In Business Model, Internet Access, Mobile, Spectrum

The biggest unknown–and greatest danger–facing 5G is the business model, not the technology. Many would argue that there are almost no new applications or revenue streams 5G will bring that advanced 4G cannot support.

That is one reason why 5G-based internet access might be so important: it provides one of the tangible, new, incremental revenue streams that can be created before the mass adoption of mobile 5G and internet of things starts to reach scale.

Even if service providers in most parts of the world will not see the opportunity in such terms, AT&T, Verizon and possibly other service providers see significant upside in fixed 5G deployments, for obvious reasons.

In the U.S. market, fiber to the home has remained a tough business case, given generally lower population densities across much of the United States, as well as the certainty that at least half the investment will be stranded, immediately. So 5G fixed wireless could allow AT&T and Verizon, for the first time, to supply gigabit per second internet access connections in many areas where the fiber-to-home business case has not worked.

Quantifying the potential upside is the issue. One way is to calculate the amount of account loss 5G fixed wireless could address.

In the second quarter of 2017,  U.S. telcos lost at least a net 233,260 internet access accounts, according to Leichtman Research Group. But most of those losses were from a few telcos other than AT&T and Verizon.

Between them, AT&T and Verizon lost only about 32,000 accounts in the second quarter of 2017. So a first-order impact of 5G fixed wireless would be a halt to those losses.  

If AT&T and Verizon merely halted 75 percent of those fixed network internet access account losses, that would represent annual gains of about 96,000 accounts.

Assuming those saved accounts represent monthly gigabit access revenue of $70, each such account represents $840 in annual revenue, or about $80.6 million in revenue.

If AT&T and Verizon were able to erase all the losses, that implies revenue upside of nearly $107 million, from avoided losses of 128,000 accounts.

If AT&T and Verizon did better, and actually gained 231,000 net new accounts (splitting those gains with cable TV operators), the annual revenue impact would be about 359,000 net new accounts.

That might represent $301 million in net new revenue, plus avoided losses of $80.6 million, for a total revenue swing of about $408 million, incrementally.

But that is not the biggest impact.

Considering only AT&T, which had in the second quarter about 15.7 million internet access accounts in service, what is the impact of being able to provide gigabit internet access using 5G fixed wireless?

Assume four million AT&T customers still are on all-copper access lines. Assume half those lines can be upgraded using 5G fixed access in the relatively near term, and that half those locations decide to upgrade to 5G fixed wireless.

That could mean two million additional passing, and perhaps a million additional accounts. At $70 a month, that implies additional upside of about $840 million for AT&T.

So internet access upside could amount to perhaps $1.24 billion annually.

For AT&T, which has a consumer internet access business generating a bit under $2 billion per quarter, $7.6 billion annually, those gains could amount to a boost of about 62 percent. That is huge.

But there is more. Once gigabit access is available, linear and on-demand TV services can be sold to the accounts. Assume a net gain of about 1.2 million accounts because of 5G fixed wireless, in the near term.

Assume half those customers buy a linear video service. That is an incremental 600,000 accounts. At $80 a month ($960 per year), that adds perhaps $576,000 in incremental video revenue.

That implies perhaps $1.8 billion in incremental new revenue generated by 5G fixed wireless, for AT&T alone.

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