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Verizon lays out mmWave 5G expansion plans for 2021

Verizon said it plans to increase the number of its 5G millimeter wave (mmWave) transmission sites from around 14,000 today to 30,000 nationwide by the end of 2021.

Some analysts aren't impressed. For example, LightShed Partners analyst Walter Piecyk noted that 30,000 mmWave transmission sites wouldn't cover Delaware, given the diminutive propagation characteristics of signals in highband spectrum.

Nonetheless, Verizon said its buildout efforts would bring its mmWave services to more markets. Specifically, Verizon said it will expand its 5G mobile mmWave service (dubbed Ultra Wideband) to another 20 cities by the end of 2021, which would raise its total to 81. The company also said it would expand its 5G Home fixed wireless Internet service to an additional 20 cities in 2021, which would raise its total to 37. (It's likely that many, if not all, of those markets overlap.) And Verizon said it will double the number of locations where it is offering edge computing through Amazon Web Services – from ten to 20 – by the end of 2021.

Depressed capex

Verizon said it will not increase its overall network spending in 2021 even as it expands its mmWave network and its underlying fiber network for 5G. Verizon said it spent $18.2 billion in capital expenditures (capex) during 2020, and that it expects to spend roughly the same – between $17.5 billion and $18.5 billion – in capex during 2021. That figure is well below the $20.4 billion that most financial analysts had expected.

"What you're seeing is a very efficient capital deployment model," Verizon CFO Matt Ells said on the operator's fourth quarter earnings call Tuesday, in response to questions on the company's 2021 guidance.

Verizon's efforts in mmWave stand in stark contrast to those by AT&T and T-Mobile. Both AT&T and T-Mobile have deployed commercial mmWave networks in select locations like football stadium and music venues, but neither has voiced interest in the kind of widespread coverage areas that Verizon is looking to build.

Nonetheless, there are indications that other operators around the world could follow Verizon into the mmWave arena.

"For many years we have heard about how mmWave spectrum could be put to use by mobile operators, but it is only relatively recently that we have seen clear signs of market readiness," wrote Sihan Chen, an official with the GSMA trade group. Chen pointed to a number of operators throughout China and Europe that are preparing to launch 5G services in mmWave spectrum.

Such efforts also follow new research into the capabilities of 5G in mmWave spectrum. For example, Signals Research Group recently reported on "good robustness" in mmWave 5G in a series of new commercial tests across the US. "Although mmWave signals have coverage challenges, it is relatively straightforward to find areas where multiple 5G NR [New Radio] radios in a commercial network can cover the same location as well as observe reflected signals providing coverage even when the 5G NR radio is pointed in the opposite direction," the analysts wrote.

Monetizing fewer customers

Amid Verizon's 5G expansion, company officials sought to offer investors some assurances about the financial side of the effort. "We're already seeing monetization happening," CEO Hans Vestberg said of the operator's 5G sales. "We are making money on this, which is the whole idea."

Verizon had initially looked to charge extra for 5G, and has done so on a handful of plans, but the company's primary 5G strategy for consumers today involves reserving the technology for its more expensive unlimited plans, thus enticing customers to upgrade to those plans. Vestberg said that 55% of Verizon's new customers did just that during the fourth quarter, a figure he said indicates that Verizon's 5G strategy is paying off.

However, Verizon reported the addition of far fewer customers in its 2020 fourth quarter than financial analysts had expected. Specifically, most analysts had anticipated Verizon would add 427,000 new postpaid phone customers to its network during the period, but Verizon only added 279,000.

"We think competitors' retention promotions during Q4 shrunk the industry gross add pool," explained the financial analysts at Sanford C. Bernstein & Co. in a note to investors Tuesday morning following the release of Verizon's earnings. Indeed, Verizon executives had hinted as much, following AT&T's announcement that it would offer a free iPhone 12 to new and existing customers.

"We are confident with the strategy we have. That might not be the same strategy as others," Vestberg said of Verizon's fourth quarter customer additions. He argued that the customers that Verizon did add during the quarter were quality customers – comments that appeared to reflect his belief that other network operators might be signing up customers who may not spend as much as the ones signing up with Verizon.

T-Mobile reported 1.7 million total net additions during the fourth quarter, in preliminary results. AT&T is scheduled to report its own quarterly results Wednesday morning.

Despite Verizon's relatively sluggish quarterly customer numbers, the operator reported that its wireless service revenues from consumers reached $13.6 billion in the fourth quarter of 2020, a 1.2% increase year over year. The operator said it expects wireless service revenue growth above 3% during 2021.

C-band bills loom

Hanging over Verizon's quarterly results this week is the FCC's ongoing auction of C-band spectrum for 5G. The auction raised an astounding $81 billion in total bids, and some analysts believe Verizon might be on the hook for as much as $40 billion in C-band spectrum-purchase expenses. The FCC is expected to announce the winners of the auction in late February or early March. The FCC announced today that the assignment phase of the C-band auction will begin February 8.

Concerns over that auction may have had a role in the decline of Verizon's stock price following the release of its fourth quarter results Tuesday. The operator's stock reached $58 per share the evening prior to the release of its earnings, but tumbled to around $56 per share in trading Tuesday morning.

"Verizon has been due to give up value for a much bigger than expected auction spend, and we suspect investors have waited to get results out of the way before expressing that impact," wrote the financial analysts with New Street Research following Verizon's Q4 results.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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