Verizon's 5G Broadband Service Is Both Promising and Filled with Fine Print

Over the last year or so, a heated debate has emerged over the threat posed by 5G and other wireless technologies to cable and telco broadband incumbents.

Proponents of the technologies insist that they'll radically disrupt a U.S. broadband market in which many consumers have only one or two ISPs to choose from. Cable providers and other critics question the cost-effectiveness of the technologies, as well as the feasibility of deploying them in many common environments.

Which side is right? I'd argue that while there are good reasons to be skeptical that wireless technologies will rack up a ton of last-mile broadband subscriptions over the next couple of years, it would be a mistake for cable and telco investors to dismiss the long-term threat they pose, given both technical advances and the current state of U.S. broadband competition and pricing.

Verizon's (VZ)  Monday launch of 5G home broadband services in four markets -- Los Angeles, Houston, Indianapolis and Sacramento -- drives home both wireless broadband's potential and its current limitations. Overnight, Big Red has begun offering broadband services to thousands of homes and apartments that it previously wasn't able to reach. It's also promising "typical speeds" of 300 Mbps, and peak speeds of close to 1 Gbps, with no data caps or annual contract.

Pricing, while not dirt-cheap, is fairly reasonable: Verizon Wireless subs signed up for a smartphone data plan costing $30 per month or more will pay $50 per month, while those with no such plan are charged $70 per month. The first three months are free, and Verizon also covers the tab for installation, a router, three months of the YouTube TV service and either an Apple TV 4K or Google Chromecast Ultra set-top.

However, there's a lot of fine print. Verizon's services are only available in "limited areas" within its first four markets. And even within those areas, Verizon (as gleefully noted by T-Mobile US (TMUS) CEO John Legere) says that availability within an apartment building can depend on which floor a prospective user resides on.

In addition, since the spec for 5G NR, the first standard for "standalone" 5G networks that don't have to lean on 4G networks, was only completed in June, the equipment for Verizon's initial service launch relies on a proprietary standard known as 5G TF. Verizon promises it will expand the availability of its broadband service once 5G NR-compliant hardware is available next year. New CEO Hans Vestberg, who was once CEO of mobile infrastructure giant Ericsson (ERIC) , has stressed that 5G investments (both fixed and mobile) are a priority for Verizon going forward.

While Legere is eager to mock Verizon for the shortcomings of its 5G launch, his company has major 5G broadband ambitions of its own...at least if its planned merger with Sprint (S) is approved by regulators.

In a recent FCC filing, T-Mobile COO Mike Sievert asserted a post-merger T-Mobile will (with the help of Sprint's high-frequency spectrum assets) be able to offer home broadband services to over 52% of U.S. zip codes. "New T-Mobile will cover 64 percent of Charter's territory and 68 percent of Comcast's territory with its in-home broadband services by 2024," he predicted.

Sievert added that T-Mobile estimates 20% to 25% of of its home broadband subscribers will be in under-served rural areas. Average download speeds of 100 Mbps are promised by 2021, and T-Mobile promises to "cover more than 250 million people with data rates greater than 300 Mbps and more than 200 million people at greater than 500 Mbps" by 2024.

AT&T (T) , which for now has its hands full digesting Time Warner, has taken a more cautious view of 5G's large-scale viability for fixed broadband services. However, the company did announce earlier this month that it plans to start rolling out "5G-ready" fixed broadband services in late 2019 using shared CBRS spectrum in the 3.5GHz band.

Some other big names also have an interest in last-mile wireless broadband. In May, Facebook (FB) and Qualcomm (QCOM) announced an effort to develop systems that would use Facebook's Terragraph technology to deliver broadband in high-density urban areas via the 60GHz band. And Alphabet (GOOGL) , whose Google Fiber unit has halted its last-mile fiber deployments, has signaled an interest in using wireless technologies to offer broadband on a larger scale.

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As skeptics are quick to note, there are meaningful technical challenges that could limit how much wireless broadband proliferates in the U.S.. The broadband plans of Verizon, Facebook and others rely heavily on millimeter-wave (mmWave) spectrum whose signal range is typically in the hundreds of meters. As a result, delivering broadband in a metro area via mmWave spectrum could require deploying a sizable number of mmWave base stations -- many of which could need fiber connections for data backhaul.

At the same time, it would be a mistake to overlook the extent to which technical advances are helping make fixed wireless viable to a degree that it wasn't before.

The ability to use mmWave spectrum to deliver fixed and mobile broadband in select environments is made possible by advances that collectively serve to increase range, lower interference and eliminate the need for line-of-sight. And processing power advances are enabling the creation of more modular base stations that can support high-speed transmissions from large numbers of users. Moreover, as has been the case for 4G, 5G uplink and downlink speeds should improve for both base stations and end-user devices as standards evolve.

And as far as the U.S. is concerned, the subpar state of domestic broadband competition can't be ignored. A 2017 study by U.K. website Cable ranked the U.S. 114th out of 196 countries in terms of broadband affordability, based on an estimated average subscription price of $66.17 per month. A separate study focusing only on those countries where speeds above 60 Mbps are available ranked the U.S. as the fifth-most expensive country for obtaining such speeds, behind only three Middle Eastern countries and South Africa and way above most large European markets.

Meanwhile, a 2017 report by researchers evaluating FCC data found that 46.1 million U.S. households live in places featuring just one broadband provider delivering download speeds above 25 Mbps, and that another 10.6 million households have no broadband providers delivering such speeds.

Should 5G and other wireless technologies make it feasible to cost-effectively deliver fixed broadband services to a large portion of such a broadband market in a few years' time, as the likes of Verizon and T-Mobile are wagering, the incumbents are unlikely to be left unscathed.

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