After years of promising a huge advance in wireless technology — and corresponding gains for their investors — the COVID-19 pandemic gave carriers even more time to perfect their networks.
So why isn’t everyone wowed?
Roughly two years after U.S. carriers began deploying commercial 5G, the networks are still a far cry from what the wireless companies have promised. The best 5G experiences are mainly found in locations meant for large audiences, like stadiums and concert venues, that are pretty much off-limits during the COVID-19 crisis. The more basic “nationwide” 5G has broader availability but limited advantages in speed and lag times relative to 4G connections.
“There’s no question they overhyped it,” TECHnalysis Research president Bob O’Donnell said of the wireless carriers, though he pointed out they could only do so much about the slow 5G rollout. Unlike with 4G networks, 5G relies on many “flavors” of spectrum, he explained. And unlike other countries, the U.S. didn’t make huge chunks of the most practical spectrum frequencies available for purchase until just now.
The result is not what was hyped, yet consumers may not even realize it yet because they aren’t relying on cellular connections the way they would in ordinary times. And that could get in the way of carriers’ ability to make money off of 5G, which requires pushing consumers to pricier plans with unlimited data.
“We’re all using home WiFi more than anything” during the pandemic, O’Donnell said.
By the time people can spend more time out of the house later this year, however, the 5G networks could show some improvements as the carriers upgrade their network infrastructure. Even bigger changes could come next year thanks to the conclusion of a critical wireless spectrum auction for mid-band frequencies that raked in $81 billion.
“Mid-band is the critical factor that’s been missing in U.S. 5G networks,” O’Donnell said, as it will allow carriers to build out networks that offer better service in more areas beyond the limited, dense environments where carriers have deployed their best 5G experiences.
Improvements to U.S. 5G networks are important because device makers are ramping up their efforts to get 5G handsets to consumers. Verizon Communications Inc. VZ, -0.70% saw more than 20 5G device launches in 2020, including from Apple Inc. AAPL, 1.69%, which made 5G available on all four of its new iPhones. The carrier expects even more 5G introductions this year, likely at more reasonable prices — Samsung Electronics Co. Ltd. 005930, -3.28% cut the price of its new Galaxy S21 phone by $200 relative to the prior-generation model this year, helping to make 5G more accessible.
Given the hefty costs of acquiring 5G spectrum and building out network infrastructure, the carriers will need to drive greater wireless revenues to pay them off. That will require a large shift to pricier plans for consumers.
The companies argue that they are progressing with that shift. AT&T Inc. T, -0.56% pointed to the move toward unlimited plans as one driver of service-revenue growth during the fourth quarter. And Verizon saw 55% of new customers in the fourth quarter opt for premium unlimited plans, a sign that the company is “already seeing monetization happening” on its 5G investments, according to Chief Executive Hans Vestburg on Verizon’s January earnings call.
Beyond 5G capabilities, Verizon’s premium plans include benefits like a free year of Walt Disney Co.’s DIS, -1.26% Disney+ streaming service, so people’s reasons for upgrading are varied. It’s hard to justify the costs of upgrades to premium plans based on the 5G benefits alone, O’Donnell said.
T-Mobile U.S. Inc. TMUS, -0.12% was best positioned for the 5G rollout heading into the auction since the company already had some mid-band spectrum thanks to its recent deal for Sprint. Chief Executive Mike Sievert said on T-Mobile’s earnings call that the company is “pulling ahead of the pack on network,” which positions T-Mobile “to penetrate further into prime customers” and drive more premium upgrades.
The proliferation of 5G to cheaper devices is aided by developments on the technology side. Qualcomm Inc. QCOM, 0.28% has brought 5G capabilities to its Snapdragon 400 Series chips, a move that “squarely takes 5G from the premium tier and is now knocking on the door of the lower tier,” said Durga Malladi, Qualcomm’s senior vice president for 4G and 5G.
“By the holidays this year, it’s going to be difficult to find a non-5G phone that’s new,” O’Donnell said.
One anticipated development for Verizon, AT&T, and T-Mobile in 2021 is the growth of standalone 5G. This mode involves upgrades to infrastructure as wireless companies start using spectrum blocks solely for 5G rather than sharing spectrum between 4G and 5G.
The transition to standalone mode “sets the stage for new services for which 5G was designed,” Malladi said, as it will bring benefits in latency, or lag time.
On the consumer end, lower latency could help power applications like cloud gaming, according to O’Donnell.
O’Donnell likens radio spectrum to lanes of traffic. To build a 5G “super highway,” carriers can combine multiple chunks of frequencies together to get faster speeds, he said, something that has long been possible with 4G but is only now becoming possible with 5G. While low-band sub-6 spectrum may not be particularly powerful on its own, when combined with mid-band spectrum it can enable wider “highways” and better overall coverage.
So far, carriers have mainly relied on millimeter-wave spectrum and low-band sub-6 spectrum to build their networks, and both have their limitations. Millimeter-wave 5G offers faster speeds but is best suited for smaller, denser locations like stadiums because it doesn’t travel far past a cell tower. Low-band sub-6 5G has enabled the carriers to continue building out their “nationwide” networks, but it doesn’t offer the same speed advantages.
“It’s always been the case with 5G that to really make it work, operators need access to the right amount and right type of spectrum,” said Peter Jarich, the head of GSMA Intelligence, a part of the GSM Association wireless trade group. “The U.S. has been criticized for not doing so well in some of those spaces.”
Though many of the early use cases for 5G have been more niche, like better video experience in stadiums, Verizon’s vice president of product innovation Sanyogita Shamsunder told MarketWatch that consumers will also come to see more mainstream benefits.
“The customer experience in general will be different for those who use a lot of bandwidth,” she said, arguing that video calling over cellular connections will become more mainstream. People will also “start seeing a differentiated experience” in congested areas, especially when moving from place to place, according to Shamsunder.
The carriers also have opportunities to monetize 5G on the enterprise side by selling businesses on the benefits of low latency. Companies are deploying private 5G networks on their campuses to better control robots and machines, and the goal for AT&T, Verizon, and others is to find new markets for 5G in areas like manufacturing, transportation, and retail, said Marisa Vivero, IBM Corp.’s IBM, -2.01% vice president for strategy and offerings within the telecom space.
Business applications will be helpful for the carriers, according to Edward Jones analyst David Heger, since consumer upgrades to premium unlimited plans probably won’t be enough to fully pay back all of the carriers’ spectrum investments.