Fiber to Home No Longer is the Key Metric: Gigabit Access Is the Issue, and Pessimism is Completely Unwarranted

Vern Fotheringham, V-Satcast executive chairman, asked an interesting question at the Pacific Telecommunications Council’s 2016 annual conference: “what percentage of U.S. homes now are connected to by fiber?” Eventually answering his own question, he said “five percent.”

As with all such figures, context is required. The Fiber to the Home Council estimated in 2015 that 26 million U.S. homes were passed by fiber-to-home connections and could buy service. If there are 134 million U.S. homes, then perhaps 19 percent of U.S. homes are passed by fiber to the home networks and are able to buy service.

As always, though, the issue is not where we are, but where we are going, and there the FTTH statistics do not tell the story. FTTH is one method of providing very high speed Internet access. But it is not the only way.

Cable TV networks able to provide gigabit service would, for many, be a functional substitute for FTTH access.

Also, the issue is the impact of new fiber providers such as Google Fiber, as well as stepped-up gigabit programs by AT&T. The way some of us would frame the issue is the percentage of homes able to buy gigabit service, not the number using a specific access technology.

That paints a different picture. With the commercialization of Data Over Cable Service Interface Specification (DOCSIS 3.1) platforms, cable operators can upgrade Internet access speeds up to 10 gigabits per second by means of a software change to modems and routers.

The DOCSIS 3.1 platform supports speeds up to 10 Gbps, depending on how much bandwidth a cable operator wishes to devote for that purpose.

Comcast, for example, already has announced it will upgrade its entire consumer high speed access base (both customers and passings) to gigabit speeds using DOCSIS 3.1. Comcast originally believed it might do so in 2015 or 2016. It now has said that could happen, nationwide, by 2018.

Make no mistake: that will change the picture dramatically. Comcast has shown it can increase high speed access speeds at Moore's Law rates. Comcast passes 54 million U.S. homes. So once the gigabit upgrade is completed, Comcast alone will represent gigabit coverage of 40 percent of U.S. homes.

Cox's consumer gigabit service will be available in all of its markets by the end of 2016. Cox passes 9.2 million U.S. homes. That adds another seven percent.

So Comcast and Cox alone will pass 47 percent of U.S. homes, with unduplicated gigabit coverage.

Assume Charter’s acquisition of Time Warner is approved by regulators. Time Warner passes 30 million homes. That is 22 percent of homes. So Comcast, Time Warner and Cox eventually will provide gigabit access to an unduplicated 69 percent of U.S. homes.

Telcos are moving as well.

Separately, CenturyLink is deploying gigabit access as well, though those locations will overlap with some of the Comcast and other cable operator homes.

AT&T is expanding its GigaPower service to parts of 38 more cities. It's now in 56 metro markets.

AT&T's GigaPower service now reaches one million addresses, with plans to double that in 2016 and ultimately reach 14 million homes and businesses, Goldman Sachs said in a research report.

MoffettNathanson, for its part, says AT&T has committed to expanding its fiber-optic service to 5 million "customer locations" by the end of 2017, 8.3 million by year-end 2018 and 12.5 million through July 24, 2019, as part of conditions tied to the approval of its DirecTV acquisition. Based on regulatory definitions, MoffettNathanson contends the 14 million "locations" will translate to 9.9 million "cable equivalent" homes and businesses, or 7.3 percent of U.S. households.

Google Fiber is on a path to serve Chicago and Los Angeles, as well as the 4.3 million or so homes it already could potentially reach with its already-announced deployments of gigabit service.

The point is that the present and coming competitive market business model for high speed access will change dramatically over the next several years. Where we are does not matter. Where we are going matters.

Fiber to the home availability is not the metric you want to watch. Watch for gigabit access to become the dominant and normal advertised speed across most locations cable can reach. And keep in mind, cable reaches 98 percent of all U.S. homes.

Soon, cable alone will potentially reach 70 percent of U.S. homes, with Google Fiber and telcos offering a second provider option across some of that cable footprint.

Fiber to the home passings do not tell the real story.

AT&T, Comcast and Verizon Collectively Generate about $212 Per Home Passed, Annually

It is not easy to run a big fixed network business these days. As Verizon CEO Hans Vestberg said on Verizon’s fourth quarter earnings call, Verizon faces a “secular decline in wireline business that is continuing.” 

Secular means a trend that is not seasonal, not cyclical, not short term in nature. For multi-product companies such as AT&T, Verizon and Comcast, it can be argued that "everything other than the core business is doing a lot worse than the core business, both at Comcast and at AT&T and at Verizon.

One supposes the “core business” for AT&T and Verizon is mobility, while the core business for Comcast is fixed network broadband. The conclusion analyst Craig Moffett of MoffettNathanson reaches is that AT&T, for example, will have to be broken up. 

The suggestion to focus on the “core business” often produces financial returns when conglomerates are broken up. 

What might not be so clear is how breaking up triple play assets, or separating mobile from fixed assets necessarily helps the surviving connectivity assets to generate greater revenue and profits. 

Is it logical to assume that the AT&T and Verizon businesses would all do better if the fixed network assets, mobile assets and media assets were separated? Would Comcast’s financial returns be better if the content assets were separated from the fixed network, or the video entertainment business separated from the network connectivity business?

Given the “secular decline” of the fixed network business, could a fixed services only approach (internet access, voice and perhaps video entertainment) actually work, at the scale the separated Comcast, AT&T or Verizon assets would represent?

The issue is not whether a small firm, with a light cost structure, might be able to sustain itself in some markets selling internet access alone, or internet plus voice. The issue is whether an independent AT&T fixed network or an independent Verizon fixed network business could sustain itself. 

The answers arguably are tougher than they were twenty years ago, when a telco and a cable company faced each other with a suite of services including internet access, voice and entertainment video. Basically, they traded market, at best. Telcos ceded voice share, but cable lost some video share, and both competed for internet access accounts. 

At a high level, the strategy was that both firms would trade share, but by selling three services on one network, instead of one service on each network, the numbers would still be workable.

But the math gets harder when every one of those three services faces sustained declining demand and falling prices. 

That being the case, it is hard to see how a sustainable business can be built on connectivity services alone, especially for either AT&T or Verizon. Perhaps Comcast could survive with a strong position in internet access and smaller contributions from voice and possibly video entertainment. 

In the fourth quarter of 2019, Comcast Cable generated $14.8 billion in revenue.  Total revenue that quarter was $28.4 billion. 

Verizon’s fixed network business, on the other hand, generated about $7 billion, out of total revenue of nearly $35 billion. 

AT&T had fourth quarter 2019 total revenue of nearly $47 billion. AT&T’s fixed network, plus satellite TV, generated about $18 billion in revenue.  AT&T’s “fixed network plus satellite” operations generate 38 percent of revenue. Perhaps $8 billion or so of that revenue comes from the satellite operations. So the fixed network business might generate $10 billion in revenue. 

Comcast Cable passes 58 million consumer and business locations. Comcast has 26.4 million residential high-speed internet customers, 20.3 million residential video customers and 9.9 million voice accounts, generating average cash flow (EBITDA) of $63 per unit. 

At a high level, the problem is that Verizon’s entire fixed network operation generates about 20 percent of total revenue. AT&T’s fixed network generates perhaps 21 percent of revenue. Comcast, which has a small mobile operation, generates close to $15 billion from the fixed network. 

And that, it seems to me, illustrates the problem. Comcast, AT&T and Verizon all put together generate about $32 billion in fixed network revenue, and revenue is likely to remain flat to negative. 

Verizon homes passed might number 27 million. Comcast has (can actually sell service to ) about 57 million homes passed.

AT&T’s fixed network represents perhaps 62 million U.S. homes passed. 

CenturyLink never reports its homes passed figures, but likely has 20-million or so consumer locations it can market services to. 

Looking only at Comcast, AT&T and Verizon, $32 billion in annual fixed network revenue is generated by networks passing about 146 million U.S. homes. That works out to about $212 per home passed, per year. 

How that is sustainable is a clear challenge.

What are the Natural Limits to Fixed Wireless Market Share?

T-Mobile says it is on track to reach seven million to eight million fixed wireless accounts in 2025, and perhaps as many as 12 million by 2030. 

If there are about 110 million to 125 million U.S. home broadband accounts, that suggests T-Mobile alone--which had zero market share of the home broadband market until recently--already might claim five percent of the market. 

we might estimate that cable TV internet service providers continue to hold the largest share, but with fixed wireless accounts growing substantially.

One of the odd realities of the U.S. internet access business is that--save for a recent Verizon statement, none of the big leaders of the internet access business actually ever says how many homes their networks pass. But Verizon recently noted that is passes 25 million homes. 

My own past estimates have suggested, out of a total of 140 million U.S. homes (higher than figures some use), that AT&T’s landline network passed 62 million. Comcast had (can actually sell service to) about 57 million homes passed.

The Charter Communications network passed about 50 million homes, the number of potential customer locations it can sell to.

I had estimated Verizon homes passed might number 27 million, which is higher than the 25 million Verizon now says it passes. 

Lumen Technologies never reports its “homes passed” figures, but likely has 20-million or so consumer locations. 

Of course, if one uses the lower 110 million to 125 million figures, then T-Mobile’s share might be higher. It never is very clear whether reported “home broadband” figures include small business locations or not, but most such reports probably do include small business accounts. 

My own past estimates have pegged U.S. homes in the 140 million range based on estimates by the U.S. Census Bureau. As a practical matter, at any given point in time millions of those locations are not part of the cabled home broadband market.

Some units are vacation homes are unoccupied most of the time. Other units are fully unoccupied and therefore not candidates for home broadband services. Some units are boats, trailers or other locations not easy or possible to serve using cabled networks. 

Also, some units are so remote it is economically unfeasible to reach them by a cabled network at all. That might be up to two percent of all U.S. homes. 

AT&T, for example, reports revenues for mobility, fixed network business revenues and consumer fixed network revenues from internet access, voice and other sources. But those are traditional financial metrics, not operating indices such as penetration or take rates, churn rates and new account gains. 

source: AT&T 

Nobody seemingly believes the same effort should be made to measure the number of home broadband provider locations or dwellings reached by various networks. Better mapping, yes. Metrics on locations passed? No. 

And yet “locations passed” is a basic and essential input to accurately determine take rates (percent of potential customers who actually buy). That input matters quite a lot to observers when evaluating the growth prospects of competitors, even if that figure does not matter much for policymakers, who mainly care about the total degree of home broadband take rates, on an aggregate basis. 

The U.S. Census Bureau, for example, reported some 140.5 million housing units housing units as part of the 2020 census. The estimate for 2021 units is 142.2 million units. Assume 1.5 million additional units added each year, for a 2022 total of about 143.6 million dwelling units. 

Assume vacancy rates of about six percent. That implies about 8.6 million unoccupied units that would not be assumed to be candidates for active home broadband subscriptions. The U.S. Census Bureau, though, estimates there are about 11 million unoccupied units when looking at full-time occupied status. That figure presumably includes vacation homes.

Deducting the unoccupied dwellings gives us a potential home broadband buyer base of about 132.6 million locations. 

That has implications for the theoretical maximum market share any of the leading providers might claim. Depending on one’s choice of the base of addressable homes, and keeping in mind there is overlap between at least one of the cable and one of the telco providers in virtually every territory, Comcast and AT&T are best positioned to lead share statistics, in some future market where skill and resources are full deployed (telcos have largely built or acquired fiber-to-home facilities, for example), simply because their networks pass the most homes. 

That does not speak to actual market shares; only potential share were any particular provider to take 100 percent share of the market within its cabled network footprint. 

ISP	Homes Passed	Total Homes Low	Total Homes High	Max Homes Passed Low	Max Homes Passed High
Comcast	57	110	140	52%	41%
Charter	50	110	140	45%	36%
AT&T	62	110	140	56%	44%
Verizon	25	110	140	23%	18%
Lumen	20	110	140	18%	14%
T-Mobile	(not yet applicable)

T-Mobile’s initial foray into cabled networks is important, in that regard, but the potential share stats will not be significant for quite some time, given the small number of homes T-Mobile cabled networks could reach. 

For T-Mobile, fixed wireless is the key to its home broadband share gains. Fixed wireless remains important for Verizon Fixed wireless might become important for AT&T. 

The point is that only AT&T has potential to take significant share in the overall home broadband market, based on its extensive homes passed footprint. Only Comcast and Charter are in the same league. Verizon and Lumen, no matter how well they do in their regions, do not pass a similar number of U.S. homes. 

In principle, T-Mobile gains will be limited by its use of fixed wireless as the primary platform, as that platform appeals to the value portion of the market, for the most part (customers purchasing service at speeds no higher than 200 Mbps). 

Right now, that means T-Mobile’s fixed wireless service, itself limited by T-Mobile only to regions where it has excess capacity, is not available to the up-to-20-percent of the U.S. home broadband market. The T-Mobile addressable market is “homes content with access speeds no higher than 200 Mbps” and further reduced by T-Mobile’s own unwillingness to offer fixed wireless home broadband “everywhere.” 

T-Mobile and Verizon should continue to take market share for some time. Eventually, though, the market segment most attracted to fixed wireless will saturate, leaving the bulk of competition to the cable HFC and telco FTTH facilities. 

In principle, fixed wireless speeds can grow over time, as more spectrum is made available or network architectures move to smaller cells, but there remain physical limits to either of those strategies, especially since the key revenue driver remains mobile device service.

Business Context Shapes Access Network Strategy

As often happens in any industry, service providers have different opinions about fixed wireless access versus fiber-to-premises versus hybrid fiber coax versus satellite platforms for access services. 

As always, different firms have different views on strategy because of their business circumstances. Perhaps in principle, all former telcos would say fiber-to-premises is the ideal long-term solution where the economics exist. But the economics are daunting in many cases, leading to a “yes, but” strategy that uses other platforms as the economics dictate. 

Verizon has a relatively small “in region” footprint of U.S. homes and businesses--perhaps no more than about 20 percent--and cannot afford to “fiberize” another 80 percent of U.S. homes. So fixed wireless, which piggybacks on the 5G network, makes sense. 

T-Mobile, with close to zero fixed network coverage of U.S. homes and businesses, benefits even more from 5G fixed wireless. 

AT&T, on the other hand, has the biggest footprint of U.S. homes and businesses, so out-of-region coverage magnitudes are correspondingly reduced. 

Comcast and Charter have “homes passed” totals close to AT&T’s footprint and already have HFC networks they believe will be marketplace competitive for quite some time, as multi-gigabit speeds are coming next on the HFC platform. 

Of a total of 140 million U.S.  homes, AT&T’s landline network passes 62 million. Comcast has (can actually sell service to) about 57 million homes passed.

The Charter Communications network passes about 50 million homes, the number of potential customer locations it can sell to.

Verizon homes passed might number 27 million. Lumen Technologies never reports its homes passed figures, but likely has 20-million or so consumer locations. 

Assuming no further significant consolidation, AT&T only “needs” to fiberize within its footprint to reach 44 percent of U.S. homes (and virtually all the homes regulators are likely to allow it to pass). 

Assuming Verizon has no appetite to significantly expand its fixed network footprint, that leaves about 81 percent of U.S. homes that could be passed by the 5G network, and would be impossible to significantly serve using FTTH. 

Comcast already has HFC offering gigabit speeds reaching about 41 percent of U.S. homes. Charter already passes about 29 percent of U.S. homes. Again, regulators are unlikely to allow either firm to get significantly bigger, in terms of homes passed. 

Lumen has a largely-rural territory that includes perhaps 14 percent of U.S. homes, but Lumen has no mobile network assets it can use to offer fixed wireless on a facilities basis. 

The point is that each firm’s view of strategy is shaped by its existing legacy assets. Cable operators, though not denying FTTH makes sense in the future for a growing percentage of customers, also believe HFC is a viable platform, without major reliance on FWA or FTTH to serve mass market customers. 

Verizon and T-Mobile have good reasons for using FWA that piggybacks on their nationwide 5G networks. 

AT&T believes FTTH is the best solution, but also has the largest in-region fixed network footprint of any major ISP, and therefore has the most to lose if copper access facilities are not upgraded to fiber access.

There is no universal answer for “which access platform” makes most sense. Each major ISP has key business model constraints and opportunities that shape the access network choices.