Don’t Underestimate The 5G Threat to Cable

Market leaders shouldn’t get complacent about potentially disruptive technologies
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Cable industry executives say they aren’t very worried about 5G. It’s going to take years for wireless operators to deploy hundreds of thousands of small cells. Plus, the cable industry’s infrastructure is ideal for delivering broadband wireless service to residential areas.

Ira Brodsky

Ira Brodsky

The problem with that analysis is that 5G threatens the cable business model in at least two different ways.

Cable understands 5G’s theoretical ability to deliver high-speed, high-capacity fixed wireless services. By leveraging millimeter wave spectrum, small cells and higher spectral efficiency, wireless operators could potentially compete with MSOs in providing internet access and television content to homes. Wireless operators can also bundle mobile and fixed broadband services at steep discounts, because while cable operators can also bundle mobile and fixed broadband services, they must buy the mobile service from wireless operators at wholesale prices.

That’s the theory, but does it work in practice? Millimeter wave signals have limited range and are easily blocked by obstacles. The technology is expensive and uses power inefficiently. Wireless operators must obtain local government approval before constructing small cells. Site preparation involves not only installing radios and antennas safely beyond the reach of pedestrians, but providing power and backhaul facilities. A Tier 1 wireless operator might need hundreds of thousands of small cells to compete with cable operators throughout most of its nationwide footprint. At current prices, five hundred thousand small cells would cost at least $20 billion.

Stealth Disruption

However, disruptive technologies have a habit of sneaking up on the market leaders. Last year, the Federal Communications Commission adopted small-cell rules intended to speed site approvals, simplify site preparation and ensure local governments charge fair and reasonable site-leasing fees. While these rules may be challenged in court for infringing states’ rights, more than 20 states have enacted small cell-friendly regulations. And if history is any guide, we can expect millimeter wave technology will benefit from significant price reductions and performance improvements over the next decade.

In a study recently published by my company in collaboration with Rysavy Research, we evaluated 5G-based fixed wireless broadband business models by modeling network capacity per square kilometer and determining the likelihood of individual cells achieving breakeven revenue based on detailed capex, opex and financing assumptions. We found that millimeter wave spectrum has sufficient capacity to compete with cable operators’ current hybrid fiber-coax networks, but that operators must “thread the needle” by selectively deploying small cells in the best locations (in terms of factors including home density, backhaul costs and competition).

We also found a second threat. In developing countries such as Mexico, cost-sensitive young consumers are using smartphones and wireless service as an all-in-one solution — one device and one network to satisfy all of their phone, internet and TV needs. While midband spectrum (at 3.5 Gigahertz) doesn’t have sufficient capacity to compete head-on with cable, it can be used to double capacity and enable lower-cost data plans. For millennials and members of Generation Z who don’t mind a smaller screen, a mobile device with a higher data allowance (for example, 60 to 100 Gigabytes) offers a significant savings over separate mobile, Internet, and TV devices and service plans. In fact, a recent CNBC report projects that three-quarters of the world will use just their smartphones to access the Internet by 2025.

Wireless users also have access to larger screens. A tablet can be used (in place of a desktop PC and HDTV) to surf the Internet and watch videos. Samsung, LG, and others have been developing handsets with foldable screens. And most smart TVs support screen sharing via WiFi.

Cord-Cutting Is a Factor

There is one more factor to consider. A growing number of consumers are switching from cable TV to Internet TV services such as Hulu, Sling TV and YouTube TV. While these services provide fewer channels, and local channels must be accessed via an antenna, they offer significant cost savings over cable TV. The availability of Internet TV services also relieves wireless operators from having to assemble their own channel lineups.

Haven’t we seen this movie before? Current market leaders tend to overestimate how safe their position is and underestimate how vulnerable they are to disruption. Mainframe computer makers dismissed microcomputers as toys. Remember when the Bell System seemed invincible, and when Nokia dominated the global handset market?

Fifth-generation wireless is not just the next in a series of incremental advances. It’s a constellation of improvements with a new and more flexible architecture. This is not a time for the cable industry to be complacent.

Ira Brodsky is president of Datacomm Research, a St. Louis-based consultancy.

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