The 5G smartphone promotions by US telcos were fast and furious during the holiday season as US carriers attempted to lure consumers to either switch providers or upgrade their plans via free phones or through other incentives such as access to free streaming services, wireless chargers and gaming subscriptions.

At various times, AT&T, Verizon and T-Mobile have sworn off giving out free or discounted smartphones to win over customers, but with 5G deployed across most of the nation's major metropolitan areas, the deals are back as carriers look to cash in on their 5G rollouts.

Do the math

"Once upon a time we had handset subsidies. Then the industry swore off them, and now they're back on again," said analyst Roger Entner with Recon Analytics. "We've done the math and the math said this makes sense. They don't take a financial bath with this. Look at the EBITDA for AT&T. It's up 4%, which is not that bad. It makes sense once you start crunching the numbers."

Entner said the smartphone promos help the US telcos recoup some of the cost of building out their 5G networks by extending the life of the customer. Typically, carriers get consumers to sign up for their most expensive tiers, such as T-Mobile's premium Magenta Max plan. By contrast, AT&T's promos include a range of devices and plans across various tiers, Entner said.

"It would concern me a lot more if the monthly reoccurring costs [MRCs] were coming down," Entner said of the smartphone promotions. "They're actually improving on their price points. When you are signing up for one of these new devices, a lot of the carriers have you sign up to the bigger price plan and that recoups the cost. It gets a lot more concerning if they provided free devices and we see pressure on the MRCs."

Rich 5G apps set for lift-off in 2022

In addition to attracting, and hopefully keeping, more mobile subscribers with the promotions, the US carriers are also putting new phones into customers' pockets to upsell them on the apps and services that 5G enables. The long-awaited monetization side of 5G deployments, which includes network slicing on the enterprise side, is poised to accelerate in the US in 2022. In addition to the US telcos, MVNO cable operators, such as Charter and Comcast, are also working on deploying their own apps to further upsell their 5G services.

According to a 5G poll by research firm Omdia, "access to new and better apps" placed third overall behind "faster speeds" and "better mobile coverage," respectively, when asked what 5G meant to the respondents.

In a recent Light Reading podcast, Omdia's Nicole McCormick, senior principal analyst of 5G and broadband, pricing and strategy, said telcos in countries such as South Korea, Japan and China already have rich apps in place as part of their bundled offerings. While US carriers built out their 5G networks in a patchwork fashion, telcos in China or South Korea were early to market with their advanced 5G apps because their networks were deployed nationwide from the start.

On the podcast, McCormick said about 158 operators have launched 5G. The initial phase of most 5G launches often included just the services and handsets with no premium apps or services to upsell to customers. At the other end of the "do nothing" 5G operators are the carriers that are bundling "rich" 5G apps, such as 4K streaming and augmented reality, to show customers that 5G is more than just faster speeds.

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"We rank bundling 5G rich apps as the most innovative [tier offering], because that's giving the consumers visibility on what paying a little bit more for 5G means," McCormick said. "Out of those 158 operators today, about 22% are actively engaged in this new ecosystem, this new value chain of bundling those rich 5G apps. The US operators are beginning to tread down this path."

Rich 5G apps include 3D AR shopping or 3D AR kids' e-books. On the e-book front, AT&T announced last summer that it was offering a free six-month trial of children's books with e-book company Bookful for customers who had a 5G device from the telco.

McCormick said the proverbial low-hanging fruit for 5G apps was cloud gaming because there are already large-scale cloud gaming companies and ecosystems in place today. Entner disagreed about cloud gaming being a successful 5G app because he said it required a wireline connection.

"It's relatively easier for the telco to go and discover this ecosystem, discover who the players are in it, and discover the monetization models," she said. "Monetization gets sophisticated when we start looking at 3D AR and when we start talking about cloud gaming, it's not just a baseline model of give us $10 a month and you've got your cloud gaming service."

In addition to direct monetization, McCormick said there are also indirect monetization revenue models in play that carriers need to figure out.

"The bottom line is that a lot of what the operators talk to me about is that they feel challenged by this new ecosystem because a lot of them still haven't dug into it,," she said. "A year ago we had a lot more operators 'do nothing' but they have since jumped into the more sophisticated models. So slowly, some of these new value chain propositions are being better understood."

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— Mike Robuck, Contributing Analyst, Light Reading