The realities of rural 5G deployment in the US
Ajit Pai, the chairman of the US Federal Communications Commission (FCC), announced his approval of the merger of T-Mobile and Sprint. This will result in a third megacarrier in the US mobile wireless market, which is a good move for consumers like you and me. I am glad this deal will now likely go through.
One big argument to promote the deal bothers me, however. In fact, it's much bigger than any combination of carriers. The splinter in my mind is the whole topic of 5G deployment bringing high-speed broadband service to rural populations in the US. The FCC and others proclaim that 5G will bring broadband to the masses outside metropolitan areas. That's absolutely not going to happen without substantial government subsidies.
One development in this quest is the $20 billion Pai proposed for his Rural Digital Opportunity Fund. This is a big help and a lot of money. The US House Energy and Commerce Committee also introduced the LIFT America Act to potentially add another $40 billion. Congress will bicker over this funding and attach numerous riders to leave actual investment stuck in a partisan quagmire for years. Even if you add the two, $60 billion still may not be enough to compel carriers to deploy 5G to these regions of the country. Connecting far-flung locations will require additional investment in fiber and microwave links that will balloon the total costs to well over $200 billion.
The FCC's goal is to cover 90% of the population within five years. As a function of density, that 90% only covers 36% of the real estate in the US. Extending infrastructure to the boonies is extremely difficult, time-consuming, and expensive. Reaching the remaining 64% of the real estate with 5G will take well over a decade -- if it happens at all.
The truth is that rural areas are at the bottom of the list of priorities for every major communications carrier. The money just isn't there. They will simply invest where the people are. If a wireless customer generates $50 per month in revenue, and if only 10% of a given population subscribes, the revenue priority is obvious. These geographic areas show some interesting insights into how this will play out, given this conservative formula for revenue:
Population density | Household income | Households with broadband | Revenue | |
Manhattan, N.Y. | 69,467.5 | $85,071 | 81.9% | $347,337.50 |
City of Chicago, Ill. | 11,841.8 | $55,295 | 73.5% | $59,209.00 |
Santa Clara County, Calif. | 6,327.3 | $106,761 | 89.4% | $31,636.50 |
City of Palo Alto, Calif. | 2,696.5 | $147,537 | 91.3% | $13,482.50 |
Carbon County, Pa. | 171.1 | $51,236 | 74.4% | $855.50 |
US | 87.4 | $60,336 | 78.1% | $437.00 |
Campbell County, Wyo. | 9.6 | $80,178 | 86.4% | $48.00 |
Loving County, Texas | 0.1 | $ 80,938 | 64.5% | $0.50 |
The money is in the densest populations. The dark-blue areas in this US map will be served first. Early (prestandard) 5G trials are there. The light-green areas will wait -- perhaps for a decade or more. The carriers will spend tens of billions per year building out 5G infrastructure. Naturally, they will prioritize locations that will yield the best returns. Revenue per square mile is the metric to watch. My $50 per month for 5G and 10% penetration rates are very low to make a point that even if it's cheap, there is big money in dense areas.
The whopping 152 people across the 669 square miles of Loving County, Texas -- the most sparsely populated continental US county -- offer the potential for fifty cents per square mile each month! The big telco execs won't even utter that county's name, let alone serve it with 5G! I live in Carbon County, Pa. While a metropolis compared to Loving County -- and technically not considered rural by the US Census Bureau -- my particular "neighborhood" is clearly rural. I barely have 4G, and many in the truly rural areas envy what I have here.
Affluence plays into the equation, too. Sheer income is relevant, but a better metric for affluence here is the penetration rate of existing wired and wireless broadband options. Look at Santa Clara County and the city of Palo Alto. These are not the densest regions and they have ubiquitous broadband already, which indicates that they may not be optimum. But this is the heart of Silicon Valley. High income and a high-geek factor mean this area is a prime target for 5G services. Forget some of the autonomous-driving use cases, even though the valley geeks love their connected cars. The geeks will want 5G purely because it's advanced technology and they can afford it. 5G gives them status. They will pay far more than the general population because they demand premium service. Rural communities do want broadband, but they can't or won't pay the expected premium pricing. They also don't necessarily care about digital status.
I know you're wondering why the income is so high in Loving County and Campbell County, Wyo. So was I. Loving County is an oil region where the few inhabitants are not as educated as the cities, but they work hard and make good money. I chose Campbell County because the maps highlight how the sparse population is well-connected. The population is heavy in construction and mining. That doesn't fully explain the high income and connectivity, but I'll keep digging.
As a business, what does it mean for you?
If your business relies on remote workers, remote partners, or has a presence in rural areas, don't count on 5G to help your communication needs. In fact, 5G isn't going to be a force anywhere for a few years. Resist the temptation to rely on the promise of 5G for customer and employee engagement. Media companies counting on 5G to serve content at high speeds will only do business in the dense metros. Stick with wireline services and 4G to reach these people and these areas.
This post was written by Vice President and Research Director Glenn O'Donnell and originally appeared here.