The marketing challenge of convincing customers to upgrade to 5G

The stage is set for the next telecom ad war, with carriers such as Verizon, AT&T and the soon-to-be giant emerging from T-Mobile’s acquisition of Sprint jockeying to become the premier carrier for 5G services.

Collectively, the four spent nearly $5 billion on measured media last year in the U.S., according to Ad Age Datacenter. And that figure will likely rise as carriers face pressure from phone manufacturers such as Samsung, LG, Google and Apple to boost sales after making significant investments in handsets capable of handling 5G speeds.

But convincing consumers to upgrade to faster phones could be a tough sell, considering that there are few, if any, use cases for higher speeds today. “I see the promise of it being useful, but in the short term, it sounds like a waste of the consumer’s time,” says Frank Gillett, VP and principal analyst at Forrester. “Until it makes a difference in people’s lives, there isn’t any motivation to get a 5G phone this year.”

But longterm, 5G could usher in sweeping changes in the smartphone marketplace, not unlike what occurred eight years ago with the emergence of 4G. That technological leap paved the way for a range of brands to seize on location data that enabled the likes of Uber and Lyft, or faster connectivity that allowed people to view and upload pictures or videos onto social platforms like Instagram.

The difference between 4G and 5G is considerable. For example, with 5G, users can download the “Baywatch” movie in less than 30 seconds, compared with about an hour with 4G. There is not a significant price difference between 4G and 5G phones; a 5G phone costs about $800 to $1,000 today.

The industry could use a boost: Global smartphone shipments fell 4 percent to about 1 billion in 2018, marking the industry’s first decline in 10 years, according to Mary Meeker’s latest “Internet Trends” report. The reason is that people are holding onto their phones longer with less of an urgency to upgrade to newer models.

Phone manufacturers are already hyping 5G’s potential. For instance, Samsung is marketing its  Galaxy S10 5G phone around speed. Users will “be able to stream and download movies and share life’s moments ‘HyperFast’ without Wi-Fi,” the brand states on its website. LG is taking a similar approach, stating that its V50 ThinQ phone will bring forth a “mobile revolution” through significantly faster speeds.

But 5G availability still depends on what city you’re in, as carriers gradually deploy it across the country. Verizon currently offers 5G in nine cities, while Sprint, which will soon be part of T-Mobile, offers it in five cities. T-Mobile has 5G in six cities. AT&T says it has 5G in 20 cities, but consumers are unable to purchase a 5G phone and use the service unless they are a business or enterprise customer. AT&T also sells mobile hot spots—think portable Wi-Fi stations—to its enterprise customers.

Add it all up and 5G now covers 40 cities. However, because AT&T doesn’t sell consumers 5G phones, connecting to 5G with a phone is possible in only half of them. The carrier did not respond to a question about why it is not selling 5G phones.

A spectrum of marketing
As 5G slowly takes hold, marketing by the carriers will be heavily influenced by the technical infrastructure that brings the service to life—radio frequencies known as spectrum. Smartphone speeds depend on which band of the spectrum carriers use: “low,” which is the slowest, but has the largest coverage area; “medium,” a balance between coverage and speed; and “high,” which offers ridiculous speeds (gigabit), but a tiny coverage area.

A low band is suitable for rural areas, for instance, while high band is more appropriate for densely populated areas because high-rise buildings can affect speeds. Verizon, for example, has little low-band spectrum for 5G, but has plenty of high band available, says Yory Wurmser, an analyst at eMarketer.

“In the near term, [the carriers] will be promoting their strength, Verizon will focus on super high speeds, or transformational speeds and how they are the only ones building out gigabit speeds,” Wurmser says. “With Sprint, you will hear more about 5G and how they are in the sweet spot and have better coverage, and much faster speeds than you’re used to,” he adds, because they have a large amount of medium-band spectrum available.

Spectrum is costly and limited in supply and each carrier can only dedicate so much of the three bands to 5G. (The Federal Communications Commission places spectrum up for auction whenever it decides it wants to open more up; carriers can also obtain spectrum from buying out other telco companies.)

T-Mobile has a stockpile of low-band spectrum, which could explain why it opted to focus on rural America in a recent video promoting its 5G services: “The big carriers are currently talking about their big 5G rollouts, but their efforts are limited to a few pockets in select cities,” a narrator says in the video, which was made in-house. “They’re neglecting small towns and rural communities, leaving them on the wrong side of the digital divide.”

Sprint’s network, which will soon be joining T-Mobile, is promoting its 5G network by showing densely populated cities, skyscrapers and other scenery typically associated with urban environments because it has plenty of mid-band spectrum. As a result, the company has been focused on delivering a message of consistency with strong speeds, says John Saw, Sprint’s chief technology officer. “We have the biggest 5G footprint. [With Verizon,] you will have the highest speeds, but nowhere to go.”

Verizon is currently relying on high-band spectrum because it’s mostly what it has available to use. Although leveraging the high-band spectrum provides insanely fast speeds, it also has spotty coverage. One large phone manufacturer executive, speaking on the condition of anonymity, described the process of downloading a 2 gigabyte-mobile game in 20 seconds. “But then a bus drove by, or I turned the corner, and voosh—the speed was gone,” this person said.

Verizon declined an interview request for this story. On its website, the carrier is touting 5G by saying it will allow video games to be played with little speed lag and that movies that once took minutes to download can be transferred in “seconds.”

Carriers are taking different approaches when it comes to pricing. Verizon normally charges between $70 to $90 per month for its plans, but tacks on $10 for 5G. But so far, T-Mobile is not charging more for 5G.

“There is a lot of confusion going out in the consumer marketplace and we are choosing to wait until we have a broader story to talk about,” says Peter DeLuca, senior VP of brand marketing at T-Mobile. “Consumers need to better understand what 5G is instead of jumping into the market. And some carriers are upcharging to their most expensive plans just for the privilege to use the tech.”

Courtroom drama
The 5G battle has even spilled into the courtroom, with AT&T coming under fire from its rivals for its marketing.

The carrier updated all of its phones to replace the “4G LTE” symbol commonly found at the top of a screen with “5Ge,” even though they don’t run on 5G. Sprint earlier this year filed a federal lawsuit alleging the designation is misleading. Verizon and T-Mobile have also taken issue with AT&T’s tactics. In the wake of the suit, Sprint Chief Marketing Officer Roger Solé told Ad Age that “this is designed to make people think they have a 5G network and that is absolutely a lie. They’re shooting themselves in the foot and diluting the 5G message. It’s total confusion for the customers.”

Forrester’s Gillett agrees, saying, “we’ve reached max delusional marketing.”

Sprint and AT&T later reached a settlement, but AT&T continues to use the 5Ge moniker. Asked for comment, an AT&T spokesman said, “We amicably settled this matter last spring.”

4G vs. 5G
There’s a major speed gap between 4G and 5G phones. The high speeds and low lag will also enable more robust experiences around augmented reality, allowing a shopper, for instance, to try on clothes without actually putting them on. But as the technology rolls out, coverage is likely to be spotty.

Ad Age tested Sprint’s 5G service in Chicago when the carrier rolled into the nation’s third-largest city in July. And the results were mixed. At a media event  nestled between dozens of skyscrapers at the Intercontinental Hotel, members of the press could test Sprint-enabled 5G phones from both Samsung and LG. The Samsung Galaxy S10 5G was pumping out speeds of 300 to 400 megabits per second (mbps), or about 100 times faster than what this reporter was getting from his 4G-enabled iPhone 8.

Some reporters, including this one, were able to take the Samsung Galaxy S10 5G home to test for 30 days. At Ad Age’s office on Michigan Avenue, about a mile from Sprint’s event, the 5G signal was nonexistent on the 19th floor and speeds came at less than 1mbps.

In the Old Town neighborhood, about two miles from Sprint’s event, however, speeds generated between 200 and 300 mbps, but not consistently. In fairness, much of this unofficial testing occurred either the day before or after Sprint announced its 5G Chicago network. Finding a  reason to use such high speeds (when it was working), however, has proven difficult, especially when Wi-Fi is so readily available.

 Beyond downloading a movie in seconds, there isn’t much use for 5G as it stands, but that doesn’t mean one won’t come. It would be foolish for an app developer, for example, to make an application specifically tailored for 5G until the service rolls out at scale. In the meantime, this reporter found more use cases with Samsung’s incredible camera–and not Sprint’s 5G speeds. —GPS