Verizon Wireless: 5G Home Subterfuge

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In some ways, Verizon has a worse credibility situation in the short term with its current emphasis on residential applications for 5G, than what happened with FiOS last decade. At least with the latter, it was able to relatively quickly project homes passed with fiber in advance going in lots of metropolitan areas, rather than the next-generation wireless solution becoming live to only a few neighborhoods in each of the four large cities announced. With FiOS, Verizon could argue at a minimum, the potential for unlimited capacity as well as definite, lower operational costs. With 5G Home, not only are the questions concerning a return on investment worse, given much costlier infrastructure spending, but Verizon does not appear to be charging rates commensurate with a truly premium service, while also bending over backwards with perks. Also, Verizon obviously has no plans to stop making meaningful, technical advancements on its 4G mobile network. In addition, it is also absurd that this new 5G service should be positioned in any way as a true threat to the MSOs. At least, Verizon is able to mention future enterprise applications, albeit, usually only in rather brief, understated spurts, unlike with FiOS, in which it hid fiber to the business as its true motivation for that project for fear of regulatory retaliation. For example, at one conference, Verizon CEO referred to the “mobile edge” as just the third of three business cases with what we certainly believe was the disingenuous implication that it is as important as the others. fibeReality has consistently stated, and continues to strongly assert that the service provider’s overwhelming goal is to provide 5G services, which will tend to be narrowly focused on very large enterprises for machine-to-machine communications and for other high margin-producing apps.  

For now, the ruse of having widespread, fixed 5G wireless to homes is necessary in order to get out front with the product in general from a marketing standpoint, to start the process of making its company synonymous with the service (in the same way that Google automatically means Internet search), to begin turning around the remaining skeptics on the Street, to initiate entry barriers for other players in the US, as the amount of expense (especially off-budget, such as for allowing for a load of optical transceivers to be produced) in combination with the technical complexity with even a targeted approach, will be unparalleled in the industry. Furthermore, the stress on the residential market (including for schools), similar to the FiOS situation, is principally to not encourage any additional regulatory involvement, particularly at the state level, when the term, “net neutrality” can be modified to mean anything, with Verizon viewed as only a utility, instead of legitimately as an entrepreneurial concern, incredibly, almost 35 years after the first AT&T divestiture. The ISP has felt compelled to put out a separate press release on each state in the union regarding its historic capital spending, underscoring outlays to the consumer wireless sector.

Even the major cable TV companies are not particularly going out of their way to respond to the supposed danger of 5G. They realize that it will be a boon to their  businesses in providing fiber reinforcement to these networks. While there continues to be incremental cord cutting, the MSOs know they are the most pervasive in terms of the coverage in the US, they have by far the lowest per bandwidth costs contrasted with other types of networks, and they have the easiest means of leveraging all of their infrastructure.

fibeReality hardly blames Verizon for its strategy of subterfuge. It is the only way for the operator to accomplish such lofty, impressive goals. We remain very optimistic on its prospects.

Unfortunately, it has meant executives being forced into awkward and uncomfortable situations, including individuals with fairly impeccable reputations for credibility. Such an example would be Verizon’s director of optical transport network architecture, design and planning.

All in all, it is about following the money. When it comes to Verizon, shadow the move to the “Fourth Industrial Revolution,” despite the excessive rhetoric with the expression. Profitability in the consumer telecom services space is always more difficult.

As always, fibeReality does not recommend any securities, and this writer does not invest in any companies being analyzed by us.

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[written by Mark Lutkowitz]


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