The differences between wireless carriers' respective investments in edge and fiber could indicate who and what will lead the future of 5G, suggests Jennifer Fritzsche, managing director and senior equity analyst at Wells Fargo Securities.
In part one of this two-part Q&A (lightly edited for length and clarity), Fritzsche spoke of extensive fiber rollouts at the edge when it comes to enabling 5G automation in applications. Now, in part two, Fritzsche continues this train of thought in the context of the fiercely competitive 5G landscape.
(For Wells Fargo's disclosures pertaining to this interview, please visit https://www.wellsfargoresearch.com/Disclosures/DisclosureSearch).
Telco Transformation: So there's only so much spectrum in the world…
Jennifer Fritzsche: Right.
TT: And, as you mentioned previously, there are only so many growth opportunities in wireless…
TT: So as telcos hype up new business models as a panacea of 5G applications, like the Internet of Things [IoT] and artificial intelligence [AI], is 5G really just a red herring?
JF: Well, I think 5G will transform so much -- you mentioned autonomous driving -- certainly with AI, just the data demand on the network. But I think one has to question if 5G also allows strong competition with the cable guys. Fiber is a critical element that's going to be needed; they have a lot of it -- but they don't own wireless spectrum. So there are a lot of implications for it from a competitive standpoint as well.
TT: Then would it be fair to say that 5G is really a fiber race -- and that everything else is incidental?
TT: What's the importance of edge-computing capabilities in that fiber race?
JF: I know that we are seeing a robust fiber build from Verizon, which I think is all things towards the edge. We've heard AT&T talk about the incremental billion dollars that they're going to spend next year during tax reform will be directed toward fiber. So I think that anyone with a wirelined infrastructure is going to be better positioned here because they instantly have a head start. This begs the question of what, for instance, a T-Mobile might do -- and that's an open question, frankly. I would think that cable needs spectrum and, for instance, T-Mobile needs fiber -- and that's what cable brings. So I think that you're seeing more of that at the edge certainly happening, but we're very early in the process.
TT: A few years from now, when we're supposed to really have 5G under most everybody's definition, how will we see 5G and its applications being used in the real world? And how will the market landscape look?
JF: It really is kind of apples to oranges. If you were talking to Lowell McAdam, [CEO] at Verizon, he would say, "I'm going after the wireline footprint of Comcast and others outside my own footprint," so the first use case of 5G is fixed wireline replacement. If you talk to T-Mobile, which is doing a low-band strategy, they would say that it's things like IoT; you don't need a lot of low latency for that. So it's hard to say. I would say it's more substance than form at this point. We had a whole conference about 5G last June, and some of the people who said, "Gosh, I thought I knew what 5G was at the start of the day, and now I'm more confused coming out of it." And I think that "What does 5G mean?" is not an easy elevator pitch.
So to answer your question, T-Mobile will have the first nationwide mobile wireless 5G network. But that's more a function of the fact that they're using the "easier" spectrum with longer propagations built out. So that is something that will be IoT-esque -- think smart cities, smart meters -- but yet T-Mobile doesn't have great enterprise penetration. For Verizon and AT&T, it's going to be a different story. This year they'll have three to five markets; next year they'll have maybe ten to 15 markets.
TT: Last time, too, we had discussed how different wireless carriers' respective approaches to 5G are. So is there enough of the 5G market to go around for all of the wireless carriers?
JF: I don't think so. Most definitely, the two words to remember with 5G [are] "low latency" -- because for all the applications, with the exceptions of light monitoring and meter reading and things like that, low latency requires a lot of fiber and a lot of high-band spectrum. There are two [telcos] doing that, and that's the big guys -- AT&T and Verizon. So it's hard for me to see that they won't be the winners here. T-Mobile will likely have the bragging rights of being the first national provider, but they are the one that is using the "easiest" spectrum to do it.
— Joe Stanganelli, Contributing Writer, Telco Transformation