It’s 2020. 5G wireless is being rolled out, with speeds exceeding 10 Gbps, latency below 1 millisecond, and the ability to accommodate vastly more traffic and connections. Will the average household, which doles out some $400 monthly for mobile, pay TV, and broadband today, be able to go wireless only?
The thought is enticing. This could be Cut the Cord 3.0. Version 1.0 cut the landline phone in favor of wireless only, which nearly 50% of households have already done. Version 2.0 has been about cutting the cable (pay TV) cord and going internet only for TV content. It’s happening slowly but steadily. With the 4G LTE and ultimately 5G roadmap promising speeds and latency as good as or exceeding today’s fixed broadband, might customers ultimately look to cut the wire that delivers fixed broadband?
This possibility might get a serious test drive in 2017. Verizon Wireless, which has developed some of its own “pre-5G” specifications, plans to test fixed wireless access in as many as ten cities this year. This would involve getting fiber or other ‘broadband’ infrastructure to within a couple of hundred meters of a household and then use wireless for the proverbial “last mile”. This approach has a lot of appeal to a company like Verizon. First, it allows them to bring broadband service to households without building fiber to every dwelling, the cost of which has slowed the rollout of FTTH services from FiOS to Google Fiber. Second, it allows Verizon to potentially offer a competitive broadband service outside its ‘landline’ footprint. This is compelling because, while the mobile market is very competitive with four national providers, broadband is a near monopoly in many U.S. markets and average speeds are decidedly middle of the pack when compared to other developed economies.
In addition to Verizon, a company called Starry, founded by the folks who did Aereo, has raised $60 million to build out a competitive broadband service using wireless. They’re currently testing in Boston using 28 GHz spectrum, which is one of four bands the FCC has allocated for 5G services. As another example, Redzone Wireless, a Wireless Internet Service Provider (WISP), is offering a “5GX” service to some areas in Maine, using a combination of LTE Advanced capabilities and unlicensed (Wi-Fi) spectrum, promising households average download speeds of 50 Mbps, for $80 per month.
This certainly bears watching. What are the barriers to Cutting the Cord 3.0? The most significant relates to the intertwined challenges of wireless capacity and economics. A typical wireless user consumes about 4 GB per month at an average retail price of roughly $10 per GB, all things considered. Let’s call that 10 GB for a 2.5 person ‘household’. Now, a typical Netflix-watching broadband household consumes some 250 GB per month. That’s a big delta between fixed and mobile consumption.
Mobile operators are acquiring more spectrum and investing in 5G in order to accommodate ~8-10x more traffic, circa 2020. But we should also consider there will be growth in fixed broadband usage too, with 4K, virtual reality, and so on coming down the pike. It’s not inconceivable that a broadband household could approach 1 terabyte (TB) of average monthly use within the next 3-5 years. That would be a tough number for wireless to digest, even with the technology being developed for 5G. Plus, that’s an awful lot of capacity the mobile operators would have to somehow build (or lease) within a few hundred meters of a home or building.
Wireless economics is a related challenge. It costs a wireless operator like Verizon $1-2 to deliver a GB of traffic to a consumer. That’s why everybody’s ‘unlimited’ plan comes with an asterisk, usually kicking in when usage exceeds 25 GB or so. One would have to take a pretty big whack at the costs of delivering those wireless GBs in order to get into the broadband neighborhood. Even if we chop the low-end of today’s $ per GB delivered by half, the math remains challenging.
A final issue many bring up is how do you get the equipment, which might look like a small dish or box, into a building or household? This is something folks have heretofore been hesitant to muck around with. I see this as the least of the barriers. After all, over the past few years, people have become more comfortable installing Nest thermostats, fancier Wi-Fi routers, mesh networks, and femtocells in their home. The equipment piece will sort of look like that by the time these services are ready for prime time.
I think there’s potential here but it might initially be focused on particular market segments. The lowest hanging fruit would be in rural areas, where mobile/internet coverage is currently lacking or sub-par. If we can get enough capacity close to a building, fixed wireless access might be a great solution. Another segment might be the burgeoning multiple dwelling unit (MDU) market, which has been a challenge for broadband anyway. This seems to be one of the target markets for companies like Starry. A third and potentially vital market segment might be households that are budget-challenged. $400 per month for today’s cocktail of mobile, pay TV, and broadband is a tough financial nugget for a lot of households. There’s definitely room for the “Metro PCS” or “Cricket Wireless” of broadband, offering a compelling plan, combining fixed and mobile, with some limits on broadband speeds and consumption, particularly during peak times (to address the ‘Netflix’ problem). Lord knows we could use some competition and pricing options in the broadband world.
One final consideration is how the industry structure might evolve to deliver on this vision. Comcast is aiming to get into wireless, through both an MVNO and apparently having also spent several billion dollars in the recent 600 MHz spectrum auctions. The wireless operators will be reliant on cable and other providers for small cell sites, capacity, and backhaul, in order to build 5G. Then there’s DISH which owns a treasure trove of spectrum that will have to be put to work at some point during our lifetime. And all the big internet players, from Netflix to Amazon to Facebook and Google, are playing in the 5G sandbox in some capacity thinking that, at some point and to some extent, they will need to be at least partial masters of their own network domain. And there’s been a very active M&A market in the fiber biz of late.
So while we are not yet forecasting a significant shift toward Cutting the Cord 3.0, this is the year discussions on the issue will get a serious start.