Investors are not buying into the substantial hype surrounding the forthcoming 5G revolution and many remain unconvinced about the benefits of spending billions of investor dollars to deploy the next generation in wireless.

A survey by telecom analyst McKinsey & Co., picked up a clear drag on proposed spending, especially outside of North America, as carriers are finding investors reluctant about the business case for 5G technology.

The survey found 60% of wireless operators cited selling investors on the merits of 5G to be their greatest challenge. Only 25% were confident they could successfully prove a substantial return on investment for shareholders who typically want short-term results. Investors are demanding detailed evidence that 5G networks, the most costly requiring large fiber optic networks and neighborhood small cell antennas, will pay off with increased revenue and customer demand. Unlike earlier cellular standards which required incremental upgrades usually on existing cell towers, the fastest iteration of 5G will require providers to construct costly new fiber networks with a very large number of short-range antennas expected to be placed on top of utility or light poles.

Customer demand for 5G is anticipated to be low until new devices are introduced capable of connecting to it, and investors already recognize consumers are increasingly delaying device upgrades since the industry dropped two-year service contracts with device subsidies. Ongoing upgrades to existing 4G LTE networks may ultimately dampen demand even for less costly 5G networks that will be deployed on existing cell towers. McKinsey’s survey found less than 35% of respondents are planning quick launches of 5G on gigabit-speed capable millimeter wave spectrum, citing the high cost of deploying small cell networks.

“Until th[e business case emerges], most operators will tread cautiously, leveraging 5G for near-term objectives and waiting for a clearer view on the use cases’ economics to accelerate,” the McKinsey report concluded. “Given the expense required to prove those significant use cases, it could be an uncomfortably long wait. And for operators in countries that don’t see 5G as a matter of strategic and economic importance, there is a greater risk of falling behind.”

In early 2019, most network operators will focus on network planning and funding, with the first significant wave of launches expected in the U.S. coming later this year. Just over half of U.S. operators plan to have “large-scale 5G deployments” completed by late this year, and U.S. carriers are the most optimistic 5G can make good business sense, at least for some applications. Other U.S. carriers expect their networks to launch by the end of 2022. But in neither case are those launches expected to be widespread across the country. Competing with cable and phone company internet with fixed wireless service is also a non-priority for most operators.

“At least at the outset, the majority see enhanced mobile broadband and the Internet of Things (IoT), rather than fixed wireless access or mission-critical applications, as the most prevalent applications,” McKinsey’s survey found. Among early potential applications are smart utility meter connectivity, traffic sensing, and connected public infrastructure like lighting and traffic control signals. Giving consumers a way out of choosing between Verizon and Comcast for home internet service is not going to be an early priority for companies like AT&T. In fact, starting a price war is the last thing investors want to see.

“Although commercially in its infancy, 5G technology is ready, and in most markets its presence will be felt from 2020 on,” McKinsey’s report states. “Yet the fact that commercial models are not ready cannot be minimized; the business case is marginal, and the investments to enable new business models are not currently planned.”

McKinsey believes what will ultimately drive a gradual rollout of 5G technology is network congestion which can no longer be managed through existing traditional cell tower networks, known as “macro sites.”

“In rural and suburban areas, as well as along roadways, operators can handle increased traffic simply by densifying existing networks with macro sites,” McKinsey shared. “In many highly populated urban areas, by contrast, they’ll need to rely on small-cell solutions for two reasons: a higher concentration of traffic, as measured by traffic load per square kilometer, and the use of higher spectrum bands (greater than 3 gigahertz).”

But making the jump from the traditional large cell tower to a network of small cells scattered around neighborhoods will require a great deal of money. Operators will need to build fiber optic connectivity to each small cell, which can be managed either with a newly constructed fiber project or leasing existing fiber optic networks, presumably from cable operators which already have a significant fiber presence. In either scenario, rural areas will largely be left out, because all-important network traffic density is generally inadequate to support the business case for 5G, and cable operators are unlikely to have fiber networks available to lease in those areas.

Comcast and Charter Communications have no real interest in competing head-to-head in wireless with AT&T, Verizon, T-Mobile, or Sprint. Instead, the two cable companies hope to trap you in a bundled package of services too inconvenient to cancel.

Jeff Kagan, a longstanding telecommunications analyst specializing in the cable industry, believes Comcast, Charter, and other cable operators entering the wireless business have no intention of being a serious competitor to the country’s four largest mobile companies.

“The goal of XFINITY Mobile [from Comcast] is to offer their customers another service and to create a sticky bundle,” Kagan said. “It’s not to lead the wireless wars. It’s not to increase their market share for traditional reasons. It is simply to create a sticky bundle to stabilize and grow their customer base.”

Kagan

XFINITY Mobile and Spectrum Mobile (from Charter), both require customers to be signed up for their respective internet services. If a customer cancels internet service, they will lose their mobile service. That could prove to be a major hassle for wireless customers, because they will have to properly port out their existing phone number(s) to another provider before dropping broadband.

Kagan believes cable operators will use mobile service to further strengthen their bundle by tying discounts to the number of services each customer takes through the cable company.

“Customers who use one service find it easy to switch away to a competitor,” Kagan said. “However, when they use multiple services and get a discount for the bundle, they become sticky and generally stay put. And the more services a customer uses, the larger the discount, the stickier they get and the less likely they are to wander.”

That is also likely to be true with Altice, which operates Optimum (Cablevision) and SuddenLink and has partnered with Sprint to offer cell service.

Sprint and T-Mobile, which are planning to merge, have repeatedly argued cable operators will be aggressive new players in the mobile business, giving the potentially combined carrier fierce new competitors. But Kagan doubts that will prove true.

“The problem is, the sticky bundle is not a low-cost solution,” Kagan offered. “With that said, the higher cost to the cable television companies is less than that of losing their customer base. So, the cost makes sense as simply a cost of doing business.”

The challenge cable operators face is that none plan to own and operate their own traditional cellular network. Comcast and Charter have partnered with Verizon Wireless to resell access to its 4G LTE network and Altice will rely on Sprint. Leasing access on an ongoing basis is likely to be more expensive that relying on your own network, but beyond offering Wi-Fi calling and experimental access to future 5G-type services in the emerging CBRS band, cable operators will remain almost completely dependent on their wireless provider partners, limiting their effective ability to compete.

Kagan believes the goals of the two industries are different. Wireless operators are trying to monetize their networks through usage, while cable operators are trying to find new services that will keep customers loyal and are willing to ignore monetizing their wireless side businesses to achieve that goal.

Spending less, charging more in 2019.

Despite repeated claims from some in Washington that eliminating net neutrality would stimulate U.S. telecommunications companies to invest more in their networks, Charter Communications has announced a dramatic $1.9 billion cut in capital expenditures (CapEx) spending on its Spectrum cable systems for 2019.

Charter posted 2018 revenue of $43.6 billion (up 4.9 percent over 2017), with especially healthy returns for its internet service, which grew 7.1%. Charter earned $11.2 billion in revenue, up 5.9% in the fourth quarter of 2018 alone, partly from rate increases, reduced costs, and additional broadband customers.

Republican FCC commissioners have repeatedly argued that deregulating the internet by sweeping away net neutrality would stimulate companies to invest more in their networks. But it now appears the reverse is true. In 2017, Charter spent $8.7 billion on network investments; in 2018 the company spent $9.1 billion. But this year, with net neutrality no longer the law of the land, the cable company is planning to dramatically cut investments in 2019 to just $7 billion. The combined company, which now includes Time Warner Cable (TWC) and Bright House Networks (BH), has never spent this little on capital expenditures. The 2016 merger between Charter and TWC and BH forced a 189.4% spike in spending after the deal was completed, as Charter began a cable system overhaul and upgrade.

Charter is expecting it can distribute more of its revenue to shareholders, share buybacks, and debt payments as a result of the completion of its all-digital conversion project, which eliminated analog television signals from cable systems to make more room for revenue-enhancing internet service. The company also gets to lease more set-top boxes to customers seeking to view digital television signals on older analog TV sets.

Charter also reports it has successfully completed its DOCSIS 3.1 internet upgrade to more than 99% of its cable systems, allowing the introduction of premium-priced gigabit internet speed.

Charter executives signaled investors earlier this month Charter expects to post greater revenue and profits as a result of the spending reductions, but these new-found gains will have no effect on the company’s ongoing plans to continue mildly aggressive rate increases in 2019.

Charter has not disclosed how much it plans to spend on its new mobile business in 2019. The company is marketing its mobile phone service more aggressively this year as it prepares to accept customers bringing existing phones to its cellular service, powered by Charter’s in-home and in-business Wi-Fi and Verizon Wireless’ 4G LTE network.

Tens of thousands of rural New York families were hopeful after Gov. Andrew Cuomo announced in 2015 his intention to bring true broadband to every corner of the state by the year 2018. At the time, it was the largest and most ambitious broadband investment of any state in the country, putting $670 million in lawsuit settlement money and rural broadband funds from the FCC on the table to build out rural broadband service other states only talk about.

But for many rural New Yorkers, Gov. Cuomo’s program was a failure that could lock in substandard internet service (or no service at all) for years. What began as a 100% broadband commitment later evolved into 99.9% (then 98% in another estimate) after state officials learned $670 million was not enough to convince providers to share the cost of extending their networks to the most rural of the rural as well as those unlucky enough to live just a little too far down the road to make extending cable broadband worthwhile. But the governor proclaimed mission accomplished, and as far as the Cuomo Administration is concerned, the rural broadband issue has been resolved.

“There were a lot of tax dollars that were flipped and the governor has said, ‘Internet for everybody. Everybody will have internet.’ Well, that’s not the case. We’re not seeing that and those were his promises, not mine, but I voted for that money. A lot of other members did too,” Sen. Rob Ortt (R-North Tonawanda) told WBFO radio last year.

Ortt wants to know where the money is going and who exactly is getting it, and proposed legislation requiring annual reports from the Empire State Development Corporation detailing expenditures and disclosing the formula used to determine who gets true broadband service, and who does not.

For those not getting high-speed wireless or wired connections, the state has either offered nothing or dreaded satellite internet service, paying HughesNet $14,888,249 to supply discounted satellite equipment Hughes itself routinely discounts as a marketing promotion on their own dime.

For rural residents learning HughesNet was their designated future provider, many experienced with satellite internet over the last decade and hating nearly every minute of it, it was “thanks for nothing.”

“The governor pulled the rug right out from under us,” Ann told Stop the Cap! from her home near Middle Granville in Washington County, just minutes away from the Vermont border. “I have kids that require internet access to finish research and send in homework assignments. Internet service is not an option, and my kids’ grades are suffering because they have to complete homework assignments in the car or in a fast food restaurant or coffee shop that has Wi-Fi.”

Ann used HughesNet before, and canceled it because service went out whenever snow arrived in town.

“I thought the governor promised 100 Mbps service and HughesNet can’t even provide 25 Mbps,” she claims. “If you get 5 Mbps on a clear summer’s day, you are doing okay. In winter, reading email is the only thing that won’t frustrate you. It’s slow, slow, slow.”

Gov. Andrew Cuomo announcing rural broadband initiatives in New York.

Nick D’Agostino brought his family to a new home an hour northeast of Syracuse when he got a new job. He was counting on the governor’s commitment to bring wired internet access to a home that used to have Verizon DSL, but no longer does after Verizon’s wired infrastructure deteriorated to the point where the company stopped offering the service to new customers like him arriving in the neighborhood. D’Agostino had to spend hours researching the state’s Broadband Program Office website to find out which provider was going to be supplying his census block (neighborhood) with 100 Mbps internet. He found HughesNet instead.

“It’s a kick in the pants because we have a lot of experience with HughesNet and Exede and neither came close to meeting their advertising claims,” he told Stop the Cap! “Exede was often unusable and a horrible company to deal with. HughesNet has a new ‘Gen 5’ service that is capable of DSL speeds, but comes with a low data cap and speed throttling.”

D’Agostino warns that New York made a terrible choice relying on satellite internet, even though HughesNet’s latest fleet of satellites has offered improvement over HughesNet a decade ago.

“The problem is HughesNet customers in a geographic area all share the same spot beam — a regionally targeted satellite signal that serves a specific state or region,” D’Agostino said. “When we lived in North Carolina, the population growth in rural areas meant a lot more satellite customers were sharing the same spot beam, and speeds plummeted, especially after Netflix, Hulu, and cord cutting took off. Nothing eats bandwidth like streaming video, which is why you can subscribe to their 50 GB allowance package and be over that limit after a single week.”

D’Agostino fears that tens of thousands of additional satellite users will dramatically slow down HughesNet across upstate New York unless the company finds a way to get more shared bandwidth to serve the state’s rural broadband leftovers.

“That usually means, ‘wait until the next generation of satellites are launched,’ something nobody should have to wait for,” D’Agostino said.

The obvious solution for D’Agostino is to convince Charter Spectrum, the nearest cable provider, to extend its lines down his street. The cable company agreed, if he paid an $88,000 engineering, pole, and installation fee.

“That is not going to happen, even if we got the dozen or so neighbors in our position to split the cost,” he said. “This is why Cuomo’s program is a flop. It turns out close to $700 million is not enough, and they probably always knew there would be people they could never economically serve because they are miles and miles from the nearest DSL or cable connection. But if the electric and phone companies are compelled to offer service, the same should be true for internet access.”

D’Agostino believes rural New Yorkers left behind need to organize and make their voices heard.

“They keep saying we are .1% of New York, but I’ve seen plenty of rural town supervisors and other local officials across upstate New York complain they have all been left behind, and that decision will cost their towns good education, jobs, competitive agribusiness, and services online that everyone assumes people can easily access,” he said. “Clearly the state is not telling the truth about how many are being internet-orphaned. There have been three rounds of broadband funding in New York. It is time for a fourth round, finding either tax breaks or funding to get existing providers to reach more areas like mine that are less than a mile from a Spectrum customer.”

Ann shares that sentiment, and adds that Vermont is looking for ways to get internet to its rural residents as well.

“We’re at the point where companies or co-ops already offering service are probably the quickest and easiest option to solve the rural internet crisis, but they are not going to pay to do it if they are not required to,” she said. “We have taxes and surcharges on our phone bill now that are supposed to pay for internet expansion, but the amounts are too small to get the job done I guess. Perhaps it is time to revisit this, because 99.995% is better than 99.9% and satellite internet should be the last resort for people living in a cottage miles from anyone else, not for people who can be in town in less than a five-minute drive.”

A familiar story for any rural resident trying to get internet access to their rural home. But there is a small silver lining. HughesNet’s newest generation of satellites has provided a modest improvement that is often better than rural DSL. (10:19)

AT&T customers with Samsung Galaxy 8 Active or LG’s V30 or V40 smartphones began noticing a new icon on their phones starting last weekend: an italicized 5GE, leading some to believe 5G wireless service has now reached AT&T’s network.

Not so fast, AT&T.

AT&T’s use of 5GE, which stands for “5G Evolution” in AT&T’s techie parlance, is another example of how wireless carriers exploit up and coming technology upgrades that are unprotected from overzealous marketing misuse. The actual 5G standard is different from 5GE, and customers using 5G on millimeter wave frequencies can expect very different performance in comparison to today’s 4G LTE experience. But with 5G being hyped in the media, AT&T is attempting to capture some of that excitement for itself.

The company’s marketing division managed to accomplish a speed and technology upgrade without spending millions of dollars on actual 5G network upgrades — just by changing an icon on customers’ phones and making them believe they are getting a 5G experience. In fact, 5GE is actually just the latest evolution of 4G LTE already known to Verizon customers as LTE-Advanced or LTE Plus on Sprint’s network — technology including carrier aggregation, 256 QAM, and 4×4 MIMO that has been in use on competing cellular networks in the U.S. since at least 2016. But just as Verizon customers saw significant speed improvements from Verizon’s updates to the 4G LTE standard, as AT&T deploys similar upgrades in each of its markets, customers should notice similar performance improvements.

AT&T claims 5GE is already live in 400+ markets with more to come. In the short term, the “upgrade” that was pushed to AT&T network devices last weekend only switched on the 5GE icon, which will mean little to AT&T customers already reached by 5GE and never knew it until this past weekend, and nothing to those still waiting for the upgrade to arrive.

Walter Piecyk, an analyst at BTIG Research, says AT&T’s latest spectrum deployments will matter more than whatever the company brands its latest upgrade, and could eventually allow AT&T to surpass Verizon Wireless in network performance.

AT&T’s recent effort to improve its network by deploying more wireless spectrum — up to 60 MHz in many areas, is not the 5G upgrade customers might expect, but it will deliver faster speeds and more performance on today’s smartphones.

AT&T calls its forthcoming actual 5G network 5G+, and the company is launching a modest but authentic 5G experience in limited “innovation zones” in Jacksonville, Fla., Atlanta, Ga., Indianapolis, Ind., Louisville, Ky., New Orleans, La., Charlotte and Raleigh, N.C., Oklahoma City, Okla., as well as Dallas, Houston, San Antonio, and Waco, Tex.

In a money-saving maneuver, AT&T’s combined spectrum upgrades include 20 MHz of FirstNet first responder spectrum (prime 700 MHz spectrum shared with AT&T customers except during emergencies) it received in 2017, 20 MHz of AWS-3 spectrum (1755-1780 MHz for uplink operations and 2155-2180 MHz for downlink) it acquired for $18 billion in 2015, and 20 MHz of WCS spectrum (2300 MHz) it acquired from NextWave for $650 million back in 2012. All of this spectrum is expected to be activated at the same time as technicians work to upgrade each AT&T cell tower. This dramatically cuts AT&T’s costs and truck rolls for incremental upgrades.

AT&T calls its improved 4G LTE network “5G Evolution”

“We’re turning up not only the FirstNet spectrum that we got, but all of this other spectrum that we’ve acquired over the last few years,” AT&T CEO Randall Stephenson told investors at a December conference. “So as we climb these cell towers, we turn up the spectrum. By the time we get to end of 2019, we will have increased the capacity on AT&T’s network by 50%. I mean, you just have to pause and think about this. The entire AT&T wireless network capacity is going to increase over the next 14 months by 50%. I mean, that’s huge.”

Some areas have already received partial upgrades, others may find newly improved rural coverage as AT&T meets its commitments to the government’s FirstNet platform, which calls for more robust rural coverage. Some areas that never had AT&T coverage before may get it for the first time.

AT&T’s biggest competitor, Verizon, has commanded a lead in 4G LTE coverage from 2010 forward after utilizing a considerable amount of its available spectrum for the faster standard. But Verizon has not been a robust bidder for new spectrum recently, except for the millimeter wave frequencies it bought for its emerging 5G network. It has some additional unused AWS-3 spectrum it can use for expansion, but Piecyk believes Verizon may already be using those frequencies in many markets where it is likely facing a spectrum crunch.

While AT&T lights up 60 MHz of additional spectrum, Verizon is primarily depending on the ongoing conversion of 10-15 MHz of existing spectrum it now uses for 3G service to LTE each year. But the company is reportedly running out of frequencies in areas where data demand requires that extra spectrum the most.

The only short term solution for Verizon, which is not participating in marketing hoopla like 5GE, is to make its current spectrum more efficient. That means more cell towers sharing the same frequencies to reduce the load on each tower, improved antenna technology, and using newly available spectrum in the CBRS and millimeter wave bands to manage network traffic. Verizon may even use unlicensed shared spectrum to handle some of the load. Unfortunately, smartphones equipped to take advantage of these new bands are not yet available and may not be until 2020.

For AT&T, improved network performance is seen as a key to resume robust growth in new subscribers.  After Verizon dramatically improved its LTE network in 2014, AT&T stopped growing its lucrative post-paid phone subscriber base, according to Piecyk. Now it may be AT&T’s chance to turn the tables on Verizon.

This AT&T produced video helps consumers understand what 5G, beam forming, small cells, and coverage differences between 4G and 5G are all about. Notice the 5G trial speed test showed download speeds topping out at around 137 Mbps. (4:26)