Verizon Communications (NYSE: VZ) made a substantial move this week when it announced the date it will flip the 5G switch on in parts of Chicago and Minneapolis. Verizon said its new 5G network in the two cities will work with the Moto Z3 with a "5G moto mod" (which allows the phone to receive Verizon's 5G signal) starting April 11.
The telecom company said in a press release that the new smartphone, when paired with its 5G Ultra Wideband network, "creates the world's first 5G-enabled smartphone." Verizon's 5G service plan comes with unlimited data, available for an additional $10 a month (with the first three months free) with any Verizon unlimited plan, including Go Unlimited, Beyond Unlimited, or Above Unlimited.
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Lots of carriers are talking about 5G right now, so why does this latest announcement matter for Verizon? Because until recently, it's been pretty coy about its 5G plans. The carrier said it has a goal of bringing its 5G network to 30 cities by the end of the year.
This announcement helps establish Verizon as an early leader in the 5G market. Its decision to charge an additional fee for the new service shows it's serious about using the new tech to generate additional revenue.
Why this is a big deal for Verizon
Critics may point out that Verizon is only bringing 5G to two markets right now, and the coverage won't even reach the entirety of those cities when it first debuts. But Verizon says it will "rapidly expand the coverage area" after it launches.
But this still means that Verizon will have one of the only true 5G networks online next month, and a smartphone to sell that will be able to receive a 5G signal. Rival AT&T (NYSE: T) launched what it calls a "5G E" network in some locations, but it's built on 4G technology. Sprint (NYSE: S) is currently suing AT&T for deceptive claims related to this network labeling.
With the rollout, Verizon can claim that it's the first U.S. carrier with a 5G network. That matters because in the saturated cellular wireless business, the only way to attract new customers is to steal them away from rivals, through price cuts or deals or new technology.
Verizon already holds a dominant position in the U.S. wireless industry. If it can deliver on bringing 30 cities online with its 5G network by the end of the year, it could solidify that position for years to come.
Verizon's rivals are working on 5G too. But AT&T's latest move already looks more like a gimmick than a feature; Sprint says it will have 5G available in four cities in May; and T-Mobile US (NASDAQ: TMUS) says its rollout won't begin until later this year. The competition is already lagging a bit behind, and Verizon could make big leaps forward as it increases spending on its network.
The company has said its capital expenditure spending will total $17 billion to $18 billion this year, with much of the money going to its 5G rollout. Because Verizon is the nation's largest carrier, it's not likely that its competitors will be able to match its spending — or upgrade large parts of their networks — as quickly.
Aside from beating its competitors to market, Verizon will now be one of the only carriers in the U.S. earning revenue from 5G. Admittedly, that won't be much for a while, but the company is wisely setting a precedent with its customers by charging them extra for 5G and selling it as a unique feature worth paying for. Verizon says 5G will be up to 20 times faster than 4G networks, and have lower latency rates (the time it takes for a smartphone to communicate with cell towers).
Charging an additional fee for 5G is a decidedly different path from the plans announced by T-Mobile, which says 5G won't cost more for its customers. Of course, T-Mobile won't have a 5G network for a while — it's already delayed its rollout once — and the carrier will eventually have to charge customers to recoup the money it's spending on network upgrades.
5G is going to be huge
5G promises to allow for a laundry list of new services — including connections for autonomous vehicles and Internet of Things devices — in the coming years. Research from Ericsson shows that by 2024 nearly 40% of the world's population will have access to 5G.
And it's going to be a lucrative market for wireless carriers. Services from 5G networks — including connected cars and cities, smart utilities, and connected manufacturing — are expected to reach $123 billion industrywide by 2025.
It will take some time for 5G to become widespread, but Verizon's April 11 launch is making inroads into the market now — and the company is likely to benefit from these early moves. One of the reasons Verizon is the largest U.S. carrier is that it outpaced its rivals in building out one of the fastest and most reliable 4G networks in the country. If it follows the same plan with 5G, Verizon could start tapping into this market before some of its competitors have a chance to catch up.
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.
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