Wednesday, January 27, 2021

Why 5G Home Broadband is Such a Big Deal

Some might have doubted Verizon’s commitment to home broadband services provided by the millimeter wave platform. But CEO Hans Vestberg argues that the home broadband effort is just beginning.


Verizon says it plans to”almost double the amount of 5G Ultra Wideband sites” in 2021, adding 14,000 new sites during the year. 


“We're building it (Ultra Wideband) mainly in the very dense urban areas and then in stadiums, et cetera, in the beginning,” said Vestberg. “So, we covered less of houses or residentials in the beginning.”


That makes sense. Building a new access network makes most sense in the densest areas or highest use areas, as that is the fastest way to create coverage of potential customers. In the case of the millimeter wave network, that means the dense areas where there are capacity issues (downtown urban cores, stadiums, other hotspots of demand). 


For mobile networks as a whole, one tends to build first also along major traffic routes. Millimeter wave is not ideally suited for such coverage, nor are drivers in moving vehicles typically using apps requiring unusually high capacity. That tends to happen at stationary locations (home and office). 


As the densest areas are built out, architects tend to roll to the next targets of opportunity, often suburban areas. 


And though some will question how effective millimeter wave fixed wireless will be as an alternative to fiber to the home, at least on the speed front, Verizon might be doing quite a bit better than originally forecast. 


“I remember when I talked about Ultra Wideband reaching maybe one gigabit per second, now we're up to four, five,” said Vestberg. So where some might have argued 4G fixed wireless would make sense for the value portion of the consumer market, 5G fixed wireless might well prove to be a full competitor to cable modem platforms, in terms of speeds and retail price. 


So the argument for fixed wireless is that it is in many instances the only way telcos can compete with cable, the market share leader. In other cases, new entrants, with zero share of the home broadband market, will gain simply by taking market share in a new line of business. 


How much market share does 5G fixed wireless have to shift before it affects the profitability of the fixed network consumer internet access market? Not much. 


In recent quarters, for example, U.S. fixed network internet access net additions have totaled about six tenths of one percent of the installed base, with cable gaining eight tenths of one percent while telcos lost about two tenths of one percent. 


In other words, a shift of about two-tenths of one percent per quarter halts the telco decline. A shift of perhaps six-tenths of one percent--from cable to telco--actually causes cable share to begin a decline. 


This is a big deal, as fixed wireless might allow telcos to reverse a 20-year trend of losing market share to cable operators in the home broadband business. And it does not take much share shift to really make a difference. 


That is what the stakes realistically are: a chance for telcos to halt, and perhaps reverse, the long-term decline of their market share in internet access. 


At the moment, it is conceivable that about four percent of U.S. consumers buy gigabit internet access. Perhaps 58 percent of U.S. consumers buy services with speeds between 100 Mbps and 300 Mbps. 


That makes 5G fixed wireless a competitor for at least 58 percent of the market, even at lower speeds. 


Most likely, the center of gravity of demand for 5G fixed wireless is households In the U.S. market who will not buy speeds above 300 Mbps, or pay much more than $50 a month, at least in the early going. The reason is that that pricing level and downstream bandwidth fits the profile of 5G fixed wireless using mid-band spectrum.


Verizon fixed wireless offers also suggest that same 5G “sweet spot” in the market. In the meantime, there is 4G fixed wireless, which will have to be aimed at a lower-speed portion of the market, albeit at about the same price points as 5G fixed wireless. 


Up to this point, Verizon 4G fixed wireless, available in some rural areas, offers speeds between 25 Mbps and 50 Mbps. That might appeal to consumers unable to buy a comparable fixed network service. 


Later iterations using millimeter wave service will sometimes be a more-serious competitor to cable operator services operating up to a gigabit per second. 


Fixed wireless might be even more important elsewhere in global markets.  


There are roughly 99 million fixed network internet access accounts active in the U.S. market. If fixed wireless manages to shift about 12 million accounts, that is a potential gain of 12 percent.


If 80 percent of that shift is from cable operators to telcos, implying a shift of 9.6 million accounts, that would mean a loss of 15 percent cable TV market share in internet access


For T-Mobile, the upside is equally important. T-Mobile has zero share of the home broadband business, representing about $115 billion in annual revenue. My own rule of thumb is that a U.S. tier-one service provider cannot bother with incremental new revenue sources worth less than $1 billion in annual revenues. 


Fixed wireless easily meets that test at a gain of just one percent of existing U.S. internet access. T-Mobile only has to get one percent market share to increase revenue by more than $1 billion annually. 


In fact, some might well argue that the upside from fixed wireless has more impact on firm earnings than does 5G for mobile service. A mobile data account might represent $20 in monthly recurring revenue. A home broadband account represents somewhere between $40 and $80 in recurring revenue. 


So a single home broadband account represents between twice and four times the revenue of a mobile account.


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