Analysts question ROI potential of Verizon 5G Home

Verizon has boasted that it could make its 5G fixed wireless access (FWA) service deliver strong return on investment (ROI) in its own right, even if mobility were not added later. This was a bold assertion, given that the standalone FWA business case has, traditionally, only made sense for specialized WISPs, not major carriers. Most operators will deploy FWA to enable a first step into 5G, before handsets are available for mobile users; or to extend the edge of their fixed-line networks, lowering the cost of the last few meters.

That may end up being Verizon’s justification too, if a new analysis of its 5G Home service by analysts at MoffettNathanson proves correct. Craig Moffett has carried out an in-depth assessment of 5G Home in Sacramento, California and concluded that Verizon faces a “steep climb” to scale up the network and to generate respectable ROI.

“Our findings in Sacramento – limited coverage, low penetration – preliminary though they may be, suggest that earning an attractive return will be challenging, at best,” Moffett wrote in his analysis. He accepts that it is “very early days” for the service, but his study provides some useful early indicators.

Verizon has deployed about 391 small cells across Sacramento, as of a filing dated February 19, and 273 are being used for 5G, with the rest apparently supporting 4G. But according to MoffettNathanson’s tests – based on a census of service eligible for the homes surrounding 107 of the 273 5G cells – each cell covers 27 eligible addresses, on average. That means only 6% of residential addresses would currently be eligible for 5G Home, though this should rise as the six-month old service matures.

So far, in those six months, Verizon has signed up fewer than 3% of the eligible single-family homes in the sample, which equates to total penetration of 0.1% across the whole test area (though it’s worth noting that the analysis does not include multi-dwelling units, which are also targeted by 5G Home).

“To us, the most interesting statistic isn’t so much the low take rate as it is the relatively low coverage, as it illustrates the enormity of the challenge of scaling a small network, in neighborhood after neighborhood, across the United States,” Moffett wrote.

Unless FWA achieves strong uptake, its cost per home will be higher than for fiber-to-the-premise (FTTP), despite its comparatively lower deployment cost. The report notes that the cost of the drop of FWA could go as low as $200, compared to about $700 for FTTP, but the “passing cost” is about the same. The difference, Moffett explains, is the number of homes that are eligible for service and the uptake rate.

“Our analysis suggests that costs will likely be much higher (that is, cell radii appear smaller) and penetration rates lower than initially expected,” the report explained. “If those patterns are indicative of what is to come in a broader roll-out, it would mean a much higher cost per connected home, and therefore much lower returns on capital, than what might have been expected from Verizon’s advance billing.”

In the 28 GHz spectrum which Verizon is using, the analyst believes each cell site serves an effective radius of about 700 feet, although Verizon has said it can get to distances of up to 1,900 feet in some cells.

In conclusion, the report says that, for Verizon to reach its target of rolling out 5G Home to 25% of of the USA, or 30m homes, “will take a very, very long time. And it will cost a great deal of money”.