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The US giant said it would spend $10 billion on deploying 5G over the next three years, having just purchased almost $53 billion-worth of spectrum in the Federal Communication Commission (FCC)’s latest auction
At the end of last month, the results of the US 3.5 GHz spectrum auction were revealed, showing the full extent of Verizon’s enormous 5G ambitions were revealed. Verizon spent more than $45.5 billion acquiring spectrum, almost double the second largest bidder, AT&T, who spent $23.4 billion.
It was always expected that Verizon and AT&T would bid heavily for the spectrum, with both of their current 5G offerings relying heavily on lower-band frequencies for support. Their rival T-Mobile, however, already has a significant lead in C-band spectrum courtesy of its merger with Sprint last year, which explains its lower expenditure of just $9.3 billion in this auction.
The bidding strategies from the three major players were much as the industry expected. What came as quite a shock was the sheer scale of the expense, with the auction raising around $81 billion, dwarfing the $30–45 billion figures estimated by analysts.
The massive expenditure puts the operators in a difficult position, begging the question of how they will recoup this enormous purchase?
Verizon, however, seems confident that its 5G strategy will more than make up for these immediate costs.
“We have definitely line-of-sight to a return, well above our cost of capital as a result of the investment we made,” said Verizon’s chief financial officer Matt Ellis on an investors call yesterday.
With its recent purchase of C-band spectrum, Verizon more than doubled its mid-band spectrum holdings, though not all of it will be available immediately. The first tranche is expected to be cleared by the end of the year, but the second, larger portion will only become available for use in late 2023.
Nonetheless, the company said it plans to have 100 million people covered by C-band spectrum within a year, with around 8,000 cell sites upgraded for the new spectrum. By 2024, the company is targeting 250 million people.
In total, planning an additional $10 billion in capex to see the spectrum deployed over the next three years.
In terms of profits from this deployment, Verizon is forecasting steady growth, aiming for a 2% increase in service and other revenues this year, 3% between 2022 and 2023, and 4% in 2024, after the spectrum is rolled out nationwide.
But these profits will not be entirely driven by mobile customers upgrading to 5G. Verizon will also be targeting the home broadband market, with the network upgrade allowing them to offer services to around 50 million households by 2024, incorporating 4G, 5G, and fibre. According to Verizon, the potential for cross-selling between the mobile and home broadband market is significant.
Ronan Dunne, CEO of Verizon Consumer Group, said that the company would seek “to convert as many of these homes as possible…into mobile and home customers”, saying that they expect to cover 15 million people with 4G LTE or 5G home internet services by the end of the year, increasing that total to 50 million by 2025. By that point, all of the company’s home internet customers are expected to be using 5G.
Beyond the consumer market, Verizon also predicts rapid growth in the addressable market for edge computing in the US, estimating that it will reach $1 billion by the end of 2022, and $10 billion by 2025. This is a field where Verizon already works with both Amazon and Microsoft in the public and private markets, respectively.
To say Verizon has bet big on 5G would be an understatement, but the scale of the opportunities it presents may more than make up for their incredible investment.
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