How Big a Market for 100 Mbps Home Broadband at $25 a Month?

Verizon's 5G fixed wireless now is available for $25 a month. Those plans come with extras such as streaming content subscriptions. Typical  download speeds of 90-170 Mbps with higher speeds and peaks over 1 Gbps in areas where millimeter wave capabilities are activated.

Typical upload speeds of 15-30 Mbps with peak upload speeds over 100 Mbps. 

Based on current buyer behavior, that might appeal to 20 percent to perhaps 30 percent (or more) of the home broadband market, the lower figure representing customers who already buy service at 100 Mbps or less. The higher figure adds customers who might prefer faster speeds, but for whom a $25 monthly cost is preferable to $50. 

Single-user households or price-sensitive customers are likely possible buyers. 

source: Openvault 

For Verizon, fixed wireless is important as it extends Verizon’s home broadband coverage so much. The company expects fixed wireless will represent 71 percent of its home broadband passings by about 2025.   

Will U.S. Telecom Market Turn to Bigger Bundles?

AT&T says it added total postpaid net adds of 1.3 million in the fourth quarter of 2021, including some 880,000 postpaid phones. “Each of the 2021 quarters has improved,” said John Stankey, AT&T CEO. 

For the full-year 2021, postpaid phone net additions were 3.2 million, “AT&T’s highest annual postpaid phone net adds in more than a decade,” the company says. 

Many observers believe the rather-torrid pace of net additions in the mobile service market should cool in 2022, though. 

Covid restrictions on schooling and work also are considered to have accelerated growth, possibly pulling forward some latent demand. Some amount of higher subsidies should also have helped boost sales. 

Competition from cable TV companies and Dish Network eventually will affect growth prospects as well. 

And some argue that a wave of promotions likewise has stimulated demand that is essentially pulled forward as well. Stankey does not agree with that argument. “Our cost per acquisition is dropping,” he said. “Our lifetime embedded value is increasing as churn goes lower and average revenue per user grows.”

In the event that such growth drivers end, overall growth rates could--or should--slow. In that case, net market share gains by some companies or others will become more important. T-Mobile, for example, has been gaining share for years.  

AT&T also added 270,000 fiber-to-home subscribers for the quarter. “We did really well with home broadband as well,” said Stankey. 

Full-year 2021 fiber net adds totaled about one million, the fourth consecutive year in which the company has added one million or more fiber subscribers. 

AT&T ended the year with an additional 2.6 million FTTH-passed customer locations, compared to its prior expectation of about 2.5 million. The company still is targeting 30 million FTTH home locations by the end of 2025. 

AT&T also ended the year with 73.8 million total global HBO Max and HBO subscribers, ahead of prior guidance suggesting accounts between 70 million to 73 million. “Warner Media knocked it out of the park,” said Stankey. 

Cash flow also improved, he added, driven by efficiencies, lower churn levels and profitable growth. 

In operational terms, Stankey also suggested the industry might well be seeing a turn towards consolidated offers where single-supplier offers might be viewed more attractively. One example might be the value proposition that “it doesn’t matter where you go, we will handle your bandwidth,” Stankey said. 

As you might expect for a firm that has the largest fixed network position in the market as well as mobile assets, Stankey believes there “could be a reordering of industry structure” coming that favors firms with broad fixed and mobile offerings. “My gut tells me there are more consolidated offers coming,” where one firm supplies all a customer’s needs. 

Zero Trust Grows from Consumerization of IT

The rise of “zero trust” approaches to security is a recognition of the importance and prevalence of consumerized cloud-based apps, where one must assume there is no difference between apps, processes or identities inside the enterprise and coming from the cloud. 

In essence, zero trust is built on the assumption that perimeter defense is no longer possible or desirable. Where it once was assumed that operations “inside the perimeter” were safe, zero trust assumes nothing is safe. 

 source: McAfee

In other words, even internal interactions on the enterprise side of the firewall and security system are treated as though they were cloud-based and external operations. In a direct sense, that change in security architecture is directly an outgrowth of the shift to cloud-based applications and mix of consumer tools and “IT-sanctioned tools” in the workplace. 

source: Logrhythm 

Use of “non-sanctioned” employee personal devices and cloud-based apps in the workplace has been quite common for a couple of decades, leading to new corporate approaches to such innovations. 

This phenomenon has been frequently referred to as IT consumerization and is notable because it reversed the typical way information technology diffused. 

In the past, IT innovations were developed for enterprises or big government, then spread to mid-market and then small business before reaching consumers. 

Easy-to-use cloud-based applications  and powerful personal devices (PCs, tablets, smartphones) reversed the process. 

Online data storage, social media, and web-based email services and other personal applications actually originated in consumer markets and then were brought to work. 

Consumerization of IT has also come to encompass user experiences and user interfaces that mimic consumer user experience  and user interfaces. So consumerizing enterprise apps and experiences also became a trend. 

Workers seem to prefer apps and experiences that have a consumer ease of use about them and enterprise apps are being redesigned with that in mind. 

Though initially opposing the trend, most enterprises have learned to live with employees preferring the use of consumer tools (Google Apps, Skype or Dropbox) in addition to, or instead of, enterprise IT alternatives. 

Initially seen as “rogue IT,” widespread use of such consumer tools has reshaped enterprise IT, and produced the zero trust approach to security.

Backing Up Home Broadband Using 4G

Information technology diffusion, 40 years ago, generally ran from enterprise to mid-market to small business to consumer users. Tools available in the business gradually became affordable to smaller businesses and then in consumer appliances.

The internet tended to reverse the process: new technologies moved from consumer markets into enterprises, mid-market and small business. Cell phones were one example. Consumer social media and cloud-based applications of every sort provide examples.

Software as a service provides another example. Instead of waiting for formal information technology departments to create a needed capability, department heads often found they could buy capabilities on credit cards without waiting.

Stil, sometimes the older pattern emerges. Some businesses have used 4G for backup of their primary business broadband connections, for example.

Vodafone Always Connected is a 4G backup for home broadband, now offered in Ireland. If the home broadband line has an interruption, access is switched automatically to the 4G mobile network using an in-home appliance. 

When the fixed network issue is resolved, the connection switches back to the home broadband fixed network.

That “4G as a backup” strategy has been used for some time by some business customers who want a failover strategy for their primary fixed network connection. 

To my knowledge, this is the first mass market service to offer the same feature to consumer customers. 

The Vodafone Always Connected device is self installed and delivered by mail. 

It uses its own standard subscriber information module. The device connects to the USB port at the back of the customer’s existing broadband modem. The device autoconnects. That is pretty much it. 

Vodafone notes that this backup service works only when 4G is available, as is the case for about 99 percent of locations in Ireland. 

Vodafone points out that the backup solution works when there are:

• Alterations to connections and wiring inside your home,

• Any local or exchange faults on your broadband,

• Fallen lines due to building work or;

• Storms, high winds, or adverse weather conditions that cause damage to the fixed broadband network.

Instances where it does not help: 

• The customer modem does not have power. For example, if there is a power outage, your modem will not be powered and Vodafone Always Connected will not work.

• The 4G mobile network is down at the same time as your broadband or;

• There is any damage to a customer’s modem.

Of course, when there are local power outages, then the appliances and devices using the internet (TV, PC, dongles and devices using Wi-Fi) also will not work, unless the customer has a backup power source. But that is the case for all locally-powered devices. 

As was the case for locally-powered cordless phones, they are useless when local power is lost, even if the connection remains operational. 

Widespread power outages are another problem. If cell towers are damaged or power is lost over a wide area, for many hours, then the mobile network itself is likely to be unavailable as well. 

For most consumers, higher levels of backup are probably not considered worth the cost and effort. That would entail generator power and battery backup for the whole house and ample supplies of fuel, plus the proper permits. 

Still, the feature is an interesting extension of a business service to the consumer market. For most of the internet era, the diffusion of technology actually ran the other way: from consumer to business. 

We often forget that many current business-grade tools initially came to work when workers wanted to use the same tools they had available to them as consumers. 

The service costs €5 a month.

Co-Investment Changes FTTH Business Model

For a number of reasons, the business model for telco and cable TV fiber to home is changing. A higher degree of government subsidy support; a desire for investment in FTTH facilities as alternative investment and competitive dynamics in the home broadband industry all mean the business case for FTTH improves. 

As one example,Cable One is part of a joint venture with GTCR LLC,  Stephens Capital Partners, The Pritzker Organization and certain members of the management team to build optical fiber to premises networks by Clearwave Fiber.

Clearwave Fiber holds the assets of Cable One’s subsidiary Clearwave Communications and certain fiber assets of Cable One’s subsidiary Hargray Communications. 

At the same time as capital investment requirements are changing, there is a shift in the assumptions about business model. 

In the late 1990s FTTH was seen as the only viable way for telcos to take market share in the linear video subscription business from cable TV operators. So the revenue upside was subscription video and internet access speeds. To be sure, video arguably was seen as the bigger revenue driver, as late 1990s telco FTTH speeds were in the 10 Mbps range. 

Bundling (triple play or dual-play) also was seen at that time as the way to compensate for competition-induced account losses. While telcos or cable each competing across the voice, business customer, internet access and video entertainment markets might have fewer total accounts, revenue per account from triple-play services would compensate. 

source: S&P Global Market Intelligence 

But something else now seems to have changed. A decade ago, independent internet service providers began to attack the market increasingly based on one service: home broadband. To be sure, many independent ISPs tried a dual-play or triple-play approach for a time. 

But nearly all eventually settled on a home broadband-only approach. Since virtually all independent ISPs face both telco and cable TV competitors, the single-product business model makes some concessions on potential revenue that necessarily must be balanced by lower capital investment and operating costs. 

The latest developments are that such tradeoffs are seen as feasible even for incumbent telcos: in other words, the business model increasingly relies on broadband as the foundation, with some contributions from voice. Video (linear or streaming) plays a lesser or no role in revenue assumptions. 

There are other changes. Subsidies have been rising for broadband deployment, and that also changes the capex requirements. Some of the investment in optical fiber also is helped by the denser optical fiber networks necessary to support 5G networks. Essentially, the payback model is bolstered by the ability to defray some optical media costs from mobile service revenue opportunities. 

Also, 5G supports home broadband using the same transmission facilities as does mobile service, often offering a chance for mobile operators to compete in the home broadband business at relatively low incremental cost. That also helps lower the cost of fixed network FTTH as more revenue is wrung from the installed assets. To the extent that higher revenue produces incrementally higher free cash flow, more capital is available to invest in additional FTTH facilities.

The incremental cost of consumer home broadband is lower once a dense trunking network must be put into place to support small cell mobile networks. 

Also, the value of FTTH facilities has changed as rival investors (institutional investors, private equity) view consumer broadband as a legitimate alternative investment. That boosts the equity value of an FTTH network and supplies new sources of investment. 

Also, the cost of FTTH construction has improved steadily over the past few decades. Also, the expected reduction of operating costs from fiber networks, as opposed to copper networks, now is well attested. So there are opex savings. 

FTTH remains a challenging investment, nonetheless. But it is noteworthy that assumptions about the business model now have changed for incumbent and new providers as well. Where it once was thought an FTTH upgrade virtually required revenue from three services, in an increasing number of cases the investment can be justified based on home broadband alone. 

In greater numbers of cases, the primary value of home broadband is supplemented by some revenues from other sources. But where a triple-play might have produced $130 per month to $200 per month revenues, home broadband might produce $50 to $80 a month. 

That projects increasingly are feasible with a $50 monthly revenue target and adoption around 40 percent to 50 percent shows how much the capex and opex assumptions have changed.

U.S. Population Density is a Bigger Problem Than Maps

Few observers, it seems, are completely happy with the state of home broadband maps. Some argue the maps distort availability by as much as 21 percent.  Others argue the degree of distortion likely is less than many believe, perhaps on the order of five percent, according to an analysis by George Ford, Phoenix Center for Advanced Legal and Economic Public Policy Studies chief economist.  

Others note that the lack of access to fixed network “broadband internet access” at a minimum of 25 Mbps is between five percent and six percent. If satellite access is included in the analysis then virtually all continental U.S. locations have access to service at 25 Mbps. 

Inaccurate maps are only part of the story, however. U.S. population density is quite thin across most of its geography. That directly affects the cost of building broadband networks, as hefty subsidies are required to reach the last one percent or two percent of remote locations. 

And the United States has a huge percentage of its land mass that is thinly settled, if at all settled. 

In Canada, 14 percent of the people live in areas of density between five and 50 people per square kilometer. In Australia, 18 percent of people live in such rural areas.

In the United States, 37 percent of the population lives in rural areas with less than 50 people per square kilometer.

Put another way, less than two percent of Canadians and four percent of Australians live in such rural areas. In the United States, fully 48 percent of people live in such areas.

Coverage is an issue in such rural areas. About six percent of the U.S. land mass is “developed” and relatively highly populated. Those are the areas where it is easiest to build networks. 

But about 94 percent of the U.S. land surface  is unsettled or lightly populated, including mountains, rangeland, cropland and forests. And that is where networks are hardest to build and sustain. 

Industry statistics often suggest coverage is far better than critics say. The reality is likely that the maps are faulty, but coverage is still far better than some believe. 

The Federal Communications Commission says 98 percent of U.S. homes have access to  internet access at a minimum of 25 Mbps and 84 percent subscribe. Critics say those numbers are inflated by bad maps. 

But one virtually never hears complaints that the leading U.S. cable companies do not, in fact, supply 500 Mbps (Charter Communications to 0gigabit internet access (Comcast) to nearly 100 percent of their customer locations. Add in Cox Communications and those three firms cover more than 75 percent of U.S. homes. Cox supplies gigabit access to 100 percent of its customer locations. 

Gigabit speeds now are available to more than 88 percent of all U.S. homes, according to the Federal Communications Commission. Other estimates peg the percentage of homes with cable high-speed access at 90 percent. 

One can disagree with the FCC statistics and still not quibble that cable operators generally do supply coverage within their franchise areas that is substantially at 100 percent and offering speeds between 500 Mbps and 1 Gbps. 

Consider rural telco networks. “Respondents to this year’s survey report an average of 4,467 residential and 469 business fixed broadband connections in service,” NTCA says, with an  average of 7,581 serviceable locations. 

Respondents report an average of 72 percent  of customers in their areas subscribe to a broadband service of some speed. 

“On average, three-quarters (75.0 percent) of serviceable locations are served by fiber to the home (FTTH) in 2021; this is an increase of 5.1 percentage points from the prior year’s survey, says the latest Broadband/Internet Availability report issued by NTCA says. 

An average of 15 percent of locations continue to be served via copper loops while fiber to the node (FTTN) is used to serve an average of six percent serviceable locations. Cable modems service 2.7 percent of locations, licensed fixed wireless 0.7 percent and unlicensed fixed wireless 0.6 percent of locations. 

source: NTCA 

As for maximum speeds 55 percent of locations can get speeds between 100 Mbps but less than 1 Gbps. Some 20 percent of locations have maximum speeds between 25 Mbps and 100 Mbps.

Some 10 percent of locations have maximum speeds between 10 Mbps and 20 Mbps. About 3.7 percent of locations get speeds below  10 Mbps. 

To be sure, the data is self reported. One might argue that firms that did not respond to the survey have coverage, speed or physical media attributes quite different from firms that did report. 

Still, coverage in rural areas might be less a problem that generally is talked about.

More Drivers for U.S. FTTH Business Model

U.S. cable operators will face more home broadband competition from telcos in the years to come, according to S&P Global Intelligence. Increased telco investment in fiber to home facilities is the reason. 

But the bigger story arguably is a shift in the economics of fiber to home facilities and the business model. In the late 1990s FTTH was seen as the only sure way to take market share in the linear video subscription business. 

Bundling (triple play or dual-play) also was seen at that time as the way to compensate for competition-induced account losses. While telcos or cable each competing across the voice, business customer, internet access and video entertainment markets might have fewer total accounts, revenue per account from triple-play services would compensate. 

source: S&P Global Market Intelligence 

But something else now seems to have changed. A decade ago, independent internet service providers began to attack the market increasingly based on one service: home broadband. To be sure, many independent ISPs tried a dual-play or triple-play approach for a time. 

But nearly all eventually settled on a home broadband-only approach. Since virtually all independent ISPs face both telco and cable TV competitors, the single-product business model makes some concessions on potential revenue that necessarily must be balanced by lower capital investment and operating costs. 

The latest developments are that such tradeoffs are seen as feasible even for incumbent telcos: in other words, the business model increasingly relies on broadband as the foundation, with some contributions from voice. Video (linear or streaming) plays a lesser or no role in revenue assumptions. 

There are other changes. Subsidies have been rising for broadband deployment, and that also changes the capex requirements. Some of the investment in optical fiber also is helped by the denser optical fiber networks necessary to support 5G networks. Essentially, the payback model is bolstered by the ability to defray some optical media costs from mobile service revenue opportunities. 

Also, 5G supports home broadband using the same transmission facilities as does mobile service, often offering a chance for mobile operators to compete in the home broadband business at relatively low incremental cost. That also helps lower the cost of fixed network FTTH as more revenue is wrung from the installed assets. To the extent that higher revenue produces incrementally higher free cash flow, more capital is available to invest in additional FTTH facilities.

The incremental cost of consumer home broadband is lower once a dense trunking network must be put into place to support small cell mobile networks. 

Also, the value of FTTH facilities has changed as rival investors (institutional investors, private equity) view consumer broadband as a legitimate alternative investment. That boosts the equity value of an FTTH network and supplies new sources of investment. 

Also, the cost of FTTH construction has improved steadily over the past few decades. Also, the expected reduction of operating costs from fiber networks, as opposed to copper networks, now is well attested. So there are opex savings. 

FTTH remains a challenging investment, nonetheless. But it is noteworthy that assumptions about the business model now have changed for incumbent and new providers as well. Where it once was thought an FTTH upgrade virtually required revenue from three services, in an increasing number of cases the investment can be justified based on home broadband alone. 

In greater numbers of cases, the primary value of home broadband is supplemented by some revenues from other sources. But where a triple-play might have produced $130 per month to $200 per month revenues, home broadband might produce $50 to $80 a month. 

That projects increasingly are feasible with a $50 monthly revenue target and adoption around 40 percent to 50 percent shows how much the capex and opex assumptions have changed.