5G Service Unleashes Fresh Threat to Endangered Cable TV Bundle

(Bloomberg) -- Wireless carriers have spent years pounding each other with discounts like family plans, taxes-included offers, unlimited data and free Netflix. Now they’re putting their targets on the cable industry.

Verizon Communications Inc. plans to launch the nation’s first 5G -- or fifth generation -- wireless service in four cities next week. Using new frequencies that beam data straight to home receivers, the phone giant promises to match or beat the fastest cable offerings and deliver the ultra-HD videos consumers have come to expect on their living-room sets.

Even with its limitations -- potential interruptions caused by weather, the need for thousands more antennas -- 5G could become a new cord-cutting option for almost 90 million U.S. households that now get broadband, phone and TV via cable or satellite. And if the wireless industry’s history is any guide, it’ll be cheaper, a break for consumers who pay $150 a month or more for those services now.

“The idea that wireless was a risk to cable broadband didn’t make sense, until now,” said Reed Hundt, the former chairman of the Federal Communications Commission.

Like Verizon, AT&T Inc. is also poised to launch 5G, underscoring the urgency among wireless carriers to challenge the cable industry’s dominance in broadband and TV. Together, the big four U.S. wireless companies have more than 260 million customers -- a ripe audience to target with new internet and TV services for the home.

Future of TV?

“Certainly 5G is going to be the future of TV,” said Amy Yong, an analyst with Macquarie. “5G mobile TV will force cable companies to rethink how to sell video.”

First, though, the phone industry has to clear some hurdles.

Two decades ago, major carriers made a similar promise: that fiber-optic lines would revolutionize internet service and make them viable competitors to cable.

That project hit a wall. Installation costs in the tens of billions of dollars -- approaching $2,000 per home -- kept AT&T and Verizon from ever reaching more than a few million homes with their speediest connections. As of June 30, AT&T had 15.8 million broadband subscribers, while Verizon had 7 million. The cable industry has 68.5 million.

5G faces its own challenges. The signals are so fragile they can be disrupted by mist or rain drops. Such interference may mean the new service can never deliver the speed and quality customers demand. If consumers don’t embrace 5G in a big way, the phone companies may not complete their build-out of the networks.

Because 5G waves don’t travel very far, the phone companies will need to erect more antennas -- lots more. This represents an enormous investment -- like the national fiber-to-the-home networks the carriers never completed -- with no guarantee of payback.

Big Tab

Researcher IHS Markit estimates the phone carriers, their suppliers and others in the product chain will spend $200 billion annually on 5G technology, though some of that will lay the groundwork for new services like driverless cars. The FCC voted 4-0 Wednesday to cut the fees localities can charge for permission to install the new antennas. The agency also tightened deadlines for towns and cities to consider applications to put antennas on publicly owned poles.

Still, for all these reasons, the phone giants are starting small.

New York-based Verizon is limiting its 5G effort to four cities this year. Dallas-based AT&T is launching in six cities, while T-Mobile plans to use an assortment of airwaves to create a national 5G network by 2020.

And even with Verizon starting service, 5G is still very much in development phase. Lab tests on new equipment are just moving into the field. This month, for example, the company and Nokia Oyj performed their first successful outdoor data transmission in Washington using newly standardized network gear. Fortunately it didn’t rain, according to records of the test.

Wireless Contenders

Big cable, meanwhile isn’t standing still. In the past year, both Comcast and Charter have added wireless services to their bundle by selling mobile-phone service under contract with Verizon. Competition could force them to adopt a 5G strategy. Comcast, the largest provider, is also expanding overseas with its proposed $39 billion purchase of Sky Plc.

Cable customers are a loyal group, despite all the attention going to cord-cutting and rival video services like Netflix and Amazon Prime. Monthly defection rates, or churn, for the cable industry have been under 2 percent. Adding wireless service could retain customers even more.

Cable executives like Greg Maffei, chairman of Liberty Broadband, Charter’s largest shareholder, have addressed the technology threat with a touch of denial and swagger. Speaking to investors at a conference in November, Maffei said there’s “no such thing as 5G really. It’s just a radio format. And we have a lot of radio formats at our disposal.”

Others in the industry like Leo Hindery, a former cable executive and managing partner of the private equity firm InterMedia Partners, say that at the end of the day 5G’s real impact may be on the profit and loss statements of the combatants.

Verizon’s initial entry into the 5G broadband market, at $50 a month, is modestly lower than cable company prices -- and typical for the largest U.S. wireless carrier, which usually emphasizes service quality over price. The company’s is also offering YouTube TV and an Apple TV box to new customers.

Rather than triggering an epic industry upheaval, the more likely result is a bloody price war, where wireless companies relentlessly lower the cost of their fastest internet services and offer TV at below-cost prices, forcing the cable industry to respond.

“It’s a nightmare scenario, as the plethora of Verizon ads already touting 5G as the next best thing are evidencing,” Hindery said.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Rob Golum

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