Deploying a nationwide 5G network in less than two years, in a country as big as the US, is not for the faint-hearted. Enter T-Mobile's John Legere.

Iain Morris, International Editor

May 3, 2017

8 Min Read
Is T-Mobile's 5G Plan Just a Pipe Dream?

John Legere, the belligerent, potty-mouthed boss of T-Mobile US, is famous for ranting about his bigger rivals' shortcomings.

He is also quick to pounce on any opportunity for self-promotion, and justifiably regarded as something of a marketing genius. "Every time he says something it sounds fantastic," says Bengt Nordström, the CEO of the Northstream market-research and consulting group. "When you read the small print there are always strings attached."

So when AT&T Inc. (NYSE: T) regrettably labeled a forthcoming 4G service as "5G Evolution" last week, Legere was among the first to call BS on the "fake 5G" pronouncement in a manner that would have made Donald Trump, a fellow ranter and self-publicist, feel proud. Days later, T-Mobile US Inc. was promising to have a "true" nationwide 5G network in place in 2020, just a year after the first 5G standard is due to appear. (See Surprise! AT&T Markets 4G Advances as '5G Evolution' and T-Mobile Promises 'Nationwide' 5G in 2020 With New Spectrum.)

Was this a classic bit of legerdemain from Legere, or can the self-styled "Uncarrier" really pull off such an ambitious network move?

Figure 1: Up for a 5G Fight T-Mobile US CEO John Legere bares his teeth before going into 5G battle. T-Mobile US CEO John Legere bares his teeth before going into 5G battle.

Both Nordström and Heavy Reading Principal Analyst Gabriel Brown think the plan is feasible from a technical standpoint. "It basically maps to the timeline for non-standalone 5G radio standards, availability of the first commercial equipment and the spectrum allocation," says Brown.

Indeed, thanks to a recent 3rd Generation Partnership Project (3GPP) plan to accelerate the development of the 5G new radio (NR) standard, the initial version of 5G should arrive in the market in 2019 -- up to one year earlier than the industry had originally expected. This "non-standalone" variant will allow operators to use the 5G NR in tandem with an existing 4G network. (See 3GPP Approves Plans to Fast Track 5G NR.)

"My expectation, at this stage, is that Ericsson and Nokia will upgrade their current state-of-the-art LTE base station platforms to support 5G NR," says Brown. "Both vendors have recently introduced new platforms and it is unlikely, although not impossible, they will introduce new RAN [radio access network] equipment that can be deployed commercially at scale in that timeframe."

As Brown points out, T-Mobile's 5G announcement also comes shortly after it splashed $8 billion on a swathe of 600MHz spectrum, having previously been a comparative weakling in the sub-GHz game. As T-Mobile brings these airwaves into use, and swaps out equipment, it "would need a good reason not to try to deploy 5G," says Brown. (See T-Mobile, Dish & Comcast Big Winners in $19.8B 600MHz Auction.)

Nordström is in broad agreement. "From 2019 operators will [start to] replace existing legacy base stations that are too expensive to upgrade with multi-standard, multi-frequency equipment," he says. "Operators could then allocate network resources in those base stations to 5G if they so wished."

That is the theory, in any case. The business case means the reality is likely to be quite different from T-Mobile's nationwide-5G-by-2020 plan.

The chief obstacle is on the cost side, about which T-Mobile and parent company Deutsche Telekom AG (NYSE: DT) have been unsurprisingly tight-lipped. But the German telco was far less reticent about 5G cost expectations at the Mobile World Congress (MWC) earlier this year. The bill for deploying 5G across Europe might be anything between €300 billion ($328 billion) and €500 billion ($546 billion), said Timotheus Höttges, Deutsche Telekom's CEO, during a press conference. (See DT Plots 5G Across Entire Footprint and The Growing Pains of 5G.)

Chief Technology Officer Bruno Jacobfeuerborn was similarly alarmist. Citing figures in a 2016 report from investment bank Barclays, he said the cost of deploying a 28GHz-based 5G network in the US could run to about $300 billion. (See DT CTO: Costs Must Fall or 5G 'Won't Work'.)

Next page: A budget-busting bill

A budget-busting bill
T-Mobile will not be rolling out a 28GHz-based network, of course, but one that uses an assortment of spectrum bands and relies heavily on its 600MHz estate. Because these sub-GHz frequencies provide better coverage than the high spectrum bands, they should support a more economical deployment of 5G.

But the final bill for a nationwide deployment is still bound to be large. The "active antennas" that form an integral part of 5G are as costly as base stations, says Nordström, and those are just the starting point. "If you build something with five or ten times the capacity on the radio side, you need corresponding capacity for the backhaul," he says.

Höttges had also hinted at the cost challenge the industry faces during his MWC presentation. "It is not just about putting new antennas on rooftops but lots of additional investments," he said.

So what kind of figure might T-Mobile be looking at? Daryl Schoolar, an analyst with the Ovum Ltd. market-research company, reckons the cost of building a nationwide 600MHz-based 5G network will be comparable to what AT&T or Verizon Communications Inc. (NYSE: VZ) spent on 700MHz-based 4G infrastructure. "My estimate is that AT&T spent less than $30 billion on 700MHz coverage -- maybe in the mid-$20 billion range," he says.

One caveat, notes Schoolar, is that T-Mobile may not have to spend quite as much on backhaul as AT&T did during its 4G rollout. "AT&T was going from a W-CDMA [3G] network with single-digit Mbit/s capacity to 70-100Mbit/s capacity base stations," he says. "This won't be entirely the case for T-Mobile -- it may have some backhaul in places where it collocates its 600MHz base stations with its existing LTE base stations."

Echoing Heavy Reading's Brown, Schoolar also points out that T-Mobile's 5G network will not be entirely "ground up," relying heavily on software upgrades to 4G infrastructure.

Want to know more about 5G? Check out our dedicated 5G content channel here on
Light Reading.

But even if the cost works out to be around the $20 billion mark, that would be about four times what T-Mobile plans to invest in total capital expenditure this year. At most, the 5G spending will be spread over a two-year period, with T-Mobile indicating it will start rollout in 2019 and achieve "nationwide" coverage in 2020.

Astronomical as this capex increase sounds, it might not much bother investors if 5G triggers a big surge in customer spending. But experience suggests this will not happen. While T-Mobile's own sales have soared on subscriber growth, its average revenues per user (ARPU) have fallen significantly.

Five years ago, before a high-quality 4G network was widely available to its users, T-Mobile's contract customers were generating monthly ARPU of $58. Today, that figure is just $47.53 (although T-Mobile no longer subsidizes devices in the traditional way, and claims that average "billings" per user, including handset fees, were $61.89 in the recent quarter).

Moreover, while overall revenues have continued to climb -- rising 16% in 2016, to about $37 billion -- T-Mobile may be hard-pressed to maintain its momentum on customer growth. Even if it does, 5G spending will probably lead to a big increase in capital intensity (or capex as a percentage of revenues).

"It's a very aggressive plan and, while I wouldn't rule it out technically, it will require a swap-out that will have a huge impact on the capex budget," says Nordström in assessing Legere's 5G scheme. "T-Mobile will get punished by the analyst and investment community if they spend that money."

Early concern about the cost implications of the 5G plan wiped 2% off the value of T-Mobile's share price on the Nasdaq on May 2 -- the day of the 5G announcement -- and the stock was down about 0.9% today, at $66.33, at the time of publication.

As far as Northstream is concerned, a far likelier scenario for 5G deployments is that operators upgrade 10% to 15% of their networks each year, meaning the full transition to 5G takes at least seven years.

Figure 2: Source: Northstream. Source: Northstream.

Even so, Neville Ray, T-Mobile's chief technology officer, sounds "pretty confident" about the plan, according to Ovum's Schoolar. And Legere's 5G ambition is understandable from a strategic perspective, reckons Nordström. "He wants to eliminate the traditional technology leadership position that Verizon and AT&T have," he says. "So when customers look at T-Mobile in future it will not just be about low prices and huge data plans."

T-Mobile has certainly confounded the industry before. If it can build a nationwide 5G network in the next three-and-a-half years, it will have pulled off its most remarkable feat of all.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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