5G Has Been a $100 Billion Whiff So Far

(Bloomberg Businessweek) — When Verizon, AT&T, and T-Mobile introduced the first 5G mobile services in the U.S. three years ago, they promised 10-times faster connection speeds that would unlock a new era of technological advancements. Although no one expected doctors to immediately turn their scalpels over to robots, the telecommunications industry has loudly trumpeted an array of business opportunities such as using augmented reality as a way for online shoppers to try on clothes remotely.

The three big U.S. carriers have spent more than $100 billion on 5G airwaves and network upgrades, but they have little to no revenue or major new businesses to show for it. Moreover, the arrival of the technology has gone largely unnoticed by consumers, and the future fortunes the industry is banking on are far from certain. “There isn’t an immediate payoff,” says Tammy Parker, an analyst with GlobalData Plc.

From the start, there have been challenges with the technology, like when AT&T Inc. confusingly branded 4G as “5G E.” Conspiracy theorists have tagged 5G as a source of harmful radiation and a spreader of the coronavirus. More recently, airlines have complained that some frequencies could interfere with radar and jeopardize air safety. To date, the biggest knock against 5G is that it’s been a nonevent. And, by the time it’s in full force, big tech companies including Amazon, Microsoft, and Google may have beaten the wireless carriers to the kinds of data-hungry applications that superfast 5G networks have been expected to spawn.

The higher speeds and greater capacity of 5G are needed to meet growing demand for services such as high-definition video streaming. But with the technology, the key improvement is in the almost immediate network response time, a feature known as low latency. That’s largely invisible to consumers, except in cases like highly competitive video game tournaments.

Lacking a compelling reason to persuade customers to upgrade, carriers have been offering $1,000 5G phones for free to help jump-start the conversion process. Such promotions are needed because 5G isn’t even among the top four reasons people switch carriers, according to surveys by Roger Entner of Recon Analytics Inc. Those reasons typically include price or overall network reliability.

“My friends ask me, ‘Why should I buy a 5G-capable phone?’ ” says Chris Sambar, AT&T’s executive vice president of technology operations. “To avoid an argument, I don’t disagree, but if you look back, it was the same with 4G. It was a few years before the use cases started to materialize.”

One area where 5G has had early success is in providing wireless home broadband service. As faster 5G midband frequencies are built out, customers are finding a wireless alternative to landline providers. But this threat to cable companies is likely to spark price battles as the cable operators respond by offering cheaper mobile phone service of their own.

It wasn’t supposed to go this way. Carriers were rolling out 5G to deliver an “oh, wow” experience that customers would willingly pay extra for. Instead the technology has become a standard feature in an arena where mobile phone companies and cable operators are battling it out with similar packages. As that reality started to take hold, the carriers pointed to bigger, more immediate opportunities such as selling 5G to large companies and governments. “It became apparent a while ago that the most compelling use cases for 5G would revolve around businesses rather than consumers,” GlobalData’s Parker says.

To help make that happen, the major carriers formed partnerships with the so-called webscalers, the big cloud service providers including Amazon’s AWS, Microsoft’s Azure, Google, and Meta Platforms that handle data storage, online ordering, and video streaming for big companies. Each cloud giant sees 5G as a valuable entry into new classes of services, such as secure private networks to replace Wi-Fi, factory automation, and edge computing, which brings network hardware closer to end users to increase speeds.

The wireless carriers are staking their futures on these workplace roles. But because no 5G hyperconnected, cloud-powered commercial ecosystem has been built before, tech giants and telecommunications companies are collaborating to tackle the challenge.

While new partnerships are still being announced and big 5G projects are moving through the planning stages, executives at the wireless companies say they’re confident they can play a role in the information technology infrastructure of the future. “I’m proud to be the only carrier in the world that has partnership agreements with all three of the big webscalers,” says Verizon Communications Inc.’s business services chief Tami Erwin. “We’re creating the platform for the metaverse to really accelerate.”

As 4G showed, the carriers could create a higher-functioning network, but it was other companies such as Uber, Netflix, and Facebook that cashed in on the connectivity. 5G is set to expand the overall pie again, but the size of the carriers’ slice isn’t certain—bad news because they spent $118.4 billion on 5G airwave auctions, almost double the $61.8 billion they paid for 4G spectrum.

T-Mobile US Inc., which has taken the lead in U.S. 5G deployment, plans to focus on its core network strength as the tech giants sort things out, says Neville Ray, T-Mobile’s president of technology. “Facebook, Apple, Microsoft, Google—all of these massive companies are lining up huge investments in this space, and they need mobile networks in a way that they never did before,” he says. “They will need network capabilities that they simply don’t have any desire to build.”

That’s led a bunch of would-be competitors to work arm-in-arm to create a collective business model. “We have a great partnership with Microsoft,” says AT&T’s Sambar. “We’re a customer of Amazon, and they’re a customer of ours. We’re all friends today, we keep a close eye on each other. You have to cooperate to make this happen.”

The carriers provide businesses with a roster of services including voice, data, network management, and security, and they’ll want to keep control of those relationships as services emerge in 5G, says longtime Wall Street industry analyst Peter Supino. But as the cloud providers gain a bigger role in a business’s network infrastructure, running everything from robotics on the production floor to in-office wireless data systems, the carriers’ role may shift to more of a wholesale supplier of network capacity and mobile cellular service to the cloud companies, according to Supino.

“Over time, I’m confident that the cloud operators will provide too much convenience to be ignored,” he says. “The benefits of 5G will be significant, and they will mostly accrue to people who aren’t the telco carriers.”