Anticipation is building as mobile 5G networks will be widely deployed in the United States over the next couple of years. As the wireless market continues to shift to unlimited data plans, the capacity provided by 5G will enable operators to more cost-effectively offer these programs over the long term while better handling network congestion. Operators will also be able to capitalize on the cost efficiencies of mobile 5G by introducing new premium unlimited tiers, with incentives including higher data limits before speeds are throttled as well as increased data tiers for mobile hotspot coverage, both of which enhance plan value.
Though operators are eager to realize the network efficiencies 5G will provide, they will not be able to reap these benefits until consumers migrate to 5G-compatible devices. Adoption of 5G smartphones will be hampered by lengthening device upgrade cycles in the U.S. as consumers are holding on to their devices for longer periods as features offered on new handsets are not deemed compelling enough to justify their rising price tags. Migration to 5G smartphones will also be slowed as certain flagship handsets, particularly the iPhone, will likely not offer 5G-capable models until 2020.
Perhaps the greatest hurdle to 5G smartphone adoption will be 5G itself, as the initial capabilities offered by the technology will not be a strong enough incentive for many customers to upgrade their devices. Although offering mobile 5G services will help to attract some subscribers craving faster speeds, the difference in user experience compared to LTE-Advanced will be minimal, at least initially. Early 5G smartphone customers will mostly benefit from reduced download times for large files such as high-definition video and advanced gaming applications, which will not be a significant enough incentive to encourage wide-scale purchases of 5G smartphones. Advanced consumer smartphone use cases requiring accelerated data speeds and ultra-low latency offered by 5G, such as augmented reality (AR)/virtual reality (VR), are still being developed and will not become commercially available until the early 2020s.
To foster 5G smartphone adoption, TBR expects U.S. operators will prolong the financing terms of their equipment installment plans — from two years to three years — to ease the cost of purchasing 5G smartphones as many devices will likely exceed a $1,000 price point. TBR also anticipates operators will become more reliant on device promotions, such as BOGO (buy one, get one) offers and significantly discounted handsets, to accelerate upgrade rates during the infancy of the 5G era. Though these promotions will pressure wireless margins in the short term, operators will justify these initiatives by the long-term network efficiencies they will ultimately realize from 5G smartphone adoption.