U.S. Gigabit Take Rates Surpass Typical Inflection Point

Openvault says 10.5 percent of U.S. customers now buy home broadband service operating at one Gbps or faster.  Openvault says gigabit take rates have doubled since the second quarter of 2021, when 4.8 percent of households bought gigabit service. 

That is important because 10-percent adoption often is the inflection point for adoption of consumer products.

source: Openvault 

Perhaps more important, the “typical” speed plan purchased by consumers has continued to shift upwards as well. 

Openvault says 80 percent of subscribers have chosen a speed tier of 100 Mbps or faster, with more than half of them (47.5 percent) subscribing to a 100-to-200 Mbps tier.

In the first quarter, using a slightly different reporting method, Openvault said 80 percent of U.S. households were buying internet access at 100 Mbps or faster. 

The percentage of subscribers provisioned for speeds of 100 Mbps or less fell by half, from 39.9 percent in 2Q20 to 20.1 percent through the same period, says Openvault. 

The first quarter 2021 report showed 9.8 percent of U.S. households were buying gigabit or faster connections.

source: Openvault

Between FTTH and DSL Lies Fixed Wireless

We might all agree that telcos would prefer to build their next-generation networks on fiber to the home. We might also agree that the business case remains difficult in perhaps half of all locations. 

For that reason, 5G fixed wireless has gained traction in some quarters, and might be increasingly attractive to others if fixed wireless traction is gotten. 

AT&T now has about 15 million homes reachable with its fiber to home facilities, with plans to expand to about 30 million locations by about 2025. All together, AT&T’s fixed network passes about 60 million locations, however. 

So the business model--as presently constituted--does not seem attractive for FTTH in about half the total fixed network passings, at the moment. Whether AT&T believes fixed wireless will be important in that regard is less than certain. Up to this point, AT&T has not been as bullish on fixed wireless as Verizon or T-Mobile. 

But AT&T does have national 5G assets that could underpin a wider move to fixed wireless, even if executives do not prefer that strategy at the moment. 

Other major operators without 5G assets would have to rely on partner agreements before such a strategy would make sense. 

Lumen Technologies has about 15 million homes in its access network footprint,  2.5 million of which are passed by the fiber-to-home network. So less than 17 percent of locations presently are deemed feasible for FTTH. 

With 21 million locations served by the access network, that implies about six million business locations. Perhaps more important, Lumen now has about 97 percent of all U.S. enterprises within a five-millisecond latency range. 

After partnering with T-Mobile for 5G access, Lumen argues it can span “the last 100 feet” of the access network in that manner. 

One area where AT&T should be able to improve is FTTH take rates, which have been at about 35 percent of marketable locations, and might now be up to 37 percent, at the end of the third quarter 2021. 

On the other hand, it appears that take rates for new FTTH accounts might in most cases--80 percent according to AT&T CEO John Stankey--be market share taken from another provider. If that continues, it is reasonable to suggest that AT&T could eventually reach 50 percent share of the installed base, up from the 30 percent or so share it has gotten over the last decade or two. 

At the moment, AT&T’s rule of thumb is that unless 40 percent share is possible, new FTTH does not make sense.

Verizon and T-Mobile, on the other hand, are much more bullish on fixed wireless, for reasons related to their present revenue models. T-Mobile has had zero share of the home broadband market, so fixed wireless offers an opportunity for top-line revenue growth that by shifting just a few percent of market share could generate billions in new revenue. 

Verizon now says it will pass 15 million homes with its fixed wireless services, using both 4G and 5G, while total fixed wireless accounts at the end of the third quarter 2021 were 150,000, of which 55,000 were added in the third quarter alone. 

In the past Verizon has talked about a fixed wireless footprint of about 50 million homes as a planned-for goal as the C-band assets are turned up, possibly by the end of 2021. 

Most of that coverage will occur in areas outside the Verizon fixed network territory. At the moment, about half the Verizon fixed wireless customers represent new accounts, while half are existing Verizon customers. 

“I would say, there are probably, roughly, half and half,” said Hans Vestberg, Verizon CEO. “Half meaning coming from our existing base and half we're taking from other suppliers.”

Significantly, Verizon also reports that fixed wireless average revenue per user is “similar” to a mobility account. That suggests that most of the installed base is on 4G or lower-speed 5G at the moment, and also suggestive of pricing suggesting that most customers also use Verizon for mobility service ($40 a month for Verizon mobility customers, $60 for non-customers). 

Some of us would expect ARPU to begin climbing as more of the customer base adds services using millimeter wave and mid-band spectrum. The pricing for those plans runs from $50 a month (Verizon mobility customers) up to $70 a month (non-mobile subscribers). 

As will be the case for 5G generally, Verizon fixed wireless might come in three flavors. Some customers might only be able to buy 4G versions, which are the most speed-constrained, and generally topping out somewhere between 25 Mbps and 50 Mbps. 

Most customers will be able to buy mid-band 5G fixed wireless, which likely will be able to support the 100 Mbps to 200 Mbps services most households buy at the moment. Some lesser percentage of locations will be able to buy the wireline-equivalent millimeter wave services operating up to a gigabit per second or so. 

Over the last year, though the fiber-to-home footprint grew by 500,000 locations, the fixed wireless footprint added 11.6 million locations. 

In fact, fixed wireless now accounts for about 41 percent of Verizon’s home broadband passings. 

source: Verizon 

It remains to be seen how many customer accounts will be driven by fixed wireless, to be sure. In the past, many observers have suggested fixed wireless suppliers can get take rates in the 15 percent to 20 percent range.

In a saturated market, those gains largely represent market share taken from another supplier. So the market share implications are quite significant, representing a change between 30 percent to 40 percent in overall share. 

The expansion of millimeter radio and C-band radio assets will be important. Roughly half the U.S. home broadband base has been content to buy service in the 100 Mbps to 200 Mbps range. 

C-band will help boost fixed wireless into those ranges, while millimeter wave will enable speeds approaching the top tier of consumer demand (gigabit service).  

Such lower-speed home broadband might appeal to customers content to purchase service operating at the lower ranges of bandwidths at or below 50 Mbps. That still represents 10.5 percent of the market, according to Openvault. 

Notably, the third quarter 2021 earnings report was the first ever when Verizon actually began reporting fixed wireless subscriber growth. That is normally an indication that a firm believes it has an attractive story to tell, with volume growth expected. 

How Big is the "Value" Segment of U.S. Home Broadband Market?

Home broadband for $25 a month is the value proposition Verizon fixed wireless now offers for top-end customers of its mobility service. For T-Mobile fixed wireless customers on premium multi-user plans,  the recurring cost is $30 a month. 

Say what you will about the expected speeds of such services, or the cost of higher-speed services from either cable or fiber-to-home service providers. 

For a possibly-substantial portion of the market, such price points are going to be attractive, even if the trade off is lower top-end speeds. 

It might be the case that “good enough” service is worth a “reasonable price” for that service. 

That is important for home broadband market competitors. Even if such offers do not appeal to the entire market, the “good enough service for a reasonable price” segment of the market could be substantial, especially for Verizon and T-Mobile mobility service customers. 

That is similar to the “same service, lower price” positioning often used by attackers in established markets. If the top possible speed for fixed wireless sold by Verizon is about 300 Mbps (millimeter wave assets help), then Verizon theoretically could reach between a third and 45 percent of U.S.home broadband buyers, based on data from Openvault. 

T-Mobile speeds for home broadband are said to range up to about 182 Mbps, suggesting a third or so of U.S. home broadband accounts could be addressable. 

  

It is too early to say whether fixed wireless platforms will be long-lasting drivers of market share in internet access markets, or only relatively temporary. Some believe speed limitations will ultimately reduce fixed wireless attractiveness. Others think fixed wireless capacity can keep growing. 

But at least for the moment, it is hard to ignore U.S. cable operator lost market share and the availability of fixed wireless from Verizon and T-Mobile. In the near term, fixed wireless market share gains seem a certainty. 

Comcast continues to claim that fixed wireless is not damaging its home broadband business, and that might well be correct. For any ISP, a customer move is an opportunity to gain or add an account, so lower rates of dwelling change should logically reduce the chances of adding new accounts. 

In the second quarter of 2022, Comcast reported a net loss of customer relationships and “flat” home broadband accounts. 

That might suggest to some observers that stepped-up telco fiber-to-home and fixed wireless account gains might be starting to change market share dynamics. Those trends possibly were not obvious in the first quarter of 2022. 

All that said, there are possible signs of change. Fixed wireless already is driving net home broadband additions for T-Mobile. On its second quarter earnings report, T-Mobile added more than half a million net new home broadband accounts, which might put it on track to be the biggest net gainer for the third quarter in a row. 

In the fourth quarter of 2021, fixed wireless represented 74 percent of Verizon net home broadband additions.  

Comcast did not gain net accounts for the first time, ever, according to market watchers. Verizon added significant numbers of new home broadband accounts in the same quarter.  

The longer term  issue is demand as typical data consumption keeps growing, and “typical speeds” likewise keep climbing. 

Perhaps use of millimeter wave assets and better radio technologies will solve much of that problem for fixed wireless operators. Perhaps new wholesale arrangements will develop. 

What might also be happening is that consumer appetite for “more affordable” internet access is substantial. Many households might be willing to trade “speed” for “lower price.” In other words, as with any product, value is a combination of features and price. Fixed wireless might show the existence of a market segment that cares about “reasonable speed for a reasonable price” more than “fast” levels of service. 

That is not the whole market, but it is potentially a big enough segment to shift billions of dollars of home broadband revenue and significant market share. 

Fixed Wireless Finally Becomes a Material Financial Matter for Verizon

Fixed wireless has been touted as a possible strategic enabler in the U.S. home broadband business, and it does now appear deployments at scale, with customer gains large enough to note on earnings calls, has begun. Verizon and T-Mobile are the leading firms to watch, as both firms have the most to gain from widespread fixed wireless deployments.

The implications for the home broadband market are highly significant. T-Mobile has had zero share of that market, while Verizon has been sharply limited by its limited footprint outside its New England and Mid-Atlantic states focus.

Since the U.S. home broadband market is nearly saturated, most account gains by any provider will come at the expense of an existing provider. That, in turn, is important because fixed wireless is one platform telcos can use to reverse a 20-year pattern of cable operators leading in installed base and market share.

In addtion to stepped-up fiber-to-home activity, fixed wireless is a primary tool that could change the U.S. home broadband installed base from a 70 percent cable lead to a more-balanced 50-50 market, with cable and telcos each eventually holding about half the installed base share.

Since home broadband now is the foundation service for any fixed network services provider, such a shift would be highly significant.

Verizon now says it will pass 15 million homes with its fixed wireless services, using both 4G and 5G, while total fixed wireless accounts at the end of the third quarter 2021 were 150,000, of which 55,000 were added in the third quarter alone. 

In the past Verizon has talked about a fixed wireless footprint of about 50 million homes as a planned-for goal as the C-band assets are turned up, possibly by the end of 2021. 

Most of that coverage will occur in areas outside the Verizon fixed network territory. At the moment, about half the Verizon fixed wireless customers represent new accounts, while half are existing Verizon customers. 

“I would say, there are probably, roughly, half and half,” said Hans Vestberg, Verizon CEO. “Half meaning coming from our existing base and half we're taking from other suppliers.”

Significantly, Verizon also reports that fixed wireless average revenue per user is “similar” to a mobility account. That suggests that most of the installed base is on 4G or lower-speed 5G at the moment, and also suggestive of pricing suggesting that most customers also use Verizon for mobility service ($40 a month for Verizon mobility customers, $60 for non-customers). 

Some of us would expect ARPU to begin climbing as more of the customer base adds services using millimeter wave and mid-band spectrum. The pricing for those plans runs from $50 a month (Verizon mobility customers) up to $70 a month (non-mobile subscribers). 

As will be the case for 5G generally, Verizon fixed wireless might come in three flavors. Some customers might only be able to buy 4G versions, which are the most speed-constrained, and generally topping out somewhere between 25 Mbps and 50 Mbps. 

Most customers will be able to buy mid-band 5G fixed wireless, which likely will be able to support the 100 Mbps to 200 Mbps services most households buy at the moment. Some lesser percentage of locations will be able to buy the wireline-equivalent millimeter wave services operating up to a gigabit per second or so. 

Over the last year, though the fiber-to-home footprint grew by 500,000 locations, the fixed wireless footprint added 11.6 million locations. 

In fact, fixed wireless now accounts for about 41 percent of Verizon’s home broadband passings. 

source: Verizon 

It remains to be seen how many customer accounts will be driven by fixed wireless, to be sure. In the past, many observers have suggested fixed wireless suppliers can get take rates in the 15 percent to 20 percent range.

In a saturated market, those gains largely represent market share taken from another supplier. So the market share implications are quite significant, representing a change between 30 percent to 40 percent in overall share. 

The expansion of millimeter radio and C-band radio assets will be important. Roughly half the U.S. home broadband base has been content to buy service in the 100 Mbps to 200 Mbps range. 

C-band will help boost fixed wireless into those ranges, while millimeter wave will enable speeds approaching the top tier of consumer demand (gigabit service).  

Such lower-speed home broadband might appeal to customers content to purchase service operating at the lower ranges of bandwidths at or below 50 Mbps. That still represents 10.5 percent of the market, according to Openvault. 

Notably, the third quarter 2021 earnings report was the first ever when Verizon actually began reporting fixed wireless subscriber growth. That is normally an indication that a firm believes it has an attractive story to tell, with volume growth expected. 

To my knowledge, T-Mobile has not reported its fixed wireless account figures. In light of Verizon's reporting, T-Mobile might soon have to respond.

New NTIA Broadband Gap Map Available

The new broadband map produced by the U.S. Department of Commerce’s National Telecommunications and Information Administration (NTIA) released a new publicly available digital map that is intended to show areas where the minimum 25 Mbps downstream service defined as “broadband” is not available. 

The mashup uses five different data sources, including data from both public and private sources. It contains data aggregated at the county, census tract, and census block level from the U.S. Census Bureau, the Federal Communications Commission (FCC), M-Lab, Ookla and Microsoft. 

As always, assumptions matter. Microsoft, for example, once claimed about half of U.S. residents--163 million people--cannot get 25 Mbps service. In 2020, says Microsoft, 120 million cannot use the internet at 25 Mbps, or about 37 percent of all U.S. internet users . That is hard to believe. 

source: Microsoft 

The Microsoft data contrasts radically with Openvault data suggesting that, in the first quarter of 2021, less than 10 percent of U.S. internet users were accessing the internet at speeds less than 25 Mbps. 

Microsoft says its methodology uses “anonymized data that we collect as part of our ongoing work to improve the performance and security of our software and services,”

source: Openvault 

I do not know the details of Microsoft’s methodology, but a reasonable person could think of lots of reasons why a particular application does not appear to operate at access connection speeds. Use of Wi-Fi provides a good example. But there are contention issues within some homes; use of mobile connections; device issues and in-building interference issues that might explain the vast difference between Microsoft’s claims and Openvault’s data.

How Much Does "Typical" U.S. Home Broadband Actually Cost?

One subtlety when assessing the state of U.S. broadband access is evaluating the real prices people actually pay, compared to posted retail prices. In the U.S. market, for example, perhaps 60  percent of fixed network customers buy internet access as part of a bundle.

That, in turn, means it is not possible to know precisely how much the broadband component costs, as two or more services are offered for a single monthly price.

It might be easier to track actual prices for internet access if more customers buy stand-alone internet access. In the first quarter of 2021, the percentage of U.S. broadband households with stand-alone broadband service increased to 41 percent.

These consumers pay $64 per month on average for stand-alone broadband service, up from $39 per broadband household in 2011, a 64 percent growth rate over a decade. In part, that is because customers are buying service operating at faster rates. 

In the fourth quarter of 2011, the average U.S. fixed network speed was less than 5 Mbps, as hard as that might be to believe. 

source: Statista 

About 9.6 percent of U.S. home broadband accounts now buy service at 1 Gbps, says Openvault. That is important because, historically, successful consumer products hit an adoption inflection point at about 10 percent adoption rates. In the colloquial, what happens is that “you buy because your neighbor has it.”

source: Openvault 

More significantly, about half of customers buy service operating at rates from 100 Mbps to 200 Mbps. Roughly a third of U.S. home broadband accounts offer speeds above 200 Mbps. We can safely predict that average speeds will continue to increase. Since average speed increased by two orders of magnitude from 2011 to 2021, we can assume roughly the same increase by 2031.

That suggests the typical home broadband service will operate somewhere between 1 Gbps and 10 Gbps in a decade.

Fixed Wireless is the Clear Early Example of New 5G Revenue

At the moment, 5G fixed wireless is the clear contributor to new revenue sources earned by 5G networks. No other use case has produced the volume of new revenue. 

Revenues from 5G fixed wireless, in the near term, will dwarf internet of things, private networks, network slicing  and edge computing, for example. 5G fixed wireless might, in some markets, represent as much as eight percent of home broadband revenues, for example. None of the other sources is likely to hit as much as one percent of total revenues in the near term. 

The center of gravity of demand for 5G fixed wireless is households In the U.S. market who will not buy speeds above 300 Mbps, or pay much more than $50 a month, at least in the early going. T-Mobile targets speeds up to 200 Mbps. 

Verizon fixed wireless service plans also suggest that existing Verizon mobile customers are key targets. In the meantime, there is 4G fixed wireless, which will have to be aimed at a lower-speed portion of the market, albeit at about the same price points as 5G fixed wireless. 

Up to this point, Verizon 4G fixed wireless, available in some rural areas, offers speeds between 25 Mbps and 50 Mbps. That might appeal to consumers unable to buy a comparable fixed network service. 

By some estimates, U.S. home broadband generates $60 billion to more than $130 billion in annual revenues. 

If 5G fixed wireless accounts and revenue grow as fast as some envision, $14 billion to $24 billion in fixed wireless home broadband revenue would be created in 2025. 

5G Fixed Wireless Forecast
	2019	2020	2021	2022	2023	2024	2025
Revenue $ M @99% growth rate	389	774	1540	3066	6100	12,140	24,158
Revenue $ M @ 16% growth rate	1.16	451	898	1787	3556	7077	14,082
source: IP Carrier estimate

If the market is valued at $60 billion in 2021 and grows at four percent annually, then home broadband revenue could reach $73 billion by 2026.

		2022	2023	2024	2025	2026
Home Broadband Revenue $B	60	62	65	67	70	73
Growth Rate 4%
Higher Revenue $B	110	114	119	124	129	134
source: IP Carrier estimate

If we use the higher revenue base and the lower growth rate, then 5G fixed wireless might represent about 10 percent of the installed base, which will seem more reasonable to many observers. 

Assuming $50 per month in revenue, with no price increases at all by 2026, 5G fixed wireless still would amount to about $10.6 billion in annual revenue by 2026 or so. That would have 5G fixed wireless representing about 14 percent of home broadband revenue, assuming a total 2026 market of $73 billion.

If the home broadband market were $134 billion in 2026, then 5G fixed wireless would represent about eight percent of home broadband revenue. 

Fixed wireless might be even more important elsewhere in global markets.  

Critics are correct that 5G fixed wireless--at least in the medium term--has capacity limitations compared either to fiber-to-home or advanced hybrid fiber networks. But it also is true that the home broadband market has a value segment for whom fixed wireless seems to be in demand. 

According to the latest data from Leichtman Research Group, during the third quarter of 2022, some 825,000 net new home broadband accounts were added in the U.S. market. But the two major fixed wireless service providers--T-Mobile and Verizon--added 920,000 net accounts during the quarter. 

Fixed Wireless Services, Third Quarter 2022
Fixed Wireless Supplier	Total Accounts	Net Additions
T-Mobile	2,122,000	578,000
Verizon	1,063,000	342,000

source: Leichtman Research Group

Total cable industry net adds were about 39,000, while telcos collectively lost about 136,000 fixed network accounts. 

During the third quarter, about 22 percent of U.S. customers bought service at speeds of 200 Mbps or below. In other words, perhaps a fifth of the home broadband market is willing to buy service at speeds supported by fixed wireless. 

source: Openvault  

Predictably, supporters and detractors offer the expected defense of advantages and weaknesses. Cable operators note the bandwidth limitations. Verizon and T-Mobile point to the ease of installing and price advantages. In some cases fixed wireless might actually be faster than the other alternatives available from other local home broadband providers. 

Critics do correctly note that fixed wireless home broadband is carefully marketed in areas where new 5G networks have spare capacity. That capacity will disappear as 5G adoption increases, the critics say.

But Verizon and T-Mobile might argue they have ways to boost capacity over time, as 5G networks are used more heavily and as bandwidth demand keeps increasing. Higher-capacity millimeter wave spectrum is the obvious early answer. 

Longer term, Verizon and T-Mobile are likely to explore ways to add fiber to home coverage as well. For Verizon, that means finding new says to secure FTTH capacity outside its historic fixed network footprint. For T-Mobile, that means getting into FTTH for the first time. 

Up to this point, T-Mobile has been focused on areas where there is less competition, such as rural markets. 

Verizon’s geography is the roughly 80 percent of U.S. homes outside Verizon’s fixed network service territory, as well as its own mobile customer base, who are encouraged to bundle fixed wireless with existing mobile service. 

The point is that the near-term market is substantial for both T-Mobile and Verizon in “out of region” geographies. For T-Mobile that is 100 percent of U.S. homes. For Verizon that is about 80 percent of U.S. homes.