How Much Share Can Telcos Claim as They Step Up FTTH Investments?

U.S. cable operators have taken market share in consumer broadband for most of the last two decades. But some analysts believe a new wave of investment in fiber to home facilities will allow telcos to claw back significant amounts of installed base. 

Long term, MoffettNathanson sees cable having a 50 percent broadband market share in markets in which they compete with fiber-to-home facilities. That implies a shift of 20 percent of the installed base from current levels. 

Not all observers agree with that analysis. S&P Global Market Intelligence, for example, does not expect stepped-up telco FTTH investment to change share statistics very much. 

But S&P Global Market Intelligence does believe new competition from mobility suppliers using fixed wireless (T-Mobile, for example) will gain about six percent share of the aU.S. residential broadband market with about 7.19 million subscribers. 

It is not yet clear how much of that share gain will be claimed by upstarts in the home broadband market such as T-Mobile, and how much will be gotten by fixed wireless operations conducted by incumbents such as AT&T and Verizon. 

The former gains will represent market share gains by telcos, but perhaps some losses for AT&T and Verizon. The latter could increase the installed base held by AT&T and Verizon. 

Also, some of that share will be gained by independent wireless internet service providers. 

S&P Global Market Intelligence also estimates there will be about 1.52 million satellite customers by the end of 2021, accounting for just one percent of the installed base of home broadband accounts. 

Today, cable operators get as much as 85 percent market share when facing telcos using VDSL and 95 percent market share competing against telco DSL facilities, the firm says. Where cable companies compete against telco FTTH, the big telcos have gotten somewhere in the range of 40 percent or slightly-higher share of the installed base. Some smaller telcos manage to get 50 percent of the installed base.  

In the first quarter of 2021, the largest U.S. telcos had about 31 percent share of the installed base and got about eight percent market share of net new accounts, according to Leichtman Research. 

Mobile market share gains could also be an issue. T-Mobile, for example, expects to gain home broadband share, especially in rural areas, at the same time it gains mobile account share. 

Some 15 percent of U.S. adults are mobile only for home broadband, says Pew Research.  The point is that telco FTTH competes against cable, other mobile companies, independent ISPs and satellite. 

And stranded assets and financial return remain issues for telcos investing in new FTTH facilities. As voice and video entertainment revenue streams have dwindled, the business case for home broadband using FTTH increasingly relies on internet access as the main revenue driver for the FTTH business case. 

That is why some see fixed wireless as important. It might be the only way for telcos to compete against cable and other competitors in many geographies. 

Always a difficult business decision, the economics arguably have become worse as voice and entertainment revenues dwindle, increasingly making FTTH viable in some urban or suburban locations, not all. Rural deployments rely on subsidies. 

Rural customers represent about 40 percent of the entire mobile services marketplace, including 54 million households and about 140 million people, according to T-Mobile. Historically, T-Mobile has been underrepresented in rural markets, compared to AT&T and Verizon.

What Has Changed for FTTH?

For more than two decades, U.S. cable operators have won the market share battle with telcos (net new additions) as well as the installed base battle (percentage of total customers). That appears poised to change, with telcos now believed to be possible installed base gainers. 

To accomplish that, telcos also would likely have to win the market share (net new additions) battle. We haven’t seen that in two decades (some might argue telcos never have won the market share battles) but it seems possible for the first time. 

So what has changed? Several things, probably. Some important tier-two telcos that had been capital constrained have now restricted to the point where they can afford to invest in new fiber-to-home facilities where they had not been able to, in the past. 

Tier-one suppliers also arguably have altered options. Verizon, which had largely halted FTTH deployments because of the business model, now sees different returns as a result of fiber deployment to support its 5G small cell deployments. One byproduct is a denser optical transport network that can change the incremental cost to provide FTTH. 

But market share or installed base can change in other ways directly related to that denser fiber transport footprint. In some cases, 5G fixed wireless can allow Verizon to gain share without full FTTH. If the issue is “bandwidth to the home” or “gigabit to the home,” then 5G fixed wireless might work, irrespective of the platform. 

AT&T has been deleveraging, and is the telco with the most room to upgrade its access networks to FTTH. 

source: Standard & Poors 

Lumen Technologies, on the other hand, recently divested itself of about half its total consumer access lines, to concentrate on its denser metro areas. 

It might seem paradoxical that perceptions of return from FTTH investment are higher than once was the case when three mass market services--each with high adoption--were possible with FTTH. With the decline of voice and linear video entertainment revenues, the fixed network business case for consumer services largely rests on internet access. 

Logically that should create a worse business case, as revenue mostly must come from a single lead application. But other parts of the revenue and cost model also are changing. Third party sources of funding sometimes are more lucrative (either from joint builds or bigger government subsidies). 

Divesting linear video reduces revenue, but also cost. Harvesting voice while concentrating on internet service provider operations might in some cases lead to lower operating costs. 

Also, though telcos failed to halt the slide in broadband market share over the last two decades, the growing need for more-symmetrical bandwidth now offers telcos a possible marketplace advantage over cable operators. 

Also, telcos increasingly are building models that rely on broadband for nearly all the financial return from a new FTTH build, based on steadily-improving efficiencies. Telcos with 5G backhaul networks now can leverage those other fiber transport investments to support consumer home broadband investments. 

Expectations about installed base share also help the new payback models. Where telcos once might have held only 30 percent share of the installed base, they now can reasonably expect to eventually take 50 percent share of the installed base, which changes the financial return. 

Up to this point the U.S. FTTH footprint has been rather modest. All together, telco FTTH probably today passes only about 29 percent of U.S. homes. That percentage will grow closer to half of all U.S. homes over the next five years or so. 

That still leaves telcos with a problem: they wil be able to sell FTTH-based gigabit services to only half of U.S. homes. What to do about the rest is the logic behind 5G fixed wireless. 

In 2021, for example, Comcast, the biggest U.S. cable operator, faced an FTTH competitor in less than 30 percent of its footprint. That obviously limits the amount of total share loss Comcast is exposed to, as cable trounces digital subscriber line platforms  in performance. DSL simply is not competitive with cable modem service. 

Then there are the strategic issues. Absent the upgrades to FTTH, can a fixed network service provider reasonably expect to remain in business? Increasingly, the answer is “no.” To the extent that internet access is the paramount driver of fixed network revenue, then FTTH either is installed or the telco faces bankruptcy. 

The argument then is not so much “we will make more money” as it is “we get to stay in business.” 

U.S. Internet Access: What Would it Take for AT&T, Verizon to Take 10 Market Share Points?

The largest U.S. cable TV companies have 64 percent share of internet access accounts in the United States, according to the latest data from Leichtman Research Group. But there also is an 80/20 rule at work: the firms that drive most of the activity are Comcast and Charter; AT&T and Verizon.

Charter and Comcast have 81 percent of the cable internet customers. AT&T and Verizon have 67 percent of the telco internet access customers.

Between them, Charter and Comcast got 93 percent of the net account additions in the cable TV internet access provider segment. And while AT&T gained marginally, while Verizon lost marginally, nearly all the telco ISP losses came from CenturyLink and Frontier Communications.

In other words, though cable ISPs continue to get virtually all the net gains in accounts, AT&T and Verizon are roughly flat, in terms of subscriber installed base, while it is the rural operations that are losing share to cable rivals.

There might be some larger implications. Assume Verizon and AT&T get about 40 percent share in their markets, with cable getting 60 percent. No matter what they do, how easy will it be for AT&T and Verizon to nudge up to about 50 percent share? And how could they do so?

Basically, AT&T and Verizon likely would have to be able to match cable speeds and product features, as well as offer lower prices cable refuses to match, or otherwise change the value-price bundle in some other way relevant for consumers.

Ratcheting up speeds to match cable likely is the less difficult precondition, as costly as network upgrades might be.

Gaining a sustainable pricing advantage over cable is more difficult, as AT&T and Verizon cannot control the cable reaction. And it is by no means clear that  cable competitors would accept lower market share to protect their profit margins.

Leaving those issues aside for the moment, assume that AT&T and Verizon were able, somehow, to grab 10 points of market share, in part by upgrading to gigabit speeds, with a path to 10 Gbps.

The upside from such an upgrade is about 10 points of market share in internet access. What is a point of share in the consumer market worth?

Assume an internet access account taken from a cable supplier represents about $50 a month in revenue, or an annual $600 worth of gross revenue. If so, one percent of share gain is about 945,322 accounts in the overall market.

The issue is that none of those firms operates fully nationwide, and do not compete solely with the other two firms (Comcast and Charter on one hand, AT&T and Verizon on the other).

But as a simplifying assumption, assume AT&T, Verizon, Charter and Comcast collectively represent about 72 million accounts, and that the share changes would happen only across that 72 million installed base.

In that case, one percent of share change represents 720,000 accounts. Also, since the market is a zero-sum gain, five percent of gain by telcos means five percent loss for cable, for a total net swing of 10 percent, and a new share structure with cable at 55 percent and telcos at 45 percent.

That suggests, broadly, the the upside for AT&T and Verizon, to gain five percent share of the installed base, is really about 3.6 million accounts. At $600 for each account, annually, that implies something on the order of $2.16 billion in incremental revenue for AT&T and Verizon, with AT&T gaining about 69 percent of that.

The implications of a full 10-point change in market share, resulting in a 50-50 split of the market, is $4.3 billion in annual revenue and net swing of 7.2 million accounts,  again assuming that AT&T/Verizon only face Comcast/Charter in their markets.

As a practical matter, the potential for installed base share change between those four firms likely is less than that, since none of the four firms actually faces a zero-sum situation across the cable-telco industry segment divide.

The point is that the revenue upside for internet access gains arguably is less than $3 billion in annual revenue for AT&T, some $1.3 billion for Verizon, if AT&T and Verizon were able to take half the internet access share in their fixed network markets.

Compare that to the cost of upgrading 18 million passings to get those 7.2 million new accounts. Recall that both AT&T and Verizon presently have customers on about 40 percent of passings. So it is necessary to upgrade all passings to capture half the new customers.

At $700 per passing, that implies a network investment of about $12.6 billion, plus activated account investment of perhaps another $2.1 billion, or about $14.7 billion total. Marketing or customer acquisition costs would be incurred as well.

Such customer acquisition costs can run about $2000 per new account, including direct marketing costs and the cost of promotional pricing and incentives. That could add another $14.4 billion in operating costs, for a total of $29 billion.

You might consider that a reasonable bet (spending $29 billion to harvest $4.3 billion in additional revenue). But you also can see why AT&T and Verizon are hopeful about 5G-based fixed wireless access, which might offer capital investment about half what fiber to the home costs.

ISPs	Subscribers, 3Q 2017	Net Adds, 3Q 2017
Cable Companies
Comcast	25,519,000	213,000
Charter	23,603,000	285,000
Altice	4,020,900	16,500
Mediacom	1,194,000	9,000
WOW (WideOpenWest)	730,000	2,400
Cable ONE*	519,062	(2,662)
Other Major Private Company**	4,860,000	15,000
Total Top Cable	60,445,962	538,238
AT&T	15,715,000	29,000
Verizon	6,978,000	(10,000)
CenturyLink	5,767,000	(101,000)
Frontier	4,000,000	(63,000)
Windstream	1,017,400	(8,400)
Cincinnati Bell	307,900	800
FairPoint^	301,000	(3,193)
Total Top Telco	34,086,300	(155,793)
Total Top Broadband	94,532,262	382,445

source: Leichtman Research

Telcos Have Stopped Losing Home Broadband Market Share to Cable

U.S. telcos have about 31 percent share of the installed base of U.S. home broadband connections, while cable operators continue to hold about 69 percent share, according to Leichtman Research data. 

Cable operators garnered about 92 percent of the net new additions in the first quarter of 2001, while telcos added about eight percent of the net new additions. 

That is modestly good news for telcos. For most of the last 20 years telcos have seen modest, if any, market share gains and almost continual shrinkage of the installed base. In some years past cable operators have gained more than 100 percent market share, as telco subscriber counts were negative. 

Over the past decade or so, cable has gained a bit more than 80 percent market share in every quarter, so one might argue that telco net additions have waned a bit, even if telcos have stopped losing market share every quarter in 2020.

Broadband Providers

Subscribers at end of 1Q 2021

Net Adds in 1Q 2021

Cable Companies
Comcast*	31,034,000	460,000
Charter	29,234,000	355,000
Cox**	5,435,000	55,000
Altice	4,370,800	11,600
Mediacom	1,454,000	16,000
Cable One	880,000	23,000
WOW (WideOpenWest)	823,800	10,000
Atlantic Broadband	511,004	6,383

Total Top Cable

73,742,604

936,983

Wireline Phone Companies
AT&T	15,435,000	51,000
Verizon	7,193,000	64,000
CenturyLink/Lumen^	4,728,000	(39,000)
Frontier	3,052,000	(17,000)
Windstream	1,122,300	13,000
Consolidated	794,224	2,024
TDS	501,700	8,400
Cincinnati Bell	437,600	1,500

Total Top Telco

33,263,824

83,924

Total Top Broadband

107,006,428

1,020,907

source: Leichtman Research 

While the turnabout does not necessarily mean telcos will challenge cable for the lead in installed base or market share, small gains are a vast improvement over installed base and share losses for two decades.