The strategic context for U.S. home broadband is evolving. For two decades, cable TV operators have been able to consistently maintain installed base share close to 70 percent, in most years getting the majority to all of the net new account additions.
That remains the case in 2021, as cable continues to hold its installed base lead and also continues to win the net new additions battle.
All that now seems set for change, though. The biggest change is an up- tempo pace of fiber to home conversions by telcos. But new 5G high-bandwidth fixed wireless offerings should claim some share as well.
Also important is the way some telcos are positioning their upgrades. In the past, they might have been content to match cable offers. Now some are aiming to surpass cable offers, with symmetrical upstream bandwidth a weapon.
Frontier Communications, for example, is preparing rollout of a 2-Gbps offer, in addition to its standard 1-Gbps and entry-level 500-Mbps offers. That will likely feature symmetrical bandwidth.
To be sure, cable is working on its own 10-Gbps capabilities, as well as methods to add more upstream bandwidth. But many of those solutions are not graceful upgrades from the existing hybrid fiber coax platform. The choice is whether to revamp HFC in significant ways or switch to FTTH as the replacement.
More upstream bandwidth could be provided, to some extent, by pushing fiber deeper into the HFC network. Alternatively, cable operators can swap frequency plans, moving to mid-split or high-split designs. But all those moves require disruption of the physical plant, and cannot be accomplished by swapping out end user gear, as has been the case in the past.
And any shift to fiber deeper networks, mid-split or high-split architectures (or two of the above) essentially delays an eventual shift to FTTH in any case, many would argue. So the decision comes down to “spend less now, but more in the long term, while undertaking a major network disruption twice” or “spend more now, and be done with it, and only disrupt operations once.”
The larger point is that upgrading to FTTH comes with other choices that can confer advantage. Bandwidth can be symmetrical, or not. Bandwidth can top out at various levels: higher or relatively lower. And retail pricing, terms and conditions also make a difference.
Much thinking now seems to be going into how to tweak those parameters to gain advantage over cable operator competitors. Many might assume FTTH means gigabit speeds. It does not. FTTH is physical media. Service providers still must decide how much bandwidth they want those networks to supply.
Historically, FTTH might have meant speeds in the hundreds of megabits. Some U.S. FTTH networks installed in the mid-1990s to late 1990s offered speeds only up to 10 Mbps. User experience might be an order of magnitude less than advertised, however, even on FTTH platforms.
What seems to be changing is a willingness to leverage FTTH to gain a speed advantage.
“Our network is already 10-gig capable end-to-end, so we can carry on driving up speed tiers, as demand requires, in a very low-cost, very quick way, again, in a way that cable can't, says Nick Jeffery, Frontier Communications CEO.
But that only matters if most Frontier customers can buy the service.
“Our plan (is) to reach a total of five million fiber locations by the end of 2022 and 10 million locations by the end of 2025,” says Nick Jeffery, Frontier Communications CEO.
Frontier has 15.2 million locations passed, so 10 million total FTTH passings means about 66 percent of the potential customer base would be able to buy FTTH services.
Of course, a higher installed base does take time. “Our 2020 expansion cohort continues to show strong penetration of 30 percent at the 12-month mark,” says Jeffery, though noting that figure is based on a small sample.
“For the overall build plan, we continue to expect a 15 percent to 20 percent penetration rate at the 12-month mark, and with penetration continuing to rise in subsequent years toward a terminal penetration of 45 percent,” he added.
Government subsidies also are expected to improve the business case for FTTH and other high-speed services, as they are increasing substantially.
George Ford, economist at the Phoenix Center for Advanced Legal and Economic Public Policy Studies, argues that about 9.1 million U.S. locations are “unserved” by any fixed network provider.
Though specifics remain unclear, it is possible that a wide range of locations might see their deployment costs sliced by $2,000 or more. Lower subsidies would enable many more locations to be upgraded to FTTH, for example: not the unserved locations but possibly also many millions of locations that have been deemed “not feasible” for FTTH.
Much hinges on the actual rules that are adopted for disbursement. Simple political logic might dictate that aid for as many locations as possible is desirable, though many will argue for targeting the assistance to “unserved” locations.
But there also will be logic for increasing FTTH services as widely as possible, which will entail smaller amounts of subsidy but across many millions of connections. The issue is whether to enable 50 million more FTTH locations or nine million to 15 million of the most-rural locations.
Astute politicians will instinctively prefer subsidies that add 65 million locations (support for the most-rural locations plus many other locations in cities and towns where FTTH has not proven obviously suitable).
The issue is the level of subsidy in various areas.
“According to my calculations, if the average subsidy is $2,000 (which is the average of the RDOF auction), then the additional subsidy required to reach unserved households is $18.2 billio,” Ford argues. “If the average subsidy level is $3,000, then $22.8 billion is needed. And at a very high average subsidy of $5,000, getting broadband to every location requires approximately $45.5 billion.”
The point is that, compared to the business case 20 years ago, FTTH is better in a number of ways. Strategically, copper facilities simply are outmoded. Any fixed network operator clinging to that platform is destined for death.
Financially, the older triple-play model--with its cost structure and complexity--now is out of favor. The new model is based on home broadband: the sole service for an independent ISP, and the growth driver for an incumbent telco.
Oddly enough, the older justification for FTTH--that it allows telcos to support many services--now is eclipsed by the simple value of internet access. The value of the “do anything” platform still remains.
Only these days the primary value driver for an incumbent telco or independent ISP is “access.” Voice or video entertainment might contribute additional revenue and value, but where there is a choice, new providers simply build on home broadband, leaving apps to be supplied by others.
All that is a big potential change.
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