Is 5G an Existential Threat to Fixed Network ISPs?

Even if you do not completely agree with the claim that “5G technologies are expected to put mobile broadband on par with fiber networks,” most might agree that the gap between mobile and cabled access networks is about to close dramatically. Nobody yet knows how much share shift (mobile substitution) could happen. But the threat is substantial, at a local level.

“We see 5G fixed wireless broadband as the biggest existential threat to broadband providers (by far),” say equity analysts at Cowen. Mobile 5G might be a bigger threat, but consider only fixed wireless.

Consider what Verizon might achieve, as it is the U.S. tier-one service provider most committed to 5G fixed wireless. Verizon assumes it might eventually reach 30 million to 35 million homes (homes passed) in 17 or so potential markets.

Assume that total fixed network internet access take rate in those markets is 85 percent. That implies perhaps 25.5 million to 29.8 million customer accounts in the total market.

Assume the cable competitor in those markets has 55 percent share, while the telco has 44 percent share. That implies cable operators have perhaps 14 million to 16.4 million accounts.

Other telcos (mostly AT&T and CenturyLink) might then have 11.2 million to 13.1 million accounts.

Assuming a 25 percent Verizon take rate when it enters those new markets, Verizon could eventually expect to gain 6.4  million to 7.5 million accounts.

To be sure, on a national level, those losses, while unwelcome, represent a share shift in low single digits for any affected incumbent supplier. On a national base of at least 97 million accounts, that amount of share shift represents about seven percent to nine percent of the base.

The impact really is on local market business cases. If the incumbent losses come in proportion to existing share, then the local cable company could lose 14 percent share, while the telco loses 11 percent share.

In other words, cable might lose two million to 2.3 million accounts in those markets, while telcos lose 1.2 million to 1.4 million accounts. That drops cable share to perhaps 41 percent, and telco share to perhaps 33 percent share.

At a high level, neither of those new share levels is unsustainable, the general logic being that a minimum of 20 percent ISP share is sustainable. But the lower share makes the overall business case for cable and telco suppliers that much tougher, reducing gross revenue, profit margins and possibly average revenue per account.

That is hugely important, as it could dramatically alter the business case for fiber-to-home or other access networks, reducing the number of instances where such a network is sustainable.