Verizon customers will have to pay premium prices to access its fast 5G network
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Verizon is spending more than $50 billion to get access to critical airwaves it needs to offer fast 5G wireless service nationwide. Now we’re starting to find out how the company will pay for it.
The telecom giant revealed on Wednesday night that only subscribers to its premium unlimited plans, which start at $80 monthly for one line, would get access to the new 5G airwaves that it won at a government auction last month. These high-band airwaves will provide download speeds of 1 gigabit per second or more.
Customers in transit will also get that superfast service. Currently, Verizon’s high-speed 5G network is available only in small parts of 67 cities, meaning that customers can get the high speeds only in isolated locations, basically while sitting still.
But subscribers to Verizon’s basic unlimited plan, which starts at $70 per month, and its lower priced limited data plans, are out of luck. They’ll be stuck with Verizon’s much slower low-band 5G network, which sometimes isn’t even faster than its 4G network.
The goal, company executives explained at an event with analysts on Wednesday, is to persuade more customers to switch to the more expensive phone plans. At the end of 2020, only 21% of Verizon’s mobile customers were on a premium unlimited plan, while 43% had basic unlimited, and 36% were on a limited data plan of some kind. The company said it wants to get half of its customers on premium unlimited plans by the end of 2023.
Wireless companies are racing to build the fastest 5G network. T-Mobile may have an early lead thanks to airwaves it obtained when it bought Sprint last year. AT&T also spent heavily at the recent auction and is planning on building out more fast 5G coverage. Plus, Dish Network, which bought Sprint’s prepaid wireless business, it building its own 5G network from scratch.
The competitive pressure could force Verizon to alter its plan of encouraging customers to pay premium rates for fast 5G access. Two years ago, Verizon tried to charge its subscribers an extra $10 monthly for 5G access, but it abandoned the surcharge after its rivals didn’t follow suit.
Convincing subscribers to pay more is just one of the ways Verizon executives said on Wednesday how the carrier could profit from its new 5G airwaves. Verizon will also use its upgraded network to offer home and business broadband service, though that means competing with cable companies that dominate that market. And it’s helping cloud-computing giants like Amazon and Microsoft install mini data centers nationwide that can reach customers more quickly via 5G. But analysts questioned how much Verizon would benefit from those arrangements.
As a result of its broader strategy, CEO Hans Vestberg told analysts, Verizon’s revenue could increase 2% this year, 3% over the next two years, and 4% or more in 2024 and beyond.
But the growth won’t come cheap. Verizon must pay the government $45 billion for the 5G licenses and help pay the satellite communications services that currently use the band it licensed to shift their operations. Analysts say that could cost another $5 billion to $10 billion. The company has already taken out new bank loans and sold bonds in recent weeks, with even more debt financing to come likely later this year.
And Verizon still must add thousands of new transmitters to cell towers and elsewhere to offer 5G from its new airwaves. In addition to its typical annual capital spending of around $18 billion, Verizon said on Wednesday it would spend another $10 billion in total over the next three years as part of the push.
As the network expansion progresses and the satellite companies vacate their airwaves, Verizon said it would be able to cover 100 million people within 12 months, 175 million in 2022 and 2023, and achieve nationwide coverage in 2024.
Analysts say it could take longer than expected for Verizon to benefit financially from its latest airwave purchase, given the expenses and the task of building so many new cell sites. Verizon’s stock price, which was largely unchanged over the past year, slipped 2% in midday trading on Thursday. And that’s after the stock received a little boost last month after Warren Buffett disclosed he had bought an $8 billion stake in the carrier.
“The longer-term outlook should be encouraging to investors, but it will take time to see the benefits of these investments,” Morgan Stanley analyst Simon Flannery noted on Thursday.
Analyst Jonathan Chaplin at New Street Research was less sanguine about Verizon’s prospects.
“Investors were waiting to see if there were new revenue opportunities that would justify the much larger spend. The news was disappointing,” he wrote on Thursday.