Fixed Wireless or Mobile Access are the Best Ways U.S. Telcos Can Gain Home Broadband Share

Fixed wireless is not a new platform for internet service providers. It has been common in many rural areas for wireless ISPs, using unlicensed spectrum and point-to-point or point-to-multipoint networks. But many argue fixed wireless will be a more-common platform for a wider range of service providers in the 5G.

There are a few good reasons. First of all, use of huge amounts of new millimeter wave spectrum, open source radio technology and the relatively high cost of fiber-to-home networks in highly-competitive markets make 5G fixed wireless more attractive.

For starters, the initially installed cost of fixed wireless--even before 5G and millimeter wave spectrum availability--is lower than fiber to home, by a substantial margin. That is true for both the cost of passing a location as well as connecting a location.

source: Siklu 

There is more. One crucial business model issue is the amount of stranded assets when deploying any new cabled network in a market where there is robust competition. To use an example, in a market where a cable company has 70-percent market share and a telco has 30 percent market share, a new FTTH network might still mean stranded assets (no customer attached) of at least 65 percent, assuming the telco can gain about five points of market share. 

In other words, in highly-competitive markets where a competent competitor already has 70 percent of the installed base, fixed wireless might offer the only hope of remaining competitive, as the cost of FTTH might never prove sustainable. 

Verizon’s FiOS FTTH network, even after years of marketing, topped out at about 40 percent take rates until perhaps 2018, when take rates broke above 40 percent. Keep in mind FiOS was introduced in 2005. 

AT&T’s FTTH adoption rates seem to have been historically lower, at about 25 percent, though AT&T execs hope they eventually can boost those rates to somewhere in the 40-percent range over time (where FTTH is available). AT&T execs have sometimes said they believe they can reach 50-percent take rates. Some of us highly doubt that. 

With cable operators having 70 percent of the installed base, typically leading in bandwidth and offered speeds, and with the next generation of cable modem service already being developed, to supply more symmetrical service at 10 Gbps, it does not seem that even FTTH is going to change the value proposition. 

Essentially, FTTH only allows a telco to play catch up. So long as cable operators keep investing to maintain their lead, it seems unlikely FTTH will allow telcos to leapfrog the competition. Keep in mind that cable operators have been the U.S. broadband access market leaders since at least 1999. 

The FTTH business case, for consumer customers, now seems irreparably damaged. But that is why AT&T, T-Mobile and Verizon are so focused on ways to use 5G and future networks to challenge all cabled networks as platforms for internet access. In the U.S. market, it may no longer be possible for at-scale FTTH to compete sustainably with cable operator services.

That includes using fixed wireless or even standard mobile access instead of FTTH. Though it might not have been so clear 20 years ago, once cable operator hybrid fiber coax emerged as a platform for consumer internet access, even FTTH was not going to be enough for telcos to remain highly competitive. In recent years, all net gains in accounts have been garnered by cable companies.

How Long to Replace All U.S. Access Copper?

We might all agree that, at some point, optical fiber will replace copper in telco access networks. What is harder to predict is when that might actually happen in the U.S. market. To be sure, FTTH facilities keep growing. But there are key financial constraints, especially related to financial return. 

Looking only at fixed network accounts, U.S. telcos have about 36 million accounts, while competitors (cable providers and independent VoIP providers) have 62 million accounts. If there are roughly 146 million household locations, telco sales of voice reach only about 25 percent of locations. So voice stranded assets are as high as 75 percent. 

Statistics for broadband market share are roughly similar, with cable operators having about 70 percent share and telcos about 30 percent share. 

That poses a major business model issue for any service providers contemplating upgrades to fiber to home. In principle, FTTH would allow telcos to compete more effectively for internet access accounts. But if copper can support the voice applications, the incremental revenue FTTH can supply will largely be limited to broadband market share gains.

It never is clear that makes financial sense, especially if other access platforms, including fixed wireless can address much of the demand. 

Fixed wireless will not appeal to all customers, for reasons of speed. Few fixed wireless networks will routinely support speeds of 600 Mbps or greater, for example. But not all customers will care about that. 

If a typical household spends $66 a month for fixed internet and between $40 and $60 a month for mobile data, we can roughly estimate the breakeven point where going all-mobile for internet access costs no more than what already is spent for mobile and fixed internet access, ignoring a bit of hassle factor for doing so.

Assume per-user mobile data costs $50 a month, while per-household fixed data costs $70 a month, and about $28 per user in each household. For a multi-user household of an average 2.5 users, that implies something like $78 per user for an all-mobile approach.

It’s a rough estimate, but that implies usage allowances currently set at about 110 GB, priced at about $80, would be competitive offers for many users, and allow substitution for fixed internet access.

At the moment, it is conceivable that about four percent of U.S. consumers buy gigabit internet access. Perhaps 58 percent of U.S. consumers buy services with speeds between 100 Mbps and 300 Mbps. 

That makes 5G fixed wireless a competitor for at least 58 percent of the market, even at lower speeds. 

Most likely, the center of gravity of demand for 5G fixed wireless is households In the U.S. market who will not buy speeds above 300 Mbps, or pay much more than $50 a month, at least in the early going. The reason is that that pricing level and downstream bandwidth fits the profile of 5G fixed wireless using mid-band spectrum.

Verizon fixed wireless offers also suggest that same 5G “sweet spot” in the market. In the meantime, there is 4G fixed wireless, which will have to be aimed at a lower-speed portion of the market, albeit at about the same price points as 5G fixed wireless. 

Up to this point, Verizon 4G fixed wireless, available in some rural areas, offers speeds between 25 Mbps and 50 Mbps. That might appeal to consumers unable to buy a comparable fixed network service. 

Later iterations using millimeter wave service will sometimes be a more-serious competitor to cable operator services operating up to a gigabit per second. 

Fixed wireless might be even more important elsewhere in global markets.  

All that makes the business case for replacing copper access even more challenging, as the amount of stranded assets increases if fixed wireless gets any significant traction. 

One might argue that only FTTH gives telcos a chance to change their market share positions in the consumer broadband market. But even where it is available, FTTH tends to get about 40 percent take rates. So FTTH itself faces a stranded asset issue. 

source: RVA 

Though operating cost savings will accrue, the potential upside for a telco FTTH upgrade at scale might be 10 percent market share gain in broadband. It is not clear whether that makes as much sense as supplying part of that demand using fixed wireless in the near term, and continuing the gradual replacement of copper as it deteriorates to the point where it simply must be replaced.

One might argue that will take 10 to 20 more years.

Data Consumption Will be Added to Speed and Cost as Drivers of Fixed Network Access Platforms

In the past, access platforms have been differentiated based on speed and cost per passing or cost per customer. Going forward, they might also have to be differentiated based on total bandwidth consumption, in addition to speed and cost per customer or cost per passing. 

In the past, hybrid fiber coax has proven more economical as a fixed network platform than fiber to the home. Fixed wireless has been more affordable than FTTH. But that changes as consumption increases, AT&T argues. 

And many service providers--including cable TV companies who have used HFC--concede that, eventually, FTTH becomes an affordable way to keep boosting speeds beyond multi-gigabit ranges. 

For AT&T, once sustained data consumption per user approaches 250 gigabytes per billing period, FTTH economics get progressively better, since FTTH costs less to continually upgrade for higher speeds. 

source: AT&T 

As always, that assumption is based on AT&T’s total cost structure, the scale of its operations, capital structure and business model. Other internet service providers might have different options, for a longer period of time. 

That is especially true for some firms such as T-Mobile and Verizon that have no realistic opportunities to install FTTH nationwide, and whose prospects in the home broadband market are based on use of fixed wireless. 

Consumer willingness to pay, plus consumption profiles, do vary quite a lot. So for some, the issue is which segments of the market can be served by wireless, and which require FTTH. 

For T-Mobile and Verizon, the issue is how well, and how long, fixed wireless and mobile access platforms can  keep growing speeds and capacity fast enough to continue serving half the market. 

For cable operators the choices are how long to keep enhancing the HFC platform and when the switch to FTTH makes financial sense. 

AT&T passes about 57 million homes and considers about 50 million of those locations suitable--eventually--for FTTH. But that still leaves seven million locations where FTTH might not make sense. By 2025, AT&T expects to pass about 30 million consumer locations using FTTH, a bit less than 53 percent of total home locations. 

But even AT&T, which focuses on fiber for business customers, will see fixed wireless growth. AT&T cash flow from fixed network business customers is expected to rely heavily on cash flow from FTTx and fixed wireless services.

Will Fixed Wireless Be a "Deploy at Scale" Choice for Telcos?

Up to this point, in U.S. and Canadian fixed network markets, cable TV providers have had a capex advantage over telcos. Their hybrid fiber coax networks have proven less costly to upgrade to gigabit speeds than telco networks, which often must break with copper-based access to match such speeds.

So, up to this point, the telco business decision has been whether there is a clear payback from ripping out copper access and replacing it with fiber to the home. Although fixed wireless and advanced forms of digital subscriber line are solutions in niche cases, the big choice has been to make the transition to FTTH or not.

The range of choices will change in the 5G era, as fixed wireless becomes a potential "deploy at scale" choice in instances where the FTTH business case is difficult.

The “politically correct” answer to the question of whether 5G fixed wireless competes with fiber to the home access is that “both have their place,” or are complementary. That has been the PC answer to the question of whether FTTH competes with digital subscriber line or cable modems as well.

Always, the answers have to be contextualized. The cost of each particular solution, for particular deployments, must be weighed against expected financial return, especially in competitive markets dominated by facilities-based providers.

One key element is cost per passing. The other key variables include take rates and revenue per account. At a high level, fiber to the homes least (per passing) in urban areas, most in rural areas, and somewhere in between in suburban areas.

source: ITU

The cost of a fixed wireless solution likewise varies by density: lower costs per location when connecting a high-rise apartment building or condominium; higher costs to connect individual homes. But nearly all observers would likely argue that fixed wireless should be less expensive than fiber to the home.

Cost estimates arguably are most developed for use of fixed wireless frequencies long in use, more speculative for 5G-based millimeter wave bands, as volume production and use of small cell base stations is just beginning.

But cost per passing is only one of the key business model drivers. In competitive markets, where there are two or more equally-talented and capitalized providers, the addressable market is never 100 percent of locations. Instead, two strong competitors essentially will split the market.

And that means the cost per customer is roughly double the cost per passing.

source: Siklu

In an era where one or multiple products might be sold, the average revenue per account also matters. And there, generally speaking, average revenue per account trends are clearly in the lower direction.

All of that--facilities-based competition; falling average revenue per account; cost per customer--means the cost of serving customers has to fall, even for next-generation networks that feature higher performance.

In that context, the question of “which platform” always includes a “cost to deploy” constraint. If the total customer base is limited because of competition, and average revenue per account is declining, then network cost (capex and opex) must drop.

That is why, all other things being equal, in competitive markets, the low-cost provider tends to win, when that provider has scale.

source: PwC

Many Consumers Will Always Buy "Good Enough Value" Home Broadband

Some question the long-term viability of 5G fixed wireless services, arguing that, eventually, it will prove unable to compete with ever-higher capacities supplied by cabled networks, especially fiber to home platforms. 

Supporters might make the case that “eventually” is the key phrase, as the market potential for fixed wireless between “today” and “tomorrow” is likely to be quite extended. At the moment, perhaps 51 percent or 52 percent of all U.S. homes or dwelling units have service available from at least one provider. 

By 2030 that percentage might increase to 76 percent to 80 percent. 

At the moment, perhaps 10 percent to 15 percent of U.S. homes have FTTH service available from at least two providers, growing to possibly 30 percent to 40 percent by 2030. 

For starters, FTTH is expensive enough that no single service provider can afford to build new networks ubiquitously, even if the customer demand is present. By some estimates, the cost to pass one urban home might be just $1,000, but the cost to pass suburban locations might range up to $3200, while rural passings can easily cost $7,000 or more. 

Area Type	Density	Estimated Cost per Home/Passing
Metropolitan	High	$1,000
Suburb (Flat Terrain)	Medium	$2,700
Suburb (Hilly Terrain)	Medium	$3,240
Rural (Flat Terrain)	Low	$6,300
Rural (Hilly)	Low	$7,000

And that is construction cost only, not including the cost to activate an account, which can add costs between $300 to $500 for each install. 

An equally-important issue is the take rate for such networks. It has been common for any new FTTH provider that is a telco to get up to 40 percent take rates over a few years, with initial uptake in the 20-percent range, often. Independent ISPs competing with both cable operators and a telco might expect take rates not exceeding 20 percent (where the cable operator can offer gigabit service and the telco does not offer FTTH). 

So the longer-term issue is how big the market might be for wireless service offering speeds in the lower ranges (100 Mbps to 200 Mbps now; undoubtedly higher speeds in the future), as more fiber access is available. To the extent that fixed wireless is taking market share from cable operators (perhaps even operators able to sell gigabit-per-second connections), we can infer that a substantial portion of the market is happy to pay the prevailing rates for access at such speeds, especially when able to bundle home broadband with their mobile access services. 

When comparing fixed wireless to either cable modem or FTTH service, many consumers might not be especially interested in services operating the 500-Mbps and faster ranges, much less gigabit ranges, when the slower speeds cost less. 

But demand will continue to shift over time, with most consumers eventually buying services operating faster than 200 Mbps, and in many instances much faster than 200 Mbps (gigabit to multi-gigabit ranges, for example). To be sure, fixed wireless providers are likely to find ways to increase their speed tiers as well, beyond 200 Mbps in the future, even if virtually all observers suggest wireless will continue to lag cabled networks in terms of speed. 

Speed Tier Take Rates, in Percentage	2023	2030	2040
Less than 100 Mbps	20-30	5-10	1-2
100 Mbps to 200 Mbps	30-40	10-20	5-10
Faster than 200 Mbps	30-40	70-80	85-90

Perhaps the best analogy is what cable operators have been able to do with their hybrid fiber coax networks, boosting speeds over time. 

Keep in mind that cable networks and FTTH networks back around 2000 were only offering top speeds in the 10-Mbps range. Fixed wireless networks also will be able to increase speeds over time, if never on the scale of cabled networks. 

Year	Typical Cable Operator Maximum Speed
1996	1.5 Mbps
Early 2000s	10 Mbps
Late 2000s	50 Mbps
2010	100 Mbps
2015	300 Mbps
2016	1 Gbps
2024	2 Gbps

But absolute ability to match cabled network speeds is not the question. The issue is what percentage of customers will, in the future, be willing to buy fixed wireless home broadband, at then-prevailing speeds, prices and offers. 

Mobile Substitution is About to Explode

With the caveat that it often is not feasible, facilities-based competition in telecom often results in more innovation and differentiation than a “wholesale by a single facilities provider” approach. That might be especially the case as 5G is commercialized, as mobile platforms might be able to compete head to head with fixed networks on both retail price and capacity (speed and usage) metrics.

Often, that is because facilities-based providers often use different platforms (fixed wireless, hybrid fiber coax, fiber to home, satellite, mobile), with differing capabilities, “best use” cases, maximum bandwidth and retail pricing of bandwidth.  

Each of those networks has a rather distinct capabilities profile: satellite and mobile with the lowest cost per passing, but relatively high cost per gigabyte; FTTH with the arguably greatest amount of potential bandwidth, with the highest infrastructure cost profile;  HFC offering relatively lower cost facilities compared to new FTTH networks.

Fixed wireless has been most used in rural areas, but will become a more-significant factor in some markets as 5G fixed wireless is commercialized. On a localized basis, Wi-Fi offers the lowest end user cost (often free) but rarely, if ever, the highest bandwidth.

Among the best examples so far of how facilities-based competition leads to more innovation is the use of HFC by cable operators to supply more bandwidth than telco DSL and sometimes even FTTH, at lower infrastructure cost.

That is likely to be the case as 5G fixed and mobile wireless are commercialized as well.

“We believe that prevailing incentive structures will continue to push mobile network operators to invest heavily in their own infrastructure” in Australia, as an alternative to relying on the National Broadband Network, analysts at S&P Global Ratings say.

the design of all networks is converging: the idea being to get access traffic moved as quickly as possible to the optical backbone.

“Taken to its logical conclusion, fixed and mobile networks might only be distinguishable by the "last 100 meters," S&P argues. “Both will require fiber deep into the network.

In fact, assuming a small cell network has access to lots of unlicensed spectrum and millimeter wave assets, the actual architecture resembles a fixed network access architecture: fiber close to the customer and then final connection using some non-fiber means.

Even fiber-to-home networks convert signals from optical to electrical, with actual delivery using copper media (to a Wi-Fi router, perhaps), with direct links using wireless.

Fiber-to-curb and hybrid fiber coax networks are more directly analogous, terminating the optical network someplace close to the end user, and then using some other media (copper cabling, copper wire, fixed wireless or mobile access) for final delivery.

So as small cell networks are deployed, using either fixed wireless or mobile access, they will resemble HFC and FTTH very closely.

In all cases, the design objective is to get traffic off the access network (wired or wireless) and onto the optical backbone as quickly as possible.

Still, the use of rival platforms is likely to produce more innovation than would be the case if all competitors used the same platform.