Market Insight

The First 5G Phone in the United States is a compromise of cost and design, IHS Markit says

June 06, 2019

Wayne Lam Wayne Lam Principal Analyst, Mobile Devices & Networks

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Motorola Moto Z3/5G Mod combination enables 5G speeds—but comes with drawbacks in the race to be first to market.

Billed as the first 5G smartphone in the U.S., the Motorola Moto Z3 with the 5G Moto Mod delivers the ultimate in data transfer speed. However, the distinction of being the first and fastest comes with major tradeoffs to attain gigabit-per-second performance. Overall, the Moto Z3/5G Mod combination is the product of major compromises that illustrate the challenges involved with making 5G’s millimeter wave (mmWave) technology workable and affordable at the same time, according to a teardown analysis conducted by business information provider IHS Markit (Nasdaq: INFO).

Together, the Moto Z3/5G Mod combo carries a bill-of-materials (BoM) cost of $499.79 The Z3 smartphone itself is an unassuming 4G handset, but it was selected as the first 5G offering by Motorola because it can be customized with “mods.” The Z3 smartphone contains an estimated $224.59 worth of electronic components and other materials. The 5G Mod, which connects to the Z3 to add high-speed mmWave 5G capability, has a BoM cost of $275.20. Given the 5G Mod retail pricing of $349.99, Motorola essentially is selling the 5G Mod at cost. Verizon subscriber pricing of the 5G Mod is advertised at $199.99 with a $10 per month premium of existing service, suggesting that Verizon may subsidizing the 5G Mod at some level when purchased with a service contract.

“Both retail and subscriber prices of the Moto Z3/5G Mod combination relative to the bill-of-material costs reflect Motorola’s market position – a position that results in thinner margins than more premium smartphone brands such as Apple, Samsung, and Huawei,” said Wayne Lam, director and principal analyst for mobile devices and networks at IHS Markit.

mmWave technology delivers extremely fast data rates, with speeds theoretically as high as 5 gigabits or more per second, compared to just 100 to 200 megabits per second for existing 4G LTE services. On the downside, mmWave’s coverage and range are constrained, working at distances of approximately one city block—using focused RF beams rather than the normal RF propagation associated with cellular communications. Not all 5G phones support mmWave, making it a distinctive feature of the 5G Mod and of the Verizon network when initially announced in late 2018 and demonstrated in April 2019.

Complexity and millimeters

Reflecting the costs and complexity of mmWave, the 5G Mod is a self-contained radio, running its own version of Android, having a duplicate application processor as well as a Qualcomm X50 5G modem. The entire radio-frequency (RF) front-end is sourced from Qualcomm, the only component vendor currently capable of providing smartphone mmWave solutions. Paired with the Moto Z3, the combined unit is a study in design efficiency since much of the 4G LTE connectivity is replicated on both devices.

The high BoM cost of the 5G Mod is mainly attributable to this mmWave RF subsystem. Building an RF front-end capable of discerning clear signals from low-propagation millimeter waves represents a significant technical challenge. With their tiny wavelength, these wireless signals can be hard to pick up and easy to block with obstacles.

One common obstacle is the user’s hand, which can block signals and interrupt service, depending on how a phone is held, reminiscent of the Apple iPhone 4 “Antennagate” as widely reported in 2010.

The 5G Mod and other mmWave smartphones including the Samsung Galaxy S10 5G for Verizon address this issue by integrating three or four separate millimeter antenna modules that are strategically placed throughout the device to create spatial diversity, improve reception and mitigate interference. This compares to just one such antenna in most smartphone designs.

However, there is a trade-off here too, with each module including its own RF path, complete with a phase antenna array, power amplifiers, power-management chip and RF transceiver. These immensely complex modules cost $18.80 apiece, adding up to $75.20 in total for the 5G experience—or up to three times the cost of the RF subsystem in an average 4G smartphone.

“Being first is often by definition a compromise of both design and cost,” Lam continued. “The Moto Z3/5G Mod has allowed Motorola to offer 5G capability on existing smartphones and to be first in the U.S. market.”

Making waves

Currently, mmWave service is being offered by just two mobile operators: Verizon and AT&T. The Moto Z3/5G Mod combo is currently being sold exclusively by Verizon with and without a service contract.

However, over time, more operators and smartphone makers are expected to join the mmWave party. To serve this rising demand, component suppliers currently are pouring enormous amounts of resources into reducing the cost of implementation.

“Making mmWave technology more viable is one the major challenges faced today by the smartphone market,” Lam said. “Luckily, the chip vendors, smartphone makers, and operators have proven time and time again that they can reduce complexity and drive down costs. In the era of 5G, IHS Markit expects the industry to step up to the challenge once again.”

A comprehensive look at 5G

As network operators and smartphone makers across the globe race to deploy 5G, IHS Markit has launched “5G First Look,” a new service that provides insight into the world of 5G and how 5G networks perform. It includes 5G readiness benchmarks, 5G smartphone teardown analysis, and first-look results from comprehensive, scientific 5G network performance testing in South Korea, the United States, Switzerland and the United Kingdom—with more countries and regions added as 5G networks launch across the globe.

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