As Verizon reported wireless service revenue growth in the first quarter, executives acknowledged that high-band millimeter wave spectrum will not be the frequencies to provide broad coverage and named dynamic spectrum sharing as a key feature for 5G.
Verizon, which has been focused on a mmWave-based 5G approach, launched mobile 5G service in select areas of Chicago and Minneapolis earlier this year, following launch of its mmWave fixed wireless 5G Home broadband service (based on the company’s proprietary 5GTF specification) in four cities last October.
On Verizon’s first quarter earnings call with investors Tuesday, CEO Hans Vestberg said that while it’s very early on, millimeter wave spectrum has lived up to the carrier’s performance expatiations in launch cities, noting the range, speeds and capacity are “very good” and engineers are already performing constant updates and enhancements to speeds and features.
He also indicated the early 5G launches have given the carrier an advantage, saying “no one in the industry knows as much” about mmWave 5G performance as Verizon.
However, there has long been industry concerns over propagation characteristics of high-band mmWave spectrum, which cannot travel as far and has penetration issues. Indeed, Vestberg on the call acknowledged that mmWave is “not a coverage spectrum.”
MoffettNathanson analysts earlier this year conducted an in-depth report on Verizon’s fixed wireless broadband market in Sacramento and in a Tuesday research note said the main take away from those findings is broadly applicable, particularly to mobile 5G, in that “millimeter wave spectrum is suited for a supporting, not a starring, role.”
In a Monday blog post, Neville Ray, CTO of rival T-Mobile took aim at mmWave and Verizon’s recent mobile 5G launches saying customers won’t benefit because of “severe limitations” of the high-band spectrum strategy, noting its poor ability to travel far distances and penetrate materials.
In response to analyst questions, Vestberg said the company has not changed how it thinks about mmWave spectrum, with the majority of all traffic generated in dense urban areas where he said Verizon is focused on the “real 5G experience” and taking an owner’s economics position.
Vestberg noted that dynamic spectrum sharing (DSS) will be the next step in the company’s strategy, leveraging the carrier’s assets for mobility, 5G home, and edge computing. Dynamic spectrum sharing allows operators to allocate current 4G spectrum to 5G services via a software upgrade (though 5G NR-capable radio equipment is required). In earlier technology generation shifts, operators were forced to allocate part of a spectrum dedicated to a new technology.
Speaking at MWC Barcelona earlier this year, Thomas Noren, head of 5G commercialization at Ericsson, explained that with spectrum sharing, a portion of existing resource load could be allocated to 5G, with initially most spectrum used for 4G before 5G device adoption becomes widespread. Then, the spectrum will dynamically migrate to handle 5G usage over time as more consumers adopt 5G-capable devices, requiring spectrum resources.
Vestberg said that Verizon’s spectrum sharing strategy will come into play in 2020, across low-, mid-, and high-bands, with all spectrum evenutally exposed to dynamic sharing. He likened the technology to the advent of carrier aggregation, which “changed the game” for 4G.
Unlike some rivals, Verizon reiterated its continued investment strategy focus on network and technology, preferring to provide platform and distribution, rather than owning content itself.
MoffettNathanson’s Craig Moffett in a research note indicated this approach is currently a positive, but the mmWave strategy could be a growing issue.
“[Verizon’s] stick-to-core-strengths (the network) strategy has clearly been better than the diversification alternative,” Moffett wrote. “And results at the moment are passably good. But it is growing increasingly clear that their 5G strategy will prove vastly more expensive than advertised if they stick to millimeter wave spectrum as the basis of their build, or, alternatively, there is a very big investment in spectrum looming if they don’t.”
Here are some key metrics from Verizon’s Q1 earnings release:
- Postpaid smartphone net additions of 174,000. Wireless postpaid net additions of 61,000 were below Wall Street estimates of 210,000. This included 44,000 phone net loses and 156,000 tablet net losses, which were offset by 261,000 other connected device net additions, primarily wearables.
- Prepaid losses of 176,000.
- Wireless revenue was up 3.7 percent year over year to $22.7 billion, driven by wireless service revenue, which was up up 4.4 percent. Service revenue increases were attributed in part to customers moving to up to higher-priced unlimited plans. CFO Matthew Ellis noted that unlimited plans currently account for less than 50 percent of total connections, so there is a lot of runway left.
- Postpaid phone churn was 0.84 percent, up slightly, attributed to competition.
- Consolidated revenues in Q1 were $32.1 billion, net income was $5.2 billion and EBITDA totaled about $12.2 billion.
As part of its $10 billion cost savings goal, Verizon completed the first two phases of its voluntary headcount reduction initiative, resulting in about $180 million of expense savings. About 10,400 managers opted to take the buyout offer that Verizon put on the table for about 44,000 employees last year.
“Verizon began 2019 by extending our leadership position in 4G, driving innovation in 5G and expanding our high-valued customer relationships,” Vestberg, said in a statement. “2019 is shaping up to be an exciting year for Verizon. We are leading the world in the development of new technologies with the launch of our 5G Ultra Wideband network. Our ambition remains unchanged to provide the most advanced next-generation networks in the world.”
For details about Verizon’s wireline business check here.