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

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.

Have FTTH Costs Mostly Hit a Limit?

“A decade has passed since the first FTTH network deployments, yet the cost of building
a network remains the primary obstacle to ubiquitous fiber connectivity for every household,” says Commscope.

From 2005 to 2015, the cost per home passed dropped from $1,021 to just under $700, Commscope notes. Those costs likely are fairly standard, no matter how big or small a firm might be.

The problem is that most of the cost of building a fiber-to-home network comes from civil engineering, not network elements.

Construction, civil works engineering, obtaining permits and right-of-ways account for roughly 67 percent of total cost, while the equipment accounts for about 33 percent.

So while GPON and fiber equipment costs have indeed fallen, skilled labor rates have risen.

In other words, a fiber-to-home network mostly represents construction costs, not network element cost.

My simple way of explaining this is that most of FTTH cost comes from “digging holes, then closing the holes back up.”

If so, then the cost of FTTH cannot be reduced too much more.

That is a key reason for the resurgence in interest in fixed wireless, which now is on the cusp of reaching gigabit speeds, and also soon will reap the benefits of new research efforts related to radios.

Also, spectrum costs will drop, partly from spectrum sharing, partly from use of unlicensed spectrum, partly from huge new allocations of spectrum that can support fixed wireless.

That is why fixed wireless and millimeter wave will be such a big focus at the upcoming Spectrum Futures conference. It is possible, perhaps highly likely, that fixed wireless will upstage fiber as a means for supplying consumer gigabit Internet access.

Here’s a  fact sheet and Spectrum Futures schedule, illustrating the planned discussion of access network business issues.

Verizon "One Fiber" Shows Changed Fiber Economics and Business Model

Verizon’s “One Fiber” strategy for the city of Boston shows the changed role of the fixed network as well as a shift of the business model. The original vision for FiOS was consumer services, lower operating costs and support for broadband (mainly entertainment video, at the time).

The new vision builds on a number of revenue streams and operating considerations, anchored by enterprise services and support for the mobile network.

There probably also is a bigger potential role for fixed wireless backhaul, should use of fixed wireless develop further.

“I think of 5G initially as, in effect, wireless fiber, which is wireless technology that can provide an enhanced broadband experience that could only previously be delivered with physical fiber to the customer,” said Lowell McAdam, Verizon CEO.

That new use of fixed wireless will be designed to support gigabit speeds. “As we densify the network for 4G, it sets us up perfectly for deploying 5G with the millimeter wave technology,” said McAdam.

Compared to using fiber-to-the-home, fixed wireless should cut network costs in half, McAdam says. By using fixed wireless, Verizon also avoids the cost of drop cable connections, the second-biggest driver of the access network capital cost.

“We expect there to be a significant cost reduction” for fixed wireless access, compared to fiber, McAdam said.

Essentially, Verizon believes it can create a denser fiber network that initially supports enterprise customers and also supports backhaul for a dense network of small cells across the city.

But doing so also lays the foundation for consumer fiber-to-home services and support for Internet of Things applications as well.

"When we looked at running the fiber for wireless, we said, well that will enhance what we can do from an enterprise perspective and by the way, it's only $300 million more over the next six years to actually deploy fiber to the home from that same fiber," said Fran Shammo, Verizon CFO.

The larger point is that the business model for fiber facilities in metro areas has changed. Essentially, in dense areas such as Boston, what Verizon must spend to support business users, the mobile backhaul network and new small cell deployments, the incremental cost of targeted consumer fiber-to-home deployments is reduced dramatically.

And where consumer FTTH does not make sense, Verizon can use fixed wireless to supply gigabit access connections.

Fixed Wireless Could Reverse a 20-Year Trend

Cable operators and many observers say they do not believe fixed wireless is a threat in the home broadband market. The argument is that speeds will not match what hybrid fiber coax or fiber to the home is capable of; usage allowances will not match that of cabled networks and price discounts will not be significant enough to attract switchers. 

T-Mobile and Verizon are enthusiastic for perhaps equally-compelling reasons: $195 billion worth of annual revenue. Comcast and Charter Communications alone book $150 billion annually from internet access services that largely are generated by home broadband customers. 

But even most business accounts could be candidates for fixed wireless, including smaller businesses as well as larger entities using fixed wireless as a backup service. 

source: S&P Global 

Beyond all that, fixed wireless is interesting for attackers in the home broadband market, simply because the easiest possible business model is “same service, lower price” in a market with proven demand characteristics. And the “lower price” part of the value proposition is powerfully enhanced by fixed wireless.

Fixed wireless does not have to compete with the high-end FTTH or cable gigabit services. As history has shown, most competitive attacks in software or communications happen at the low end: a product that is “not as good as that provided by the leaders, but still useful.” 

Fixed wireless only has to shift a bit of market share to become a significant revenue driver for T-Mobile, and allow Verizon and AT&T to reverse a 20-year loss of market share to cable operators in the home broadband business. 

And since at least half of all U.S. home broadband customers buy services operating in the 100 Mbps to 200 Mbps range, a fixed wireless service only has to provide about that level of performance, with adequate usage allowances and a lower price, to be competitive. 

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.

The other issues are coverage and infrastructure cost. T-Mobile has had zero market share in home broadband because it is not in the fixed networks business. Verizon has a small geographic footprint and has never been able to compete in 80 percent of the U.S. home broadband market. Fixed wireless, provided by the same 4G and 5G networks they must operate in any case, provide a platform for doing so.

Fixed Wireless Dominates U.S. Home Broadband Net Additions in 2Q

With the caveat that nobody knows how long the trend will hold, in the second quarter, home broadband account additions in the U.S. market were dominated by fixed wireless, according to the latest data from Leichtman Research Group. 

Of 841,000 net account additions, 893,000 accounts were added by fixed wireless providers. In other words, fixed network provider accounts actually declined, while fixed wireless grew. 

Skeptics always argue that, eventually, fiber connections will limit fixed wireless demand. Fixed wireless optimists tend to argue that enough capacity can continue to be added to sustain fixed wireless as a viable market offering for quite some time, and perhaps almost indefinitely in a percentage of markets. 

The business strategy would be to continue upgrading fixed wireless speeds, for example, to appeal to 20 percent of the market. In that scenario, the objective is not to match fiber-to-home speeds but only to support features most relevant for about 20 percent of the market that does not want to buy the fastest, or faster, tiers of service. 

In terms of geography, rural areas and out-of-region locations are likely to remain the places where fixed wireless makes most sense. In such geographies the cost to supply will be far lower than the cost of building new optical access networks. The leading exceptions might be markets where FTTH leased access is generally available. 

In the near term, new mid-band spectrum is likely to provide the needed capacity expansion. Long term, millimeter wave spectrum will be the key supplier of capacity growth. To be sure, small cell networks using low-band and mid-band spectrum will help, in some cases. 

Still, longer term, only millimeter and higher frequency spectrum will add enough capacity to allow fixed wireless offers to keep pace (again, preserving key appeal for about 20 percent of the market) with other fixed network alternatives. 

The big advantage of milliwave spectrum is capacity; the main drawback is coverage. That will pose a continuing issue for rural millimeter wave network deployments. The conventional thinking is that denser urban markets are where millimeter will continue to offer the most-interesting business cases: relatively high amounts of capacity in areas where distance is not a primary issue. 

 

source: ABI Research, RCR 

At least so far, fixed wireless has been, far and away, the clearest new use case for 5G.

Can Easier Make-Ready Change the FTTH Business Case?

"Make ready" costs (the cost of readying an aerial facilities pole for a new set of communication cables) might represent $4,000 to $35,000 per mile of cost for a new distribution network. That represents about a low of two percent and perhaps a high of eight percent of total distribution network costs.

So it stands to reason that rules that lead to "make ready" costs that are lower, with execution faster, should improve the business model for either fiber to home or 5G small cell access networks.

Removal of barriers to investment in next-generation mobile and fixed broadband networks proposed by the U.S. Federal Communications Commission could lead to deployment of fiber-to-customer  facilities to 26.7 million premises that would not have gotten such investment under the older rules, according to an analysis by Dr. Hal Singer, Economists Incorporated principal, Ed Naef and Alex King,  partners at CMA Strategy Consulting.

Those moves would make it faster and less costly to deploy next-generation networks, including measures such as reducing pole-attachment costs, the time and cost of make-ready and barriers to copper retirement. Those moves potentially are significant because construction represents most of the cost cost of a fiber-to-home network.

The new rule also would accelerate legacy time-division multiplexing (“TDM”) product discontinuance and reduce barriers to locating and deploying wireless infrastructure.

If the rules are changed, Economists Incorporated estimates an incremental 26.7 million U.S. premises would be passed by fiber-to-home facilities, as the better business model would make the investment worthwhile.

The analysis also suggests that the change in rules would enable about 15 million new fixed wireless 5G locations to be added, about 66 percent of those being in rural areas.

The new line of thinking assumes that faster and lower-cost network construction includes “fiber deep” distribution networks that create radio small cell sites covering areas of 1800-meters radius, or 3600-meters diameter, using 3.5-GHz frequencies. That implies coverage of roughly four square miles from each such small cell.

In urban and suburban markets, that could cover significant homes per small cell In U.S. suburban areas, that might mean one small cell, using 3.5-GHz spectrum, might cover 200 to 600 homes.

Since connecting new customers represents such a huge part of the total "cost to serve a customer" ($830 per customer up to $1870 per customer, it is possible the ability to use small cells to supply a fixed wireless drop, not a cabled connection, would allow a huge improvement in business model.

Some still argue FTTH costs less to deploy than 5G fixed wireless. Others think 5G fixed wireless might well be more affordable than deploying FTTH.

source: Economists Incorporated

source: Economists Incorporated