Verizon, once the player to beat in mobile services and perhaps the strongest Tier One overall, sure seems to have fallen from grace. The company has lost wireless subscribers every quarter for years and it’s now trading at its lowest level in five years. Given the fact that stocks have been in the toilet for most of this year, and that telcos worldwide are asking regulators for some form of relief, what can we say about the whole mobile services and telecommunications space?
One thing I (at least) can say is that 5G isn’t going to pull operators out of the fire. In fact, there are strong indicators that 5G has made things worse, and that negative impact is not done yet. 5G is an orderly infrastructure upgrade to wireless networks, needed largely because it increases the number of subscribers a cell can support. However, to realize the benefits of 5G, you need the obvious step of deploying it, and the less-obvious step of getting a lot of your customers to switch to it.
5G deployment has been budgeted for years, but that doesn’t mean it’s been free. The need to deploy 5G has generated capex that runs counter to operators’ general desire to lower costs. They’ve spent five years paring down opex, to the point where there’s little left they can do there. Capex is what remains, and most operators are still only a bit more than halfway through their planned 5G upgrade projects. That’s clearly a problem.
A second problem is that willingness to pay for mobile services is diminishing. I don’t claim to do large-scale user surveys, but the discussions I have with tech people has been enlightening. Five years ago, nearly all those I interact with said they got their home wireless services from a “premium” provider. Only a fifth indicated any real concern about competitive pricing. Today, only half tell me they get wireless services from a premium provider, and two-thirds have either price-shopped or are now planning to.
Part of the reason for this shift is the improved reliability and availability of wireless services in general, and the growth of and improvement in MVNO services, which while they don’t replace the infrastructure of big providers, do reduce their profits. Some MVNOs target specific population segments, like seniors, and others bundle mobile services with wireline and TV to make their offerings stickier with consumers. Either cuts into the revenues of players like Verizon.
Another issue 5G has exacerbated is the “promotional smartphone” problem. Some operators (notably AT&T in the US) have recognized that users really care more about their phones than their phone services, and have decided to offer regular upgrades and phone discounts as their differentiators. While this raises their costs significantly, it also helps them sustain or even build their customer base. In the past, players like Verizon who believed they had service-level differentiation were slow to get into the promotional-phone game, but with 5G it’s important that you get customers onto the new service, and that means making deals on phones that support 5G.
Those who have watched the telco space over the last couple decades probably recognize the current situation; it’s very much like what happened in wireline services. We had a need for massive capital investment to get broadband speeds up, competition among providers, CLECs and wholesaling, you name it. Wireline has been less and less profitable, and the current trend toward streaming (which smartphone use surely contributes to) has undermined the once-safe live TV bastion for operators. Wireless was the safe haven of profits in those days; it’s not so today.
Nor is it likely to be in the future. I think that we can expect to get through 2022 and even 2023 without any major convulsions for the telco world, but beyond that I think that the warnings about return on infrastructure are going to be justified by conditions, and some action will be needed. Some may question why that is.
We have public utilities that provide electricity, water, gas, and so forth. Telcos, in the past, were surely either public utilities or services of the government. Why are they in trouble when the other utilities are not? Demand and competition are probably the reason.
It’s not that telecom demand has exploded more than the demand for, say, electricity, but that fulfilling the demand has required a different kind of infrastructure. You can make more electricity in a variety of ways but most of the transmission facilities in a modern economy are capable of being utilized, and so are the generation facilities. Maybe you need more of something, but it’s not a tech revolution. On the other hand, both wireless and wireline services of 20 years ago would be useless in supplying today’s needs, and the elements of the infrastructure of those older services would have little or no value. We have to invent what’s almost a new telecom.
The regulations that followed “privatization” of telecom over two decades ago didn’t help, either. The “competitive local exchange carrier” or CLEC concept forced telcos to wholesale copper loop to others, the idea being that this would increase competition. What it did instead was to limit investment in technologies that could have supported better broadband, by both potential competitors and by telcos themselves.
Competition eventually developed, delayed by a decade by poor public policy IMHO. In wireless services where you don’t need to trench physical media to every home and business, the barriers to competition are lower. Other public utility services require extensive distribution investment, which keeps competition levels low. With telco competition we’ve largely eliminated the true public utility model of a guaranteed rate of return, and so telcos unlike public utilities may no longer have a safe dividend yield.
But these aren’t the biggest issue. That honor goes to the risk that telcos won’t be able to sustain the growth in network capacity and latency needed to fully realize the vision of the Internet.
One of my LinkedIn contacts just sent me a quote of mine from Business Communications Review in 1996: “The Internet is a good way of supplying product information and supporting material to a literate population. If that describes a company/industry’s market, then the Internet will promote success. I do not believe it will bring about the massive changes some have forecast, simply because the availability of knowledge does not imply the effective utilization of same. We’ve had libraries for centuries, yet most people never set foot in one. Why should the Internet be any different? Like books, it will widen the gap between those who dip into it and those who don’t.” The interesting thing is that the defining truth about “the Internet” is that it’s pulled through the underpinning of universal broadband, and universal broadband is in the process of spawning new overlay services that don’t require understanding to use.
This is the base truth of 2026, to step out thirty years from my quote. What most people call “the Internet” is the worldwide web and online, web-based services. These have proved valuable enough to generate a whole new kind of literacy, the thing we call Internet literacy. The biggest step, the one coming, is the harnessing of AI/ML, edge computing, broadband, digital twinning, and more to create what’s essentially an information field that we all live in and exploit implicitly by how we live, not explicitly by what we know how to do.
I didn’t anticipate this back in 1996, and so I can hardly take others to task for not seeing it then. I can call the industry out for not seeing where we’re headed, though, and for not understanding that telecommunications services are the thing that’s needed to get us there. We need to understand how the higher-level “information field” of the future evolves out of its constituent parts, but we also need to insure that the medium that field will depend upon, which is broadband connectivity, is available in the form we need, when we need it. The industry, meaning both telcos and vendors, and governments should be looking at this right now, while we have time to address the issues properly. If I were a network vendor, I’d be taking a lead on this point for 2023.