Fixed Wireless Might be the Only Way U.S. Telcos Compete with Cable

Despite much skepticism in many quarters, there is a simple reason why 5G fixed wireless will get serious attention by U.S. telcos. There is almost no other platform that viably could keep telcos within some distance of cable operator internet access offers.

The traditional answer has been to install fiber to the home networks, but the business model now is rather sharply llimited, and the risk of stranded assets explains the dilemma.

Clearly, cable TV dominates residential broadband. Cable has about 60 percent market share nationally and has been getting essentially all the net new additions for a decade.

The problem for any new telco FTTH supplier is that 60 percent of the potential customer locations (cable operator customers) will not generate any revenue. Immediately, the problem is building a business case when 60 percent of assets are stranded and producing zero revenue.

And though linear video is undergoing a transition to on-demand streaming formats, cable operators as an industry segment continue to have the greatest share of linear video accounts. So linear video helps the business case, in the near term, but is challenging over the next decade, as that business will dwindle.

Residential voice is declining for both telcos and cable companies and is not a driving revenue opportunity for either industry segment, and not a reason for building FTTH.

Ignoring for the moment business services and residential mobility, where cable operators also are taking market share, it is a reasonable statement that upgraded fiber to home networks pose a difficult challenge for telcos, as the business case is challenging, in terms of payback. In most markets, the revenue drivers for a residential fixed network are internet access and entertainment video.

And there are many instances where those two services, supplied by a telco, face grueling odds. If cable has 60 percent share of internet access, with networks able to supply 1 Gbps now, and having a glide path to 10 Gbps, then a telco building FTTH is playing catch-up, and no more. How many observers are confident that a telco can ever gain more than 44 percent share in the U.S. residential market, at scale? Perhaps not many.

The number of third parties entering the consumer fixed network business, mostly leading with internet access, slowly is growing. And that means the residential market becomes, in some areas, a three-provider market, further limiting potential telco gains.

Video helps the business case in urban and suburban markets, but always has been a money-loser in rural areas, and in any case is a mature and declining revenue source.

Some might argue that, in the 5G and succeeding eras of mobility, the primary value of a fixed network is backhaul. That might be an overstatement, but is directionally correct. Even cable operators expect wireless backhaul to be an important opportunity.

That is why a wave of asset dispositions, which have had fixed network operators selling fixed network assets, has happened. Most recently, CenturyLink has said it is open to selling the consumer business it operates.

The bottom line is that the market limits the potential for profitable telco investments in FTTH.

All of that sharply limits telco options in the next-generation network area. The business case for FTTH simply might not work, and yet abandoning the business also often is impossible (the assets cannot easily be sold).

All that explains the interest in 5G mobile and fixed wireless access. As mobile substitution for fixed service has cannibalized fixed voice, so the hope is that wireless internet access can become an effective substitute for fixed connections. For AT&T and Verizon, that is the business answer to next-generation fixed networks where the FTTH business case does not work.

For T-Mobile US, fixed wireless is a way to participate in the fixed networks businesses it could not enter as a mobile-only service provider. For cable operators, fixed wireless is an obvious way to enter adjacent markets without full fixed network overbuilds.

Other markets might have more-favorable upside from FTTH. But it is hard to avoid the conclusion that, in a great many portions of the U.S. consumer fixed networks business, cable operators have market share that telcos will be very hard pressed to attack.

Consumer internet access speeds must be boosted, to stay within reach of cable offers, and to maintain the value of their fixed networks. Doing so when FTTH does not offer a payback is the challenge 5G fixed wireless is meant to solve.  

Will 5G Enable New Birth of Fixed Wireless Business?

Fifth-generation mobile networks might be more strategic than you might think, boosting both the value of wireless access and the fixed network. It is easy to focus on the "gigabit per second to every mobile device" 5G is designed to support, with higher speeds up to 5 Gbps or 10 Gbps conceivable in some scenarios.

In addition to making mobile access speeds competitive with--or higher than--fixed networks in many instances, 5G might also allow some Internet service providers to rethink access architectures, in region and out of region.

Verizon, for example, now is studying ways to use fiber backbone networks, especially out of region, to anchor fixed wireless access, in much the same way that competitive local exchange carriers long have operated. 

The same approach could work in region, where Verizon does not intend to build dense optical access networks, but might have greatest value out of region, allowing Verizon to leverage fixed network facilities in new ways.

Looking only at "out of region" opportunities, Verizon might be able to leverage new core optical networks acquired from XO Communications, with fixed wireless, to reach many business customers, at lower costs, than ever before.

The access services business model, in other words, could change with the advent of 5G, especially for business customers out of region, or for some consumers, in region, where Verizon does not intend to build FiOS fiber to the home networks.

5G fixed access might also allow Verizon to serve some customers, even where it does build FiOS, who cannot be reached by fiber to home facilities, for cost reasons.

When you have firms including Facebook, Google, Verizon and AT&T all looking at fixed wireless, and AT&T publicly committed to adding as many as 13 million new connections using fixed wireless, you know something has changed.

Fixed wireless is not new, as a concept. It has been seen as the solution for any number of business models, ranging from multi-channel video delivery to Internet access to consumer and business voice. It never has gotten much traction, as a percentage of industry connections.

That could change, dramatically, over the next decade, for several reasons. First, most Internet service providers now acknowledge that fiber to the home is not always the best “use everywhere” platform for high-bandwidth (gigabit) services. In areas where demand is spotty or light, fixed wireless will be a better option, in terms of a sustainable business case.

Second, suppliers--notably the potential ISPs themselves--are working on ways to make fixed wireless work better, at higher frequencies, at lower cost, and have gotten significant support from traditional equipment and platform suppliers, in some cases.

Third, the strategic role of fixed networks now is evolving in a way that makes them backhaul networks, allowing more-affordable “fiber to where you can make money” deployments that, in turn, can use fixed wireless instead of cabled drops.

That strategy is not new, either. Many metro fiber businesses long have built fiber rings to underpin access operations, gradually extending spurs off the rings to reach actual customers.

In a clear sense, fiber networks (metro ring or transport and access) now are going to play the same function in the consumer business. Fiber backbones will have subtending fiber distribution rings or spurs, which will in turn terminate close enough to customer locations that fixed wireless can be the drop (access).

That, fundamentally, is a variant of the hybrid fiber coax network design, fiber to the curb or fiber to the neighborhood architectures, perhaps beginning with services aimed at business customers, especially small or mid-sized businesses.

Now Verizon has begun to talk about using 5G networks in a fixed mode, supported by optical fiber backhaul.

“I think the problem that the telcos have had is a DSL service is really not going to keep up with DOCSIS and so we’ve had to do fiber, and fiber is expensive for all of us,” McAdam notes. “So if you think about it if I can get we than say a 1,000 meters of a business and I give them a router, a basic router that has a 5G service inside it, and I’m up and operating immediately.”

“If you look at 5G in a fixed wireless environment we've demonstrated for some of our shareholders in our Basking Ridge facility putting 1.8 gigs into the house without a wire,” said McAdam. “Think about the difference for the carrier and the cost structure.”

In principle, assuming the acquisition of XO Communications is approved, Verizon will be positioned as a competitive local exchange carrier “out of region,” as XO Communications has fiber rings in 45 of the top 50 U.S. markets.

“That gives you the ability to be out into those markets and then you just run your extensions off of them,” said McAdam.

Though we are early in the process, it appears fixed wireless might be poised for its biggest-ever role in U.S. access operations.

5G Fixed Wireless Might be the Biggest Near-Term New Use Case, in Terms of New Revenue Sources

As easy as it might be to dismiss fixed wireless, it might be equally easy to overstate its impact. At the end of 2021 there might have been about 70 million fixed wireless connections in service globally, according to Deloitte. Ericsson believes there were as many as 90 million fixed wireless connections in service in 2021.  

So how significant is that? Perhaps not so significant when service providers have other alternatives. But fixed wireless might be highly consequential for service providers that can use fixed wireless to compete in the home broadband market where they had not be able to do so, in the past.

source: Deloitte 

By the end of 2021 there were about one billion fixed network internet access subscriptions, according to Point Topic. So fixed wireless represented possible seven percent to nine percent of fixed network internet access connections globally. 

source: Point Topic 

So fixed wireless clearly is incremental to use of other platforms, though arguably of high importance to many infrastructure suppliers.

On the other hand, fixed wireless can be incrementally important for some service providers. For some service providers it might represent a business case that other platforms cannot match, allowing those firms to compete in the home broadband for the first time, or more effectively.

That might especially be true in geographies where the cost of building cabled networks is not feasible, or where subsidies of some sort are not available to help defray the cost.

Mobile-only firms formerly unable to compete in the home broadband market, or unable to compete for much of that market, might find 5G fixed wireless viable. 

5G fixed wireless connections could--in many cases--provide significant incremental revenue growth, allowing mobile operators to compete for home broadband accounts now largely the province of fixed network operators. 

Assume global  gross national income per capita of about $11,600 and a monthly home broadband cost of five percent of GNI per capita. That is about $580 in annual revenue per line. 

So 75 million new fixed wireless accounts represents perhaps $43.5 billion in new annual revenue for mobile service providers. That can take the form of new accounts or market share taken from other suppliers. 

Fixed wireless using 5G will by 2026 support 180 million connections globally and generate US$70 billion in revenue, accounting for 40 percent  of the total fixed wireless access market, according to ABI Research. 

Adoption likely will be highest in markets where the cost of deploying fiber to home or hybrid fiber coax remains unworkable, and where demand for moderate-speed internet access is high. Some might argue that 5G fixed wireless is most directly the successor for 4G fixed wireless and digital subscriber line. In some markets that opportunity might last for a substantial amount of time.

5G fixed wireless might be especially important for firms that have not yet been able to compete in all of most of the home broadband market. For T-Mobile in the U.S. market, that represents a huge opportunity, since T-Mobile has had zero percent share of the home broadband market. 

And Verizon expects that fixed wireless will underpin as much as 71 percent of the potential locations it will reach for home broadband service by about 2025. 

Some will counter that 5G fixed wireless speeds will not generally match those of fiber to home or cable modem services. That is likely to be true.

But 5G fixed wireless is likely to be attractive to a substantial portion of the market. In rural areas, where service might only be available in the 50 Mbps range, that still could be competitive.

Overall, about 20 percent of U.S. home broadband buyers purchase services operating no faster than 100 Mbps. So the issue is general availability of fixed wireless services offering speeds of 100 Mbps to  200 Mbps. 

source: Openvault

Nearly half the market presently buys service operating between 100 Mbps and 200 Mbps. And nearly 68 percent of the U.S. market buys service operating no faster than 200 Mbps. 

Also, the U.S. home broadband market is big enough that gaining just a couple of points of the installed base and market share generates substantial revenue. By 2023, fixed wireless might represent about 4.5 percent of all home broadband accounts , some estimate.  

To put that into perspective, consider projected revenue for other new services. In 2024, it is conceivable that  IoT connectivity revenues for mobile operators globally could  be in the low millions to tens of millions of dollars, according to Machina Research. Millions, not billions. 

In 2026 the global multi-access edge computing market might generate $1.72 billion. Even if one assumes all that revenue is connectivity revenue booked by mobile operators, it still is a far smaller new revenue stream than fixed wireless represents. 

In 2020 there were perhaps 80 million fixed wireless subscriptions in service. Researchers at Mobile Experts see that number growing to almost 200 million by 2026. 

Ericsson notes that more than 70 percent of all service providers now offer fixed wireless access   services. Ericsson also predicts that fixed wireless connections will exceed 180 million by the end of 2026.

By 2026, assuming these forecasts are accurate, fixed wireless will represent about 12 percent of fixed network broadband connections, Ericsson estimates.  

Keep in mind that the incremental revenue from 75 million 5G fixed wireless connections does not include the revenue from 4G fixed wireless connections, which might represent another 110 million connections. 

That represents an additional $104.3 billion in annual revenue, assuming a global average of $48 per month, per line. 

The point is that incremental revenue from 5G fixed wireless might dwarf new revenues earned by mobile operators from edge computing and internet of things.

Between FTTH and DSL Lies Fixed Wireless

We might all agree that telcos would prefer to build their next-generation networks on fiber to the home. We might also agree that the business case remains difficult in perhaps half of all locations. 

For that reason, 5G fixed wireless has gained traction in some quarters, and might be increasingly attractive to others if fixed wireless traction is gotten. 

AT&T now has about 15 million homes reachable with its fiber to home facilities, with plans to expand to about 30 million locations by about 2025. All together, AT&T’s fixed network passes about 60 million locations, however. 

So the business model--as presently constituted--does not seem attractive for FTTH in about half the total fixed network passings, at the moment. Whether AT&T believes fixed wireless will be important in that regard is less than certain. Up to this point, AT&T has not been as bullish on fixed wireless as Verizon or T-Mobile. 

But AT&T does have national 5G assets that could underpin a wider move to fixed wireless, even if executives do not prefer that strategy at the moment. 

Other major operators without 5G assets would have to rely on partner agreements before such a strategy would make sense. 

Lumen Technologies has about 15 million homes in its access network footprint,  2.5 million of which are passed by the fiber-to-home network. So less than 17 percent of locations presently are deemed feasible for FTTH. 

With 21 million locations served by the access network, that implies about six million business locations. Perhaps more important, Lumen now has about 97 percent of all U.S. enterprises within a five-millisecond latency range. 

After partnering with T-Mobile for 5G access, Lumen argues it can span “the last 100 feet” of the access network in that manner. 

One area where AT&T should be able to improve is FTTH take rates, which have been at about 35 percent of marketable locations, and might now be up to 37 percent, at the end of the third quarter 2021. 

On the other hand, it appears that take rates for new FTTH accounts might in most cases--80 percent according to AT&T CEO John Stankey--be market share taken from another provider. If that continues, it is reasonable to suggest that AT&T could eventually reach 50 percent share of the installed base, up from the 30 percent or so share it has gotten over the last decade or two. 

At the moment, AT&T’s rule of thumb is that unless 40 percent share is possible, new FTTH does not make sense.

Verizon and T-Mobile, on the other hand, are much more bullish on fixed wireless, for reasons related to their present revenue models. T-Mobile has had zero share of the home broadband market, so fixed wireless offers an opportunity for top-line revenue growth that by shifting just a few percent of market share could generate billions in new revenue. 

Verizon now says it will pass 15 million homes with its fixed wireless services, using both 4G and 5G, while total fixed wireless accounts at the end of the third quarter 2021 were 150,000, of which 55,000 were added in the third quarter alone. 

In the past Verizon has talked about a fixed wireless footprint of about 50 million homes as a planned-for goal as the C-band assets are turned up, possibly by the end of 2021. 

Most of that coverage will occur in areas outside the Verizon fixed network territory. At the moment, about half the Verizon fixed wireless customers represent new accounts, while half are existing Verizon customers. 

“I would say, there are probably, roughly, half and half,” said Hans Vestberg, Verizon CEO. “Half meaning coming from our existing base and half we're taking from other suppliers.”

Significantly, Verizon also reports that fixed wireless average revenue per user is “similar” to a mobility account. That suggests that most of the installed base is on 4G or lower-speed 5G at the moment, and also suggestive of pricing suggesting that most customers also use Verizon for mobility service ($40 a month for Verizon mobility customers, $60 for non-customers). 

Some of us would expect ARPU to begin climbing as more of the customer base adds services using millimeter wave and mid-band spectrum. The pricing for those plans runs from $50 a month (Verizon mobility customers) up to $70 a month (non-mobile subscribers). 

As will be the case for 5G generally, Verizon fixed wireless might come in three flavors. Some customers might only be able to buy 4G versions, which are the most speed-constrained, and generally topping out somewhere between 25 Mbps and 50 Mbps. 

Most customers will be able to buy mid-band 5G fixed wireless, which likely will be able to support the 100 Mbps to 200 Mbps services most households buy at the moment. Some lesser percentage of locations will be able to buy the wireline-equivalent millimeter wave services operating up to a gigabit per second or so. 

Over the last year, though the fiber-to-home footprint grew by 500,000 locations, the fixed wireless footprint added 11.6 million locations. 

In fact, fixed wireless now accounts for about 41 percent of Verizon’s home broadband passings. 

source: Verizon 

It remains to be seen how many customer accounts will be driven by fixed wireless, to be sure. In the past, many observers have suggested fixed wireless suppliers can get take rates in the 15 percent to 20 percent range.

In a saturated market, those gains largely represent market share taken from another supplier. So the market share implications are quite significant, representing a change between 30 percent to 40 percent in overall share. 

The expansion of millimeter radio and C-band radio assets will be important. Roughly half the U.S. home broadband base has been content to buy service in the 100 Mbps to 200 Mbps range. 

C-band will help boost fixed wireless into those ranges, while millimeter wave will enable speeds approaching the top tier of consumer demand (gigabit service).  

Such lower-speed home broadband might appeal to customers content to purchase service operating at the lower ranges of bandwidths at or below 50 Mbps. That still represents 10.5 percent of the market, according to Openvault. 

Notably, the third quarter 2021 earnings report was the first ever when Verizon actually began reporting fixed wireless subscriber growth. That is normally an indication that a firm believes it has an attractive story to tell, with volume growth expected. 

How Long to Replace All U.S. Access Copper?

We might all agree that, at some point, optical fiber will replace copper in telco access networks. What is harder to predict is when that might actually happen in the U.S. market. To be sure, FTTH facilities keep growing. But there are key financial constraints, especially related to financial return. 

Looking only at fixed network accounts, U.S. telcos have about 36 million accounts, while competitors (cable providers and independent VoIP providers) have 62 million accounts. If there are roughly 146 million household locations, telco sales of voice reach only about 25 percent of locations. So voice stranded assets are as high as 75 percent. 

Statistics for broadband market share are roughly similar, with cable operators having about 70 percent share and telcos about 30 percent share. 

That poses a major business model issue for any service providers contemplating upgrades to fiber to home. In principle, FTTH would allow telcos to compete more effectively for internet access accounts. But if copper can support the voice applications, the incremental revenue FTTH can supply will largely be limited to broadband market share gains.

It never is clear that makes financial sense, especially if other access platforms, including fixed wireless can address much of the demand. 

Fixed wireless will not appeal to all customers, for reasons of speed. Few fixed wireless networks will routinely support speeds of 600 Mbps or greater, for example. But not all customers will care about that. 

If a typical household spends $66 a month for fixed internet and between $40 and $60 a month for mobile data, we can roughly estimate the breakeven point where going all-mobile for internet access costs no more than what already is spent for mobile and fixed internet access, ignoring a bit of hassle factor for doing so.

Assume per-user mobile data costs $50 a month, while per-household fixed data costs $70 a month, and about $28 per user in each household. For a multi-user household of an average 2.5 users, that implies something like $78 per user for an all-mobile approach.

It’s a rough estimate, but that implies usage allowances currently set at about 110 GB, priced at about $80, would be competitive offers for many users, and allow substitution for fixed 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.  

All that makes the business case for replacing copper access even more challenging, as the amount of stranded assets increases if fixed wireless gets any significant traction. 

One might argue that only FTTH gives telcos a chance to change their market share positions in the consumer broadband market. But even where it is available, FTTH tends to get about 40 percent take rates. So FTTH itself faces a stranded asset issue. 

source: RVA 

Though operating cost savings will accrue, the potential upside for a telco FTTH upgrade at scale might be 10 percent market share gain in broadband. It is not clear whether that makes as much sense as supplying part of that demand using fixed wireless in the near term, and continuing the gradual replacement of copper as it deteriorates to the point where it simply must be replaced.

One might argue that will take 10 to 20 more years.

Mayors Want FiOS, But "You Can't Always Get What You Want"

It is not surprising either that nine New York mayors, as well as their counterparts in Boston and Baltimore want FiOS. By the industry's own reckoning, fiber to the home is the ultimate, future-proof network. Nor would the mayors be alone in thinking better consumer outcomes could result if there were robust competition between an incumbent cable operator and Verizon, in each city.

But the economics of fiber-to-home networks have never been especially easy. Verizon itself justified the FiOS network choice to investors by arguing a combination of benefits, including operating cost savings, would provide the payback.

But Verizon seems to have found the operating cost savings were not as large as hoped, and the incremental new revenue not large enough, to continue with the program. You can be sure that if FiOS were throwing off huge amounts of new cash, you couldn't keep Verizon from building as fast as it could.

The problem is that an argument can be made that major investments in all new fixed network infrastructure are questionable, at a time when a variety of reasons make wireless networks a clearly-better financial investment. Even proponents say the business case varies from location to location. 


Observers are right to wonder about the impact on competition if Verizon continues to refrain from FiOS expansion. On the other hand, wireless does provide an important developing element of the competitive picture. Wireless might never be a full-fledged alternative to fixed network access. 


But neither is it clear that the fixed network business case will remain where it is today. At least in principle, some shift in end user demand could boost the FiOS business case far beyond where it exists now. 


The point is that promoting competition, a reasonable public policy concern, also has to take acoount of the fundamental economics of various approaches to providing broadband access. What we might prefer is one thing. The economics might dictate something else.
Wireless also has become a feasible alternative for broadband access in many areas, and for some use cases.

Nor is there much evidence that service providers are doing anything but increasing investment, globally. It also is true that industry revenue is growing, globally. The issue is where growth is occurring.

In the 10 years from 2005 to 2015, telecom service provider revenue has shown and will continue to show year-over-year growth every year except in 2009, Infonetics Research says.
With industry revenues expected to grow at a modest two percent a year, overall capital expenditure will thus remain stable (0.7 percent CAGR) for the foreseeable future, with growth coming from spending on equipment. But capex is shifting to mobile, globally.

Wireless access infrastructure, already accounting for 43 percent of total telecom infrastructure capex, will increase its overall share as spending continues to shift away from fixed infrastructure.

That has to raise questions about the long-term role, revenue and services suite to be offered by broadband fixed network operators. Not, it must be said, because demand will be lacking, but only because cable operators seem to be executing on their premise that they can deliver bandwidth more affordbly than fixed-line telcos.

Indirect evidence for that view comes from the A.D. Little analysis, which suggests that fiber to the home investment for very-high broadband will be “mainly” driven by non-telecom players.

In part, in some markets, that will be the case because 65 percent of all households with access to FTTH  networks in Europe are on networks deployed by fixed-line incumbents. In other words, in Europe, much fiber investment already has been made. Where it has not been made, there likely are payback issues that make FTTH highly questionable.

So utility companies and alternative operators are expected to split the value chain as well as the financial investments, by forming innovative partnerships to invest in more fiber access, A.D. Little believes.

If cable operators continue to nibble away at available demand for fixed broadband, telcos will face the challenge of a radical rethinking of their business models and offerings.

If one assumes that broadband will underpin and drive most future revenue for fixed line providers, and if one assumes it is the cable companies who can do so at lower cost, telcos will face a challenging investment case, especially given the arguably better financial prospects in mobility and wireless.

Strategically, one might argue that, though expensive, a full fiber to home upgrade might be necessary. In some cases a fiber to neighborhood approach might be “good enough” as a bridging strategy over the medium term.

Either that, or a telco has to dramatically lower its operating costs to compete as a provider of lower-bandwidth solutions, with cable claiming the premium segments. That will not be an appetizing prospect for most telco executives, especially those without wireless assets.

FTTH is better, no doubt. But the business case remains challenging, especially where cable operators are able to boost bandwidth at much lower costs.