Cable Labs Analysis of 5G

Cable Labs and Arris just released an interesting paper that is the best independent look at the potential for 5G that I’ve seen. Titled ”Can a Fixed Wireless Last 100m Connection Really Compete with a Wired Connection and Will 5G Really Enable this Opportunity?”, the paper was written to inform cable companies about the potential for 5G as a direct competitor to cable network broadband. The paper was released at the recent SCTE-ISBE forum in Denver. The paper is heavily technical and is aimed at engineers who want to understand wireless performance.

As is typical with everything I’ve seen out of Cable Labs over the years the paper is not biased and takes a fair look at the issues. It’s basically an examination of how spectrum works in the real world. This is refreshing since the vast majority of materials available about 5G are sponsored by wireless vendors or the big wireless providers that have a vested interest in that market succeeding. I’ve found many of the claims about 5G to be over-exaggerated and optimistic in terms of the speeds that can be delivered and about when 5G will be commercially deployed.

The paper explores a number of different issues. It looks at wireless performance in a number of different frequency bands from 3.5 GHz through the millimeter save spectrum. It takes a fair look at interference issues, such as how foliage from different kinds of trees affects wireless performance. It considers line-of-sight versus near line-of-sight capabilities of radios.

The conclusions from the report are nearly the same ones I have been blogging about for a while:

  • Speeds on 5G can be significant, particularly with millimeter wave radios. The radios already in use today are capable of gigabit speeds.
  • The spectrums being used suffer significant interference issues. The spectrums will be hampered when being used in wooded areas or with the trees on many residential streets.
  • Coverage is also an issue since the effective delivery distance for much of the spectrum being used is relatively short. The means that transmitters need to be relatively close to customers.
  • Backhaul is a problem. Fast speeds require fiber connectivity to transmitters or else robust wireless backhaul – which suffers from the same coverage and interference issues as the connections to homes.

The paper also takes a look at the relative cost today of deploying 5G technology at today’s costs:

  • The CAPEX for a 3.5 GHz system used for wireless drops (800-meter coverage distance) costs $3,000 for the transmitter and $300 per home. These radios would be making home connections of perhaps 100 Mbps.
  • A millimeter wave transmitter costs about $22,500 with home receivers at about $650. This would only cover about a 200-meter distance.
  • In both cases the transmitter costs would be spread over the number of customers within the relatively short coverage area.
  • These numbers don’t include backhaul costs or the cost of somehow mounting the radios on poles in neighborhoods.
  • These numbers don’t add up to compelling case for 5G wireless as strong cable competitor, particularly considering the interference and other impediments.

The conclusion of the paper is that 5G will be most successful for now in niche applications. It is likely to be used most heavily in serving multi-tenant buildings in densely populated urban areas. It can be justified as a temporary solution for a broadband customer until a carrier can bring them fiber. And of course, we already know that point-to-multipoint wireless already has a big application in rural areas where there are no broadband alternatives – but that application is not 5G.

But for now, Cable Labs is telling its cable company owners that there doesn’t seem to be a viable business case for 5G as a solution for widespread deployment to residential homes in cities and suburbs where the cable companies operate.

5G Networks and Neighborhoods

With all of the talk about the coming 5G technology revolution I thought it might be worth taking a little time to talk about what a 5G network means for the aesthetics of neighborhoods. Just what might a street getting 5G see in new construction that is not there today?

I live in Asheville, NC and our town is hilly and has a lot of trees. Trees are a major fixture in lots of towns in America, and people plant shade trees along streets and in yards even in states where there are not many trees outside of towns.

5G is being touted as a fiber replacement, capable of delivering speeds up to a gigabit to homes and businesses. This kind of 5G (which is different than 5G cellular) is going to use the millimeter wave spectrum bands. There are a few characteristics of that spectrum that defines how a 5G network must be deployed. This spectrum has extremely short wavelengths, and that means two things. First, the signal isn’t going to travel very far before the signal dissipates and grows too weak to deliver fast data. Second, these short wavelengths don’t penetrate anything. They won’t go through leaves, walls, or even through a person walking past the transmitter – so these frequencies require a true unimpeded line-of-sight connection.

These requirements are going to be problematic on the typical residential street. Go outside your own house and see if there is a perfect line-of-sight from any one pole to your home as well as to three or four of your neighbors. The required unimpeded path means there can be no tree, shrub or other impediment between the transmitter on a pole and each home getting this service. This may not be an issue in places with few trees like Phoenix, but it sure doesn’t look very feasible on my street. On my street the only way to make this work would be by imposing a severe tree trimming regime – something that I know most people in Asheville would resist. I would never buy this service if it meant butchering my old ornamental crepe myrtle. And tree trimming must then be maintained into the future to keep new growth from blocking signal paths.

Even where this can work, this is going to mean putting up some kind of small dish on each customer location in a place that has line-of-sight to the pole transmitter. This dish can’t go just anywhere on a house in the way that satellite TV dishes can often be put in places that aren’t very noticeable. While these dishes will be small, they must go where the transmitter can always see them. That’s going to create all sorts of problems if this is not the place in the home where the existing wiring comes into the home. In my home the wiring comes into the basement in the back of the house while the best line-of-sight options are in the front – and that is going to mean some costly new wiring by an ISP, which might negate the cost advantage of the 5G.

The next consideration is back-haul – how to get the broadband signals into and out of the neighborhood. Ideally this would be done with fiber. But I can’t see somebody spending the money to string fiber in a town like Asheville, or in most residential neighborhoods just to support wireless. The high cost of stringing fiber is the primary impediment today for getting a newer network into cities.

One of the primary alternatives to stringing fiber is to feed neighborhood 5G nodes with point-to-point microwave radio shots. In a neighborhood like mine these won’t be any more practical that the 5G signal paths. The solution I see being used for this kind of back-haul is to erect tall poles of 100’ to 120’ to provide a signal path over the tops of trees. I don’t think many neighborhoods are going to want to see a network of tall poles built around them. And tall poles still suffer the same line-of-sight issues. They still have to somehow beam the signal down to the 5G transmitters – and that means a lot more tree trimming.

All of this sounds dreadful enough, but to top it off the network I’ve described would be needed for a single wireless provider. If more than one company wants to provide wireless broadband then the number of devices multiply accordingly. The whole promise of 5G is that it will allow for multiple new competitors, and that implies a town filled with multiple wireless devices on poles.

And with all of these physical deployment issues there is still the cost issue. I haven’t seen any numbers for the cost of the needed neighborhood transmitters that makes a compelling business case for 5G.

I’m the first one to say that I’ll never declare that something can’t work because over time engineers might find solutions for some of these issues. But where the technology sits today this technology is not going to work on the typical residential street that is full of shade trees and relatively short poles. And that means that much of the talk about gigabit 5G is hype – nobody is going to be building a 5G network in my neighborhood, for the same sorts of reasons they aren’t building fiber here.

Is 5G Really a Fiber Replacement?

I recently saw a short interview in FierceWireless with Balan Nair, CTO of Liberty Global. In case you haven’t heard of the company, they are the biggest cable company in the world with over 28 million customers.

One of the things he discussed was the practical widespread implementation of 5G gigabit technology. He voiced the same thing I have been thinking for the last year about the economics of deploying 5G. He was quoted as saying, “5G will be a ‘game-changer’ in its superior ability to transfer data, but the technology will not replace fixed-network broadband services anytime soon. The economics just aren’t there. You’re talking about buying hundreds of towers and all of that spectrum. And on the residential end, putting a device outside the window and wiring it back into the home. It’s a question of business model and if you plan on making any money. The economics benefit fixed.”

The big telcos are making a big deal out of 5G, mostly I think to appear cutting-edge to their investors. And I have no doubt that in certain places like dense urban downtowns that 5G might be the best way to speed up gigabit broadband deployment. But I look at what’s involved in deploying the technology anywhere else and I have a hard time seeing the economic case for using 5G to bring fast broadband to the masses.

5G will definitely make an impact in urban downtowns. You might assume that cities already have a great fiber infrastructure, but this often isn’t the case. Look at Verizon’s FiOS deployment strategy in the past – they deployed fiber where the construction was the most cost effective, and that meant suburban areas where they had existing pole lines or conduit. Verizon largely avoided much of the downtowns of eastern cities because the cost per mile of fiber construction was too expensive.

Now, 5G can be deployed from the top of high-rises to reach the many downtown buildings that never got fiber. New York City recently sued Verizon since the company reneged on its promise to build fiber everywhere and there are still 1 million living units in the city that never got fiber broadband. Verizon, or somebody else is going to be able to use 5G in the densely populated cities to bring faster broadband, and as Nair said, this might be a game changer.

But as soon as you get out of downtowns and high-rises the math no longer favors 5G. There are three components of a 5G network that are not going to be cheap in suburbia. First, 5G needs fiber. You might be able to use a little wireless backhaul in a 5G network, but a significant portion of the network must be fiber fed. And in most of the country that fiber is not in place. Deloitte recently estimated that the cost for just the fiber to bring 5G everywhere is $130 billion. There is nobody rushing to make that investment.

5G then needs somewhere to place the transmitters. This is more easily achieved in a downtown where there are many tall rooftops and existing towers. But the short delivery distances for millimeter wave frequencies mean that transmitters need to be relatively close the end-user. And in suburban areas that’s going to mean somehow building a lot of new towers or else placing smaller transmitters on existing poles. We know suburbia hates tall towers and it’s always a struggle to build new ones. And the issues associated with getting access to suburban poles are well documented. An ISP needs to affordably get onto poles and also get fiber to those poles – two expensive and time-consuming challenges.

And then there is the economics of the electronics. Because millimeter wave spectrum is easily disrupted by foliage or any impediments it means that there won’t be too many homes served from any one pole-mounted transmitter. But the 5G revenue stream still has to cover both ends of the radios as well as wiring into the home.

I build a lot of landline business plans and I can’t see this making any economic sense for widespread deployment. In many cases this 5G network might be more expensive and slower to deploy than an all-fiber network.

I instead envision companies using 5G technology to cherry pick. There will be plenty of places where there is existing fiber and poles that can be used to serve suburban apartment complexes or business districts. I can see strategic deployment in those areas and the technology used in the same way that Verizon deployed fiber – 5G will deployed only where it makes sense. But like with FiOS, there are going to be huge areas where there will be no 5G deployment, even in relatively dense suburbia. And the business case for rural America is even bleaker. 5G will find a market niche and will be one more technology tool for bringing faster broadband – where it makes economic sense.

The Louisville Pole Attachment Lawsuit

There has been a major legislative push lately to make it easier for wireless companies to get onto poles in order to deploy the small cell sites needed for 5G deployment. AT&T and Verizon have been leading the fight for easier access and there have been attempts at both the federal and state level to enact ‘one-touch’ rules. Proposed legislation not only sets a low price for compensating pole owners, but proposed legislation also removes the ability for pole owners or municipalities to slow down wireless deployments.

There is a lot of debate in the industry about the one-touch issue. As I have discussed in various blogs, issues with getting onto poles is still one of the major roadblocks to many fiber deployments. And from the examples cited by the cellular carriers they are seeing huge delays in deploying urban small cell sites.

Like any debate there are legitimate issues to be considered on both sides of the issues. Proponents of one-touch cite the extraordinary costs of wading through the paperwork-heavy pole attachment process as well as the dollar and cents costs of delaying construction projects.

But on the other side are pole owners and current networks hung on wires. Carriers are legitimately worried about safety issues for their technicians if large boxes the size of refrigerators are hung on poles without constraint. They legitimately worry about how such devices could cause problems during repairs from storm damage. And carriers are also worried about network outages if a new attacher is allowed and able to move their wires without their knowledge or permission.

A court decision a few weeks ago might be a first step into putting some clarity to the issue. In that suit AT&T had sued the City of Louisville in order to stop them from passing a one-touch make-ready ordinance. The ordinance was aimed at making it easier for Google Fiber and other competitive providers to get onto poles in the City. The City of Louisville owns most of the poles in the city and the City has been working with Google Fiber to deploy a fiber network to everybody in the City.

You have to let the irony of AT&T’s lawsuit sink in for a minute. This is a company that is spending millions right now lobbying for one-touch rules. AT&T not only wants to deploy small cell sites, but they are also in the process of building a huge amount of fiber to support those sites. And yet AT&T felt compelled to fight against the very kind of ordinance they are promoting because it would help one of their competitors.

It turns out that not all one-touch ordinances are the same. The ordinances that AT&T and Verizon are pushing are crafted very carefully to help them while still not making it quite so easy for their competitors. The Louisville ordinance made it easier for any new attacher to get onto poles, including AT&T.

The US District Court Judge of Kentucky completely rejected all of AT&T’s claims and tossed the lawsuit. The court basically said that all of AT&T’s claims in the suit were false. It’s ironic that many of the issues raised by the City in defense of the suit sound the same as the claims that AT&T makes elsewhere when lobbying for one-touch legislation.

I’ve always said that being in the regulatory department at AT&T has to be the hardest job in our industry. It’s a company that wears too many hats. AT&T owns a huge monopoly landline network and wants to protect itself from competitors. In some markets AT&T is a major pole owner. AT&T is also a huge wireless company that now wants access to poles. And AT&T is a huge builder of fiber, much of it now outside of its monopoly telco territory.

Any regulatory position the company takes to benefit one of these business lines is likely to not be in the best interest of other parts of the company. When looking at the big picture one has to think that AT&T will get far more benefit than harm from one-touch rules. Such rules will make it a lot easier to build more fiber and to deploy cell sites. And yet, a company with this many tentacles in the industry could not restrain itself from filing a lawsuit that probably was not in its own best long-term interest. The monopoly side of the company felt it could not sit back and let a competitor like Google Fiber build without the company taking steps to slow them down.

A 5G Timeline

Network World recently published their best guess at a timeline for 5G cellular deployment. As happens with all new technologies that make a big public splash, the actual deployment is likely to take a lot longer than what the public expects.

They show the timeline as follows:

  • 2017 – Definition, specification, requirements, technology development and technology field tests
  • 2019/20 – Formal specifications
  • 2021 – Initial production service rollouts
  • 2025 – Critical mass
  • 2030+ – Phase-out of 4G infrastructure begins

There is nothing surprising about this timeline, and in the cellular world we saw something similar with the roll-out of both 3G and 4G and there is no reason to think that 5G will be introduced any faster. There are an incredible number of things that must come to bear before 5G can be widely available.

Just to be clear, this timeline is talking about the use of the 5G standard for cellular service, as opposed to the same 5G terminology that is being used to describe high-speed radio connections used to deliver broadband over short distances. The use of the term 5G is going to be confusing the public for years, until some point where we will need a different name for the two different technologies.

Like with any new technology, it will probably be fifteen years until there is equipment that incorporates the full 5G specification. We are just now finally seeing a full implementation of fully-compliant 4G electronics. This means that early 5G roll-outs will only implement a few of the new features of 5G. Just like with 4G we can then expect successive future 5G roll-outs as new features are introduced and the technology inches forward. We won’t go straight to 5G, but will work our way through 4.1G and 4.2G until we finally get to the full 5G specification.

Here are just a few of the things that have to happen before 5G cellular is widely deployed.

  • Standards have to be completed. Some of the first generation standards will be completed by the end of this year, but that’s not the end of the standards process. There will be continued standards developed over the next few years that look at the practical issues of deploying the technology.
  • Then equipment must be developed that meets the new standards. While many wireless companies are already working on this, it takes a while to go from lab prototype to mass production.
  • True field trials are then needed. In the wireless world we have always seen that there is a big difference between the capabilities that can be tested in a lab versus the real performance that can be had in differing outdoor environments. Real field trials can’t proceed until there are finished deployments that are not prototypes that are then tested in many different environments.
  • Then the cellular companies have to start deploying the equipment into the field. That means not only upgrading the many existing cell towers, but it’s going to mean deploying into smaller neighborhood cell sites. As I’ve written about recently, this means building a lot of new fiber and it means solving the problems of deploying small cell sites in neighborhoods. If we’ve learned anything from the recent attempt by the cell companies to deploy small 4G cell sites it’s that these two issues are going to be a major impediment to 5G deployment. Just paying for all of the needed fiber is a huge hurdle.
  • One of the biggest challenges with a new cellular technology is introducing it into handsets. Handset makers will like the cachet of selling 5G, but the biggest issue with cellphones is battery power and it’s going to be costly and inefficient to deploy the more complicated 5G big-MIMO antennae in handsets. That’s going to make the first generation of 5G handsets expensive. This is always the catch-22 of a new cellular technology – cellphone makers don’t want to commit to making big volumes of more-expensive phones until customer can actually use the new technology, and the cellphone makers won’t deploy too much of the 5G technology until there are enough handsets in the world to use it. I’ve seen some speculation that this impasse could put a real hitch in 5G cellular deployment.

To a large degree the cellular industry it its own worst enemy. They have talked about 5G as the savior of all of our bandwidth problems, when we know that’s not true. Let’s not forget that when 4G was introduced fifteen years ago that the industry touted ubiquitous 100 Mbps cellphone connections – something that is still far above our capabilities today. One thing not shown on the timeline is the time when we finally get actual 5G capabilities on our cellphones. It’s likely to be 15 years from now, at about the time when we have shifted our attention to 6G.

Local, State or Federal Regulation?

Last week the FCC clarified its intentions for the Broadband Deployment Advisory Committee (BDAC). This group was tasked with exploring a wide range of topics with the goal of finding ways to lower barriers for broadband deployment.

The BDAC was divided into subgroups with each examining issues such as speeding up access to poles and conduits, or how to streamline the morass of local regulations of such things as rights-of-ways that can slow down fiber deployment.

There has been a huge amount of buzz in the industry since the expectation has been that the FCC would act to impose federal rules that ‘fix’ some of the most important impediments to competition. That expectation was bolstered on several occasions by speeches made by new FCC Chairman Ajit Pai that hinted that the FCC was willing to take steps to lower barriers to broadband deployment.

But FCC Senior Counsel Nicholas Degani just clarified that the FCC’s intentions are not to create new regulations, but rather to create ‘model codes’ that they hope that cities and states around the country will use to make it easier to deploy broadband.

We’ll have to wait a while to see if the FCC really can refrain from issuing new regulations. Chairman Pai has said many times that he is in favor of ‘light touch’ regulation and the agency is in the process of relaxing or undoing many of the regulations from the past. But one thing that I have repeatedly seen from regulators over the years is that they love to regulate. It will take major restraint for the FCC to not try to ‘fix’ the many problems that the BDAC is highlighting. This will be the ultimate test to see if they really are anti-regulation.

Frankly, some of the issues that the BDAC has been exploring cry out for some sort of regulatory relief. For example, in some parts of the country it takes so long and is so expensive to get onto poles that it’s nearly impossible to implement a business plan that needs pole access. And it is extremely frustrating for a national company that deploys fiber everywhere to work with local rules that vary widely from city to city.

Part of what is pushing this effort is the fact that everybody expects a massive investment in new fiber over the next decade as fiber is built to bring bandwidth to homes and as we deploy 5G networks. Everybody recognizes that there are impediments that add delay costs to those deployments.

At the same time that the FCC has been looking at the issues there are numerous state attempts to create state regulatory rules to fix some of these problems. A number of states have already created regulations that are aimed at making it easier to do things like get access to poles. But state efforts vary widely in the motivation for new regulations. There are some states that are looking hard at imposing statewide rules that balance the needs of competitors, network owners and municipalities.

But there are other attempts prompted by the big cellular companies and ISPs to run roughshod over the rights of pole owners and municipalities. These efforts are being driven, in part, by model legislation developed by ALEC and funded by the big companies. Many of these rules are attempting to set low nationwide rates for pole attachments and also to force streamlined timelines that ignore local conditions.

Finally, there are efforts being made by many cities to make it easier to deploy broadband. Most cities understand that they need fiber everywhere to remain competitive with other cities. Yet these efforts are often ineffective because cities, by definition, have a lot of stakeholders to satisfy. When a City looks at changing local rules they end up have to give a lot of weight to issues such as the environment, aesthetics, historic preservation, safety, unions and others that make it impossible to create rules that favor fiber deployment over these other concerns.

Fixing these issues is a problem that may never find the right solution. We live in a country where cities across the board have been granted varying degrees of controlling things like rights-of-way that affect network deployments. Fiber deployment is not the first issue that has come along that has pitted federal, state and local regulators against each other when trying to solve the same problems. It’s not unlikely that if either the FCC or the states try to strongarm cities that we will see a pile of lawsuits challenging any egregious decisions. And that just leads to delays since disputed laws don’t go into effect. I hope we can find solutions that don’t lead to those lawsuits, because the worst kind of regulation is one that is in limbo in some court for years. Nobody is likely to make any significant new investment in that environment.

The Cost of Building 5G

It seems like I can barely browse industry articles these days without seeing another prediction of the cost of providing fast broadband everywhere in the US. The latest study, just released on July 12 from Deloitte, estimates that it will require at least $130 billion over the next seven years in fiber investment to make the country fully ready for 5G.

Before digesting that number it’s important first to understand what they are talking about. Their study looks at deploying a ‘deep fiber’ network that would bring fiber close to homes and businesses in the country and then use wireless technology to complete the connection to homes. This is not a new concept and for decades we have referred to this as fiber-to-the-curb. This network design never went very far in the past because there wasn’t a good wireless technology around to make that final connection. This differs from an all-fiber connection by replacing a fiber drop wire to the home with wireless electronics. The only way such a network makes sense is if that difference is a significant savings over an all-fiber connection at the home.

We are now on the verge of having the needed wireless technology. There are now some first-generation wireless connections being tested that could finally make this a viable network deployment. And like with everything new, within a decade the wireless electronics needed will improve in function and cost a lot less.

To put the Deloitte estimate into perspective Verizon claimed to have spent $13 billion on their original FiOS fiber network. Because they were able to overlash fiber onto their own telephone wires the FiOS network cost was built at a relatively low cost of $750 per customer passed. But the Verizon FiOS network never blanketed any city and instead they selectively cherry-picked neighborhoods where the construction costs were the lowest. Verizon had originally told Wall Street they were going to spend $24 billion on fiber, but they abandoned a lot of the planned construction when the costs came in higher than they had expected.

But back to the Deloitte number of $130 billion. That is the cost of just the fiber needed to get deep into every neighborhood in the country. It doesn’t include the electronics needed to broadcast the wireless signal or the electronics needed inside homes and businesses to receive the signal. Nobody yet has any estimate of what that is going to cost, but it won’t be cheap, at least not for a few years. The cost of getting onto utility poles, street lighting poles or of constructing urban towers is not going to be cheap. And the cost of the electronics won’t be cheap until it’s gone through a few generations of refinement. Using Deloitte’s same methodology of estimating and assuming a very conservatively low cost of $500 for electronics per customer, this would add another $30 billion if only half the customers in the country use the new 5G network.

The big question that must be asked when tossing out a number like $130 billion is if there is anybody who is interested in deploying wireless loops in this manner? Such a network would be used to directly compete against the big cable companies. What Deloitte is talking about is not faster cellular service, but fast connections into homes and businesses. Are there any companies willing to spend that much money to go head-to-head with cable networks that will soon be able to deliver gigabit speeds?

The obvious candidates are Verizon and AT&T. Verizon has been talking a lot lately about this potential business plan, and so perhaps they might pursue it. AT&T, while bragging about the amount of money they are spending on fiber, has not shown a huge inclination to dive back into the residential broadband market. And there are not a lot of companies with capital budgets big enough to consider this.

Consider the capital budgets of the five largest telcos. AT&T is on track to spend $22B in 2017, but a lot of that is being spent in Mexico. Verizon’s 2017 capex budget is around $17B. CenturyLink spends something a little less than $3B. Frontier spends around $1B and Windstream spends about $0.8B.

It’s clear that unless AT&T and Verizon are willing to redirect the majority of their capital spending to this new technology that it’s not going to go anywhere. I think it’s clear that both AT&T and Verizon are going to be looking hard at the technologies and doing trials. But even should those trials be successful I can’t see them pouring the needed billions in to build ‘deep fiber’ everywhere. It’s far more likely that the technology will be deployed in the same way that Verizon deployed FiOS – built only where the cost is the lowest and ignoring everybody else.

Both of these companies understand that it’s not going to be easy to wrestle customers back from the big cable companies. Just building these fiber networks is a daunting financial investment – one that Wall Street would likely punish them for undertaking. But even building the needed networks is not going to be any assurance of market success unless they can convince customers they are a better bargain. I just don’t see these companies going hog wild in making the needed investments to deploy this widely, but instead see this as the newest technology for cherry-picking the best opportunities.

The Future of AT&T and Verizon

The cellphone companies have done such a great job of getting everybody to purchase a smartphone that cellular service in the country is quickly turning into a commodity. And, as is typical with most commodity products, that means less brand loyalty from customers and lower market prices for the products.

We’ve recently seen the cellular market demonstrate the turn toward becoming a commodity. In the first quarter of this year the cellular companies had their worse performance since back when they began. Both AT&T and Verizon posted losses for post-paid customers for the quarter. T-Mobile added fewer customers than expected and Sprint continued to lose money.

This is a huge turnaround for an industry where the big two cellular companies were each making over $1 billion per month in profits. The change in the industry comes from two things. First, people are now shopping for lower prices and are ready to change carriers to get lower monthly bills. The trend for lower prices was started by T-Mobile to gain market share, but low prices are also being pushed by cellular resellers – being fed by the big carriers. The cellular industry is only going to get more competitive when the cable companies soon enter the market. That will provide enough big players to make cellular minutes a true commodity. The cable companies have said they will be offering low prices as part of packages aimed at making customers stickier and will put real price pressure on the other cellular providers.

But the downturn in the first quarter was almost entirely due to the rush by all of the carriers to sell ‘unlimited’ data plans – which, as I’ve noted in some earlier blogs, are really not unlimited. But these plans offer lower prices for data and are freeing consumers to be able to use their smartphones without the fear of big overage fees. Again, this move was started by T-Mobile, but it was also driven heavily by public demand. AT&T and Verizon recognized that if they didn’t offer this product set that they were going to start bleeding customers to T-Mobile.

It will be really interesting to watch what happens to AT&T and Verizon, who are now predominantly cellular companies that also happen to own networks. The vast majority of revenues for these companies comes from the cellular parts of their companies. When I looked at both of their annual reports last year I had a hard time finding evidence that these companies were even in the landline network business. Discussions of those business lines are buried deeply within the annual reports.

These companies obviously need to find new forms of revenues to stay strong. AT&T is tackling this for now by going in a big way after the Mexican market. But one only has to look down the road a few years to see that Mexico and any other cellular market will also trend towards commoditization.

Both companies have their eyes on the same potential growth plays:

  • Both are making the moves necessary to tackle the advertising business. They look at the huge revenues being made by Facebook and Google and realize that as ISPs they are sitting on customer data that could make them major players in the targeted marketing space. Ad revenues are the predominant revenue source at Google and if these companies can grab even a small slice of that business they will make a lot of money.
  • Both are also chasing content. AT&T’s bid for the purchase of Time Warner is still waiting for government approval. Verizon has made big moves with the purchases of AOL and Yahoo and is rumored to be looking at other opportunities.
  • Both companies have been telling stockholders that there are huge amounts of money to be made from the IoT. These companies want their cellular networks to be the default networks for collecting data from IoT devices. They certainly ought to win the business for things like smart cars, but there will be a real battle between cellular and WiFi/landline connections for most other IoT usage.
  • Both companies are making a lot of noise about 5G. They are mostly concentrating on high-speed wireless connections using millimeter wave spectrum that they hope will make them competitive with the cable companies in urban areas. But even that runs a risk because if we see true competition in urban areas then prices for urban broadband might also tumble. And that might start the process of making broadband into a commodity. On the cellular side it’s hard to think that 5G cellular won’t quickly become a commodity as well. Whoever introduces faster cellphone data speeds might get a bump upward for a few years, but the rest of the industry will certainly catch up to any technological innovations.

It’s hard to foresee any business line where AT&T and Verizon are going to get the same monopoly power that they held in the cellular space for the past few decades. Everything they might undertake is also going to be available to competitors, meaning they are unlikely to make the same kind of huge margins they have historically made with cellular. No doubt they are both going to be huge companies for many decades to come since they own the cellular networks and spectrum. But I don’t think we can expect them to be the cash cows they have been in the past.

5G Needs Fiber

I am finally starting to see an acknowledgement by the cellular industry that 5G implementation is going to require fiber – a lot of fiber. For the last year or so the industry press – prompted by misleading press releases from the wireless companies – made it sound like wireless was our future and that there would soon not be any need for building more wires.

As always, when there is talk about 5G there is a need to make sure which 5G we are talking about, because there are two distinct 5G technologies on the horizon. One is high-speed wireless loops send directly to homes and businesses as a replacement for a wired broadband connection. The other is 5G cellular providing bandwidth to our cellphones.

It’s interesting to see the term 5G being used for a wireless microwave connection to a home or business. For the past twenty years this same technology has been referred to as wireless local loop, but in the broadband world the term 5G has marketing cachet. Interestingly, a lot of these high-speed data connections won’t even be using the 5G standards and could just as easily be transmitting the signals using Ethernet or some other transmission protocol. But the marketing folks have declared that everything that uses the millimeter wave spectrum will be deemed 5G, and so it shall be.

These fixed broadband connections are going to require a lot of fiber close-by to customers. The current millimeter radios are capable of deliver speeds up to a gigabit on a point-to-point microwave basis. And this means that every 5G millimeter wave transmitter needs to be fiber fed if there is any desire to offer gigabit-like speeds at the customer end. You can’t use a 1-gigabit wireless backhaul to feed multiple gigabit transmitters, and thus fiber is the only way to get the desired speeds to the end locations.

The amount of fiber needed for this application is going to depend upon the specific way the network is being deployed. Right now the predominant early use for this technology is to use the millimeter wave radios to serve an entire apartment building. That means putting one receiver on the apartment roof and somehow distributing the signal through the building. This kind of configuration requires fiber only to those tall towers or rooftops used to beam a signal to nearby apartment buildings. Most urban areas already have the fiber to tall structures to support this kind of network.

But for the millimeter technology to bring gigabit speeds everywhere it is going to mean bringing fiber much closer to the customer. For example, the original Starry business plan in Boston had customers receiving the wireless signal through a window, and that means having numerous transmitters around a neighborhood so that a given apartment or business can see one of them. This kind of network configuration will require more fiber than the rooftop-only network.

But Google, AT&T and Verizon are all talking about using millimeter wave radios to bring broadband directly into homes. That kind of network is going to require even more fiber since a transmitter is going to need a clear shot near to street-level to see a given home. I look around my own downtown neighborhood and can see that one or two transmitters would only reach a fraction of homes and that it would take a pole-mounted transmitter in front of homes to do what these companies are promising. And those transmitters on poles are going to need to be fiber-fed if they want to deliver gigabit broadband.

Verizon seems to understand this and they have recently talked about needing a ‘fiber-rich’ environment to deploy 5G. The company has committed to building a lot of fiber to support this coming business plan.

But, as always, there is a flip side to this. These companies are only going to deploy these fast wireless loops in neighborhoods that already have fiber or in places where it makes economic sense to build it. And this is going to mean cherry-picking – the same as the big ISPs do today. They are not going to build the fiber in neighborhoods where they don’t foresee enough demand for the wireless broadband. They won’t build in neighborhoods where the fiber construction costs are too high. One only has to look at the hodgepodge Verizon FiOS fiber network to see what this is going to look like. There will be homes and businesses offered the new fast wireless loops while a block or two away there will be no use of the technology. Verizon has already created fiber haves and have-nots due to the way they built FiOS and 5G wireless loops are going to follow the same pattern.

I think the big ISPs have convinced politicians that they will be solving all future broadband problems with 5G, just as they made similar promises in the past with other broadband technologies. But let’s face it – money talks and these ISPs are only going to deploy 5G / fiber networks where they can make their desired returns.

And that means no 5G in poorer neighborhoods. It might mean little or limited 5G in neighborhoods with terrain or other similar issues. And it certainly means no 5G in rural America because the cost to build a 5G network is basically the same as building a landline fiber network – it’s not going to happen, at least not by the big ISPs.

The Proliferation of Small Wireless Devices

Cities nationwide are suddenly seeing requests to place small wireless devices in public rights-of-way. Most of the requests today are for placing mini-cell sites, but in the near future there are going to be a plethora of other outdoor wireless devices to support 5G broadband and wireless loops.

Many cities are struggling with how to handle these requests. I think that once they understand the potential magnitude of future requests it’s going to become even more of an issue. Following are some of the many issues involved with outdoor wireless electronics placement:

Franchising. One of the tools cities have always used to control and monitor placement of things in rights-of-way is through the use of franchise agreements that specifically spell out how any given company can use the right-of-way. But FCC rules have prohibited franchises for cellular carriers for decades – rules that were first put into place to promote the expansion of cellular networks. Those rules made some sense when cities only had to deal with large cellular towers that are largely located outside of rights-of-way, but make a lot less sense for devices that can be placed anywhere in a city.

Aesthetics. These new wireless devices are not going to be placed in the traditional locations like large cellular towers, water towers and rooftops of buildings. Instead the wireless providers will want to place them on existing telephone poles and light poles. Further, I’ve heard of requests for the placement of new, taller poles as tall as 100 feet that would be used just for the wireless network.

The devices that will be used are going to vary widely in size and requirements, making it difficult to come up with any one-size-fits-all new rules. The devices might vary in sizes ranging from a laptop computer up to a small dorm refrigerator. And some of the devices will be accompanied by support struts and other devices that together make for a fairly large new structure. The vast majority of these devices will need an external power feed (some might be solar powered) and many are also going to need a fiber feed.

It’s also expected that 5G devices are going to want relatively clear line-of-sight and this means a lot more tree-trimming, including trimming at greater heights than in the past. I can picture this creating big issues in residential neighborhoods.

Proliferation. I doubt that any city is prepared for the possible proliferation of wireless devices. Not only are there four major cellular companies, but these devices are going to be deployed by the cable companies that are now entering the cellular market along with a host of ISPs that want to deliver wireless broadband. There will also be significant demand for placement for connecting private networks as well as for the uses by the cities themselves. I remember towns fifty years ago that had unsightly masses of telephone wires. Over the next decade or two it’s likely that we will see wireless devices everywhere.

Safety. One of the concerns for any city and the existing utilities that use poles and rights-of-way is the safety of technicians that work on poles. Adding devices to poles always makes it more complicated to work on a pole. But adding live electric feeds to devices (something that is fairly rare on poles) and new fiber wires and the complexity increases again – particularly for technicians trying to make repairs in storm conditions.

Possible Preemption of City Rights. Even after considering all these issues, it’s possible that the choice might soon be moot for cities. At the federal level both the FCC and Congress are contemplating rules that make it easier for cellular companies to deploy these devices. There are also numerous bills currently in state legislatures that are looking at the same issues. In both cases most of the rules being contemplated would override local control and would institute the same rules everywhere. And as you might imagine, almost all of these laws are being pushed by the big cellular companies and largely favor them over cities.

It’s easy to understand why the cellular companies want universal rules. It would be costly for them to negotiate this city by city. But local control of rights-of-way has been an effective tool for cities to use to control haphazard proliferation of devices in their rights-of-way. This is gearing up to be a big battle – and one that will probably come to a head fairly soon.