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.

How Much FTTH Investment Will Prove Excessive?

Some observers might note that there have been periods of overinvestment in various connectivity sectors since 1995, and in data center capacity to a lesser extent. 

Subsea capacity and competitive local exchange carrier segments in the 1995 to 2001 period come to mind, as well as low earth orbit satellite systems in the early 2000s as well. 

Global Crossing, Level 3 Communications, 360Networks, NorthPoint Communications, and Winstar Communications were a few of the subsea or CLEC firms that went bankrupt. 

In 1998 Teledesic raised $9 billion in funding to launch a constellation of 288 satellites, but filed for bankruptcy in 2002. In 1999, Iridium launched a constellation of 66 satellites to provide global mobile satellite services and was bought out  by Globalstar in 2007.

In 2000, Orbcomm launched a constellation of 28 satellites to provide two-way data messaging services. The company survived as a small participant in the LEO business.

In the mobile segment, Metropcs, Nextel and VoiceStream declared bankruptcy about the same time. 

And though data center capacity has in the past briefly been overbuilt, demand has relatively quickly absorbed the supply. 

Data Center Market	Years	Degree of oversupply
Northern Virginia	2015-2017	20%-30%
Silicon Valley	2016-2018	15%-25%
Frankfurt	2017-2019	10%-20%
Singapore	2018-2020	5%-15%

Some might ask questions about the sustainability of many fiber-to-home business plans now underway in the U.S. market. In the past, firms have come to grief when they borrowed too much money, were overly optimistic about their sales and revenues and faced too much competition. 

Consider one scenario where overinvestment in FTTH proves troublesome. Keep in mind that investment to create facilities does not mean customer acceptance. Lumen, for example, sells FTTH to about 26 percent of locations passed. Verizon has peaked at just a bit over 40 percent, as have most other telcos with FTTH footprints. The typical pattern is lower take rates when service is launched, with higher terminal rates after three years of marketing in any single market.  

While revenue sources for some ISPs with extensive FTTH networks will include revenue from business customers and wholesale operations, many ISPs are looking at payback models anchored by home broadband services with monthly revenues between $50 to $80 a month. 

Whether you believe that is sustainable for an ISP with 80 percent or greater market share and other revenue sources, questions begin to grow as the terminal market share forecasts in competitive markets dip towards 20 percent or 30 percent. 

Though there is certain to be huge disagreement about such forecasts, one might argue that the home broadband market is moving towards a much-reduced role for fiber-to-home platforms and a heightened role for mobile and other wireless access technologies, as the number and types of connected devices grows, with greater reliance on mobile or untethered access, and increasing ability to leverage mobile network assets to support both mobile and fixed use cases. 

Some rival platform executives might be more optimistic about their chances of competing with FTTH. Most customers, for example, do not buy the fastest-available services but rather “good enough” services that cost less. Also, we should expect every platform to continue to increase provided speeds over time. 

Some observers might expect satellite access to remain at no more than 10 percent. And though FTTH should gain, so will mobile-only and fixed wireless. Perhaps most in the “things will change, but not drastically” camp believe that HFC share (cable operator) will decline as more customers buy FTTH instead. 

Platform	2023 Market Share	2030 Market Share
Fiber to Home	15%	20%
Hybrid Fiber Coax (HFC)	60%	50%
Fixed Wireless	5%	10%
Mobile-Only	15%	20%

Fiber supporters will argue that FTTH will do far better, eventually perhaps representing 40 percent share of market by 2030, as all fixed network ISPs shift to FTTH platforms, including cable operators. In such scenarios, perhaps FTTH holds 40 percent share (including share of telcos, cable and independent ISPs). HFC could drop to 30 percent while shares of the other platforms share the rest of the market. 

The real sensitivity in the model is how fast new FTTH lines can be added by 2030, compared to how fast cable operators can continue to upgrade HFC service, or themselves switch to FTTH. 

The argument for FTTH is that it is the only futureproof platform for internet access. And while that might prove correct. But it might be a longer transition than many now expect.

Fixed Wireless Really is Affecting U.S. Home Broadband Share

Fixed wireless has emerged as the clear producer of “new revenue” for 5G networks. At least for the moment, FWA seems to be crimping cable operator home broadband net additions. 

In the third quarter of 2022, for example, Comcast added 14,000 net new subscribers. T-Mobile, using FWA, added 578,000 net new accounts. Verizon’s FWA service added 342,000 net new accounts, according to Leichtman Research Group figures. 

Legitimate questions can be asked about how long that trend can last, as most observers would agree that FWA appeals mostly to customers without significant need for, or desire for, the faster services. In other words, for a significant portion of the market, speeds up to 100 Mbps to 200 Mbps are good enough. 

But that is not the whole market. In the third quarter of 2022, for example, it is possible that a quarter of all customers, perhaps as many as half, only “needed” speeds up to 200 Mbps. Only about 15 percent of households bought service at 1 Gbps or faster. 

source: OpenVault  

At some point, the “lower-speed is good enough” segment will be saturated. At that point, Verizon and T-Mobile will have to do the same thing as Comcast: boost speeds for existing customers and those who want higher speeds. 

Cable executives predictably expect that FWA will not be able to keep up. Verizon and T-Mobile obviously say they disagree, and that they will be able to keep boosting FWA speeds. 

At the moment, Comcast’s strategy seems to acknowledge the new competition, as it no longer says it will grow home broadband revenue by increasing market share or the number of subscriptions, but rather by upgrading speeds to faster tiers that cost more. 

Competition from fiber-to-home providers is the other part of the market dynamic, as more FTTH is being activated by many ISPs, competing with the fastest of cable home broadband speeds. 

For all those reasons, cable’s revenue growth hopes likely hinge on taking greater share in the mobile phone business.

Marketing Claims Aside, How Much Capacity Do Home Broadband Users Really Need?

How much internet access speed or usage allowance does a customer really need? It actually is hard to say. U.S. data suggests there are clearer answers about what customers expect to pay, which is about $50 a month, on average, even if some studies suggest wildly higher prices.  

source: Broadband Now 

Average prices are lower or higher than $50 a month, depending on what adjustments are made, such as adjusting for currency differences or cost of living differences between markets. Adjustments of that sort tend to show rather uniform global pricing of internet access, also adjusting for “quality” (speed, for example) differences. 

Also, any assessment should be based on service plans people actually buy, not posted retail prices for any particular tier of service. Bundle pricing adds another layer of complication. 

Internet service provider business models always require matching supply with demand; deployment speed and cost. What is needed to market effectively against competitors also matters. 

Time to market does matter. “It took us 22 years to pass 17 million households with fiber: 22 years,” says Hans Vestberg, Verizon CEO. “That’s how hard it is.”

“We basically had 30 million households covered with fixed wireless access in less than one year,” he also notes. 

So there is the trade off: rapid deployment of a lower-cost network versus slower deployment of a higher capacity network; wide coverage now versus higher capacity later; lower capital investment versus high. 

As typically is the case, wireless platforms can be provisioned faster than cabled networks, at lower cost. The Verizon data illustrates that fact. 

Cost also matters, as no internet service provider--especially those in competitive markets--can afford to spend unlimited sums on its infrastructure. Verizon and T-Mobile tout fixed wireless access in large part because they can afford to supply itt and can supply it fast, at lower costs than building fiber-to-home would cost. 

But marketing also matters: internet service providers do compete on the basis of speeds and feeds; do compete on price; do compete on perceptions of quality; terms and conditions and value. 

In that regard, even as home broadband speeds continue to rise, marketing claims are a battleground. Cable executives, for example, make light of fixed wireless as they claim it will not scale the way hybrid fiber coax and fiber-to-home can. FWA proponents argue that the platform does not have to scale as fast as FTTH or HFC to provide value for segments of the customer base. 

For example, even households that buy the fastest tiers of service rarely have a “need” for all that capacity. According to a survey by HighSpeedInternet.com, survey respondents say the “perfect plan” features a “610 Mbps fiber connection for $49 per month.”

In the third quarter of 2022, about 15 percent of U.S. households bought service operating at 1 Gbps, while 55 percent purchased service running from 200 Mbps to 400 Mbps. 

source: OpenVault 

 

The point is that, no matter what they tell researchers, U.S. home broadband customers do not seem especially eager to buy gigabit services at the moment, or services running at about half that speed. 

Speed demands will keep climbing, of course. But it does not appear, based on history, that most consumers will switch to buying the fastest tiers of service, or the lowest tiers of service, either. Historically, U.S. consumers have purchased internet access costing about $50 a month, with performance “good enough” to satisfy needs.

In fact, one might make the argument that is consumption (gigabytes consumed) that matters more than speed. Average data consumption stood at about 500 gigabytes per month in the third quarter of 2022, according to OpenVault. But the percentage of power users consuming a terabyte or more was growing fast: up about 18 percent, year over year, and representing about 14 percent of customer accounts. 

So speed claims are about marketing, as much as customer requirements. “It's turned into really a marketing game,” adds Kyle Malady, Verizon Communications EVP. ISPs compete on claimed speeds, even if there is little evidence most households require gigabit speeds at the moment. 

Beyond a certain point of provisioned capacity per user and device in any household, additional speed brings subtle if any benefits. Consumption allowances do matter, especially for households that rely on streaming for video entertainment. 

Nobody can give you a convincing answer why gigabit per second or multi-gigabit per second networks are required, beyond noting that multi-user and multi-device households need a certain amount of capacity if all are using the ISP connection at the same time. 

No single application, for any single user and device, requires a gigabit connection. So the real math is how much total bandwidth, at any moment, is needed to support the expected number of users, apps and devices in simultaneous use. 

For a single user or two, using one or two devices each, simultaneously, it is hard to see how a gigabit or faster connection is required. 

Some version of that argument--that a customer “does not need” a particular capability, is at the heart of much ISP marketing. ISPs whose platforms have some speed limitations point out that the limits do not matter for some customers, or that the price paid for higher-speed services does not provide value, commensurate with cost.

Can Lumen Increase Consumer FTTH by 10X?

Lumen Technologies is expanding its fiber to home expansion activity, expecting to boost the availability of fiber-to-premises beyond the 27 percent of homes it already supports.  With the caveat that Lumen’s future success rests more with its enterprise portfolio than its consumer broadband business (all mass markets revenue is about 25 percent of total), the fiber upgrades should boost subscription rates. 

Where the fiber access network gets about 27 percent adoption, the copper access network gets about 14 percent take rates. In other words, FTTH gets almost double the adoption of the copper access product, with FTTH average revenue per account of about $59 a month. 

source: Lumen 

In principle, Lumen should be able to gain a price advantage over its key cable TV competitors, at least if most customers on all the networks buy the advertised products at the advertised prices (ignoring promotional or bundle pricing). Whether that is the case in practice is far from clear. 

source: Lumen 

Nor is it always completely clear that 5G and 4G mobile networks are outclassed to the point that they cannot gain significant market share. The early evidence suggests that a significant portion of the consumer market is content with lower-speed service (up to 200 Mbps), and will buy a fixed wireless service. That value segment could represent about 33 percent of the present market. 

As always, that value segment will be offered higher speeds over time, for about the same price (less than $50 a month). 

Some of us would argue that the real advantage over cable will lie in symmetrical broadband features, not price per bit or downstream speed. 

The issue is how fast cable companies will move to boost upstream speeds; how fast Lumen can upgrade its home broadband access facilities and how fast both Lumen and the cable firms can boost downstream speeds. 

Of these three, the first two are likely going to be crucial, as the salient performance advantage Lumen will be able to claim, once facilities are upgraded to fiber, is upstream speed. Lumen believes it will be able to build the network for $1,000 per passing or less, with incremental capital required to activate each customer location. 

The issue then will become the penetration rate (customer adoption rate): can Lumen relatively quickly boost its customer share from 27 percent up closer to 40 percent? Possibly equally important, can Lumen get a higher share of the performance-oriented segment of the market, willing to pay more? 

Much could hinge on whether Lumen can hit its own goal of upgrading to a total of about 12 million FTTH  locations over the next six years, at the expected capital investment cost, at the expected take rate.

U.S. Cable Operators Might Still have 65% Market Share in 2027

U.S. cable operators will still have 65 percent share of the home broadband market in 2027, analysts at GlobalData predict, despite more fiber-to-home and fixed wireless deployments. 

That might sound incongruous--and perhaps it will prove too optimistic--but relative stability in the home broadband market can be explained in a few ways. 

Competent competitors with lower cost structures and lower or equivalent costs to upgrade bandwidth--and that will still be the case for cable operators in 2027--should be able to limit share losses, even if competitors equally skilled try to attack them. 

source: GlobalData 

The other issue is that upgrading most telco facilities to fiber to home will take time. There is only so much capital that can be put to work; only so much construction capacity; only so much network infrastructure than can be produced in any year. 

By Prysmian Group estimates, for example, FTTH will serve only about 26 percent of U.S. households by 2027, and that includes cable ISPs and independent ISPs, not just incumbent telcos. So telco FTTH share will be less than 26 percent in 2027, if Prysmian proves correct. 

source: S&P Global Intelligence

In fact, other analysts at S&P Global Intelligence  think FTTH share of home broadband (again including telcos and other competing ISPs) will only reach about 17 percent by 2025. 

As cable industry executives have pointed out for quite some time, the amount of new FTTH infrastructure that can be deployed by telcos--for reasons of capital limitations, market opportunity or other choice--is limited.

It takes time to build out a new ubiquitous access infrastructure in a continent-sized country. Also, as cable operators themselves start to deploy FTTH, it will be increasingly necessary to delineate market shares by type of competitor, not choice of physical media. 

Telco FTTH is not going to move the market share needle as much as some might hope.

Home Broadband Strategy is Heavily Dictated by the Business Model

AT&T is targeting about 30 million homes for new fiber-to-premises availability. Verizon is emphasizing fixed wireless. As always, strategy is based on firm strengths and weaknesses. AT&T has the largest footprint of homes; Verizon’s fixed network possibly reaches 20 percent of U.S. homes. 

Of a total of 140 million homes, AT&T’s landline network passes 62 million. 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 27 million. Lumen Technologies never reports its homes passed figures, but likely has 20-million or so consumer locations. 

AT&T has more fixed network share to protect, compared to Verizon, while Verizon has bigger upside in taking home broadband share outside its footprint.

The same holds for T-Mobile, which historically had zero percent share of home broadband. 

“If all I had was a wireless network, if I did not have a scaled physical infrastructure fiber thriving and growing network, I might have no other choice than to leverage my wireless spectrum portfolio to go grow my business,” said Jeff McElfresh, AT&T COO.

The point is that business strategy around home broadband platforms is not based strictly on what is "best" long term. Strategy also must be based on how fast competitive home broadband access can be enabled; at what cost and how fast.

Cable operators have differing opinions about whether to upgrade directly to FTTH now, or conduct at least one major hybrid fiber coax upgrade before doing so. Sheer technology performance is but one consideration. The payback model is more important.

FTTH the Platform of the Future, "And Always Will Be"

Fiber to the home is a better long-term solution than fixed wireless, most would agree. Of course, it all depends on whether we are looking at pure technology or practical business models.  

It frequently happens that FTTH is not a practical platform for many service providers, for all sorts of reasons. In a study by the Benton Foundation, commissioned by the Communications Workers of America, the 30-year total cost of FTTH ownership often is lower than the 30-year total cost of ownership for fixed wireless. 

source: Benton Foundation 

We can always quibble about the cost assumptions, but the comparisons seem reasonable enough, on a 30-year payback basis. In competitive markets, 30 years is not a meaningful time frame. Companies go out of business and executives are fired if their platform choices take too long to produce actual financial results. 

So the issue is not whether fiber is better on a 30-year time frame, but whether it is workable right now, and for the next decade, for most internet service providers that must make a deployment decision. 

To be sure, multi-user households remain the customers with greatest need for lots of bandwidth, as the report suggests. 

source: Benton Foundation 

But a substantial percentage of U.S. households are not that sort of multi-user case. Some 28 percent are single-person households, for example. About 30 percent are two-person households. 

In other words, even as bandwidth consumption continues to increase, the direction of change for many decades has been towards households that are not “married couples with children,” the prime example of multi-user accounts. 

source: PRB. 

Since 1960, for example, the average number of persons per household has declined. 

source: Statista 

The point is that even with increasing typical bandwidth consumption, FTTH is not the only platform capable of serving a significant percentage of households, with cable modems being the alternative that is most similar to FTTH in terms of capacity. 

source: Benton Foundation 

As always, the business decision about bandwidth is a balancing of end user demand in specific neighborhoods with the cost to upgrade platforms. Also, mobile operators can use their 5G platforms to reach a significant portion of the market that does not have the highest multi-user household requirement, especially when they cannot justify an out-of-territory FTTH build. 

In other cases, incumbent fixed network providers might have to carefully consider the payback when facing cable operators with lower near-term bandwidth upgrade capabilities and strong market share positions. 

As one wag said in the late 1980s: “fiber is the technology of the future, and always will be.” That is a bit of an exaggeration, but still germane.