AT&T Somewhat Skeptical about Fixed Wireless, But it Might be a Choice for 70% of U.S. Buyers

AT&T does not believe that customers consuming between one and five terabytes of home broadband data will be best served by a mid-band fixed wireless home broadband product.

“Well, the large consumption that we are anticipating over the next five years will be hard to meet with a wireless-only solution,” said Scott McElfresh, AT&T Communications CEO. There will be places where fixed wireless does make sense, he added. 

“There will be portions of the footprint that will not be economical to serve with fiber,” said McElfresh. “And we would intend to put at the edge of our fiber network this wireless C-band asset, along with our other mid-band spectrum to serve some of the limited use cases that we think are available for a fixed wireless solution.”

“But that's not our primary focus for that band, and that's not our primary focus to serve that heavy demand with broadband,” he noted.

At least in part, the issue is upstream bandwidth, where the difference between downstream data and upstream data has traditionally shown a 10:1 ratio. But AT&T CEO John Stankey argues that the ratio is heading to “something more like 5:1.”

As significant a change as that might be for a fixed network, the challenge is harder for a spectrum-constrained platform such as mobility, which never has the bandwidth provided by a cabled network. 

As always, firm strategy hinges on supplier assessment of their own strengths and weaknesses. T-Mobile and Verizon have much more to gain from taking home broadband share than does AT&T, and fixed wireless is the fastest, most affordable way to do so. 

T-Mobile has had zero market share in home broadband, as it has no retail fixed network business. Verizon has a retail fixed network business, but covers a small percentage of U.S. homes. 

Both firms stand to gain millions of accounts--especially where they do not presently offer any service--using mobile or fixed wireless. 

Comcast has (can actually sell service to) about 57 million homes passed.

The Charter Communications network passes about 50 million homes, the number of potential customer locations it can sell to.

Verizon homes passed might number 18.6 to 20 million. To be generous, use the 20 million figure. 

AT&T’s fixed network represents perhaps 62 million U.S. homes passed. CenturyLink never reports its homes passed figures, but likely has 20-million or so consumer locations it can market services to. 

T-Mobile and Verizon have the most market share to gain by deploying fixed wireless.  

“We choose to serve our customers that demand high-speed bandwidth with fiber, and we will utilize our wireless networks to serve those other niche use cases in areas where fiber economics do not make sense,” said Jason Kilar, AT&T WarnerMedia CEO. 

“We think that mid-band spectrum has its role,” said Stankey. “It has its role in being a premium mobility product.” But mid-band spectrum has issues supporting indoor coverage, he argued. “And we think there's better ways to kind of deal with what's going on inside most of the walls of society,” namely fiber to the premises. 

All that can be reasonably argued. But McElfresh also said “our vision would be to have over half of our portfolio or 50 percent of our network covered by that fiber asset” by about 2025, building at about a three million to four million annual rate. 

Proponents of fixed wireless might make exactly the same point: half of U.S. households buy broadband services running between 100 Mbps and 200 Mbps, with perhaps 20 percent of demand requiring lower speeds than that. 

So even if fixed wireless offers lower speeds than cable hybrid fiber coax or telco FTTH, it might arguably still address 70 percent of the U.S. market.

Verizon Uses Owned Optical Fiber for 48% of its Mobile Site Backhaul

Verizon now says it connects 48 percent of its cell sites using owned optical fiber. That might not seem like such a big deal, but consider that Verizon’s fixed network only reaches about 20 percent of U.S. homes. 

That matters because ownership of a fixed network reaching homes and businesses provides cost advantages for deploying optical fiber backhaul to cell towers and sites. AT&T, in contrast, has fixed network assets passing about 44 percent of U.S. homes. That also provides advantages for cell site backhaul. 

Building fiber backhaul to towers outside the Verizon fixed network territory requires construction or long-term leases of capacity from other providers who can provide the access. It appears that a substantial percentage of Verizon backhaul uses built or owned facilities. 

For U.S. cable operators, who prefer to sell mobile service only to their own existing customer base, the same logic applies. Owning their own landline facilities reduces the cost of creating a cell network. 

Of a total of 140 million homes, AT&T’s landline network passes 62 million. Comcast has (can actually sell service to) about 57 million homes passed.

The Charter Communications network passes about 50 million homes, the number of potential customer locations it can sell to.

Verizon homes passed might number 27 million. Lumen Technologies never reports its homes passed figures, but likely has 20-million or so consumer locations.

Home Broadband Strategy is Heavily Dictated by the Business Model

AT&T is targeting about 30 million homes for new fiber-to-premises availability. Verizon is emphasizing fixed wireless. As always, strategy is based on firm strengths and weaknesses. AT&T has the largest footprint of homes; Verizon’s fixed network possibly reaches 20 percent of U.S. homes. 

Of a total of 140 million homes, AT&T’s landline network passes 62 million. Comcast has (can actually sell service to) about 57 million homes passed.

The Charter Communications network passes about 50 million homes, the number of potential customer locations it can sell to.

Verizon homes passed might number 27 million. Lumen Technologies never reports its homes passed figures, but likely has 20-million or so consumer locations. 

AT&T has more fixed network share to protect, compared to Verizon, while Verizon has bigger upside in taking home broadband share outside its footprint.

The same holds for T-Mobile, which historically had zero percent share of home broadband. 

“If all I had was a wireless network, if I did not have a scaled physical infrastructure fiber thriving and growing network, I might have no other choice than to leverage my wireless spectrum portfolio to go grow my business,” said Jeff McElfresh, AT&T COO.

The point is that business strategy around home broadband platforms is not based strictly on what is "best" long term. Strategy also must be based on how fast competitive home broadband access can be enabled; at what cost and how fast.

Cable operators have differing opinions about whether to upgrade directly to FTTH now, or conduct at least one major hybrid fiber coax upgrade before doing so. Sheer technology performance is but one consideration. The payback model is more important.

C-Band is a Huge Deal for Verizon: Extends Home Broadband Addressable Market from 25% to Virtually 100%

One iron rule for internet access services is that if one has enough bandwidth, access speeds can be very high. For mobile operators, bandwidth expansion can come in a few ways: adding more spectrum, building smaller cells or deploying better modulation techniques or radios.

In that regard, for 5G, mid-band spectrum has been key for firms such as Verizon, which have had less mid-band spectrum than others. The difference is striking. 

After deploying C-band spectrum, Verizon mobile peak speeds “go from 9 Mbps to an amazing 2.4 gigabits per second,” said Hans Vestberg, Verizon CEO.

That has implications for home broadband as well, as, in principle, peak speeds might reach gigabit per second levels. And that, in turn, is important because it dramatically extends the addressable market for fixed wireless from perhaps 25 percent of buyers to perhaps 99 percent of buyers (those who buy home broadband at speeds up to about 2 Gbps, and do not require symmetrical access)

True, Verizon has millimeter wave assets to deploy in urban areas, but C-band means fixed wireless has higher bandwidth in suburban and rural areas as well. 

For Verizon, which has a smaller fixed network footprint than many of its leading competitors, that really does matter, as it means Verizon can compete for home broadband customers who want higher speeds in most U.S. geographic areas. 

Of a total of 140 million U.S.  homes, AT&T’s landline network passes 62 million. Comcast has (can actually sell service to) about 57 million homes passed.

The Charter Communications network passes about 50 million homes, the number of potential customer locations it can sell to.

The number of Verizon homes passed might be 27 million. Lumen Technologies never reports its homes-passed figures, but likely has 20-million or so consumer locations.

The point is that Verizon cannot easily expand its fiber to home footprint outside its historic service areas, for reasons of investment magnitude. So fixed wireless makes eminent sense for a firm that can presently reach only about 19 percent of U.S. homes using its fixed network. 

The same sort of logic holds for T-Mobile, which historically has had zero access network fixed network footprint. There is neither time nor money for T-Mobile to wire the entire country, or even a substantial part of it, using FTTH. 

So C-band is a really big deal. It extends Verizon’s home broadband addressable market from about 25 percent of homes to up to 100-percent of homes.

Verizon Buying Comcast or Charter--Absent Huge Divestitures--Would Not Pass Horizontal Antitrust Review

Rumors about big mega-mergers get floated from time to time for all sorts of reasons, sometimes to test the waters or encourage deal making. That seems to be the case for rumors about Verizon buying Comcast, or Verizon buying Charter Communications. Either combination would clearly run into major antitrust issues using the standard screens used by the Justice Department.

So such rumors might be intended to gauge just how far antitrust rules can be bent. But barring major divestiture of assets, it seems virtually impossible that antitrust officials would have an easy time with such huge horizontal mergers.

Some might try to argue that Verizon fixed network triple play services and Comcast or Charter triple play services do not represent horizontal concentration. Or Verizon might contemplate divesting its whole fixed network operation, though it is hard to see who the logical buyers might be.

Some might like to point out that AT&T bought Tele-Communications Inc., the biggest US. cable TV company, but that was totally different. AT&T (not SBC) had zero consumer fixed network assets. So buying TCI did not bring AT&T more than about 30 percent access to U.S. homes.

SBC, now that it has acquired the former AT&T, did so only after AT&T sold off those former TCI assets to Comcast, allowing Comcast to become the biggest U.S. cable TV company.

As Comcast and Charter now are the largest U.S. ISPs, and the largest U.S. cable TV companies, adding Verizon’s fixed network customer base and either cable company’s households passed would easily surpass the 30 percent maximum reach that historically has been the size limit for any local access provider.

Verizon could try and divest enough Comcast or Charter assets to stay under, or at, the 30-percent reach of U.S. households, keeping all its own fixed network assets.

Still, all those would be complex divestitures, with other complications. It isn’t so clear how much Verizon would want to operate hybrid fiber coax, all copper and all-fiber access networks, with all the differences in outside plant operations that would represent.

Nor is it so clear that Verizon would want to get bigger in fixed networks, since it has built its business on mobile services. Likewise, it is not so clear Verizon wants to be as big in media as owning Comcast would entail.

Charter’s footprint, meanwhile, is more rural than Comcast’s footprint, something Verizon definitely would not prefer.

To be sure, assets could be divested. They would almost certainly have to be, on the fixed network side of the business. Then there are all the cultural issues, union and non-union workforces to blend.

It seems unlikely Verizon would be looking strictly for a vertical merger, as AT&T proposed with Time Warner. Talk of Verizon using the HFC network for small cell and other backhaul makes sense, but the issue is the 30-percent homes passed test.

It all seems too complex, too likely to draw antitrust rejection, to be a likely outcome.

Can Independent ISPs Get 50% Market Share?

Can independent internet service providers (public or private) actually get 50-percent market share when competing against telcos and cable companies? Ting Internet believes so, but results from other firms suggest the level of competitor pricing really does matter. G

It always is difficult to quantify take rates for gigabit internet access services, as virtually no internet service provider ever releases such figures. That has been the case since faster internet access services, priced at a market premium, began appearing. The reason for the reporting reticence is that take rates for the fastest, most expensive tier of service tend to be minimal.

Still, ISPs do tout some figures. Mediacom, for example, claims that between 10 percent to 20 percent of its new accounts are buying  gigabit services costing between $125 a month to $140 a month. Again, it is hard to quantify what that means.

The actual number or percentage of account that change providers every year (churn) in the fixed network internet access business arguably varies between markets with strong offers (where fiber to home is sold, and where gigabit cable services also are sold).

Churn arguably is highest where a cable operator offering speeds in the hundreds of megabits per second competes with a telco only able to sell slower digital  subscriber line service. AT&T and Verizon, for example, tend to see low churn rates, where other independent telcos with less fiber to home tend to see higher churn rates.

Much obviously depends on pricing levels. In markets where a gigabit ISP sells 1,000-Mbps service at prices that match the current or legacy prices for slower service (perhaps 100 Mbps), take rates can climb dramattically.

What is harder to model are markets where a clear price premium exists. It will matter when a reasonably-fast standard offer costs $50 a month and the gigabit offer costs more than $125 a month.

Presumably, in such market, demand will be anchored by business demand, higher-income households and multi-user households.

Perhaps the most-optimistic provider to make public predications is Ting Internet, which tends to argue it will get adoption as high as 50 percent in any new market it launches, within five years or so. Initial take rates when first marketed appear to be about 20 percent.

In its fourth quarter 2017 report, Tucows reported Ting Internet take rates of 30 percent take rates in areas where it is able to market its gigabit service.

Ting prices its gigabit service at $90 a month. At that price, it is lower than Comcast and other cable companies charge, but higher than the $70 a month some other ISPs offer. The point is that Ting is pricing at a significant price premium to “standard” offers that offer less value (in terms of speed), but not pricing as high as cable companies or telco practice.

We are likely to see much more of this sort of independent ISP competition in the fixed market, not to mention 5G-based gigabit offers from mobile suppliers.

At least in principle, more than 100 Colorado communities could see some form of

municipal broadband network created, as voters in those communities have approved such moves.

Longmont, Colo. already has built out a portion of its planned gigabit internet access network, aided by that city’s ownership of a municipal power utility, meaning Longmont owns rights of way, distribution facilities, rolling stock and other assets helpful to creating a city-wide internet access network.

In Centennial, Colo., private internet service provider Ting Internet will piggyback on a new government network to be built by the city of Centennial itself.

Also, it sometimes is difficult to ascertain precisely what take rates are, since many independent ISPs challenging cable or telco suppliers seem to count “units sold” rather than “households served.”

That matters when an ISP sells two or more products, and then calculates adoption rates as “units sold divided by households passed.”

In other words, penetration is measured in terms of revenue-generating units, not “locations” or “households.” Each unit sold (voice, video or internet access) is counted against the base of locations. So a single location buying three services results counts as much as three other homes buying just one service.

source: Magellan Advisors

Customer “penetration” by household therefore is different from penetration measured as a function of units sold. The difference is that determining the magnitude of stranded assets hinges on how many locations passed generate revenue.

Assume that, on average, a typical household buys 66 percent of the total suite of services (two of three triple play services or  three of five services, for example).

The difference is significant. Measuring “penetration” by units sold, penetration appears to be as high as 76 percent to 87 percent. Measured as a function of homes generating revenue, penetration could be as low as nine percent, or as high as 44 percent, with a “typical” value being something between 20 percent to 25 percent of homes passed.

Penetration: Units Sold or Homes Buying Service?
	Morristown	Chattanooga	Bristol	Cedar Falls	Longmont
homes passed	14500	140000	16800	15000	4000
subscribers	5600	70000	12700	13000	500
units sold	39%	50%	76%	87%	13%
services sold	3	3	5	3	2
HH buys .66 =	2	2	3	2	1
Homes served	2828	35354	3848	6566	379
penetration	20%	25%	23%	44%	9%

It might be worth pointing out that all these communities (Morristown, Chattanooga, Bristol, Cedar Falls and Longmont) have municipally-owned utility companies, and might therefore represent a sort of best case for retail operations serving consumers.

That seems consistent with other evidence. In markets where a telco and a cable operator are competent, as is the attacking ISP (municipal or private), market share might take a structure of 40-40-20 or so, possibly 50-30-20 in areas where the telco does not have the ability to invest in faster broadband and the cable operator has the largest share.

Beyond the actual cost of the network, and the business role chosen by the municipality, details of revenue generation (homes that generate revenue as a percentage of total; number of services offered) are fundamental.

Beyond that are the other operating and marketing costs, overhead and need for repaying borrowed funds and making interest payments, on the part of the retail service provider.

One might argue that most other communities, without the advantages ownership of an electric utility provides, will often find the lower risk of a shared public-private approach more appealing.

Also, some ISPs might find the availability of some amount of wholesale or shared infrastructure makes a meaningful difference in a business model.

One might suggest there are a couple of potential practical implications. Efforts by incumbent ISPs to raise retail prices in the same way that video entertainment prices have grown (far higher than the rate of overall inflation) will increase the odds new competitors enter a market.

Higher prices, in fact, will increase the likelihood of new entrants entering a market, as the higher prices increase the attractiveness of doing so.

In at least some cases, the new competitors will be firms such as Verizon, which now has announced it will essentially overbuild an AT&T and Comcast markets in Sacramento, Calif.

Though it is not easy, more competitive ISPs are likely to enter more markets, as lower-cost access platforms evolve, helped in some cases by municipal facilities support.

Where that happens, it is conceivable that the incumbents will see a new limitation on their market share, dipping from possibly 50-percent share to a maximum of perhaps 40 percent each, on a long-term basis, assuming the new competitor is not eventually bought out by one of the incumbents.