U.S. Cable Operator Domination of Home Broadband Market Finally Cracks

Until recently, major U.S. telcos have had to balance new fiber-to-home infrastructure with other business model demands. And so long as they stuck mostly to copper access infrastructure, they also ceded the home broadband market to cable operators.

That finally seems to be changing.

As Frontier Communications continues to replace copper access with optical fiber, its revenue is shifting away from copper-based products. Since 2020, customer take rates have grown slightly from 41 percent to 42 percent of homes passed by the FTTH network.

Which means--should that take rate continue--that revenue growth is correlated with the number of FTTH home passings Frontier is able to create.

source: Frontier Communications 

Telco executives often say that FTTH is a better network than hybrid fiber coax. Customers do not always agree. 

Initial uptake might be in the 20-percent range, if Frontier’s experience matches that of other telco FTTH providers, scaling over time to about 40 percent. That still means cable operators have most of the rest of the market, on the order of 60 percent. 

Few observers think telcos will do better than 50-percent market share. Eventually, if required, cable operators will respond with their own FTTH networks.

How "Temporary" is Fixed Wireless?

Rather suddenly, cable operators have found themselves facing new home broadband competition from Verizon and T-Mobile. In the second quarter of 2022, T-Mobile and Verizon collectively added 816,000 new fixed wireless home broadband customers, while Charter and Comcast collectively lost around 21,000 accounts. 

That might not seem like such a big deal, but for the past two decades, cable operators have gotten almost all the net new account additions while incumbent telcos have lost share. 

The issue for some is whether fixed wireless is a temporary or permanent solution. Long term, capacity is going to be an issue. That is why industry observers always argue that fiber to the premises is the long-term solution. 

But long term is not an immediate solution for many. Verizon has no financial ability to overbuild fiber to home facilities to the 80 percent or so U.S. homes it does not already pass. Neither does T-Mobile have the financial ability to overbuild 100 percent of U.S. homes it does not already pass. 

Fot both Verizon and T-Mobile, the present consumer home broadband market does represent an immediate chance to take market share from cable operators using their 5G nationwide networks. 

The issue for both those firms is not “fixed wireless versus FTTH” but rather “fixed wireless versus doing nothing.” And the simple fact is that, for some time, 5G fixed wireless will provide enough capacity, at a reasonable price, to be attractive to a segment of the market, allowing Verizon and T-Mobile to add accounts, revenue and profit when building “out of region” FTTH simply is not an option. 

In that sense, fixed wireless is best viewed as an immediate driver of market share gains in home broadband where neither Verizon nor T-Mobile have the ability to compete using FTTH facilities they own or might build. 

The long term solution is not yet clear. Advancing technology might allow both firms to keep upgrading fixed wireless to continue to serve a segment of the market. 

Long term, both firms face a problem in the fixed networks space, as capital to overbuild 80 percent to 100 percent of the U.S. home market is not likely to become available. 

Perhaps the fixed network equivalent of mobile virtual network operators will eventually emerge at scale, allowing T-Mobile and Verizon to partner in some way with other entities to create or use FTTH facilities. 

That is a “tomorrow” issue. The immediate issue is whether fixed wireless can shift a few points of home broadband market share. 

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. 

That is a serious incremental share gain for the likes of T-Mobile and Verizon, even if it leaves the long-term strategy undeveloped. To be sure, 6G will come, and will increase capacity at least 10 times over 5G. Using other tools, it might still be possible to boost fixed wireless capacity further, or to create mechanisms for offloading much mobile traffic to the fixed networks. *-/9+88/7

Comcast and Charter continue to claim that fixed wireless is not damaging its home broadband business, and that might well be partly correct. For any internet service provider, 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. 

But that is akin to retailers blaming “the weather” when they have a revenue miss. Weather does play a role, but most often is not the only driver of results. 

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

Fixed wireless might not be a “long term” solution for every customer. But it might remain an option for a significant percentage of customers, especially if the long-term solution for T-Mobile and Verizon is yet to be created.

Enterprise Data Communications Relies More Often on Internet Access than Carrier Ethernet or SD-WAN

All enterprise connectivity choices separate the “network access and transport” function from the applications that use data communications. That is true for every legacy protocol and network as well the latest networks. 

But dedicated internet access is the most-commonly-used platform. “Wireless broadband” probably refers mostly to use of Wi-Fi and mobile phone internet access. Carrier ethernet and SD-WAN are the next most-used platforms. 

source: Information Week, Network Computing

How Long for Internet to Achive Ubiquitous 1,000-Fold Computational Increase?

Some believe the next-generation internet could require a three-order-of-magnitude (1,000 times) increase in computing power, to support lots of artificial intelligence, 3D rendering, metaverse and distributed applications. 

What that will entail depends on how fast the new infrastructure has to be built. If we are able to upgrade infrastructure roughly on the past timetable, we would expect to see a 1,000-fold improvement in computation support perhaps every couple of decades. 

That assumes we have pulled a number of levers beyond expected advances in processor power, processor architectures and declines in cost per unit of cycle. Network architectures and appliances also have to change. Quite often, so do applications and end user demand. 

The mobile business, for example, has taken about three decades to achieve 1,000 times change in data speeds, for example. We can assume raw compute changes faster, but even then, based strictly on Moore’s Law rates of improvement in computing power alone, it might still require two decades to achieve a 1,000 times change. 

source: Springer 

And that all assumes underlying demand driving the pace of innovation. 

For digital infrastructure, a 1,000-fold increase in supplied computing capability might well require any number of changes. Chip density probably has to change in different ways. More use of application-specific processors seems likely. 

A revamping of cloud computing architecture towards the edge, to minimize latency, is almost certainly required. 

Rack density likely must change as well, as it is hard to envision a 1,000-fold increase in rack real estate over the next couple of decades. Nor does it seem likely that cooling and power requirements can simply scale linearly by 1,000 times. 

Persistent 3D virtual worlds would seem to be the driver for such demand.  

Low-latency apps such as persistent environments also should increase pressure to prioritize traffic, move computing closer to the actual end user location and possibly lead to new forms of content handling and computation to support such content. 

Compared to today, where content delivery networks operate to reduce latency, content computation networks would also be necessary to do all the local and fast processing to support immersive 3D experiences that also are persistent. 

How we supply enough fast compute to handle rendering, for example, could be a combination fo device and edge computing architecture. 

Among the other issues are whether chip capabilities can scale fast enough to support such levels of compute intensity. 

So long as we have enough levers to pull, a 1,000-fold increase in computing availability within two or three decades is possible. Moore's Law suggests it is possible, assuming we can keep up the rate of change in a variety of ways, even if, at the physical level, Moore’s Law ceases to operate.  

But that also means fully-immersive internet experiences, used by everybody, all the time, also would be accompanied by business models to match. 

So in practical terms, perhaps some users and supported experiences will use 1,000 times more computational support. But it is unlikely that the full internet will have evolved to do so.

Are Scarce Access Assets Still So Valuable?

Telefónica Group, Crédit Agricole Assurances and Vauban Infrastructure Partners are joining to create Bluevia Fibra to build fiber to premises networks in rural parts of Spain. 

The consortium formed by CAA/Vauban will acquire a 45 percent stake in Bluevia from Telefónica España. Telefónica Group will retain a 55 percent stake in Bluevia. 

The 55 percent stake owned by Group Telefónica will be held by Telefónica España and Telefónica Infra, with 30 percent and 25 percent stakes respectively.

Operating with a wholesale model, Bluevia will offer wholesale FTTH access to all telecommunication services providers. Based on an initial footprint of 3.5 million premises currently passed, Bluevia will increase its network to five million premises by 2024.

Bluevia’s anchor tenant, as you might guess, will be Telefónica España. The deal is among many globally where service providers try to decrease the cost of building new infrastructure by partnering with investment firms looking for long-term, stable cash flows in the digital infrastructure area. 

Other joint ventures that, in part, are aimed at reducing investment and debt burdens, are happening in other markets, by other fixed network providers. Liberty Global, Telefónica and InfraVia Capital Partners have formed a joint venture to build seven million fiber-to-premises passings in the United Kingdom. 

Liberty Global and Telefónica will jointly hold a 50 percent stake in the venture through a holding company, with InfraVia owning the remaining 50 percent. Telefónica Group’s participation will be held through Telefónica Infra, the firm's infrastructure unit. 

Both deasl might also raise issues about the value of access assets to tier-one telcos and other different stakeholders. Though access assets always have been seen as sources of business value, the perception of value has changed over the past few decades. 

Though necessary, access infrastructure often is not viewed as adding proprietary value. So full ownership is less valuable than in the past, while the freed-up capital is deemed more valuable. 

Historically, scarcity has driven the value of access networks. It still does. Institutional investors value precisely that relative scarcity as a driver of long-term investment value, as such investors have valued real estate assets. 

But network infrastructure scarcity is largely eliminated as a competitive issue when assets are structurally separated, it can be argued. While it also can be argued that owners’ economics often are important, compared to renting access from a wholesale provider, the loss of potential margin and differentiation is counterbalanced by the reduction of capital investment burdens as well. 

Wholesale access also arguably changes the nature of competition. When every retail provider has the same access to network features (latency, speed, wholesale price), competitive distinctiveness has to be found elsewhere. 

And, most of the time, such distinctiveness happens with non-network features and value, typically when different features are bundled as part of network-based offers. The larger point is that competition seems to be shifting away from “scarcity” and towards other elements of the experience. 

In the mobility business, spectrum scarcity remains an issue, but is improving, relatively speaking. That is reflected in declining per-MHz spectrum costs, even if physical infrastructure costs intensify. 

And much traditional infrastructure--especially towers and radio sites--no longer are considered “must have” assets to own. To the extent networks are differentiated, it is on the basis of ownership of spectrum assets and other bundled features, not radio sites. 

Executives likely hate the idea, but physical access assets are more commoditized, and less value-driving, than access assets used to represent. Increasingly, it is the intangible assets that drive value.

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Is Cable Home Broadband Market Share Dominance Reached a Turning Point?

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. 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.  

One might suggest that, eventually, share loss could become a sustainable trend, as internet service providers step up marketing of FTTH and fixed wireless services. Home moves and housing starts always have been significant drivers of home broadband account gains. 

Both of those might be slowing, so slower growth overall is not unexpected. But market share shifts need to be watched, as mobile and fixed network operators increase availability and marketing of competitive home broadband services.