Even if We Had Zero FCC Data, We Could Estimate Coverage, Take Rates and Quality of Experience

If Federal Communications Commission internet access data were unavailable at all, could we still make educated assessments of broadband coverage, make reasonable estimates of take rates and understand where the shortcomings exist? Of course we could. 

More granular data arguably always is better, but it is mistaken to make a fetish out of FCC data collection. In a filing to the U.S. Federal Communications Commission, Incompass calls for better data collection about internet access, as virtually everybody agrees would be a good idea. 

But we can gain valuable insight into the state of fixed network internet access coverage, usage and performance in many other ways, using what we know about housing stock, occupancy of housing, account data reported by ISPs and surveys of the amount of substitution occurring, where people deliberately choose not to buy fixed network services (or linear video, voice or any other product). 

There are two big and different issues: how well internet service providers perform at supplying access, and how consumers respond to that availability. Take rates alone are not evidence of supply gaps, but often reflect consumer choices, for example. 

Incompass cites Pew Research surveys that  found that 17 percent  of U.S. adults are smartphone-only internet users, meaning that they do not have a traditional high-speed internet connection at home. Using the nationwide average of 2.5 persons per living unit, that suggests seven percent of U.S. homes are “mobile only” for internet access. 

Vacancy rates also matter, as an unoccupied  living unit will not generally be a candidate for purchasing of internet  access. No all living units are occupied at any given time. Vacancy rates can range from more than one percent for owned housing and up to seven percent for rental units. 

Owner-occupied housing units made up 57.9 percent of total housing units, while renter-occupied units made up 30.7 percent of the inventory in the first quarter 2020, according to Census Bureau data. Vacant year round units represented 8.8 percent of total housing units, while 2.6 percent were vacant for seasonal use. 

Approximately 2.2 percent of the total units were vacant for rent, 0.7 percent were vacant for sale only and 0.6 percent were rented or sold but not yet occupied. Vacant units that were held off market comprised 5.3 percent of the total housing stock – 1.5 percent were for occasional use, 1.0 percent were temporarily occupied by persons with usual residence elsewhere (URE) and 2.9 percent were vacant for a variety of other reasons.

Add it all up and 88.6 percent of the housing units in the United States in the first quarter of 2020 were occupied and 11.4 percent were vacant, according to the U.S. Census Bureau.

The Census Bureau also estimates total housing units at 140 million. That implies a potential buyer base of about 124 million units. 

If we deduct the “mobile-only” households (seven percent, or 8.7 million homes, that implies a potential buyer base of about 115 million locations. But not everyone actually uses the internet, which further reduces the addressable base of buyers. 

Though internet usage is virtually universal for adults below the age of 50, only 73 percent of adults over 65 use the internet. About 88 percent of people 50 to 64 use the internet. 

Eventually, adult usage will be virtually universal, but at the moment some percentage of homes might not buy internet access because they do not use the internet. About 15 percent of the U.S. population presently is 65 or older; about 13 percent are in the 50 to 64 age range. 

There are about 34 million households headed by someone 65 or older and perhaps 35 million households headed by someone age 50 to 64. That suggests a potential nine million non-internet homes headed by someone 65 or older, plus four million homes headed by someone 50 to 64. That suggests as many as 13 million households without a need for internet access. 

Subtracting those homes from the base of 115 million potential buyers give us a potential buyer base of 102  million homes. 

Since fixed internet access is sold to locations, not people, all we have to do is compare the current number of fixed network internet access subscriptions with that potential buyer base of 102 million homes to derive an estimate of adoption (take rates). 

Leichtman Research says there were a total of 101 million U.S. internet access accounts held by firms representing 85 percent of the customer base. That suggests total fixed network accounts at 119 million. Granted, some percentage of those accounts are sold to businesses, especially small businesses. 

There are about 30 million U.S. small businesses.  About half of all small businesses are home based and presumably use home internet. So small business probably represents an addressable opportunity of 15 million locations. 

Add that to the consumer addressable opportunity and the universe might be 117 million locations. That is less than the number of accounts already in service. 

That is not a direct measure of quality of experience or speed, but does suggest that most customers who want to buy fixed network internet already do so, whether small businesses or consumers. And there also are ways to assess quality of experience. But that is another exercise and post.