Are Verizon and T-Mobile too Optimistic About Fixed Wireless, or are Skeptics too Pessimistic?

It appears that Verizon might be both "too optimistic" and also "not optimistic enough" about fixed wireless account growth, all at the same time. In either case, pessimists might be wrong.

If present trends continue, Verizon might be understating the importance of fixed wireless as a means of gaining home broadband share. In the fourth quarter of 2021, 38 percent of all home broadband net account growth was gained by fixed wireless networks.

It is clear enough that there is much skepticism and hope about about the impact of 5G fixed wireless. T-Mobile and Verizon believe they will be significant winners in terms of taking home broadband share. 

Verizon, in fact, believes fixed wireless will provide the initial incremental revenue upside from 5G, generating more additional cash than longer-term opportunities such as edge computing. Nobody would accuse T-Mobile of being too pessimistic, however.

T-Mobile expects to have between seven million to eight million fixed wireless accounts by 2025, and views an addressable market of about 30 million homes that are suitable from a signal quality and capacity standpoint. 

Craig Moffett, analyst with MoffettNathanson, views T-Mobile's forecast, which implies 23 percent to 30 percent penetration of addressable homes, as an "arguably absurdly ambitious target."

But T-Mobile could be proven correct, and not chasing an overly-ambitious goal, to a point. If one assumes T-Mobile gets a disproportionate share of its fixed wireless accounts in rural areas, and if one assumes fixed network service providers in those rural areas will not, by 2025, significantly upgraded networks to either fiber to home or DOCSIS 3.1 standards, then T-Mobile could well grab 20 percent to 30 percent market share.

Perhaps the more-germane criticism is what happens in urban and suburban areas, longer term. Eventually, as “typical” home broadband users consume more data, fixed wireless capacity will have to increase as well.

To be sure, there are ways to compete. Millimeter wave assets are an obvious solution. More mid-band spectrum helps as well.

Small cells will help boost usable bandwidth by increasing specrum reuse. And usage patterns will play a role as well. Some argue that peak home broadband will happen at night, when usage of the mobile network is lowest.

Still, there are obvious challenges, if fixed wireless demand scales.

OpenVault data shows that the average U.S. cable broadband household already uses about 434 gigabytes of data per month, roughly 40 times more than the average unlimited usage plan mobile customer. 

So if new fixed wireless households impose 434 GB of demand on the wireless network, how many customers can be added before there are capacity constraints? And how well will the coping mechanisms work?

Also, will T-Mobile and Verizon fixed wireless using mid-band assets primarily be attractive to "average" users or the "lighter user" segment? And will Verizon's millimeter wave network be extensive enough to reach further up the scale of usage support?

Verizon, meanwhile, is committing to about $1 billion in fixed wireless revenues by 2024, which MoffettNathanson believes implies 1.7 million customers. Verizon both agrees--and appears to disagree.

Verizon suggests it will add 4.5 million net new home broadband accounts by 2025. It also says fixed wireless will represent “more than one million” of those accounts. 

source: Verizon

The numbers seem incongruous. Fios already has adoption in the 40-percent range. So assume Verizon can boost adoption to 50 percent. That would only add about 650,000 additional Verizon Fios home broadband accounts. The rest has to be fixed wireless or acquired through purchases of existing accounts. The latter is unlikely to happen, so the growth has to be organic. 

Nearly all of those accounts would have to be generated by the “out of region” fixed wireless network, to make the numbers work. To be sure, perhaps Verizon is banking on adding millions of new Fios-passed locations. 

Verizon says it passes 16.5 million locations with Fios at the end of 2021, and expects to pass 18 million locations by the end of 2025. So add 1.5 million new Fios locations. Assume adoption is at 50 percent. That suggests a potential 750,000 accounts. 

All together, that suggests 1.4 million new Fios accounts by 2025, with total net gains of 4.5 million accounts. That implies something more than three million fixed wireless accounts gained by 2025. 

source: Verizon

 

source: Verizon

The point is that either Verizon seems conflicted about the size of the opportunity, to some extent. T-Mobile is viewed as too optimistic by some. But fourth quarter 2011 share gains by fixed wireless were unprecedented.

Fixed Wireless Had Monster 38% Share of Net New Account Adds in 4Q 2021

In an unprecedented occurrence, fixed wireless services provided by T-Mobile and Verizon alone represented 38 percent share of broadband net adds in the fourth quarter of 2021, according to MoffettNathanson. 

All skepticism aside, that has never happened before in the U.S. broadband market. So while we might still disagree about the size of the fixed wireless opportunity, early returns suggest 5G fixed wireless might have significant upside. 

source: LightReading, MoffettNathanson 

In fact, were it not for fixed wireless net additions, telcos would have lost market share in the fourth quarter of 2021. 

Concerns about limited bandwidth remain, but consumer adoption trends suggest those concerns are possibly overblown. At least for the moment, consumers see enough value to switch. 

About half of Verizon's fixed wireless customers are coming from commercial accounts, MoffettNathanson says. 

T-Mobile says nearly half of its fixed wireless customers represent market share gains at cable operator expense, the firm says. 

Sector	Q4 2021 Gain/Loss	Q4 2020 Gain/Loss	Year-on-Year Growth %	Total
Cable	+464,000	+899,000	+3.8%	79.43 million
Telco	-26,000	+21,000	-0.4%	33.51 million
FWA*	+302,000	+81,000	+463.9%	869,000
Satellite	-35,000	-35,000	-6.6%	1.66 million
Total Wireline	+437,000	+920,000	+2.8%	112.95 million
Total Broadband	+704,000	+966,000	+3.3%	115.48 million
* Verizon and T-Mobile only

source: LightReading, MoffettNathanson 

Year in Search 2021: What’s trending across APAC

Never Discount Human Creativity

Every once in a while, you see the internet and the apps its supports used creatively by people in ways that show its power and value. Consider the way people are donating directly to Ukrainians by booking Airbnb stays in Ukraine, with no intention of visiting. 

source: Must Share News 

Airbnb, for its part, is not charging either guest and host fees for bookings in the country, forgoing any profits on such bookings. 

Airbnb also is offering 100,000 no charge short-term stays for Ukrainians fleeing the Russian invasion. 

The other innovation is the way Ukrainian organizations are accepting crowdfunded crypto currency donations. 

I am sure there will be substantial activity on crowdfunding sites, which is an  example of internet apps providing value in ways we expected. The problem many have is that there is no way to verify that donations are used in the way specified. 

There are lots of organizations now providing ways to make humanitarian donations to the people of Ukraine. Some are verified by Charity Navigator.  My personal channel is Catholic Relief Services, in part because it operates globally; manages to deliver 93 percent of donated funds directly to the people it is supposed to be helping and because I trust them to move quickly and efficiently whenever there is an emergency somewhere. 

For sheer creativity, though, booking Ukraine Airbnb stays as a way to send money directly to Ukrainians is notable. 

Think of Edge Computing as Enterprise IT: Revenues Will Follow

According to Vertiv, connectivity providers might ultimately gain about 11.5 percent of edge computing revenues. Many believe connectivity providers might gain about 10 percent or so of internet of things revenues as well. 

source: Vertiv

As often is the case, system integrators and information technology suppliers will have major roles, garnering perhaps half of all edge computing revenues, as is the pattern for most information technology revenues generally. 

If you think about edge computing broadly--as a solutions-driven form of enterprise IT--that market share pattern would not come as a surprise. Enterprise IT solutions must integrate devices, applications, business processes, operating systems, platforms and industry requirements. 

Edge computing infrastructure will not act as a substitute for cloud, says Vertiv, while noting that  the  number of edge sites will grow by 226 percent  from 2019 to 2025. 

The most developed edge computing deployments will support cloud gaming, video analytics  and stock trading, says Vertiv. Use cases such as autonomous cars are still mainly at an exploration or proof of concept stage.

source: Vertiv 

source: Vertiv

The United States is leading the way with edge initiatives and is estimated to be the largest market for edge computing, Vertiv says. 

source: Vertiv 

As you might expect, regional edge facilities will most often function as content repositories. “On the device” edge will be key for augmented reality, virtual reality, industrial sensing and connected health use cases. 

source: Vertiv 

“On the premises” edge and “close to the premises” edge will have the most value for language processing, real-time inventory and traffic management use cases, Vertiv believes. 

source: Vertiv  

Edge computing, as cloud computing before it, will integrate key business processes and software platforms with computing infrastructure and communications. And those are tasks historically well suited to system integration and IT solution providers.

Nokia Touts Edge Slicing

Nokia now is touting what it calls edge slicing, which builds on 5G core network network slicing, but allows enterprises to keep some critical traffic local while running the virtual networks as well, using the public network to support both types of services.

source: Nokia 

Nokia’s 5G Edge Slicing solution keeps some enterprise local data traffic separate from other virtual private network traffic. 

The solution is scalable and allows the same virtualized network infrastructure to be used by several customers in the same area, for example in a business campus containing multiple companies, Nokia says. 

source: Nokia 

A 5G virtual private network can be deployed in an area with a 4G/5G base station or in a campus, city, or regional area. 

The solution allows access providers to support both on-premise 5G private networks or 5G VPNs. 

U.S. FTTH Payback Models are Changing

The U.S. fiber to home payback model is changing, with construction costs seemingly falling, subsidy mechanisms increasing, equity value growing, strategic value climbing and investor interest at high levels.

It is an unexpected outcome for a traditionally-challenged investment thesis. Some believe Apollo Global Management, which purchased assets at about five times to six times cash flow (EBITDA) could--after the FTTH upgrades--own assets valued at 10 times cash flow.

By some estimates, fiber to home construction still costs about $1200 per location. But U.S. service providers including Lumen Technologies say the cost is $1000 or so per passing, though current builds cost less than that.

Others estimate costs of about $600 per passing, with an additional $725 to connect and activate service at a consumer location. The key point is that FTTH costs have fallen significantly over the last two decades.

Others say the cost is closer to $800 per passing. So payback models are highly dependent on the characteristics of each specific deployment, including housing density and propensity to buy.

Take rates will matter, as take rates of 30 percent are not likely to produce a satisfactory return, Lumen has said, expecting take rates more on the order of 40 percent, which telcos traditionally have been able to get after a few years of marketing.

Importantly, service providers now are looking at multiple revenue streams which can be generated--or supported-- from an FTTH deployment. The same FTTH network supports small cell deployments, for example. In essence, part of the value of FTTH then flows from the mobile services revenue stream and payback models for mobile services infrastructure.

Edge computing, enterprise and smaller business data connections, internet of things support and private networks for business also are envisioned as revenue streams enabled by FTTH.
Lumen’s ability to invest is an issue for many observers, though, who believe Lumen might have to choose between retaining its dividend and investing aggressively in FTTH. In any event, the payback models will be complex.

It will not be 40 percent take rates for consumer households passed by the new networks. It also will be the role played by the optical access networks in supporting edge computing and enterprise use cases, including dedicated internet access, private networks and backhaul for mobile cell towers.

Working that into payback models will be complex.