Up Next: Mobile Substitution for Fixed Internet Access

Mobile substitution has been a huge driver of revenue, market share and profit margin change in the consumer connectivity industry. Long distance revenues, voice revenues have been the big obvious examples. 

The next areas to watch are video entertainment and internet access. 

Parks Associates, for example, reports more than 12 million U.S. households have cancelled their home broadband service and use only mobile broadband for internet access.

That equates to more than 15 million households using mobile broadband service exclusively. Some three million of those households that have never had a home internet subscription, and have been mobile-only from the start. 

Other estimates of mobile-only internet access support that observation. As much as 20 percent of U.S. households were mobile only for internet access in 2017, Deloitte estimated, with take rates correlating with household income. Mobile-only behavior occurred in 15 percent of richer homes and 20 percent in poorer households. 

The new wrinkle is 5G for fixed wireless, which some proponents suggest could add another 15 percent to 20 percent market share for mobile operators, with share taken directly from fixed network suppliers.  

Over the top application substitution has been the other big driver of revenue and profit margin change, diminishing service provider revenues and profits from text messaging, long distance calling and voice calling. 

In the connectivity business, the "mobile substitution" trend has occurred in phases, and affected a wider range of products over time.

Mobile voice supplanted fixed voice as the preferred consumer use case. "Mobile substitution" for voice has been a global trend since the advent of 2G networks. In fact, mobile is the only sort of ubiquitous network in most parts of the world. But that now might become an issue for internet access as well.

“I will say over time--a three to five year time horizon--unequivocally 5G will serve as a broadband, a fixed broadband replacement product,” former AT&T CEO Randall Stephenson said. “I am very convinced that that will be the case.”

“Back in the 90s everybody was saying wireless would never serve as a substitute for fixed line voice because there wasn't sufficient capacity,” Stephenson said. “Well it is a substitute for voice.”

Mobile messaging displaced voice. Mobile social media displaced fixed modes. Mobile turn-by-turn navigation displaced dedicated GPS devices and maps.

Mobile phones displaced watches, cameras, music players and flashlights. Mobile entertainment video is encroaching on fixed modes of viewing (TV sets, PC or tablet screens).

Mobile internet access, which began to find niches in the 3G era, found many more use cases in the 4G era (both for home broadband replacement and on-the-go access). In developing regions, mobile internet access is the preferred form of access.

In the 5G era, we will see a big test of fixed wireless and mobile wireless as a substitute for fixed network access in a wider range of settings. No later than 6G, we might routinely be using mobile access as a substitute for home broadband. The key enabling trends are higher routine speeds and some shifts of pricing plans and consumer behavior.

source: Parks Associates 

Cost and speed are cited by cord cutters as reasons for ditching fixed network internet access. Obviously that behavior could change if cabled network speeds are upgraded and cost becomes more appealing. 

At least initially, it can be hypothesized that mobile substitution will be most appealing for households with modest bandwidth requirements, as that is where the best match of fixed wireless speeds and pricing with customer demand. 

If the average U.S. household consumes 269 GB per month, according to OpenVault, and the average number of people per household is 2.5, than per-user consumption is about 108 GB per month.  

If a typical household spends $66 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.

LTE-A Raises Question of Whether, When Mobile Internet Access Substitutes for Fixed Access

Once more Long Term Evolution-Advanced networks are launched, as Singapore is doing, LTE will support speeds up to 300 MHz.

That will rekindle thinking about the circumstances under which mobile Internet access can be a viable substitute for fixed network access.

There are fundamentally two ways to argue that mobile Internet access can be, or cannot be, a viable alternative to fixed network broadband.

The first objection is that mobile Internet access cannot match fixed network performance, the other fundamental objection is that mobile Internet access cannot match fixed network price.

The best way to illustrate the “capacity” argument is to look at typical usage buckets.

Where mobile Internet access typically features a monthly usage cap in double digits, fixed services often have monthly usage caps in triple digits. That might not be an issue for many lighter users or people who only want to buy one type of connection (only mobile or only fixed) and find mobile offers better value.

At one time, it also would have made sense to compare fixed network speeds with mobile speeds. That probably always will be something of an issue, but is becoming less a practical issue now that some Long Term Evolution-Advanced networks can deliver 300 Mbps per device.

For most practical present purposes, 300 Mbps usable by a single device will handle most applications.

The other objection to the notion that mobile Internet access really can be a product substitute for fixed access is price, or specifically, price per bit.

Generally speaking, mobile Internet access has cost more than fixed broadband, on a price per megabyte or price per gigabyte basis. In many markets, where fixed access costs cents per gigabyte, mobile can cost dollars per gigabyte, for example.

But that is not true in all markets. As some have noted, in Denmark and Finland, mobile Internet access actually outperforms fixed network and mobile Internet access “price per bit” in the German market, for example.

Mobile arguably has tended to be more expensive on a price per megabits per second metric as well.

Cisco has in the past estimated that peak hour capacity for mobile networks is about 25 to 100 times more expensive than fixed networks, for example.

Though the monthly recurring cost for mobile Internet access might not be so different from the monthly retail cost for a fixed service (mobile might cost about half as much as a fixed connection), the price per bit in the mobile realm is higher than in the fixed network realm.

But, as always, value matters. It might be an acceptable value proposition for some users to rely on mobile as a sole or primary form of Internet access. That will be easier for lighter users, including those whose total monthly requirment is 10 GB to 12 GB or less, per device.

Mobile-only might also be valuable for users who cannot afford both a fixed and mobile connection.

Mobile-only might also be quite satisfactory even for lighter users who watch some online video, as 300 Mbps is sufficient for nearly all consumer applications, at the moment.

One might still argue that mobile Internet access is not a full substitute for fixed access. But that might not be the relevant question.

The question is what percentage of total Internet access requirements could be met using only LTE-A?

5G Will Accelerate Mobile and Wireless Substitution for Internet Access

Up to this point, 4G has been a primary method of internet access for a substantial, but still minority of usage in developed markets, though it arguably has been a primary or exclusive form of access in developing markets.

But the 5G era is likely to accelerate those trends in a major way. For the first time, mobile or 5G-based fixed wireless networks will offer speeds and retail prices as good--or better--than fixed alternatives, with latency performance that is better .

Many of us would not be at all surprised if wireless substitution as much as doubled over the first decade of 5G commercial service. In some developed markets, that could mean that wireless access takes as 20 percent share of the residential internet access market. In other markets, wireless internet access could reach 30 percent or higher.

source: Deloitte

You might be tempted to think that it mostly is lower-income people who use their mobile devices as the sole means of internet access. In many countries, substantial numbers of people--rich and poor--do so.

While it is true that, in the United Kingdom, relatively few people actually are “mobile only for internet access (2.5 percent of the richest consumer households; perhaps seven percent of the poorest  households), in Canada, 20 percent of the richest households are mobile only for internet access, while about 30 percent of the poorest households are mobile only.

Households in rural areas also are more likely to rely on mobile networks for their internet access requirements as well.

Single-person households and households with younger consumers also are more likely to be mobile only for internet access.

Less than a tenth of people in France and the UK were mobile-only, but in Turkey the figure was more than three times higher.

In Latin America, for example, Deloitte Brazil believes that over a third of all homes in Brazil were mobile data only. And in China, a fifth of the online user base (rather than households) were mobile-only as of 2016.

In Tokyo, where fiber optic connections are widely available, hundreds of thousands of homes (or about five percent) are relying on only mobile in 2017.

In Latin America, Deloitte Brazil believes that over a third of all homes in Brazil were mobile data only.

Better mobile networks, especially 4G LTE, have made mobile internet user experience more like fixed access.

Deloitte Global predicts that 20 percent of North Americans with internet access will get all of their home data access from mobile networks in 2018.

Deloitte Global further predicts that a mixture of mobile and fixed wireless access technologies could lead to 30 percent to 40 percent of the population relying on wireless for data at home by 2022, an increase from 10 percent in 2013.

source: Deloitte

source: Deloitte

What is unclear is how wireless access might change over the next five years. Deloitte argues that, by 2022, wireless home internet solutions will grow both at the low end of the market (homes using relatively little data) and portions of the market that otherwise might have purchased a fixed connection.

source: Deloitte

City of New York Internet Access: Is it Worse than Natiional Averages?

“Lies, damn lies and statistics” is the quip once made by Samuel Clemens, the author otherwise known as Mark Twain about statistics and their relationship to “truth.” It is worth keeping in mind. 

Consider statistics cited by the City of New York about residents who do not buy internet access.

As many as 917,239 New York City households, or 29 percent of all households, “are without broadband internet access,” a report by the city of New York indicates. The phrase is meant to indicate that this percentage of households do not buy fixed network internet access, not to describe the availability of internet access to those households. 

Either meaning would be surprising to many, especially when compared with other coastal cities such as Seattle, where the lowest percentage of homes buying fixed network internet access is 93 percent, and the “average” buy rate is about 96 percent.

Keep in mind that nationally, U.S. household purchasing of fixed network internet access internet access is about 77 percent, according to the Pew Research Center. If that seems low, consider that between 17 percent and 20 percent of U.S. households are “mobile-only” for internet access. In that context, the 71 percent buy rate claimed for New York City is roughly in line with national figures. 

Actually, the New York figures arguably are close to U.S. national averages. According to the Pew Research Center, 17 percent of U.S. households are mobile only for internet access, including 23 percent of black households and 25 percent of Hispanic households. 

The New York study claims 30 percent of Hispanic and black New Yorkers do not buy fixed network internet access.

According to Pew, some 26 percent of U.S. households with household income of less than $30,000 are mobile-only and not buy fixed network internet access. 

The New York City study says “44 percent of New Yorkers in poverty” do not buy fixed network internet access. Two caveats: persons are not households, and fixed network internet access is purchased “by the household.” 

Also, keep in mind that New York uses a different definition of poverty, setting the benchmark higher at $33,600 per household. The New York definition is about 12 percent higher than the U.S. federal government definition. 

In other words, New York buying rates for lower-income households are roughly in line with national averages, when considering the different definitions. The Pew data is based on households. 

The New York City study sometimes uses “persons” as the unit of analysis. But 44 percent of people, using the 2.4 persons-per-household metric, yields a non-buy rate of about 18 percent for homes in poverty. Again, in line with U.S. national averages. 

Likewise, about 26 percent of U.S. households not buying fixed network internet access are headed by people with a high school diploma or less are mobile-only for internet access, according to Pew. 

The New York City study says 33 percent of New Yorkers who are high school graduates do not buy fixed network internet access. That might represent about 14 percent of households. 

Of households headed by someone with less than a high school degree, about 41 percent of people do not purchase fixed network internet access. That might represent about 17 percent of households. 

If the populations represented by high school graduates and less-than-high-school persons are exclusive of each other, then possibly 31 percent of New York City households headed by someone with a high school degree or less. 

The point is that people and households living in New York City do not buy fixed network internet access at rates that are roughly in line with U.S. national averages. 

"Wi-Fi-Only" Works About Half the Time: Issue is What Might be Possible in Future

Historically, the big value mobile phones represented was the untethering of "calling" from places. In fact, so great was the value that mobile calling displaced less expensive place-based calling. 

More recently, the value of a BlackBerry was the ability to use email anywhere. In the latest iteration of the untethering trend, people now expect to be able to get access to the Internet anywhere they are. 


But there is another trend happening as well, namely that people find it useful to shift Internet app consumption to stationary or fixed modes, to avoid mobile Internet access charges. In other words, mobile networks are for mobility, fixed networks are for capacity. 

And since perhaps 80 percent of Internet data consumption now occurs "indoors," capacity increasingly has become the value, rather than mobility, even for mobile devices. 

That is not to say nomadic access is not important, only that essentially tethered access has become more important. Just how important remains to be seen. 

Generally, one might say that "synchronous" or "real time" communications and apps benefit from "anywhere, anytime" access. Asynchronous apps and communications (email, voice mail, blog and social posts) can tolerate some periods of disconnection, and are better suited to place-based access. 

So the issue is the degree to which growing use of asynchronous apps means access can be useful if it is "not always connected," as is the case for any user relying on devices with Wi-Fi access only, and not full mobile network access. 

At least so far, voice and messaging devices (phones) have benefited from "anywhere, anytime" access. PCs and now tablets often can provide high value even when connectable only sometimes. 

The big zone of uncertainty is whether smart phone Internet access demand will change to any great extent. The possible change is voice and messaging on the mobile network, with Internet access mostly or even exclusively based on Wi-Fi access. 

Smart phone owners know they can use Wi-Fi access inside and outside the home, and there is a financial benefit to doing so.

Mobile service providers also realize they can avoid capital investment by encouraging their users to switch their devices to Wi-Fi whenever possible, as well.

Voice-based or communication-based applications generally are not the best candidates for “Wi-Fi-only” networks. But tablets, PCs and Chromebooks are a different matter. And smart phone Internet access already is a case where mixed access is the norm. That already is allowing creation of business models based primarily on fixed access (Wi-Fi) with a mobile overlay.

34 Percent of Global Tablets will be Cellular Connected by 2017

BT, for example, appears to be thinking along those lines.

Having won 4G spectrum (2x15 MHz of FDD and 20 MHz of TDD 2.6GHz spectrum), BT suggested it would not build a retail mobile network, but use 4G to augment BT's fixed networks.

Now BT says it will launch its own retail network.

The thinking is that BT will source wholesale mobile connectivity from one of the U.K. mobile service providers to provide full mobile access, while using its own spectrum largely for fixed or location access.

That is analogous in many ways to the ways mobile service providers already blend full mobile access plus Wi-Fi access. The potentially big challenge is whether it might eventually be possible to create 

Wi-Fi only  

access services that have high value even if there is no mobile access, as once was thought feasible around the turn of the century. 

Those of you who travel outside your home country already do this: you turn off your mobile Internet access and rely only on  

Wi-Fi  

when out of country. 

Will Video Drive Fixed Network Adoption Towards 95% Levels?

Some might yet wonder what it will take to get adoption of high speed Internet access in the U.S. and other markets up to 90 percent or higher. The traditional answer has been “TV.” Eventually, consumers will shift to over the top TV and away from linear, making a high-capacity home Internet connection essential.

In other words, “use of computers” will not be the activity that drives the incremental adoption.

And substitution of smartphones for PCs or laptops might not change matters.

In fact, mobile phone ownership might now be cannibalizing some need to own a PC. Some 92 percent of U.S. residents own a mobile phone, 68 percent a smartphone and 73 percent a desktop PC or notebook PC.

The effect on demand for home Internet connections is clear. If perhaps seven to 10 percent of consumers say they rely exclusively on mobile for Internet access, then mobile access is a substitute for fixed network Internet access.

But it still is the case that video will drive incremental adoption of fixed network Internet access. The reason is that as entertainment video shifts to over the top delivery, a fixed network Internet access connection becomes a prerequisite.

At the same time, the fixed network allows offload of mobile data consumption to Wi-Fi.

The point is that video--one way or the other--will underpin incremental fixed network Internet access demand, even if primary demand is driven by Internet access itself.

At the same time, increasing ability to seamlessly switch access between mobile and fixed networks will complicate the matter.

Internet access already includes a mix of fixed and mobile access modes, but changes in video delivery might complicate usage patterns and therefore our sense of the extent of Internet access adoption and use.

In 2013, fixed network Internet access was purchased by about 74 percent of U.S. households.

In 2015, use of the Internet was higher than 86 percent, but that is not identical with the number of homes buying Internet access. If 92.5 million U.S. homes bought fixed Internet access, and if one assumes there are roughly 120 million occupied homes,  fixed Internet adoption might be 77 percent.

Some might argue that adoption already is at about the 90 percent level, but that an increasing percentage of consumers use mobile Internet access, and may not buy fixed access products.

About 10 percent of consumers say they rely exclusively on smartphones for Internet access.

The point is that use of television, not use of computers, might eventually drive fixed network Internet access adoption towards levels we used to expect of voice services, and more recently cable TV services (85 percent to 95 percent adoption).

The other possibility is that fixed access adoption never actually reaches those levels, since mobile-only is proving to be a viable form of Internet access for an arguably-growing number of consumers.

Whether that remains the case when a major shift to over the top video, and away from linear video, is the question.

Given the higher cost per bit of mobile Internet access, compared to fixed access, it would be difficult for mobile operators to supply, or consumers to afford, enough capacity to support a full shift of most TV consumption to mobile networks and devices.

At present retail tariffs and linear video consumption patterns, a full shift to consumption of TV on an on-demand, mobile basis would not be possible, one might argue.  

The networks could not handle the load, nor would consumers be willing to pay.

But it is hard to say how supply will change in the future. If one assumes a robust and seamless ability to offload heavy video consumption to Wi-Fi, a larger percentage of consumers might well conclude they can live without a fixed Internet connection, if they are willing to work around it.

The big issue is that the greatest volume of video consumption happens at home, the location where a fixed access service is essential for Wi-Fi access.

And that suggests incremental demand for fixed Internet access will grow, despite mobile consumption.  

Primary Reliance on Mobile Internet Access Grows in U.S. Market

Mobile Internet access is getting to be as important in the U.S. market as it is in many developing markets, as a primary, if not "the" primary way people get access to the Internet.

In 2014, the percentage of U.S. desktop-only internet users was 19.1 percent, while mobile-only users represented about 10.8 percent of Internet users.

In 2015, the share of mobile-only users has climbed to 11.3 percent, while the desktop-only population has declined to just 10.6 percent.

The vast majority of the digital population (78 percent) is multi-platform and goes online using both desktop and mobile platforms.

Still, the mobile-only user base is instructive. Even in the U.S. market, where fixed access and mobile access are relatively abundant, smartphones and tablets have become a primary method of Internet access.

That has implications for communications policy, not only the fortunes of Internet access, device suppliers, the consumer elecronics market and app providers.

In a similar way, mobile platforms accounted for 60 percent of the total time users spent interacting with digital media, up from 50 percent in 2014.

Also, mobile apps accounted for more than half of all digital media time spent in May 2015.

Those sorts of trends have other repercussions.

In a competitive market, one might well argue, the lowest cost provider among the contestants with significant market share, will win (some smaller contestants could well have even lower cost profiles, but no ability to scale).

And, as it has become undeniable that mobility continues to lead revenue growth and strategy in the broader market, what “cost leadership” looks like in the mobile space now is significant.

Without any question, Wi-Fi has become a core and foundational part of the access fabric for mobile devices and customers. “Ownership,” as such, is less important than “access.”

That roughly mirrors the structure of the Internet Protocol-based communications and application markets, where an app provider does not have to “own access assets,” but simply can use “any available access.”

So mobile service providers can “use” Wi-Fi assets without owning them. That directly affects thinking about investments in access assets. As it turns out, it is less expensive to rely on Wi-Fi for much, if not the majority, of “mobile” access operations.

In other words, encouraging users to go “untethered” on Wi-Fi benefits both users and carriers, as demand is shifted off the core mobile networks. That much is obvious.

Also obvious is that fixed network providers with dense backhaul networks stand to reap benefits as suppliers of small cell (mobile or Wi-Fi hotspots) networks, either for internal use or as a revenue-generating wholesale opportunity.

Just as obviously, any “mobile” service provider able to leverage such assets can change the cost structure of “mobility” services.

And that is precisely the opportunity cable TV operators believe they can seize. In other words, eventually, cable TV operators could emerge as the low cost providers in the mobile market, with implications for market share and leadership.