How Much Does Fixed Wireless Matter?

You can get a robust debate pretty quickly when asking “how important will 5G fixed wireless be?” in the consumer home broadband market. Will it matter? 

Probably. But it also matters more to some than to others, and will matter even if the net result is installed base market share shifts of just a few percentage points. So there is no actual contraction between cable operators saying “fixed wireless is not a threat” and a few firms arguing it will be highly significant as a driver of revenues. 

Keep in mind that the home broadband market generates $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. 

T-Mobile has zero market share in that market. Taking just two percent means new revenues of perhaps $4 billion annually. That really matters, even if cable operators minimize the threat. 

“Addressable market” is a key phrase. Right now, 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 18.6 to 20 million. To be generous, use the 20 million figure. 

AT&T’s fixed network represents perhaps 62 million U.S. homes passed. CenturyLink never reports its homes passed figures, but likely has 20-million or so consumer locations it can market services to. 

The point is that, up to this point, T-Mobile has had zero addressable home broadband market to chase. Verizon has had 20 million homes to market for that purpose. AT&T has been able to market to perhaps 62 million homes; Comcast 57 million homes and Charter about 50 million homes. 

So T-Mobile and Verizon have the most market share to gain by deploying fixed wireless. And the value will not necessarily be that fixed wireless allows those two providers to “take half the market.” The revenue upside from share shifts in low single digits will be meaningful. 

Some might counter that early fixed wireless will not match the top cabled network speeds. That is true. But it also is true that half of U.S. households buy broadband services running between 100 Mbps and 200 Mbps, with perhaps 20 percent of demand requiring lower speeds than that. 

So even if fixed wireless offers lower speeds than cable hybrid fiber coax or telco FTTH, it might arguably still address 70 percent of the U.S. market.

It is conceptually possible that untethered access could eventually displace a substantial portion of the fixed networks business, longer term. 

Up to this point, mobile networks have not been able to match fixed network speeds or costs per gigabit of usage. But that should change. 

Mobile network speeds will increase at high rates, with a rule of thumb being that speeds grow by an order of magnitude every 10 years. One might argue that is less capacity growth than typically happens with fixed networks. +

 

source: Voyager8 

But that might not be the relevant context. What will matter is how much speed, at what price points, mobile or fixed wireless solutions must offer before becoming a reasonable choice, compared to fixed access. 

Assume that in its last release, 5G offers a top speed of 20 Gbps. The last iteration of 6G should support 200 Gbps. The last upgrade of 7G should support 2 Tbps. The last version of 8G should run at a top speed of 20 Tbps.

At that point, the whole rationale of fixed network access will have been challenged, in many use cases, by mobility, as early as 6G. By about that point, average mobile speeds might be so high that most users can easily substitute mobile for fixed access.

To be sure, cost per GB also has to be roughly comparable. But, at some point, useful bandwidth at a reasonable enough price could allow wireless solutions to take lots of market share from cabled network providers. 

 

We never get away from debates about “which is the better choice?” in the connectivity or computing industries. Nor do we generally remember that “one size fits all” rarely is the case. Additionally, all choices are conditioned by “when, where, by whom and why” technology must be deployed. 

The global choice of internet protocol rather than asynchronous transfer mode as the foundation for all next-generation networking is among the exceptions. That really did result in an “all or nothing” outcome. 

But few other choices are so stark. Consider access network platforms. Decades ago there were serious--if brief--debates about whether “fiber or satellite” technologies were “better” for wide area networks. There was speculation about whether “Wi-Fi or mobile” was the better platform for phone connectivity.

There were debates about whether fiber to the home or hybrid fiber coax was “better” for consumer broadband access. 

Now there are arguments about whether local connections, unlicensed wide area low power networks or mobile networks are “better” for internet of things sensors. 

Such questions, while valid, always have to be qualified by the issue of “better for whom?” It might not make sense for a public network provider to consider HFC as a foundation access technology. It virtually always is a logical choice for a cable operator, for the moment.

 “At some point,” optical fiber is universally seen as the technology of choice for telcos and other “cabled media” providers. But wireless remains the key approach for satellite, wireless ISPs and mobile operators. 

What is “better” cannot be determined without knowing the “for whom” part of the business context; the “when?” part of the discussion or the “under what other circumstances?” detail. Fiber to the home might be the “ultimate” choice, but “when to deploy” or “where to deploy” also matter. 

U.S. cable operators in 2020 had at least 69 percent share of the installed base of accounts, according to Leichtman Research Group. Telcos likely had something less than 28 percent of the installed base, accounting for share held by independent internet service providers (wireless, fixed and satellite). 

source: FCC, Bloomberg 

Without government support, FTTH might never make business sense, in some locations. In other cases the business case is so marginal and risky that an alternative, such as fixed or mobile wireless, might well be the alternate choice. For a telco, a “fiber” upgrade might make sense when existing copper facilities must be retired in any case, and where need is not driven by revenue upside, merely facilities replacement. 

For a cable operator, an FTTH overlay could make near-term sense to support business customers, but not yet consumers. But fixed wireless might also make sense for cable operator “edge out” operations, and for the same financial reasons that telcos used wholesale as a way to enter geographically-adjacent markets. 

The questions are even broader when looking at total demand for broadband access. In terms of total connections, in the U.S. market 75 percent of all internet access connections use mobile networks. Just 16 percent use cable HFC, while perhaps 8.6 percent of connections use either fiber or copper telco connections, while everything else--including satellite and fixed wireless--represents less than one percent. 

source: FCC

The point is, how much faster do untethered services need to be--assuming roughly equivalent terms and conditions of usage and price--before a significant percentage of home broadband users consider an untethered solution a functional substitute for fixed network access?

Matching headline speeds might not matter, as most consumers do not buy those services. Untethered options simply have to be “fast enough, priced well enough” to contend for significant share of the home broadband market.

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.” 

FTTH is the Platform of the Future, But Might "Always Be"

People often forget that, in the communications business, there is no platform that always is best for every use case. What matters are the particular advantages. In other words, it has proven largely pointless to argue whether mobile or Wi-Fi access is “better.” Both have their contributions to make. 

In the fixed networks business, the belief has been--for many decades--that fiber to the premises is the future of the next-generation fixed network. 

With the caveat that there always is a private interest corresponding to every public policy, one cable TV industry vice president decades ago quipped that “fiber is the technology of the future...and always will be.”

Keep in mind, that was said about 40 years ago. And while North American access platforms have a different pattern than in most parts of the world, 40 years later, hybrid fiber coax platforms have about 70 percent share of the U.S. installed base of broadband connections. 

That creates a huge stranded asset problem for brownfield fiber-to-home deployments. Assuming a new FTTH network is deployed at scale, it might find that up to 70 percent of the assets are not generating broadband revenue. 

To be sure, there is still some amount of voice, but the old copper access network works well enough for that application. Investing capital on FTTH does not necessarily improve user experience, value or features for voice customers. 

For decades, though, there was one clear assumed advantage to deploying FTTH: the ability to sell linear entertainment video. So the basic thinking was that FTTH would allow telcos to hold broadband share while losing voice share and gaining video account share. 

It sort of worked that way until about 2012 for video services.

source: Business Insider 

But the “voice” part of the model never worked well at all, as usage, lines sold and value began to drop in the U.S. market as early as 2000, the peak year for telco access lines and long distance revenue. 

But business cases matter, and in the U.S. market the business case for FTTH, always difficult, has become quite challenged with the dominance of cable operators, and their seeming ability to keep pushing commercial bandwidths ahead faster than FTTH platforms. Already, at least 80 percent of U.S. homes have the ability to buy 1 Gbps internet access service, provided by cable operators. Not even most telco FTTH networks can do that, yet. 

Nor does it seem likely the cable cost advantage can be overcome any time soon, as technologists already are working on ways to boost HFC bandwidths to 10 Gbps or beyond, symmetrically. Sure, FTTH can do that as well, but not at the cost per home that HFC can provide. 

And that leads to telco interest in fixed wireless access, using 4G and 5G. The issue is not whether “fixed wireless can match FTTH” in potential speeds. The issue is whether fixed wireless can create a positive business case in areas where a new FTTH build is not financially feasible. 

Globally, matters can be quite different, as it often seems as though only one nationwide broadband fixed network can be supported. Still, in many other countries a mix of platforms is called for, based on home density. And then there is the matter of how people use the internet. 

By 2020, mobile accounted for more than half of all of Internet access revenue in more than 75 percent of countries, researchers at PwC said early in the year. Some analysts noted mobile Internet access revenues already had surpassed fixed network broadband revenue as early as 2013 or 2014.

That trend is expected to continue. By 2024, consultants at PwC say, mobile revenue will account for 68 percent of global Internet access market revenues. In other words, more than two thirds of all internet access revenue globally will be generated by mobile internet access. 

source: PwC 

FTTH is, in many countries, perhaps always the next-generation platform. In some countries, though, a mix of platforms is likely for decades. In a few countries, FTTH seems to be infeasible for consumer accounts, if deployed by telcos on a ubiquitous basis. Hence the interest in mobile access, or mobile network fixed access.

Why Fiber to the Home Costs So Much

Up to 80 percent of the total broadband investment cost is related to civil infrastructure works, the European Commission says. Another way of putting matters is to say that as much of 80 percent of the cost of building fiber-to-customer networks is not affected in a positive way by Moore's Law.

The fact that computing power and storage keep getting more powerful and cheaper is helpful for application providers. But those improvements don't affect the cost of digging trenches, stringing cable and undertaking other forms of construction.

But that's only part of the problem. The other issue is that the financial return from any FTTH project is becoming more challenging in a competitive environment.

Is the investment case for fiber to the home networks getting more challenging? Yes, Rupert Wood, Analysys Mason principal analyst, has argued  A shift of revenue, attention and innovation to wireless networks is part of the reason. But the core business case for triple-play services also is becoming more challenging as well.

All of that suggests service providers will have to look outside the traditional end-user services area for sustainable growth. Many believe that will have to come in the form of services provided to business partners who can use network-provided information to support their own commerce and marketing efforts. Those partners might be application developers, content sites, ad networks, ad aggregators or other entities that can partner with service providers to add value to their existing business operations.

Current location, type of device, billing capabilities, payment systems, application programming interfaces and communication services, storage services, profile and presence information might be valuable in that regard.
 
Fiber to the home long has been touted by many as the "best," most "future proof" medium for fixed access networks, at least of the telco variety. But not by all. Investment analysts, virtually all cable and many telco excutives also have argued that "fiber to the home" costs too much.

Over the last decade or so, though, something new has happened. Innovation, access, usage and growth have shifted to wireless networks. None of that is helpful for the FTTH business case. That is not to say broadband access is anything but the foundation service of the future for a fixed-network service providers. Fixed networks in all likelihood always will provide orders of magnitude more usable bandwith than wireless networks.

The issue, though, is the cost of building new fiber networks, balanced against the expected financial returns.

“FTTH is often said to be ‘future-proof’, but the future appears to have veered off in a different direction,” says  Rupert Wood, Analysys Mason principal analyst. Regulatory uncertainty, the state of capital markets and executive decisions play a part in shaping the pace of fiber deployment. But saturation of end user demand now is becoming an issue as well.

The basic financial problems include competition from other contestants, which lowers the maximum penetration an operator can expect. FTTH has to be deployed, per location. But services will be sold to only some percentage of those locations. There is a stranded investment problem, in other words.

The other issue is that the triple-play services bundle is itself unstable. FTTH networks are not required to provide legacy voice services. In fact, the existing networks work fine for that purpose. One can argue that broadband is needed to provide the next generation of voice (VoIP or IP telephony), but demand for fixed-line voice has been dropping for a decade. So far, there is scant evidence that VoIP services offered in place of legacy voice have raised average revenue per user. Most observers would note the trend goes the other way: in the direction of lower prices.

And though entertainment video services offer a clear chance for telcos to gain market share at the expense of cable operators, there is at least some evidence that overall growth is stalling, limiting gains to market share wins.

Broadband access also is nearing saturation, though operators are offering higher-priced new tiers of service that could affect ARPU at some point. So the issue is that the business case for FTTH has to be carried by a declining service (voice), a possibly-mature service (video) and a nearly-mature service (broadband access).

And then there is wireless substitution. Fixed-line voice already is being cannibalized by mobile voice. Some observers now expect the same thing to start happening in broadband access, and many note new forms of video could displace some amount of entertainment video spending as well.

The fundamental contradiction is that continued investment in fixed-line networks, which is necessary over time, occurs in a context of essentially zero growth.

Atlantic-ACM, for example, now forecasts that U.S. wireline network revenue, overall, between now and 2015, will be flat at best. Compound annual growth rates, in fact, are forecast to be slightly negative, at about 0.3 percent. Where total industry revenue was about $345 billion in 2009. By 2015, revenue will be $337 billion, Atlantic-ACM predicts.

That is not to argue against replacement of aging networks; in fact that is a necessary and normal part of any network deployment. The issue is the declining amount of revenue any such network can generate.

"Overall consumer spend on telecoms has long since ceased to grow in developed economies," says Wood.

And though FTTH promises dramatically-higher bandwidth, demand is a bit uncertain at the moment. "Even though many cable operators have been offering superfast fixed broadband connectivity for some time in Europe and North America, take-up of such services remains troublingly low."

Aside from some early adopters, Wood argues, new services that uniquely take advantage of FTTH are needed. Industry executives are aware of that need, and have been for quite some time.

The issue is that the scale and pace of innovation in wireless now outstrips what is happening on the fixed line network. That makes the revenue upside for FTTH a tougher challenge. In some markets, cheaper copper-based alternatives might continue to make more sense, Wood argues.

That is particularly true in Europe, says Wood, where consumer willingness to pay a premium for additional bandwidth is low and where broadband prices are already significantly lower than in North America.

"This level of commitment to FTTH looks unsustainable and fundamentally unreasonable, especially when VDSL networks will pass far more households," says Wood. "We therefore expect telcos that have opted for FTTH roll-out beyond proof-of-concept trials and greenfield sites to back away from further commitment and, in some cases, reduce the scale of their FTTH roll-out plans."

So the strategic issue now would seem to be whether continued FTTH momentum can be sustained. It would be an unexpected turn of events, if it turns out Wood is correct.

FTTH Is Not the Only Way to Future Proof a Network, Anymore

The 5G era might be the first to dethrone thinking about the “best” or “only” way to build future-proof fixed access networks. For many decades, the thinking has been that only optical fiber to the premises could do so.

In a strict sense, that thinking has changed over the last decade, as rival hybrid fiber coax networks deployed by cable operators have shown that gigabit networks can be built, affordably and now, using HFC.

But bigger changes are coming. In the 5G era, mobile access might become a full substitute for fixed access, at least for many customers. And 5G-based fixed access will be a full substitute for other forms of fixed network access, especially optical fiber to the premises.

It is next to impossible to argue that fiber-to-home deployments are more affordable than fixed wireless, especially fixed wireless using unlicensed spectrum. Where the fiber to home distribution network might cost $600 per passing, a fixed wireless approach using unlicensed millimeter wave spectrum might cost as little as $300 per passing.

A connected fixed wireless location might cost $800, where a connected fiber to premises connection might cost $1,800, according to Maravedis.

source: Siklu, Maravedis

Broadly speaking, it has made sense--for cable TV or telco networks--to deploy fiber as deep into the network as the business model will support. “Fiber to where you make money” is one colloquial way of describing the strategy.

“The strategy of deploying fiber to the most economical point in the network is still valid, but the combination of fixed fiber, wireless and other access technologies is now even more crucial to the operator’s business case,” said Federico Guillén, Nokia’s president of Fixed Networks.

We will also see a combination of fiber and fixed wireless access to deliver ultra-broadband to the home, he argued.

In other words, the strategy now is how to create gigabit access networks that are profitable, not the choice of access media.

FTTH or Time Warner? It Is Not a Close Call

Would AT&T have generated more incremental revenue if it had not bought Time Warner, and instead had plowed that capital into a massive fiber to home upgrade?

The numbers suggest AT&T made a better choice buying Time Warner.

AT&T spent $85 billion to acquire Time Warner, with an immediate quarterly revenue boost of $8.2 billion. Were AT&T able to invest in fiber to home and then take an incremental five percent share of market everywhere it operates, is perhaps $2.2 billion in annual revenues, assuming $50 a month in gross revenue, or about $180 million a month in incremental revenue.

It is not clear how much upside exists for AT&T, in terms of fixed network internet access revenue, even if it were to dramatically extend its FTTH footprint, but you might argue that the best case for AT&T, for a massive upgrade of its consumer access network, is about 10 percent upside in terms of consumer market share, facing cable operators already leading the market in accounts and speed, with a clear road map for additional speed increases that easily match anything AT&T might propose, and arguably at less cost.

So here’s one take on the alternatives of buying Time Warner or using that capital instead to expand the AT&T FTTH profile. Consider the incremental revenue generated from each alternative.

Assume first that U.S. telcos could take 10 percent more market share from cable TV suppliers. Incremental revenue might then be less than $4.4 billion annually. Consider that AT&T has footprint covering perhaps 69 percent of U.S. homes. So make the incremental revenue for AT&T $3 billion, or $250 million per month.

Also, it would take some years before that degree of new FTTH assets could be put into place. Over any three-month period, AT&T might expect incremental revenue ranging from $540 million to $750 million per quarter, the former figure representing five percent share gain, the latter representing 10 percent share gain.

Neither comes close to the $8.2 billion per quarter AT&T picked up from the Time Warner acquisition.

Verizon has different strategic issues, compared to its main fixed network competitors.

Significantly, Verizon has a small geographic footprint, compared to any of its main fixed network competitors. Verizon homes passed might number 27 million. Comcast has (can actually sell service to ) about 57 million homes passed. Charter Communications has some 50 million homes passed.

AT&T’s fixed network represents perhaps 62 million U.S. homes passed.

Assume there are 138.6 million U.S. housing units, of which perhap 92 percent are occupied (including roughly seven to eight percent of rental units and two percent of homes). That suggests a potential base of 128 million housing units, including rooms rented in homes or apartments, that could buy services from a fixed network supplier.

That implies Verizon has the ability to sell to about 21 percent of homes; Comcast can sell to 45 percent; AT&T can market to 48 percent of occupied homes; while Charter can sell to 39 percent of U.S. occupied homes.

The point is that Verizon has more to gain than AT&T, Comcast or Charter from investing in internet access outside its traditional geography.

In principle, Verizon faces the same issue as does AT&T when weighing alternative uses of scarce capital.

As it deploys 5G fixed wireless, there are two key issues: how much market share and revenue can Verizon gain, and what else might Verizon have done with its investment capital? It all depends on one’s assumptions.

Some argue that, over seven years, Verizon might gain only 11 percent to 18 percent share in markets where it can sell 5G fixed wireless. Verizon believes it will do better, and some believe a 20-percent share is feasible. Verizon itself predicts it can get about 23 percent share, as a minimum, over seven years, representing about 6.3 million accounts.

Assume Verizon fixed wireless gross revenue is about $60 per account (a blend of the $50 from Verizon mobile customers and $70 from non-customers). Assume annual revenue of perhaps $720.

Assume Verizon spends about $800 per location on 5G fixed wireless infrastructure (radios, backhaul, spectrum costs), even if those same assets can be used to support other users and applications.

At 20 percent take rates, that implies a per-subscriber network cost of perhaps $4000.

Assume a cost of perhaps $300, over time,  to turn up service to accounts. That implies a rough break even in months. Assume total capex investment of perhaps $4300 per account. At $720 annual revenue, that implies breakeven on invested capital in six years.

But assume half the cost of the capital investment also supports revenue generation from other users and use cases (mobility, business users, internet of things). In that case the fixed wireless capex is perhaps $$2150 per customer, and breakeven on capex is a bit more than three years, assuming the only revenue upside is internet access revenue.

Logically, one would have to add churn reduction in some cases, and so the lifetime value of a customer; incremental advertising opportunities; some possible upside from voice services or wholesale revenue. None of that is easy to quantify with precision.

The point is that potential return might fall well within a framework of payback in three years.

Whether that is a “good” investment or not depends on what else might have been generated from other capital deployments.

Over a seven-year period, Verizon might have committed $13 billion in capex to generate revenue from six million fixed wireless accounts (about $1.85 billion per year). It is hard to image any alternative use of capital at that level that would result in annual revenues of $4.3 billion in internet access revenues alone.

It is in fact quite hard to create a brand new business generating as much as $1 billion a year in incremental revenues, under the best of conditions.

source: ITU

So, back to the importance of video revenues, as difficult as the Time Warner debt burden might be, the renamed Warner Media already generates $32 billion in annual incremental new revenue for AT&T. Virtually nobody other than its competitors is likely happy about the new $55 billion worth of new debt AT&T has acquired.

Still, the issue is what else AT&T could have done with $55 billion that would immediately create $32 billion in new revenues. Personally, I cannot think of another transaction that would have produced that much new revenue, immediately.

AT&T could have spent that money on fiber to home upgrades, to perhaps gain five percent to 10 percent additional market share in the consumer internet access market, in region, over perhaps five to seven years. The upside, even at 10 percent share gain, does not approach the Warner Media contribution.