Future of Broadband Competition in a 5G World

This paper explains how Mobile Network Operators (“MNOs”) are transforming their networks to meet the 5G challenge and the implications this transformation has for the structure of the cellular industry and broadband competition more generally. It explores the requirements to support the wireless elements of 5G, which represents an order-of-magnitude improvement over 4G LTE. Meeting those performance targets will drive a number of important complementary changes in the design and operation of mobile networks that will have important economic implications. Among the many changes both large and small, the transition to 5G is driving MNOs to embrace: (a) agile management of diverse spectrum assets; (b) small cells; and (c) softwarization and virtualization. Based on the scale requirements necessary to build 5G networks, I conclude the transactions that have occurred among facilities-based Commercial Mobile Radio Service (“CMRS”) operators over the past decade are not only salutary but also likely to continue for the economic health of broadband and 5G—and the resulting consumer benefits—at least in the near term. I explain how the 5G Future will be a converged market in which promoting the survival of fewer but stronger MNOs will promote the healthy evolution toward 5G, which will contribute to promoting innovation and sustaining energized competition across the broadband ecosystem. Industry restructuring may happen in multiple ways, but the best way forward in terms of promoting prospects for robust competition is for there to be at least three national-scale facilities-based providers of comparable size. These conclusions offer lessons for how regulators should assess the proposed merger between T-Mobile and Sprint to form a stronger MNO (“New T-Mobile”).2 The merger should be regarded as pro-competitive for the larger broadband ecosystem because it will contribute to accelerating the race to 5G and its accompanying economic transitions that will materialize sooner and improve consumer welfare. Accelerating the race to 5G, in turn, will help intensify competition within the larger ecosystem from four important directions. 1. Economies of scale for nationwide wireless operators are increasing with advances in network technology and architecture, which makes sustaining the pace of investment required to remain competitive with Verizon and AT&T more challenging for smaller operators. 2. The move toward 5G will further drive the convergence of fixed and mobile broadband, which will increase the potential for intermodal competition between fixed and mobile providers and among wireless networking technologies (e.g., Wi-Fi and 4G-LTE-derived networks). The long-awaited convergence of fixed and mobile networking and the enhanced capabilities and localization of advanced wireless networking are creating new avenues for competition that increase the competitive pressure on the existing MNOs. 3. The transition to smaller cells and more dynamic/flexible and heterogeneous local networking requirements, coupled with advances in networking equipment and software solutions, will open opportunities for new types of local facilities-based wireless infrastructure providers. These opportunities will include venue networks and neutral host deployments. 4. The increased capabilities to virtualize every type of information communication technology (“ICT”) resource (including network resources) and grow demand for customized networking services will lead to more vigorous Mobile Virtual Network Operator (“MVNO”) competition. Taken together, these factors—increasing scale economies and the efficiency of hybrid fixed mobile deployments—add more pressure on MNOs to realize more efficiencies in network architecture and technology. Unless smaller MNOs—such as T-Mobile and Sprint—can achieve greater economies of scale to realize these efficiencies, the top-two MNOs might increase their entrenched positions, if either or both achieve 5G capabilities that smaller providers cannot match by virtue of their smaller scale or more limited access to high-cost fixed assets or both.