U.S. Cable Internet Demand Stays Flat, After Initially Jumping Because of Stay-at-Home Policies

U.S. cable operators have about 66 percent of the installed base of internet access customers, so the performance of cable networks during the stay-at-home policies tells us quite a lot about the speeds and performance most consumers now experience. 

On U.S. cable networks, downstream peak growth remains flat for the second consecutive week, up just 0.65 percent for the week of April 4 to 11, 2000, according to the NCTA.

National upstream peak growth continues to decelerate for the second consecutive week,

up 0.71 percent for the week of April 4 to 11 compared to increases of four percent and seven percent the previous two weeks.

Provider backbone networks have significant capacity and show no signs of congestion, the NCTA says. 

source: NCTA

LIes, Damn Lies and Statistics, Again

“Lies, damn lies and statistics,” Samuel Clemens once quipped. As always, assumptions matter, when assessing internet usage or anything else. 

Perhaps 15 percent of Americans do not use the Internet at home, some argue. Two explanations always are advanced: people do not want to use the internet, or the price is too high. 

A recent survey by the National Telecommunications and Information Administration shows 58 percent of non-users say they do not use the internet because they are not interested. That same survey had 21 percent of non-users saying they did not use the internet because it was too expensive. 

A report published by the National Digital Inclusion Alliance argues the price of service “is the principal reason people do not subscribe to broadband.” 

Some say the results are skewed because the surveys relied upon in the NDIA Report “no longer permit respondents to indicate a lack of interest as the reason for not using the Internet at home, despite this reason being the most frequent response provided in earlier editions of these same surveys,” says a new analysis by the Phoenix Center for Advanced Legal and Economic Policy Studies. 

“A more thorough analysis of the surveys relied upon by the NDIA Report reveals that non-price factors dominate price as the determining factor for not using the Internet at home,” the Phoenix Center says. Measures of price sensitivity, on the other hand, would be useful for informing policy, they argue. 

That is simply a matter of logic. If a respondent says a product is too expensive, then it should certainly matter what price would prompt a purchase. If a respondent says “I do not need that product,” no price drop is likely to lead to purchase and usage. 

Indeed, that conclusion is what the NTIA finds. Of the reported non-users, more than half say they would buy at a lower price. Only eight percent of those reporting “no need or interest” would consider buying at a lower price. 

Internet at Home	Use at Home	No Need/Interest	Too Expensive
Total Households	99.2 million	16.2 million	6.0 million
Family Income < $25K/Year	17%	41%	51%
School-Age Child Present	26%	11%	24%
Located in Rural Area	12%	19%	15%
Household Reference Person* Characteristics
Mean Age	49.4	62.8	48.7
No Post-Secondary Education	30%	64%	60%
White, non-Hispanic	68%	64%	48%
Internet Usage Details
Internet Use at Other Locations	84%	15%	31%
Previous Home Internet Use	N/A	11%	25%
Would Buy at Lower Price	N/A	8%	51%

source: NTIA

Including all U.S. residents, including those as young as three years old, somewhere between 72 percent and 80 percent of all residents use the internet, presumably including any usage, on any device, on any network, at home or at work, the NTIA also notes. 

That might strike you as a low figure, since for most of us, everyone one knows uses the internet. 

source: NTIA

The point, as always, is that assumptions always matter.

Global Telecom Revenue Would Do Well to Remain Flat over the Next 12 Months

Nobody knows whether the global Covid-19 pandemic will cause connectivity service provider revenue to shrink or simply flatten, but it is a safe bet nobody expects revenue to grow much, if at all. 

Pre-pandemic expectations were for slow growth globally, and that is likely the pattern which will return after a relatively brief period of instability. 

Worldwide spending on telecom services and subscription TV services totaled $1.6 billion in 2018, reflecting an increase of 0.8 percent year over year, according to the International Data Corporation. IDC expects the worldwide spending on telecom and TV services to reach nearly $1.7 billion in 2023. 

source: IDC

It is worth mentioning that revenue would have been lower had connectivity providers not moved into the TV subscription business. 

Separately, Convergence Research Group estimates 2019 U.S. cable, satellite and telco TV access revenue declined three percent to $100.4 billion. 

Global Regional Services 2018 Revenue and Year-on-Year Growth
Global Region	2018 Revenue ($B)	CAGR 2018-2023 (%)
Americas	616	0.0
Asia/Pacific	512	0.8
EMEA	487	0.9
Grand Total	1,615	0.5

source: IDC

Mobile services, per-pandemic, were expected  to dominate the industry in terms of spending, and likely will return to that pattern after a relatively-brief period of instability. 

The mobile segment, which represented 53 percent of the total market in 2018, is expected to post a compound annual growth rate of 1.4 percent over the 2019-2023 period, driven by the growth in mobile data usage and the Internet of Things, which will offset declines in spending on mobile voice and messaging services.

Fixed data, especially broadband internet access, is still expanding in most geographies.  Fixed data service spending represented 20.5 percent of the total market in 2018 with an expected CAGR of 2.6 percent through 2023,

Spending on fixed voice services will record a negative CAGR of 5.3 percent over the forecast period and will represent only 8.5 percent of the total market through 2023.

FCC Prepares 10-Year Plan to Provide Gigabit Service in Rural Areas

The Rural Digital Opportunity Fund is a $20.4 billion, ten-year program by the U.S. Federal Communications Commission to finance gigabit speed broadband networks in unserved rural areas the FCC believes represent 3.9 million consumer and small business locations. 

The program especially targets areas where the cost of supplying service exceeds $52.50 per-location per-month, up to $198.60 per month, and where internet access speeds do not reach  25 Mbps downstream on a cabled network. 

As much as $16 billion will  target wholly unserved census blocks, while  at least $4.4 billion will target partially served areas, census blocks where some locations lack access to 25 Mbps service.

Eligibility is expected to be the same as for the prior Eligible Telecommunications Carrier designations used for Connect America Fund Phase II program that replaced the older universal service support programs.  For all practical purposes, that means wireline service providers, not wireless or mobile. 

That approach has a long history, as traditionally only cabled networks--and virtually all telecom service providers--were funded. Some mobile service providers also have participated in rural programs at the state level. The FCC definition includes the obligation to provide “lifeline” service. Another way of describing an ETC is that it is the local “carrier of last resort” and receives universal service funds.  

How Extensive is U.S. Internet Access Coverage? How Close to Saturation?

The U.S. Federal Communications Commission has estimated that, by June 2018, 94 percent of people were able to buy internet access service at “broadband” speeds of a minimum 25 Mbps. Some 97 percent of people  could buy service at 10 Mbps or faster. Keep in mind that this is a measure of “coverage,” not buying behavior. 

It has been estimated that 0.4 percent of U.S. homes actually have zero fixed network suppliers. That number drops very close to zero if one includes coverage by two different satellite providers, each selling service of at least 25 Mbps. 

Still, there are possibly 3.4 million  to 4.9 million U.S. home locations not served by a fixed internet access provider, but able to use either satellite or mobile networks for connectivity. 

“Buying” is a different matter than coverage. 

If the U.S. population is 304 million persons, with an average household size of 2.5, then there are 121.6 million households. 

Somewhere between 15 percent and 20 percent of U.S. homes are “mobile-only” for internet access, which might represent as much between 18 million and 24 million households. Those customers choose not to buy fixed network internet access, for whatever reason they choose. 

If so, then the number of locations who might buy fixed network internet access is on the order of 97.6 million to 103.6 million sites. 

If take rates for all homes (including the vacant units) are about 80 percent, then we would expect total fixed network accounts to number about 97.3 million locations.

Leichtman Research Group estimates that the largest U.S. telcos and cable companies have about 101.2 million accounts, but that includes business accounts. That matches fairly well the estimate that total fixed network accounts should be about 97.3 million in number. 

The Federal Reserve estimates there are about 140 million housing units., defined as “a house, an apartment, a group of rooms, or a single room occupied or intended for occupancy as separate living quarters.” 

More than 16 million units are vacant at any particular time, leaving a total of perhaps 124 million units, which accords well with the estimate of 121.6 million households conducted above. 

To be more precise, we also would have to account for households that either choose not to buy, or cannot easily buy. Some of those latter cases might be boats that serve as a residence, trailers or rooms rented inside homes where the resident does not buy internet access because the owner or manager of the property supplies the access. 

The point is that there are very few U.S. locations that do not already buy some form of internet access--mobile or fixed or both. 

In mid-2018, at least 97 percent of U.S. home locations could buy internet access from a fixed network provider at a minimum of 10 Mbps. About 94 percent could buy service at a minimum of 25 Mbps from a fixed service provider. 

Some 90.1 percent of people were able to buy broadband service in excess of 100 Mbps and 68.1 percent could buy 1 Gbps services. 

source: FCC

Landline Voice Demand is Overstated by as Much as 30% in U.K., 22% in U.S. Market

If 80 percent of U.K. fixed network customers buy a bundled service including both voice and internet access, and if 40 percent are not actually using their phone service, then actual usage of landline voice is actually overstated by about 30 percent. 

source: Ofcom

In the U.S. market, perhaps 55 percent of fixed network customers buy a bundle. If 40 percent of those customers do not actually use their phone service, U.S. fixed network voice demand actually is overestimated about 22 percent. In other words, customers “buy” voice service as part of some bigger bundle that saves them money, but do not actually use the phone service. 

source: Statista

The point is that landline voice demand actually is lower than the number of sold lines would suggest.

Watch for Reversion to Mean

It is easy enough to visualize how the economic shutdown caused by stay-at-home policies has affected consumer spending. It also is possible to suggest that once the pandemic has passed, spending patterns will start to revert towards the pre-pandemic pattern, if the rate of change is difficult to predict. 

If mobility spending (devices, primarily) has been hit by retail shutdowns, there will be pent-up demand, as phones do not stop breaking and batteries do not stop losing the ability to hold a charge. There will be a snap back of some volume, as deferred purchases cannot be avoided. 

Airline travel, movie attendance, cruise trips, fitness club attendance, travel in general and retail purchases will revert to pre-pandemic levels, over some period of time. Just as certainly, categories of spending that had increased dramatically will tend to revert towards mean as well. 

source: New York Times

That does not mean complete recovery to prior trends immediately, simply that over a year to a few years, mean reversion will reassert itself.