Verizon Eyes Bigger Role In Residential Broadband As It Builds Out 5G Network

by Trefis Team
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Last week, Verizon (NYSE:VZ) said that it plans to offer wireless residential broadband services starting from late 2018 using 5G technology, as it looks to increase its presence in the high-speed broadband space, competing with cable giants such as Comcast and Charter Communications. Although Verizon has scaled back on its wireline telephone and Internet operations, selling a part of the business to Frontier Communication in 2015, the new services will leverage the carrier’s upcoming 5G network, which could allow it to offer high-speed Internet in a capital-efficient manner. In this note, we take a look at what the offering could mean for the company.

We have a price estimate of $52 for Verizon’s stock, which is about 15% ahead of the current market price.

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Verizon Will Leverage Its 5G Buildout

Verizon has been betting big on 5G technology, and the company intends to use it for the new home Internet offering. The technology is expected to have speeds of upwards of 1 Gbps, with very low latency, allowing it compete head-on with the best fixed-line wireless services. By going wireless, Verizon will also cut down on last mile installation costs. Verizon appears to have a head start over rivals such as AT&T, which have also expressed interest in the wireless home Internet space. The carrier was among the first to start 5G trials, and it also holds a significant amount of spectrum. As of May 2017, the company was estimated to hold about 236 and 180 billion Mhz-POP in the 28 GHz and 39 GHz bands, respectively. In comparison, AT&T is estimated to hold just about 40 and 8 billion Mhz-POP, respectively. That said, the technical viability and cost of providing the services at scale still need to be figured out. For instance, 5G signals use higher frequencies, meaning that Verizon will have to install more antennas closer to homes in order to provide adequate performance. The company said that it will have better estimates of the costs of building out the service nationwide by the end of next year.

5G Could Give Wireless Carriers An Opportunity To Play A Bigger Role In Broadband Space

The U.S. broadband market has been growing at a modest pace, with the subscriber base of major broadband players rising by 2.2% year-over-year in Q3 2017 to about 94.5 million subscribers, per the Leichtman Research Group. However, Verizon and other telecom operators have been losing subscribers (combined 156k subscribers losses in Q3’17), compared to their cable rivals who have been gaining share  (540k net adds in Q3’17). Verizon alone lost about 10k net broadband subscribers in Q3. This has been partly due to the fact that cable offers higher speeds compared to the legacy DSL services offered by telecom operators, while offering a wider reach compared to their faster fiber-optic-based services. If the new wireless Internet foray performs well and proves cost-effective, it could open up new markets for Verizon. A large percentage of American households have limited choices with respect to Internet service providers, with a study indicating that there are about 50 million American households with access to just one 25Mbps provider or none at all. This could provide Verizon an opportunity to enter these markets using its wireless infrastructure. Verizon intends to initially roll out the high-speed wireless broadband in three to five cities, starting with Sacramento. However, the company is ultimately targeting between 25% to 30% of all broadband households, or about 30 million homes.

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