April 5, 2022
AT&T and Verizon – two of the nation's biggest 5G mobile network operators – own extensive fiber holdings around the country, and both argue that such ownership is critical to their long-term success. T-Mobile and Dish Network, on the other hand, are building extensive 5G mobile networks (though Dish hasn't yet switched on commercial services) without owning any fiber whatsoever. And, according to both Dish and T-Mobile, that's just fine.
So, which side is right?
Naturally, the answer isn't straightforward. But it's an important topic considering a commercial 5G network cannot exist without somehow connecting into the world's broader fiber Internet backbone. That connection – called backhaul – can account for around 15% or more of a mobile network operator's total spending, according to estimates from the GSMA.
"While T-Mobile and Dish do not own a fixed network, they lease fiber connections to cell sites and use microwave where fiber is not available," explained analyst Jimmy Yu with research and consulting firm Dell'Oro Group, in response to questions from Light Reading. "AT&T and Verizon use their fixed network for backhaul, lease fiber from other carriers where needed and use microwave when fiber is not available. I'm not sure any one operator's [mobile network] performance is better than the other's due to ownership of backhaul. It may improve their long-term costs to own the backhaul."
The leasing model
According to Dish Network's Dave Mayo, the company doesn't need to own a fiber network in order to offer cheap, speedy 5G. "Fiber is a commodity," he said, noting that Dish has had no trouble obtaining inexpensive fiber backhaul connections at its cell sites.
Mayo isn't the only executive who believes in the commoditization of fiber backhaul.
"We've had tremendous success in the backhaul space ... securing 10-gig circuits and for tremendous pricing, high quality," T-Mobile CFO Peter Osvaldik said during a recent investor event, according to a Seeking Alpha transcript.
Analyst Joe Madden, with research and consulting firm Mobile Experts, agreed. "It is a commodity," he said of fiber backhaul, in comments to Light Reading. Madden explained that, in the early days of cellular, backhaul could often be difficult or pricey to obtain, but that's no longer the case.
"The pricing is not predatory," he said of today's backhaul market. "There's sort of established prices out there."
Figure 1: (Source: the lightwriter/Alamy Stock Photo)
Mobile Experts estimates that, over a 10-year timeframe, it costs 50% more to lease fiber backhaul than to own it outright. He said that, for companies like Dish, the expense makes sense considering that leasing is cheaper at the outset.
"I don't know that they're really in the business to be in the business for 50 years," Madden said about Dish, which has long promised to offer wireless services across its spectrum holdings but hasn't yet launched commercial offerings.
But for T-Mobile, which traces its corporate origins back to the 1990s, the situation may be different.
The ownership model
"We're investing in a scaled fiber network with a deliberate wireless strategy. By owning and operating both, we have stronger flexibility to [be] the leader that captures growth by providing high-quality broadband in more places for businesses and consumers," AT&T's Jeff McElfresh said during his company's recent analyst day, according to a transcript from the company.
Verizon CFO Matt Ellis agreed and offered some very clear numbers to back up his assertion.
"This investment in our own fiber connectivity provides us with material benefit that others in the industry cannot match, including more flexible product offerings, end-to-end performance and quality control as well as improvements in our cost to serve," Ellis said, according to a Verizon transcript of the company's recent analyst day. "We estimate that we saved approximately $300 million of access costs in 2021 due to cell sites being on our own fiber. And ultimately ... we expect annualized access cost savings to approach $1 billion by 2025."
At the end of 2021, 45% of Verizon's cell sites connected directly to the company's fiber network. By the end of this year, the company expects that figure to rise to 50%.
However, it's worth noting that Verizon does not appear to be passing those savings on to its mobile customers. For example, T-Mobile's unlimited 5G service plans are among the cheapest in the industry, whereas Verizon's remain among the most expensive.
Although backhaul is the most direct link between a wireless network and a wired one, it's not the only reason to own both.
"We have an opportunity to cross-sell in our fiber footprint," said AT&T's Jenifer Robertson during the company's analyst day. "We've proven we can grow wireless relationships where we have fiber. In fact, our wireless market share is 50% higher in our fiber footprint."
Indeed, that's the exact argument that T-Mobile has made in regards to its burgeoning fixed wireless access (FWA) business. Company executives have said that 40% of the operator's FWA customers are new to T-Mobile, creating an opportunity for the operator to make them mobile customers too.
"Bundling services has helped operators' top line," agreed Dell'Oro Group's Yu.
That situation may explain why T-Mobile is testing the sale of fiber in New York City. As noted by The Verge, T-Mobile is offering fiber connections from an unnamed local provider to select residential buildings in Manhattan.
Mobile Experts' Madden said that there is one more oblique benefit to operating both a wireless and wired network: capex stability for Wall Street investors. For example, he said that Verizon's capital expenses have remained relatively steady during the past several years, which is good for investors who don't like surprises. Madden said that Verizon has kept its capex smooth by focusing its spending on fiber after finishing the bulk of its 4G network, and then shifting that spending back to its wireless network when additional spectrum became available for 5G.
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