Friday, August 3, 2018

Will T-Mobile US Compete for Fixed Network ISP Accounts?

One of the biggest problems all of us have with business and life is getting transitions right, especially big disruptive transitions. Consider only the matter of consumer internet access; its retail cost, its value, speed and market structure.

To summarize, some critics complain (and always do) that consumer services are too slow, too expensive and are offered in markets that are not competitive enough.

Leaving aside for the moment that much of that is a judgment call, the rate of improvement, the cost per bit metrics (value), price that is inflation-adjusted and as a percentage of household income metrics are not out of line for any developed market, and are far better than in most developing markets.

And competition is going to intensify. Leave aside the coming future competition from constellations of low earth orbit satellites or more exotic delivery platforms (balloons or unmanned aerial vehicles).

In the near term, 5G is going to be used by mobile service providers to attack fixed network internet service providers, in some cases using 5G fixed access, in other cases simply by supporting mobile substitution.

Verizon has been the biggest, most aggressive proponent of using 5G in fixed mode to provide major new competition out of region to AT&T, Comcast and Charter Communications.

But T-Mobile US now says it expects to be a significant player in providing major new competition for internet access services provided by fixed network providers as well, if its merger with Sprint is approved. In truth, T-Mobile US is likely to do so even if the merger with Sprint is not approved.

Some might argue the purchase of video platform Layer3 works for T-Mobile US no matter what happens with the Sprint merger, as a way to provide “up the stack” video services, and also as an anchor feature for fixed internet access bundle.

“I don't think people have really thought through what's going to come,” says Mike Sievert, T-Mobile US COO, a prediction predicated on a Sprint merger with T-Mobile US.

T-Mobile US apparently expects to gain, by 2024, close to 10 million customers that formerly would have been served a fixed network. The company believes perhaps 75 percent to 80 percent of those accounts will be in metro areas, with 20 percent to 25 percent of them in rural America, Sievert says, when available speeds range from 150 Mbps to 450 Mbps or more, in some areas.

“What people haven't really connected to until recently is that with the new T-Mobile, by 2021, two thirds of the country will have greater than 100 megabit speed, so if you think about in the context of broadband, by 2024, it will be 90 percent,” he argues.

“in the underserved rural America segment, when you get out to 2024, we'll have 74 percent of them covered with greater than 10 megs, but with home CP and our in-broadband distribution opportunity that we see, you'll have 84 percent that can get greater than 25 megabits,”Sievert says.

We will have to wait and see what happens with the proposed Sprint merger, and what T-Mobile US decides to do if the merger fails. If approved, we get a new fixed network internet access competitor, in many U.S. markets, on top of what Verizon will provide. .

Let us assume that Verizon and T-Mobile US are going to be fierce and successful competitors, at scale.

That is going to reshape the fixed network internet access market in a fundamental way, removing the duopoly of “telco and cable” in markets that represent the bulk of potential customers. Where the fixed network duopoly exists, it might often be a market with four terrestrial providers and two satellite providers, with some markets where smaller independents also operate.

That is going to disrupt business models for all incumbents, terrestrial or satellite. As four to six providers is likely an unstable situation, the eventual number of leading providers is likely to eventually stabilize at some number greater than two and less than six. Mergers are possible, but antitrust concerns will exist, for any combinations of existing providers.

Still, it is hard to ignore the profound implications of full-on mobile substitution for fixed network internet access. The fixed network duopoly seems unsustainable, in some number of markets, in the near term.

In the medium term, mobile or wireless substitution is possible on a broader scale. We are gong to have to redo our spreadsheets on internet access market shares, average revenue per account and profit margins.

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