U.S. Fixed Network Internet Access Market Reaching Saturation?

Is the U.S. consumer fixed internet access market near saturation? It is quite possible.

By at least one estimate, there are 95 million U.S. buyers of fixed network internet access.

In the fourth quarter of 2017 there were an estimated 136.9 million U.S. housing units. Vacancy rates are an issue, though. Some 16.7 million of those units were vacant.

In the fourth quarter of 2017, some seven percent of rental units were unoccupied, as were some 1.6 percent of owned residences. So assume the number of residences where fixed network consumer telecom services could be sold is about 120.2 million.

So that implies 79 percent of all U.S. households buy a fixed network internet access subscription. Assume another 1.6 million buy a satellite internet access service (about one percent of occupied U.S. residences. That implies 80 percent of occupied homes buy internet access.

But we also must add another six million subscribers served by all the smaller telcos, cable TV companies and independent internet service providers (assuming those smaller fixed network suppliers supply five percent of homes). That adds another five percent, bringing consumer household buying of internet access up to about 85 percent.

Also, some 10 percent of homes use mobile internet access exclusively, according to the Pew Research Center. So add another 12 million occupied U.S. homes to the total of buyers of internet access.

That brings buyers of internet access up to about 95 percent of U.S. occupied homes. The point is that we fast are approaching the point where at-home internet access is saturated. There simply are not that many more U.S. homes to convert, possibly six million or so (unless the percentage of occupied homes grows and millions of new households are formed, driving demand for new housing stock).

In fact, some might argue that as we move into the 5G era, there will be even more mobile substitution. That means it is possible we are very near to the peak of fixed network residential internet access penetration. With the exception of older demographics, home internet access adoption home internet access adoptionhas been flat since about 2010.

Leichtman Research Group reports the 14 largest U.S. cable and telephone providers of internet access  in the United States, representing about 95 percent of the customers--acquired about 2.1 million net additional high-speed Internet subscribers in 2017 (that figure also includes business users).

Broadband Providers	Subscribers at End of 4Q 2017	Net Adds in 2017
Cable Companies
Comcast	25,869,000	1,168,000
Charter	23,903,000	1,310,000
Altice	4,046,200	83,700
Mediacom	1,209,000	47,000
WOW (WideOpenWest)*	730,000	11,100
Cable ONE**	524,935	11,027
Other Major Private Company^	4,880,000	90,000
Total Top Cable	61,162,135	2,720,827
Phone Companies
AT&T	15,719,000	114,000
Verizon	6,959,000	(79,000)
CenturyLink	5,662,000	(283,000)
Frontier	3,938,000	(333,000)
Windstream	1,006,600	(44,500)
Cincinnati Bell	308,700	5,500
FairPoint^^	301,000	(5,624)
Total Top Telco	33,894,300	(625,624)
Total Top Broadband	95,056,435	2,095,203

The point is that market share shifts are likely to be the key battleground in the consumer fixed network access market, as it appears we are very near saturation, where nearly every customer that wants to buy the product already is a buyer.

Not Even FTTH Might Propel Non-Cable ISP Gigabit Share

One has to remain impressed with the commercial success of the hybrid fiber coax platform used by cable TV companies. Where most of the rest of the telecommunications world has remained fixated on fiber to the home as the platform of the future, cable operators tweaked an inconsistently-available coaxial cable network into the leading supplier of home broadband connections in the United States and a few other countries, with economics arguably better than FTTH for brownfield operations and a more-graceful approach to network upgrades.

In 2016 the cable industry passed about four percent of U.S. homes with networks offering 1 Gbps internet access. By 2018 80 percent of U.S. homes were able to buy gigabit per second service. 

source: CableLabs 

By way of comparison, all FTTH passings number something more than 50 million. There are about 141 million U.S. homes in total. So FTTH passes roughly 35 percent of U.S. homes. Not all those connections are capable of supplying gigabit connections at the moment, though. 

Assume there are 21 million active FTTH connections in the United States. Assume there are a total 103 million total broadband accounts. According to Openvault, in the third quarter of 2020 about five percent of U.S. customers bought gigabit service. 

That implies a total of no more than 5.15 million U.S. gigabit accounts in service. Assume all internet service providers other than cable operators have 30 percent of those accounts, implying about 1.5 million 1 Gbps ISP accounts sold by all firms other than cable operators. 

That further pimples that gigabit FTTH accounts in service represent about seven percent of active FTTH connections. Cable gigabit connections are likely to be closer to five percent of total broadband accounts. 

source: Fiber Broadband Association, RVA 

The point is that we sometimes too casually equate physical media with speed, or physical media with specific speeds, such as gigabit per second connections. Neither FTTH nor HFC directly equate with gigabit service or availability. 

However, cable TV operators do claim about 70 percent of the broadband installed base, possibly representing 3.6 million active gigabit accounts. As early as 2009, at least 75 percent of the fastest U.S. broadband connections were supplied by cable TV operators.  

At the same time, cable HFC platforms arguably have proven more effective than FTTH at generating incremental new revenues for platform owners, while suffering less from demand changes as voice and linear video began to shrink, the former since 2000, the latter since 2012 or so. Telco voice lines have fallen as much as 70 percent since 2000. Cable linear video accounts are down less than 15 percent since about 2012.  

Why Some Service Providers are More Positive on Fixed Wireless Than Others

Connectivity provider strategy choices virtually always are a combination of necessity and opportunity; constraints and advantages. Consider the view T=Mobile, Verizon and AT&T have about upside from 5G fixed wireless. T-Mobile is arguably the most bullish; Verizon is hopeful but AT&T is a skeptic. 

Sometimes choices are dictated by political choices. In any effort to win approval of its merger with Sprint, T-Mobile promised to supply fixed wireless home broadband service to 10 million homes by 2024. AT&T likewise uses fixed wireless (generally using its 4G platform) as part of a commitment to rural broadband--and receipt of government support funds--it made in 2015.

Neither of those moves is necessarily driven by a strict profit-and-loss or revenue growth motivation. For T-Mobile, the fixed wireless commitment was essentially a bargaining chip to win government merger approval; for AT&T a way to honor a commitment made to get rural broadband funding. 

In other cases, though, market positioning dictates relative financial opportunity and therefore different strategies. T-Mobile, for example, has zero share of the roughly $115 billion annual revenues fixed network broadband access market. 

AT&T has about 14.6 percent of the U.S. installed base of broadband customers. Verizon has less than seven percent of the installed base. 

Compare that to Comcast, which has nearly 29 percent of the installed base, and Charter, which has 27 percent of the installed base. 

AT&T in the third quarter of 2020 had about 11 percent share of the new customers, while Verizon got seven percent of the new accounts. 

In large part, those  fixed network broadband figures are based on relative opportunity, as well as customer preferences. 

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 has not historically been in the fixed network home broadband business and has passed zero homes. 

So what percentage of total homes does each provider pass? According to the U.S. Census Bureau there are about 137.9 million U.S. housing units.

Roughly 8.8 percent of units are not occupied, typically. Vacant year round units represented 8.8 percent of total housing units, while 2.6 percent were vacant for seasonal use. 

Add it all up and 88.6 percent of the housing units in the United States in the first quarter of 2020 were occupied and 11.4 percent were vacant, according to the U.S. Census Bureau. 

Still, the addressable market therefore is about 138 million locations. Comcast passes perhaps 41 percent of U.S. homes; Charter passes perhaps 36 percent; AT&T passes possibly 45 percent of home locations while Verizon passes perhaps 14 percent, best case, and many of those locations are high-rise buildings where fixed wireless might not be the best access medium. 

So one way to look at 5G fixed wireless is the ability to take market share away from other providers. T-Mobile can win the most, in the sense that it can grow from zero share to some share. 

Charter and Comcast have market share that is outsized in comparison to their homes passed totals, getting roughly 70 percent of the potential market as customers. 

Verizon’s opportunity is dictated by geography. It has the smallest geographic footprint of any of the other tier-one suppliers. That means the use of its nationwide 5G network to supply home broadband gives it reach to most of the country it cannot presently serve. 

Aside from T-Mobile--which has zero fixed network share or network--Verizon has the greatest potential account upside from providing services outside its fixed network footprint. 

AT&T, on the other hand, already covers the greatest percentage of U.S. homes, and therefore has the most to lose from competitors, followed by Comcast and Charter. Verizon and AT&T earn relatively little from their fixed network customers and therefore are most interested in their mobile customer bases, which provide virtually all the incremental revenue growth for each firm. 

Still, the ability to use the 5G mobile network to attack the home broadband market is interesting to T-Mobile and Verizon for reasons related to geography. 

T-Mobile is solely a wireless provider, has no retail fixed network and therefore stands to gain by taking share in the former fixed network broadband business. Verizon has the most-limited geographic footprint of any of the other providers, and therefore has the most to gain from out-of-market share gains in the fixed wireless space. 

Comcast and Charter remain focused--even for mobility services--on customers in their own regions and areas of service. Operations out of existing markets continue to hold little--if any--appeal. 

Some cable companies who operate in rural areas have said they will use fixed wireless rather than hybrid fiber coax or fiber to the home as an access technology in lower-density areas they might be able to reach using wireless. 

The point is that tier-one service provider interest in 5G fixed wireless depends on their assessment of relative financial upside; in some cases regulatory postures; to a great extent existing and possible market share in home broadband and relative expectations about revenue contributions from fixed network services generally.

What Percentage of U.S. Homes Cannot Buy, or Do Not Buy "Broadband?"

One often has to be careful about statistics related to broadband (25 Mbps or faster) internet access. There are some very common confusions. 

Sometimes the issue of “supply” is conflated with “demand.” It is one thing to say a consumer “cannot buy” a service because it is not available. It is something else to say a consumer chooses not to buy a particular product. 

Sometimes the confusion is definitional. The U.S. Federal Communications Commission defines “broadband” as 25 Mbps, minimum downstream speeds. That is not to say internet access is not available, or purchased. “Broadband” simply means a product offering speeds of at least 25 Mbps.

Such statistics often only refer to terrestrial networks using cables (cable hybrid fiber coax, telco fiber -o-home, fiber to curb or digital subscriber line). Satellite access most often is not enumerated, even when available virtually everywhere in rural areas from two suppliers or more. 

Sometimes one sees a confusion of “people” and “locations.” Homes are one thing, the number of people living in homes is another thing. In the United States, the average number of people in each home is about 2.5 (2.3 by some estimates). Since cabled or fixed internet is sold to “locations,” citing “people” is not as accurate. 

The reverse is true when counting mobile internet access. There, it is “people,” not places, that matter. 

There are a few other nuances. There is a difference between estimated homes and “occupied” homes. And some reported homes are boats, trailers or rooms in houses or apartments. 

With the caveat that I have not read the full report, NPD says in a recent report that 19 million rural residents do not have access to broadband internet. 

If one assumes 2.5 people per household, that in turn implies 7.6 million households that might have internet access, just not at potential speeds of 25 Mbps. NPD also is said to argue that 100 million total people “do not have access to broadband.” 

Since NPD also is reported to argue that “vast majority” of these underserved people are in rural areas, the numbers are off. The most-obvious reason is that reporters are confusing “households” (locations) with “people” (residents of those homes). 

Differences are an issue, but saying X households lack “broadband” is not the same thing as saying X households lack  internet access. Many homes that do not buy “broadband” do have access, just not at 25 Mbps. 

The other obvious qualification is that such data deals only with service purchased from terrestrial providers. 

Virtually all rural households can buy internet access at official “broadband speeds” from at least two satellite internet access providers, at speeds up to 100 Mbps. 

NPD estimates that 31 percent of people do not have broadband service (25 Mbps download speed at a minimum). Qualifications are necessary. Such statements omit service from satellite providers that absolutely meets the broadband definition, and can be purchased by virtually every rural household. 

If the average household has 2.5 people in it, then 100 million people works out to about 40 million households. It is hard to square such numbers with the claim that  the vast majority of underserved households are in rural areas. 

If 7.6 million represents “the vast majority,” it is hard to see how the total universe could be 40 million households. The official press release issued by NPD Group claims 31 percent of U.S. households do not “currently buy” a broadband service, defined as 25 Mbps. 

And the issue of demand cannot be ignored, either. Many households choose--for whatever reasons--not to buy internet access service of any type. That is a demand issue, not a supply issue. 

Gaps exist, to be sure. Up to this point, and possibly always, rural internet access speeds are, on average, slower than found in urban and suburban areas, for reasons directly related to the cost of network infrastructure. So some of the gap is supply related. But not all of the gap is supply constrained; some of the gap is produced by differential demand for the product in urban and rural areas. 

That gap also exists with respect to buy rates. “Rural Americans are now 12 percentage points less likely than Americans overall to have home broadband; in 2007, there was a 16-point gap between rural Americans (35 percent) and all U.S. adults (51 percent) on this question,” according to the Pew Research Center. 

 source: Pew Research Center

You might think the differences are completely based on the supply of service, but demand also is an issue. 

“Rural residents go online less frequently than their urban and suburban counterparts,” says Pew Research Center. “Roughly three-quarters (76 percent) of adults who live in rural communities say they use the internet on at least a daily basis, compared with more than eight-in-ten of those in suburban (86 percent) or urban (83 percent) areas. 

Some 15 percent of rural adults say they never go online, compared with less than one-in-ten of those who live in urban communities (nine percent) and those who live in the suburbs (six percent). 

The point is that some reports, and news stories about those reports, often are misinterpreted. Fixed internet access is not “all” internet access. “Broadband” is not synonymous with “internet access.” And homes are not the same thing as “people.”

It simply is not believable that “31 percent of U.S. households do not have a broadband connection.”

There are only about 122 million total U.S. households, according to U.S. Census Bureau statistics. That implies 38 million U.S. homes not buying internet access running at a minimum of 25 Mbps.

source: U.S. Census Bureau

A more reasonable estimate would be that seven million to possibly nine million locations cannot buy 25 Mbps service from a terrestrial supplier, though virtually 100 percent can buy from at least two satellite providers.