fee. Verizon ultimately foresees homes paying an additional $20 or $30 per month for IoT connectivity, which translates to huge profits for the company.

As a consumer I also worry about privacy using the cellular network. Today my landline ISP needs to somehow pick out my IoT signals from the rest of bits generated from my home – something I can easily hide if I wish to. But Verizon would automatically know the source of the communication from each IoT device connected to their network, allowing them to more easily spy on my IoT outputs – particularly if they are the ones translating the signals to send back to doctors, hospitals or whoever is at the other end of each IoT device. I really don’t trust Verizon enough to let them peer that easily into my personal data.

This application is no slam dunk for Verizon. There is certainly an opportunity for them to convince health care companies to use devices that require an extra 5G connectivity charge each month. But when this choice is left up to consumers I think most of them will choose to keep using WiFi once they understand all of the facts.

Technology Promises

I was talking to one of my buddies the other day and he asked what happened to the promise made fifteen years ago that we’d be able to walk up to vending machines and buy products without having to use cash or a credit card. The promise that this technology was coming was based upon a widespread technology already in use at the time in Japan. Japan has vending machines for everything and Japanese consumers had WiFi-based HandiPhones that were tied into many vending machines.

However, this technology never made it to the US, and in fact largely disappeared in Japan. Everybody there, and here converted to smartphones and the technology that used WiFi phones faded away. As with many technologies, the ability to do something like this requires a whole ecosystem of meshing parts – in this case it requires vending machines able to communicate with the customer device, apps on the consumer device able to make purchases, and a banking system ready to accept the payments. We know that smartphones can be made to do this, and in fact there has been several attempts to do so.

But the other two parts of the ecosystem are problems. First, we’ve never equipped vending machines to be able to communicate using cellular spectrum. The holdup is not the technology, but rather the fear of hacking. In today’s world we are leery about installing unmanned edge devices that are linked to the banking system for fear that such devices can become entry points for hackers. This same fear has throttled the introduction of any new financial technology and is why the US was years behind Europe in implementing the credit card readers that accept chips.

The biggest reason we don’t have cellular vending machines is that the US banking system has never gotten behind the idea of micropayments, which means accepting small cash transactions – for example, charging a nickel every time somebody reads a news article. Much of the online world is begging for a micropayment system, but the banking fee structure is unfriendly to the idea of processing small payments – even if there will be a lot of them. The security and micropayment issues have largely been responsible for the slow rollout of ApplePay and other smartphone cash payment systems.

This is a perfect example of an unfulfilled technology. One of the most common original claims for the benefits of ubiquitous cellular was a cashless society where we could wave our phone to buy things – but the entrenched old-technology banking system effectively squashed the technology, although people still want it.

I look now at the many promises being made for 5G and I already see technology promises that are not likely to be delivered. I have read hundreds of articles that are promising that 5G is going to completely transform our world. It’s supposed tp provide gigabit cellular service that will make landline connections obsolete. It will enable fleets of autonomous vehicles sitting ready to take us anywhere at a moment’s notice. It will provide the way to communicate with hordes of sensors around us that will make us safer and our world smarter.

As somebody who understands the current telecom infrastructure I can’t help but be skeptical about most of these claims. 5G technology can be made to fulfill the many promises – but the ecosystem of all of the components needed to make these things happen will create roadblocks to that future. It would take two pages just to list all of the technological hurdles that must be overcome to deliver ubiquitous gigabit cellular service. But perhaps more importantly, as somebody who understands the money side of the telecom industry, I can’t imagine who is going to pay for these promised innovations. I’ve not seen anybody promising gigabit cellular predicting that monthly cellphone rates will double to pay for the new network. In fact, the industry is instead talking about how the long-range outlook for cellular pricing is a continued drop in prices. It’s hard to imagine a motivation for the cellular companies to invest huge dollars for faster speeds for no additional revenue.

This is not to say that 5G won’t be introduced and that it won’t bring improvements to cellular service. But I believe that a decade from now that if we pull out some of the current articles written about 5G that we’ll see that most of the promised benefits were never delivered. If I’m still writing a blog I can promise this retrospective!

 

p.s – I can’t ignore that sometimes the big technology promises come to pass. Some of you remember the series of AT&T ads that talked about the future. One of my favorite AT&T ads asked the question “Have you ever watched the movie you wanted to the minute you wanted to?”. This ad was from 1993 and promised a future where content would be at our finger tips. That was an amazing prediction for a time when dial-up was still a new industry. Any engineer at that time would have been skeptical about our ability to deliver large bandwidth to everybody – something that is still a work in process. Of course, that same ad also promised video phone booths, a concept that is quaint in a world full of smartphones.

Big ISP Risk Trends

BDO Global is an international firm that specializes in accounting, tax and financial services. They monitor a number of industries and recently published their 2018 Telecommunications Risk Factor Survey – their fourth annual survey. The survey asks the largest 60 worldwide telecom companies about issues that are decreasing or increasing their market risk.

While the issues identified in the report represent issues faced by the giant telecom companies (certainly would include AT&T, Comcast and Verizon), the findings are important because issues affecting the big telecom companies eventually filter downward to affect the rest of the industry.

There are areas where the big telecom companies are seeing less risk:

  • Reduced Regulatory Risk. Companies are seeing less regulation, something that is particularly true in this country. Since big telecom companies tend towards being monopolies, less regulation generally translates into higher prices and better financial performance.
  • Expansion of Markets. Big telecom companies worldwide are expanding into new product lines. Some are doing this by big mergers, such as Charter and Time Warner Cable. Others are moving into new fields – for example, all the large US ISPs have purchased companies to help them compete with Google for advertising revenues. The big US cable companies are now entering the cellular business. The quad play has now entered our vocabulary.

However, the big companies also see growing risk in some areas including:

  • Increased Competition. US cable companies becoming cellular providers is a great example, and they are putting downward price pressure on all US cellular providers. But competition is coming from many directions – companies like Netflix, Skype, VoIP providers and many others are chipping away at services traditionally provided by telcos.
  • Fast Arrival of New Technologies. The big telcos expressed concern about how quickly new competitive threats are able to make it to market. They see upcoming threats from new technologies like 5G and new satellite broadband networks. They see the proliferation of on-line content. They are generally concerned that new technologies are making it to the market more quickly than in the past and can quickly gain significant market share.
  • Interest Rates. Telecoms are expecting higher future interest rates. This is a big concern since telecoms generally carry a lot of debt and are more susceptible to interest rates than many other industries. Big telecoms have been borrowing heavily for mergers and acquisitions and often finance capital expansion – both which create long-term debt. The big telcos are worried that higher interest will restrict their capacity to grow.
  • Access to Financing. Big telcos see a tightening of the credit markets due to a general tightening of the banking industry, but also due to their own performance. Many telcos are seeing lower margins per customer due to cord cutting, the continued drop of landlines and increased cellular competition. They foresee bankers less willing to extend the same levels of debt they’ve had available in the recent past.
  • Foreign Currency Exchange Rates. Telcos that work in multiple countries, like AT&T, are concerned with fluctuating currency exchange rates which can quickly turn international profits upside down.

Overall the big global telecom companies are doing well today. These BDO risk assessment asks them to look out a few years into the future. The overall worries of the industry as a whole are a little lower in 2018 than in 2017. However, the industry is still far from being rosily optimistic and foresees some dark clouds looking over the future horizon.

If their fears become true, this represents both increased risk and increased opportunity for smaller competitive ISPs. Certainly a tightening of lending and higher interest rates hurt smaller companies even more than the big ones. However, anything that forces the big companies to slow down or retract opens up more competitive options for small companies who compete against them.

This is an interesting look into the near future and is something that is not much publicly discussed. Once has to assume that the big telcos have their own internal economic forecasts – although I’ve never seen a lot of evidence that they look forward much past the next few quarterly Wall Street earnings announcements.

A Deeper Look at 5G

The consulting firm Bain & Company recently looked at the market potential for 5G. They concluded that there is an immediate business case to be made for 5G deployment. They go on to conclude that 5G ‘pessimists’ are wrong. I count myself as a 5G pessimist, but I admit that I look at 5G mostly from the perspective of the ability of 5G to bring better broadband to small towns and rural America. I agree with most of what Bain says, but I take the same facts and am still skeptical.

Bain says that the most immediate use for 5G deployment is in urban areas. They cite an interesting statistic I’ve never seen before that says that it will cost $15,000 – $20,000 to upgrade an existing cell site with 5G, but will cost between $65,000 and $100,000 to deploy a new 5G node. Until the cost for new 5G cell sites comes way down it’s going to be hard for anybody to justify deploying new 5G cell sites except in those places that have potential business to support the high investment cost.

Bain recommends that carriers should deploy 5G quickly in those places where it’s affordable in order to be the first to market with the new technology. Bain also recommends that cellular carriers take advantage of improved mobile performance, but also look at hard at the fixed 5G opportunities to deliver last mile broadband. They say that an operator that maximizes both opportunities should be able to see a fast payback.

A 5G network deployed on existing cell towers is going to create small circles of prospective residential broadband customers – and that circle isn’t going to be very big. Delivering significant broadband would mean small circles delivering broadband for 1000 to 1,500 feet from a transmitter. Cell towers today are much farther apart than those distances, and this means a 5G delivery map consisting of scattered small circles.

There are not many carriers willing to tackle that business plan. It means selectively marketing only to those households within range of a 5G cell site. AT&T is the only major ISP that already uses this business plan. AT&T currently offers fiber to any homes or businesses close to their numerous fiber nodes. They could use that same sales plan to sell fixed broadband to customers close to each 5G cell site. However, AT&T has said that, at least for now, they don’t see a business case for 5G similar to their fiber roll-out.

Verizon could do this, but they have been walking away from a lot of their residential broadband opportunities, going so far as to sell a lot of their fiber FiOS customers to Frontier. Vericaon says they will deploy 5G in several cities starting next year but has never talked about the number of potential households they might cover. This would require a major product roll-out for T-Mobile or Sprint, but in the document they filed with FCC to support their merger they said they would tackle this market. Both companies currently don’t have the fleet of needed technicians or the backoffice ready to support the fixed residential broadband market.

The report skims past the the question of the availability of 5G technology. Like any new technology the first few generations of field equipment are going to have problems. Most players in the industry have learned the lesson of not widely deploying any new technology until it’s well-proven in the field. Verizon says their early field trials have gone well and we’ll have to wait until next year to see how 5G they are ready to deploy with first generation technology.

Bain also says there should be no ‘surge’ in capital expenditures if companies deploy 5G wisely – but the reverse is also true, and bringing 5G small cells to places without current fiber is going to be capital intensive. I agree with Bain that, technology concerns aside, that the only place where 5G makes sense for the next few years is urban areas and mostly on existing cell sites.

I remain a pessimist of 5G being feasible in more rural areas. The cost of the electronics will need to drop to a fraction of today’s cost. There are going to always be pole issues for deploying smaller cells in rural America – even should regulators streamline the hanging of small cell sites, those 5G devices can’t be placed onto the short poles we often see in rural America. While small circles of broadband delivery might support an urban business model, the low density in rural America might never make economic sense.

I certainly could be wrong, but I don’t see any companies sinking huge amounts of money into 5G deployments until the technology has been field-proven and until the cost of the technology drops and stabilizes. I hope I am proven wrong and that somebody eventually finds a version of the technology that will benefit rural America – but I’m not going to believe it until I can kick the tires.