Telcos Poised for Historic Home Broadband Market Share Gains

At least some observers believe the traditional U.S. home broadband market share pattern could be quite different by 2030, though there might be some disagreement about shares held by various ISPs (cable, telco, independent providers). Historically, U.S. cable operators have held as much as 70-percent share of the home broadband market. But that seems unlikely--perhaps impossible--to sustain.

Perhaps the single biggest change could be a shift of share in favor of telcos, using both the fiber-to-home and wireless platforms. Many observers would not be surprised to see a major telco-cable share of about 40 percent each, with others holding the remaining share.

That 20-percent share would be held by ndependent ISPs and smaller telcos.

Traditionally, U.S. cable operators have held about 65 percent to 70 percent share of the market. By some estimates, telcos collectively have held 20 percent to 30 percent share, with satellite, fixed wireless and independent providers having single-digit shares. 

Most observers expect change, the only disagreement being the degree of share to be lost by cable operators and the share to be gained by telcos and other providers. 

source: GlobalData 

Also, some forecasts that look at technology (optical fiber, hybrid fiber coax, fixed wireless, satellite) often obscure the fact that telcos use both optical fiber, fixed wireless and digital subscriber line technologies. 

So a forecast of 20 percent to 25 percent “telco” market share in 2030 might not include all telco FTTH share or fixed wireless (largely provided by the big telcos T-Mobile, Verizon and AT&T. In principle, telcos might have 35 percent to 45 percent share in 2030, based only on use of fixed wireless, DSL and FTTH shares held by Verizon, T-Mobile and AT&T. Other telcos also will have some share (Lumen Technologies, Frontier, others). 

Provider Category	Estimated Market Share in 2023	Expected Market Share in 2030
Cable Companies (Comcast, Charter, Cox, etc.)	45-50%	35-40%
Major telcos (AT&T, Verizon)	25-30%	20-25%
Satellite Providers (Dish, Viasat)	5-10%	3-5%
Fiber Optic Providers (Google Fiber, Frontier, municipal providers)	5-10%	25-30%
Fixed Wireless Access (FWA) (T-Mobile, Verizon, AT&T)	5-10%	15-20%

The point is that it remains likely that telcos and cable operators will continue to hold most of the share (perhaps 70 percent to 85 percent or more), with independent providers gaining share. 

As capital intensive as fiber to the home remains, independent and smaller providers cannot hope to reach significant portions of the U.S. home broadband market very quickly, especially given the fact that, in most markets, up to 96 percent of existing share is held by the incumbent telco and cable operator. 

Even if one discounts the local telco’s ability to respond to a new fiber overbuilder market entry, the new FTTH provider will often face an incumbent cable operator able to offer gigabit-per-second downstream speeds. 

Provider Type	2023 Market Share	Discussion
Cable	~70%	Among cable operators and wireless companies controlling 96% of the U.S. home broadband market, MSOs (cable companies) accounted for nearly 70% market share
Telco	~26%	Estimated based on cable's 70% share of the 96% controlled by cable and telcos
Other	~4%	Includes independent ISPs, fixed wireless, and other providers

T-Mobile Sprint Merger Means More Fixed Wireless Competition

How much market share 5G fixed wireless might actually get in the United States is a highly-contentious matter. Incumbents say fixed wireless is not a threat to cabled network market share and revenue. Attackers believe 5G fixed wireless will be material. Some have called 5G fixed wireless an existential threat to cable operators. 

The recent approval of the T-Mobile merger with Sprint boosts prospects for aggressive new competition, in a couple of years. And though T-Mobile has indicated it could capture 9.5 million fixed accounts by about 2024, for example. That alone would potentially reduce cable market share by nine to 10 percent, a huge shift. 

source: T-Mobile US 

Add in competition from other providers and a nine-point shift in market share is a reasonable expectation. 

Both sides could be right about the relatively small market share shift, and yet the impact could be quite substantial. There are several reasons. incremental sales--at the margin--that often provide a disproportionate share of profits. So fixed wireless could be highly relevant if it shifts accounts at the margin. 

One example might be that fixed wireless slows cable operator revenue growth in the business or customer segments. Fixed wireless might capture enough share to slice incumbent growth rates or cap growth rates. 

There are roughly 99 million fixed network internet access accounts active in the U.S. market. If fixed wireless manages to shift about 12 million accounts, that is a potential gain of 12 percent.

If 80 percent of that shift is from cable operators to telcos, implying a shift of 9.6 million accounts, that would mean a loss of 15 percent cable TV market share in internet access. 

To the extent that internet access is the cable operator  growth engine, that could have outsize financial and strategic impact. 

Another potential issue is possible average revenue per account hits, as incumbents attack cable services on the price dimension. So it might not be only the lost direct revenue loss but the impact on overall ARPU that emerges. 

source: Bain and Company

In recent quarters, for example, U.S. fixed network internet access net additions net additions have totaled about six tenths of one percent of the installed base, with cable gaining eight tenths of one percent while telcos lost about two tenths of one percent. 

In other words, a shift of about two-tenths of one percent per quarter halts the telco decline. A shift of perhaps six-tenths of one percent--from cable to telco--actually causes cable share to begin a decline. 

That is what the stakes realistically are: a chance for telcos to halt, and perhaps reverse, the long-term decline of their market share in internet access. 

Cable TV executives in the U.S. market naturally express as much skepticism about the dangers 5G fixed wireless services pose for their consumer broadband business as telco execs say they are optimistic. Basically, it will no scale, or will scale too slowly to keep up with cable’s own planned bandwidth plans, cable execs tend to say. 

It is very subtle stuff. Verizon, for example, only has to gain about 7,000 5G fixed wireless accounts per quarter to halt its customer losses. T-Mobile US and Sprint have virtually zero fixed network market share, so even smallish gains represent new accounts with average revenue possibly double what they get from mobile internet access accounts. 

The point is that skeptics and proponents alike can be right that 5G fixed wireless only shifts a small amount of market share. But it is precisely at the margin that fixed wireless could be significant. Fixed wireless could halt a 20-year decline in telco fixed network internet access share; choke off the cable operator growth engine and attack cable profit margins.

FTTH, Fixed Wireless, Mobile Substitution Will Shape Market Share in Home Broadband Business

The viability of 5G fixed wireless and mobile substitution are possibly the biggest wild cards in the U.S. fixed network internet access business. For the most part, where telcos and other internet service providers have fiber-to-premises networks, market share of about 50 percent for the telco is possible, with cable TV operator share capped at about 50 percent.

Projections will therefore be highly sensitive to possible market share shifts to fixed wireless or mobile substitution.

Internet access market share in the U.S. fixed network markets is becoming a “haves and have-nots” issue. Where telcos and other internet service providers operate fiber-to-premises networks, they will tend to get half the market.

Telcos only able to use digital subscriber line might be lucky to retain 27 percent market share, MoffettNathanson argues. 

                           source: MoffettNathanson 

"We expect there to be no meaningful functional difference, at least to end users, between FTTH and cable's DOCSIS 3.1 and, soon, DOCSIS 4.0, offerings," the firm believes. "In short, there is no longer a reason to assume that cable broadband is a disadvantaged technology even versus FTTH."

The firm does not believe 5G fixed wireless will be a material help for telcos and other ISPs, which might account for the more-robust estimate of cable market share. Of course, others believe fixed wireless could eventually get 15 percent market share. That is more than enough share shift to upset MoffettNathanson projections, assuming the bulk of that share is gained by ISPs other than cable. 

The other sensitivity is a significant further shift to mobile-only access, which in an era of unlimited usage plans and 5G speeds might prove attractive to a significant percentage of customers. 

MoffettNathanson believes Altice USA and Cable One are in position to keep growing their internet access market share, in large part because they will not face a big telco with fiber-to-home assets. 

AT&T competes in 42 percent of Altice’s network footprint, for example. AT&T competes with Comcast across just 34 percent of Comcast’s footprint; 30 percent of Charter’s network and only eight percent of and Cable One’s coverage. 

The Altice Suddenlink assets are where MoffettNathanson expects Altice to keep taking market share. 

Moffett sees Comcast's long-term share potential at 60 percent, with telcos and others getting the balance. Charter’s likely share limit is 61 percent.  Altice USA will peak at 60 percent, but ub the former Suddenlink areas, market share could reach 72 percent share. 

That will not be true where Altice competes against Verizon’s FiOS network. There, Altice might peak at 53 percent. 

  source: MoffettNathanson

AT&T, Verizon Will Gain Video Share in 2010

AT&T and Verizon are slowly gaining share in the U.S. multi-channel video market, while satellite providers DirecTV and Dish Network are holding their own, with Comcast and Time Warner Cable under a bit of pressure, but possibly facing more erosion over the next year, new surveys by ChangeWave Research suggest.

A key factor is simply that AT&T and Verizon now are able to market video services to millions more customers every year as they build out their new networks. Given a choice, some customers will exercise that choice, and switch from a current provider to one of the telco-provided services.

To the extent that customer satisfaction has a direct effect on churn behavior, Verizon, AT&T and DirecTV also stand to benefit, as their customer satisfaction ratings are at least three times higher than those of Comcast and Time Warner Cable, according to a recent Changewave Research survey of nearly 3,000 end users.

Still, market share changes relatively slowly in the video entertainment market. When asked whether they planned to switch TV providers in the next six months, about 12 percent reported they’ll be switching.

That works out to about two percent of the customer base a month, a figure quite consistent with what video operators have seen in recent years. But users rarely behave precisely as they say they will. One might expect churn to wind up being less than two percent a month, but more than one percent a month.

Also, service providers recently have found churn levels lighter than usual, in part because of slower housing starts, in part because of “save” offers made when customers call to disconnect, in part because bundles save customers money.

But prices seem to have very-high importance. According to the Changewave survey, price is the reason half of the “switchers” plan to make a change. Only about 10 percent indicated they would switch to get a bundle.

If price drives half the changes, rather than some other service attribute, many users who plan to defect will wind up staying because of a “save” offer that addresses the price objection.

Market share changes over the last year show just how stubbornly service providers are fighting to prevent churn in a saturated market that mostly is a zero-sum game.

For the U.S. market as a whole, cable TV operators retain dominant market share of 65 percent while satellite providers have 25 percent market share. Telcos now have 11 percent market share.

Comcast, with 23 percent share, slipped about one percentage point over the last year.
Time Warner Cable, with 11 percent share, gained one market share point over the same period.

DirecTV, with 13 percent market share, was unchanged over the year. Dish Network, with nine percent share, lost one share point over the last year.

Verizon’s FiOS has five percent share of the national market, while AT&T U-verse has three percent of the national market.

About 54 percent of the Changewave respondents who say they intend to switch providers say they will choose a fiber-optic service, an eight-point increase in three months.

Verizon FiOS TV remains the top provider that switchers plan to move to in the next six months. But AT&T’s U-verse service has jumped seven percentage points since Changewave’s March survey and is currently showing the most momentum among providers.

By way of comparison, just four percent of switchers saying they’ll sign up with Comcast and one percent say they’ll buy from Time Warner Cable.

Changewave researchers think cable and satellite providers will, for these reasons, face headwinds as the telcos gear up.

Fiber TV providers boast a big lead when it comes to customer satisfaction levels. Some 38 percent of subscribers say they are “very satisfied.”  About 27 percent of satellite subscribers say they are “very satisfied.”

About 13 percent of cable subscribers say they are very satisfied. So satellite subscribers are twice as satisfied as cable customers while fiber TV customers are three times as satisfied as cable customers.

The difference is even more evident at the individual company level, where Verizon has the most satisfied customers. About 47 percent of Verizon FiOS TV customers say they are very satisfied, while 39 percent of AT&T’s customers say they are very satisfied.

Some 34 percent of DirecTV customers say they are very satisfied. Just 11 percent of Comcast and Time Warner Cable customers say they are very satisfied.

When are Consumer Markets Effectively Competitive?

When is a market effectively competitive? And what are the key tests of whether markets are effectively competitive? To examine the matter simply, is it the number of suppliers in a given local market, or the market shares of those competitors?

Of course there is the argument that it is a combination of those two metrics. But the answers might hinge on which test is dominant.

The U.S. Federal Communications Commission, for example,  seems to apply different standards to different services within the triple play bundle.

In high speed access, the Commission appears to believe there is not enough competition, with two terrestrial providers and two satellite providers in just about every market.

In the case of linear video services, the FCC thinks competition is effectively competitive with the same number of suppliers in virtually every market.

So perhaps it is the market share test that is relevant.

Still, the market share held by the market leader in most local markets does not vary much, whether looking at high speed access or linear video.

Broadly, a cable operator has about 59 percent share of the high speed access market, while in linear video the local cable TV operator tends to have about 52 percent share.

What differs is the share held by other contestants. In high speed access markets, though there are a growing number of competitors (two satellite Internet providers, Google Fiber an independent ISPs), market share generally is held by the cable TV operator and a local telco.

On a national basis, a cable provider might have 59 percent share, the telco might have 40 percent share. Satellite and other providers have the rest of the share. Local markets will vary much more widely, however.

Still, high speed access tends to feature four providers in most markets, despite the fact that the market share structure is functionally a duopoly.

In linear video, market share is much more dispersed. Nationally, cable operators have about 52 percent share, while satellite providers have about 36 percent share, while telcos have about 12 percent share.

In the linear video market, virtually every market has four providers, as well. In 1993, a cable operator had about 93 percent share.

The linear video market arguably is more competitive, one might say. On the other hand, should AT&T succeed in buying DirecTV, the number of suppliers in linear video, in most markets, would drop to three.

The result would be that in many markets, where AT&T has fixed network operations, though hat a cable operator might still have roughly 52 percent share, AT&T might have 27 percent share.

Dish Network would still have perhaps 15 percent share. In some markets, where AT&T does not have local fixed network facilities, Verizon might have about 25 percent to 30 percent share of linear video.

More competition is coming, in voice, high speed access and linear video markets. But the FCC now seems to have concluded that voice and linear video now have become effectively competitive, though it believes high speed access and mobility have not reached that stage, yet.

Will FCC Formally Modify its Historic Cable TV Industry Market Share Rules?

Something potentially more interesting than smaller Charter Communications buying Time Warner Cable are afoot. 

The wild card at the moment is that Comcast might consider buying Time Warner Cable, a move that Comcast, the biggest U.S. cable company, would have avoided a decade ago, to avoid running afoul of Federal Communications Commission and Department of Justice anti-trust scrutiny and oppostion.

Though some would note that the rules were informally modified in a key way some time ago, the U.S. cable industry basically continues to operate under FCC rules that no single cable company can serve more than about 30 percent of U.S. subscribers. Some confusion exists, though.

In 1999, the FCC, in a unanimous vote, redefined the concentration rules and relevant markets to allow AT&T to buy Mediacom, theoretically allowing AT&T to serve potentially 40 percent of U.S. homes. But that is a slightly different issue. 

AT&T represented new telco industry competition, and was not a legacy cable operator.

The FCC cable market share rule remains in effect, formally, but the thinking was that AT&T would be able to offer competition to the incumbent cable TV companies.

Given the many changes in the video market over the last decade, might the FCC be willing to take a different look at concentration? 

The FCC once barred a merger by DirecTV and Dish Network, as that would result in one U.S. satellite provider. But in markets that structurally are different now, does it make sense to regulate industry by industry, or look at the whole market.

Even the definition of the "market" might be enlarged to include over the top providers such as Netflix, as well.

Although the old 30 percent cap was technically not changed, the revisions to the definitions of markets and cable ownership effectively raised the ownership cap for cable television to the rough equivalent of 36 percent and even more for video service, albeit only when it was a telco that could gain that much share (AT&T has not done so yet).

In other words, regulators were willing to look at competition and concentration not simply in terms of "industry silos," but service by service. 

So the interesting new challenge is, what if Comcast does make a bid to buy Time Warner Cable, pushing Comcast into a range that exceeds the traditional FCC market share rules?

Will Comcast be allowed to do so, and if so, will it be because its video market share is shrinking, while its voice and high-speed Internet access share is growing? At the time, the FCC thinking about competition and market share was that it makes a difference whether the market share being considered is cable in video services, or telcos in voice, not just inter-industry or intra-industry concentration measures. 

Though it would be notable if Charter bought Time Warner Cable, the bigger policy ramifications would come if Comcast were to try and buy Time Warner Cable. 

Role of the Fixed Network is Backhaul, it Seems

"Over the past year, cable companies have added about 3.5 million broadband subscribers, while telcos have had net losses of about 500,000 broadband subscribers," says Bruce Leichtman, Leichtman Research Group president.

One has to wonder whether that is a sign of coming structural change in the fixed network markets.

For some time, it has been clear that the role of the fixed network is changing. Specifically, it can be argued that the primary strategic value of the fixed network is its role as the backhaul mechanism for wireless, untethered and mobile services.

Wi-Fi offload of mobile device data traffic provides one example. The universal use of Wi-Fi as the in-building distribution system for fixed Internet access and much voice traffic provide other examples.

The use of cable TV, telco and other Internet service provider distribution networks to support backhaul of traffic from coming small cells provider yet other examples.

In other words, it might be argued that the primary function of the fixed network is to act as the backhaul for untethered traffic and apps.

But the shift of market share also might mean a historic shift in the structure of fixed network communications markets, where policymakers always seem to begin their work with a perspective on “dominant” providers in any market.

Traditionally, it has been the legacy telcos that were viewed as the sole “dominant” providers. But the functional definition of “competition” in any market is that the former leader loses lots of market share. And telcos have seen that happen.

Looking strictly at fixed network services, cable companies now are the market share leaders in the foundation Internet access service, seem to have about a third of the voice market share, and remain ahead in video entertainment account share.

So in two of three anchor services, including the “growth” business of Internet access and the “revenue volume” leader of entertainment video, cable is the leader.

With cable’s success in the small business market now complemented by serious efforts to gain share in the mid-market and enterprise segments, we should expect to see further share losses by telcos, with cable gains, in those segments as well.

To be sure, in 2014 telcos still had about 85 percent business market share. But everyone expects cable to keep gaining share in the business market segment.

Eventually, cable is going to get into the mobile business as well, and virtually all observers believe cable will take share in that market as well.

At some point, assuming legacy telcos can hang on to leadership of the mobile segments of the business, we will have to assume that in the fixed networks business, cable is the leader, not the telcos. All our assumptions about regulatory policy will by then be quite outdated.

U.S. Internet Access Subscribers, 2nd Quarter 2016
Firms	Subscribers	Net Adds
Cable Companies
Comcast	23,987,000	220,000
Charter*	21,815,000	277,000
Altice**	4,105,000	24,000
Mediacom	1,128,000	14,000
WOW (WideOpenWest)	725,700	3,400
Cable ONE	508,317	(107)
Other private firms	4,745,000	15,000
Total Top Cable	57,014,017	553,293
Phone Companies
AT&T	15,641,000	(123,000)
Verizon	7,014,000	(83,000)
CenturyLink	5,990,000	(66,000)
Frontier^	4,552,000	(77,000)
Windstream	1,075,800	(16,200)
FairPoint	311,440	117
Cincinnati Bell	296,700	4,300
Total Top Phone Companies	34,880,940	(360,783)
Total Broadband	91,894,957	192,510