Analysts have long wondered how wireless operators will recoup the billions of dollars spent on next-generation 5G technology, and Verizon Communications Inc.'s new pricing for its 5G mobile service may hint at the answer.
The telco giant said March 13 that it will begin offering Motorola Mobility Holdings Inc.'s 5G moto mod on March 14. The device, which pairs with the moto z3 4G phone, looks like a phone case and can be snapped onto the z3 phone so it will work with Verizon's 5G network. As part of the announcement, Verizon said postpaid customers with an unlimited plan can get unlimited 5G data for an extra $10 per month on top of their existing bill. With the moto mod, Verizon has become the first U.S. wireless operator to offer 5G mobile phone service. Verizon's previous 5G launches have focused solely on home broadband offerings, while AT&T Inc.'s initial 5G launches offered only a 5G hotspot.
Analysts, though, cautioned against viewing the $10 monthly surcharge as a long-term indicator of how much 5G service will cost consumers, noting that Verizon has an early mover advantage in pricing 5G mobile services.
"As the only 5G network available in April, there is no reason why they shouldn't try to charge a premium for it at the outset. The earliest adopters will likely be willing to pay more," New Street Research telecom analyst Jonathan Chaplin said in a research note.
Long-term, Chaplin said he does not believe most wireless customers would see 5G service as being worth the additional cost of $10 a month. "But early adopters tend to be price insensitive," he said.
John Fletcher — an analyst with Kagan, a research group within S&P Global Market Intelligence — agreed, saying in an interview that in setting the new pricing, Verizon is "probably experimenting."
Fletcher noted, however, that "Verizon's customer base is more well-off than the others so their customers might be able to absorb this better than other carrier subs."
But Brent Griffith — a managing member of The Wireless Consultant Group LLC, which works with businesses to reduce their telecom expenses — said that even with Verizon's reputation for premium pricing and strong service, customers are likely to be turned off by the expense of 5G.
"Yes, Verizon has the largest network, yes, their 4G LTE speeds are great, and yes, they had to spend to upgrade to 5G ... but to charge more for new technology that's only initially in two cities is not going to attract a lot of customers when your prices are already considered expensive," Griffith said.
Verizon will launch its first 5G mobile service in select areas of Chicago and Minneapolis on April 11. The company previously said it expects to launch its 5G network in more than 30 U.S. cities in 2019.
Griffith said that while his consulting group will definitely test 5G service as it becomes available in the group's markets, he does not expect to recommend Verizon's 5G service to business clients. "Not right away and not if it increases the net spend," he said, adding that the $10-a-month surcharge strikes him as "a bit greedy."
Looking ahead, Chaplin said the outlook for future 5G pricing may hinge on the outcome of the pending merger between T-Mobile US Inc. and Sprint Corp.
"If the deal is blocked, Verizon has little to fear," Chaplin said, noting that T-Mobile and Sprint separately will have a hard time competing with Verizon on 5G in the near term due to their separate spectrum holdings and capital constraints.
"If the deal is approved, things will look different," Chaplin said.
He would expect the new combined T-Mobile to roll out 5G with Sprint's spectrum holdings "very quickly," potentially covering more of the country with a better 5G service than Verizon by the end of the year.
Moreover, T-Mobile has told regulators and lawmakers that it will not charge more for 5G if the merger goes through, nor will it raise prices on its phone plans for at least three years following the deal.
"Verizon will either need to cut price or lose subs," Chaplin said.
Long term, though, Fletcher noted that the combination of T-Mobile and Sprint may serve to push prices up rather than hold them down.
"If national carriers shrink from four to three, that might impact consumer pricing more than 5G as less competitors is usually good for shareholders but not consumers," Fletcher said.