Single player lag will happen, sometimes a lot and sometimes a little. Certainly it starts with their own connection. Then, as you say, the server signal time to their local connection will add to the lag.
But it changes from player to player. Single player lag can be managed with feedback. If players tell me I am lagging badly and I know I took a chance on a server that was reading red, I'll log the feedback, risk taken and failed. If I ask and they tell me I'm ok, then I'll log that I took the risk and it paid off. As long as players ask and others give feedback, single player lag can be managed and we can all try to play together.
What sucks, and what we are complaining incessantly about, is Whole Game Lag. You all know it. When the entire game blips for a moment, all chat suddenly disappears, and/or the blues and reds vanish from view for several seconds. Then reappear, all (not just one) zipping at mach speed for several seconds. Someone texts "server about to lose it" and others respond "yeah no kidding." Then everyone gets the red warning. Single tanks will now slow the frames to still shots. Bombing occurs by unseen players, and you get shot by ghosts. Red warning again. Then, "Connection Lost."
THAT is what needs to be fixed. And that's a server and money issue, versus number of players. I think servers can still be as they are, maybe with more information and color bars that are more intuitive and scaled. And pricing, it's all about pricing to make sure that money is coming from the players whacking up the bandwidth, and thay much less bandwidth is being taken up by non-pays. Once all that settles out, picking and choosing how much individual lag risk we take is then an individual choice.
One caveat. If there is ANY real or perceived advantage in lagging, then players will TRY to lag. That blows up the whole system. Maybe Z can institute something to take away advantage. If each phone app pings once in a while to determine its individual lag milliseconds (or seconds or minutes), and a player is clearly skipping all around the sky, disable his weapons.
Put all that together, and I think it would be a good system.
Manfred