As 5G technology has ramped up over the past few years, ISPs have started talking about replacing or augmenting expensive fiber networks with cheaper gigabit wireless access delivered via small cell networks. Now that Verizon’s 5G fixed wireless service is up and running, analyst firm MoffettNathanson examined the economics and costs of Verizon’s Sacramento rollout, and whether the initiative is economically sustainable. The company’s results make for interesting reading.
The fixed wireless service we’ll be discussing today isn’t the same thing as the network you rely on for your phone or tablet. As the name implies, a fixed wireless solution uses a “fixed” antenna (think of a modern TV satellite) to communicate with a nearby small cell, providing wireless access to the internet. This kind of service has been touted as a potential replacement for expensive fiber-to-the-home, providing the same theoretical performance for a fraction of the cost.
According to MoffettNathanson, only six percent of homes in Sacramento had access to Verizon 5G, with fewer than three percent actually subscribed. Of greater concern than the low subscriber numbers, however, is how few customers each small cell can actually support. On average, each small cell can only reach 27 local addresses.
This represents a real problem for companies hoping to rely on fixed wireless to roll out gigabit networks to customers at dramatically lower prices compared with the cost of running fiber-to-the-premises (FTTP). Companies have experimented with ways to reduce these costs for years; Google Fiber recently withdrew from Louisville, KY in disgrace after its attempt to use micro-trenching (extremely shallow trenches) to lay fiber backfired, leaving the city with cables popping out of the ground and an avalanche of asphalt repairs.
MoffettNathanson sampled nearly 45,000 Sacramento addresses (over half the city) within a 0.7-mile radius of 5G small cells located in seven different zip codes. The results appear to broadly agree with a different analysis performed in Sacramento by Earl Lum of EJL Wireless Research. Both firms report that the number of households Verizon was able to reach dropped off substantially with distance. Verizon claims that it can reach homes 1,000 feet away from its small cells, but Lum reported an effective range of 500 feet. Small cell distribution sites for fixed wireless aren’t ideally placed in the city and the small cells are only using one antenna, possibly due to weight restrictions.
This data from MN also suggests an effective range of 500 feet. Even in the most favorable zip code, only 30 percent of the addresses within 500 feet of a 5G small cell could still receive coverage at this distance. In less favorable zip codes, availability was even lower.
Deploying small cells may not involve the extensive digging laying fiber does, but it isn’t free, either. Companies that want to use existing city infrastructure for mounting small cells have to get permission to do so. There are typically fees and access questions to work through, particularly when attempting to deploy a cellular network that requires a new small cell every thousand feet. These fundamental issues are why both Lum and MoffettNathanson are dubious about the fundamental economics of fixed 5G wireless.
LightReading reports: “Excluding the MDU-dense areas around downtown Sacramento, Verizon’s 5G Home penetration is roughly one subscribed single-family home per 1.5 5G small cell.” This will presumably rise, if Verizon can improve its subscriber base, but only reaching 27 homes per small cell isn’t a great number.
MoffettNathanson’s ultimate conclusion is that it may not be possible for Verizon to build a network that would compete with the likes of Comcast or Spectrum for internet customers. “Put simply, the cost of building a second network is so high that its builder simply can’t earn a passable return based on the market share available to a second player,” MoffettNathanson said. “Virtually every overbuild, from telephone companies to competitive cable companies to municipalities, has learned this lesson the hard way; almost all such efforts have ended in bankruptcy.”
Both MoffettNathanson and Earl Lum are quick to note that it’s very early days for 5G rollouts and that these situations could improve in the future. At the same time, however, the fundamental barriers to broad 5G fixed wireless deployments may not be willing to budge. The 28GHz spectrum band Verizon is using attenuates far more quickly than signals in the 600MHz band. If Verizon has to limit itself to small cells within 500 feet of its customers, that’s going to require an extraordinary number of devices to spread coverage throughout the city. The density requirements for small cells could theoretically match the overall cost of fiber pulls, even if the individual small cell cost is dwarfed by the price of a single fiber install.
There’s been a great deal of uncertainty from analysts about the overall expected cost of 5G, but the network expenses are expected to be considerable. It could take years for Verizon to see a pay off from these deployments if they can’t improve the cost curve.