Thursday, August 23, 2018

What if it is Verizon, Not Google Fiber, that Disrupts U.S. Internet Access?

Within a few years, we likely will count Verizon as the largest U.S. “overbuilder,” not firms such as Google Fiber, Ting or others. The reason is that Verizon is launching an assault as a fixed wireless overbuilder in a number of larger markets, including Los Angeles and Houston, as well as Indianapolis and Sacramento, Calif.

So, in a major irony, it might be Verizon, not Google Fiber, that dramatically disrupts the U.S. internet access market, at least the fixed network part of that market.

Generally speaking, earlier overbuilders have chosen rural areas, small towns or suburban communities as venues. Google Fiber was among the few to have tackled a whole major market such as Kansas City.

Verizon’s attack will matter for a few reasons. Verizon has the resources and brand name to shift national market share in the fixed networks business. Up to this point, no overbuilder has attacked markets big enough to change national market shares and subscriber counts.

And, in its chosen markets, Verizon will be challenging several of the biggest ISPs in the fixed networks business: Comcast, Charter and AT&T. This is not an incremental approach in out-of-the-way or small markets, but a deliberate effort to take significant market share, at scale.

Just how much share Verizon can get is the issue, and how soon it can do so. Verizon suggests its fixed wireless opportunity is about 30 percent of all U.S. homes, so possibly 35 million to 39 million U.S. homes, depending on which estimates one uses.

Market share will matter. New Street Research predicts that Verizon could achieve 24 percent market share in those markets. That would change national internet access market share by about seven percent (using a base of 114 million U.S. homes), or some eight million accounts.

Of course, Verizon might do better than that.

TDS in Sun Prairie, Wisc. gotten 46 percent market share in its first year of operation as an overbuilder That is practically unheard of.  

With possibly hundreds of local governments actively considering launching their own municipal internet access services, and with a growing number of private internet service providers also looking to enter as the third providers in existing markets, it looks as though many more U.S. communities will see a trio of fixed network service providers over the next decade.

How well they might fare, and what the implications are for incumbents, are logical questions.

Ting, the internet service provider that overbuilds telcos and cable TV firms, has argued it can get to about 50 percent market share in perhaps five years in virtually all of its internet access networks, with a first-year goal of 20 percent share.

EPB, a municipal service provider in Chattanooga, Tenn., is the poster child for government-operated triple-play providers, and often is said to have 46 percent market share. That is true if one counts units of service (video, voice, internet access), instead of household account share.

The issue is that when service providers sell multiple services, one has to decide how to measure market share: by units sold, by homes that are active accounts or some other measure. These days, the preferred metric typically is units sold, not homes.

EPB’s internet access share might be about 27 percent, its video share lower than that. Comcast might have 61 percent video share, while EPB might have 36 percent video share.

AT&T also competes in that market, but seems to have low share of video and internet access.
Other earlier overbuilders, focusing on video entertainment, might have been able to reach 10 percent to 15 percent market share.

Many of us would be surprised if Verizon failed to break the 20-percent share market rather quickly. And that means other major ISPs--AT&T, Comcast or Charter--are going to lose that share.

Ironically, it might well be Verizon--not Google Fiber--that pushes the major U.S. ISPs to upgrade to gigabit access on a faster tempo.

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