Business Context Shapes Access Network Strategy

As often happens in any industry, service providers have different opinions about fixed wireless access versus fiber-to-premises versus hybrid fiber coax versus satellite platforms for access services. 

As always, different firms have different views on strategy because of their business circumstances. Perhaps in principle, all former telcos would say fiber-to-premises is the ideal long-term solution where the economics exist. But the economics are daunting in many cases, leading to a “yes, but” strategy that uses other platforms as the economics dictate. 

Verizon has a relatively small “in region” footprint of U.S. homes and businesses--perhaps no more than about 20 percent--and cannot afford to “fiberize” another 80 percent of U.S. homes. So fixed wireless, which piggybacks on the 5G network, makes sense. 

T-Mobile, with close to zero fixed network coverage of U.S. homes and businesses, benefits even more from 5G fixed wireless. 

AT&T, on the other hand, has the biggest footprint of U.S. homes and businesses, so out-of-region coverage magnitudes are correspondingly reduced. 

Comcast and Charter have “homes passed” totals close to AT&T’s footprint and already have HFC networks they believe will be marketplace competitive for quite some time, as multi-gigabit speeds are coming next on the HFC platform. 

Of a total of 140 million U.S.  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. 

Assuming no further significant consolidation, AT&T only “needs” to fiberize within its footprint to reach 44 percent of U.S. homes (and virtually all the homes regulators are likely to allow it to pass). 

Assuming Verizon has no appetite to significantly expand its fixed network footprint, that leaves about 81 percent of U.S. homes that could be passed by the 5G network, and would be impossible to significantly serve using FTTH. 

Comcast already has HFC offering gigabit speeds reaching about 41 percent of U.S. homes. Charter already passes about 29 percent of U.S. homes. Again, regulators are unlikely to allow either firm to get significantly bigger, in terms of homes passed. 

Lumen has a largely-rural territory that includes perhaps 14 percent of U.S. homes, but Lumen has no mobile network assets it can use to offer fixed wireless on a facilities basis. 

The point is that each firm’s view of strategy is shaped by its existing legacy assets. Cable operators, though not denying FTTH makes sense in the future for a growing percentage of customers, also believe HFC is a viable platform, without major reliance on FWA or FTTH to serve mass market customers. 

Verizon and T-Mobile have good reasons for using FWA that piggybacks on their nationwide 5G networks. 

AT&T believes FTTH is the best solution, but also has the largest in-region fixed network footprint of any major ISP, and therefore has the most to lose if copper access facilities are not upgraded to fiber access.

There is no universal answer for “which access platform” makes most sense. Each major ISP has key business model constraints and opportunities that shape the access network choices.

Unknown "Homes Passed" Data Hampers Revenue Growth Estimates

Some important types of statistics and data are not collected because governments do not force firms or industries to collect it. For example, many governments think it is important to track data on where home broadband exists, where it does not, how fast it operates, who buys and who does not. 

Private firms often have important incentives to track and measure their own revenues, sales, profit margins and growth rates. Financial markets and accounting rules often require measurement of this sort. 

AT&T, for example, reports revenues for mobility, fixed network business revenues and consumer fixed network revenues from internet access, voice and other sources. But those are traditional financial metrics, not operating indices such as penetration or take rates, churn rates and new account gains. 

source: AT&T 

Nobody seemingly believes the same effort should be made to measure the number of home broadband provider locations or dwellings reached by various networks. Better mapping, yes. Metrics on locations passed? No. 

And yet “locations passed” is a basic and essential input to accurately determine take rates (percent of potential customers who actually buy). That input matters quite a lot to observers when evaluating the growth prospects of competitors, even if that figure does not matter much for policymakers, who mainly care about the total degree of home broadband take rates, on an aggregate basis. 

The U.S. Census Bureau, for example, reported some 140.5 million housing units housing units as part of the 2020 census. The estimate for 2021 units is 142.2 million units. Assume 1.5 million additional units added each year, for a 2022 total of about 143.6 million dwelling units. 

Assume vacancy rates of about six percent. That implies about 8.6 million unoccupied units that would not be assumed to be candidates for active home broadband subscriptions. The U.S. Census Bureau, though, estimates there are about 11 million unoccupied units when looking at full-time occupied status. That figure presumably includes vacation homes.

Deducting the unoccupied dwellings gives us a potential home broadband buyer base of about 132.6 million locations. 

More difficult is the degree to which access networks operated by any single contestant actually pass those locations, as firms generally do not report such numbers in quarterly financial or annual reports (they do not have to do so). 

And that is where estimations must be made. AT&T’s 2022 10-K report cites 14.2 million customer locations connected. Assume AT&T has about 20 percent take rates for its home broadband services where it operates. That implies a housing unit coverage of about 71 million dwellings. 

Assume AT&T has a higher take rate of about 39 percent where it operates fixed networks. That implies housing coverage of about 36 million dwellings. 

The estimate of 71 million home passings strikes me as too high, but the estimate of 36 million seems too low. In the past I have used the figure of 62 million homes passed for AT&T. 

Assume Verizon has about 10 million home broadband accounts, with a take rate of 40 percent (a bit high, probably, if we include copper access). That implies housing coverage of some 25.3 million dwellings. 

Leichtman Research Group has estimates of home broadband accounts that vary from company reports. LRG estimates that AT&T has some 15.4 million internet access accounts. The variance might come from business accounts not enumerated. 

Verizon’s consumer accounts might be overstated, as LRG estimates Verizon has about 7.5 million home broadband accounts, not 10 million. Using the LRG account figures, we might estimate Verizon home coverage of about 18.8 million homes, on the high side. 

ISPs

Subscribers at end of 2022

Net Adds in 2022

Cable Companies
Comcast	32,151,000	250,000
Charter	30,433,000	344,000
Cox*	5,560,000	30,000
Altice	4,282,900	(103,300)
Mediacom*	1,468,000	5,000
Cable One**	1,060,400	14,400
Breezeline**	693,781	(22,997)

Total Top Cable

75,649,081

517,103

Wireline Phone Companies
AT&T	15,386,000	(118,000)
Verizon	7,484,000	119,000
Lumen^	3,037,000	(253,000)
Frontier	2,839,000	40,000
Windstream*	1,175,000	10,300
TDS	510,000	19,700
Consolidated**	367,458	724

Total Top Wireline Phone

30,798,458

(181,276)

Fixed Wireless Services
T-Mobile	2,646,000	2,000,000
Verizon	1,452,000	1,171,000

Total Top Fixed Wireless

4,098,000

3,171,000

Total Top Broadband

110,545,539

3,506,827

source: Leichtman Research Group 

Assume Comcast has 31.2 million accounts, with take rates for home broadband of about 52 percent. That implies something on the order of 60 million households. 

Assume Charter Communications has a take rate of about 45.5 percent where it operates fixed networks. Assume Charter has approximately 30.8 million home broadband accounts. That implies a homes-passed figure of about 67.7 million homes. 

If there are 132.6 million U.S. occupied home locations, then Comcast and Charter can reach about 127.7 million of those locations, or about 96 percent of total, as Comcast and Charter essentially have unduplicated networks, not competing in the same geographies. 

That strikes me as unlikely, on the high side. An older rule of thumb is that Comcast and Charter reach about a third of total U.S. locations, each, for a possible reach of up to 66 percent of total U.S. home locations. 

Using different methodologies, I have in the past estimated that Comcast has (can actually sell service to ) about 57 million homes passed, while 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. 

Ignoring the variance in potential customer locations passed, AT&T would seem to have the greatest opportunity in the home broadband space, if it can build optical access connections faster, as has the biggest home footprint and low home broadband market share. 

On the other hand, AT&T revenue is driven by mobility, not the consumer fixed network. So then the question has to be posed as "how much to invest in the consumer fixed network?" compared to other oportunities. A rational person might argue that answer is "not so much."

Capital availability--and financial returns--are always the issue. Even if it dramatically escalated fiber-to-home capital investment, it is not clear AT&T would gain as much new revenue, compared to investing in mobility or business services, for example.

The point of the wider exercise is that we are forced to guess about how many homes each of the major fixed network contestants actually can reach. That, in turn, affects our ability to estimate adoption rates and potential growth opportunities. 

The key point is that the estimates are imprecise. Pinning down the “homes passed” figure, essential as the denominator in any calculation of take rates, requires estimations with variable degrees of uncertainty, especially for the larger networks.

Why Some Service Providers are More Positive on Fixed Wireless Than Others

Connectivity provider strategy choices virtually always are a combination of necessity and opportunity; constraints and advantages. Consider the view T=Mobile, Verizon and AT&T have about upside from 5G fixed wireless. T-Mobile is arguably the most bullish; Verizon is hopeful but AT&T is a skeptic. 

Sometimes choices are dictated by political choices. In any effort to win approval of its merger with Sprint, T-Mobile promised to supply fixed wireless home broadband service to 10 million homes by 2024. AT&T likewise uses fixed wireless (generally using its 4G platform) as part of a commitment to rural broadband--and receipt of government support funds--it made in 2015.

Neither of those moves is necessarily driven by a strict profit-and-loss or revenue growth motivation. For T-Mobile, the fixed wireless commitment was essentially a bargaining chip to win government merger approval; for AT&T a way to honor a commitment made to get rural broadband funding. 

In other cases, though, market positioning dictates relative financial opportunity and therefore different strategies. T-Mobile, for example, has zero share of the roughly $115 billion annual revenues fixed network broadband access market. 

AT&T has about 14.6 percent of the U.S. installed base of broadband customers. Verizon has less than seven percent of the installed base. 

Compare that to Comcast, which has nearly 29 percent of the installed base, and Charter, which has 27 percent of the installed base. 

AT&T in the third quarter of 2020 had about 11 percent share of the new customers, while Verizon got seven percent of the new accounts. 

In large part, those  fixed network broadband figures are based on relative opportunity, as well as customer preferences. 

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. 

T-Mobile has not historically been in the fixed network home broadband business and has passed zero homes. 

So what percentage of total homes does each provider pass? According to the U.S. Census Bureau there are about 137.9 million U.S. housing units.

Roughly 8.8 percent of units are not occupied, typically. Vacant year round units represented 8.8 percent of total housing units, while 2.6 percent were vacant for seasonal use. 

Add it all up and 88.6 percent of the housing units in the United States in the first quarter of 2020 were occupied and 11.4 percent were vacant, according to the U.S. Census Bureau. 

Still, the addressable market therefore is about 138 million locations. Comcast passes perhaps 41 percent of U.S. homes; Charter passes perhaps 36 percent; AT&T passes possibly 45 percent of home locations while Verizon passes perhaps 14 percent, best case, and many of those locations are high-rise buildings where fixed wireless might not be the best access medium. 

So one way to look at 5G fixed wireless is the ability to take market share away from other providers. T-Mobile can win the most, in the sense that it can grow from zero share to some share. 

Charter and Comcast have market share that is outsized in comparison to their homes passed totals, getting roughly 70 percent of the potential market as customers. 

Verizon’s opportunity is dictated by geography. It has the smallest geographic footprint of any of the other tier-one suppliers. That means the use of its nationwide 5G network to supply home broadband gives it reach to most of the country it cannot presently serve. 

Aside from T-Mobile--which has zero fixed network share or network--Verizon has the greatest potential account upside from providing services outside its fixed network footprint. 

AT&T, on the other hand, already covers the greatest percentage of U.S. homes, and therefore has the most to lose from competitors, followed by Comcast and Charter. Verizon and AT&T earn relatively little from their fixed network customers and therefore are most interested in their mobile customer bases, which provide virtually all the incremental revenue growth for each firm. 

Still, the ability to use the 5G mobile network to attack the home broadband market is interesting to T-Mobile and Verizon for reasons related to geography. 

T-Mobile is solely a wireless provider, has no retail fixed network and therefore stands to gain by taking share in the former fixed network broadband business. Verizon has the most-limited geographic footprint of any of the other providers, and therefore has the most to gain from out-of-market share gains in the fixed wireless space. 

Comcast and Charter remain focused--even for mobility services--on customers in their own regions and areas of service. Operations out of existing markets continue to hold little--if any--appeal. 

Some cable companies who operate in rural areas have said they will use fixed wireless rather than hybrid fiber coax or fiber to the home as an access technology in lower-density areas they might be able to reach using wireless. 

The point is that tier-one service provider interest in 5G fixed wireless depends on their assessment of relative financial upside; in some cases regulatory postures; to a great extent existing and possible market share in home broadband and relative expectations about revenue contributions from fixed network services generally.

Verizon as Disruptor

As accustomed as we might be to seeing Google, Netflix, Amazon, Facebook, cable TV companies, wireless internet service providers, metro fiber specialists or T-Mobile US as market attackers and share takers, we are unaccustomed to seeing either AT&T or Verizon in such roles.

But Verizon is about to take that role, in fixed networks.

Verizon is launching Verizon 5G Home, its 5G fixed wireless service, on October 1, 2018 in parts of Houston, Indianapolis, Los Angeles and Sacramento, providing the first U.S. real-world test of customer demand for 5G fixed wireless.

And Verizon has specific business reasons for doing so. Simply, footprint, or homes passed, in its fixed networks business is a key driver for Verizon. Simply put, Verizon has far fewer homes passed than its major fixed network competitors.

source: GSMA Intelligence

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. Verizon, on the other hand, passes perhaps 27 million homes passed.

As dominant as Verizon is in the mobile services segment, it lacks scale in the fixed networks segment. And that means Verizon can gain revenue by taking market share in the fixed network business.

The companion issue is simply that, similar to Spring and T-Mobile US, Verizon’s revenue is heavily weighted to mobile services. As much as 69 percent of Verizon’s revenue is earned from mobility services. That is less than Sprint or T-Mobile US earn from mobile services, but is highly significant, as it means Verizon, the biggest revenue producer in U.S. mobile, has less room to grow.

source: Seeking Alpha

As cable companies have fueled growth by taking market share in voice services, business services and internet access, so Verizon expects to take share in fixed network internet access.