Fixed and Dilated

The telco threat to push fixed wireless broadband service deeper into less populated markets has sent shivers down the collective spines of cable investors for years. Now with 5G being deployed in various forms by T-Mobile and Verizon, that threat seems more imminent, but according to an influential analyst, operators needn’t worry much, at least in the medium term. 

In a research note Thursday, Bernstein media analyst Peter Supino did a deeper dive into two separate efforts by T-Mobile and Verizon to supplant inferior digital subscriber line service with their respective iterations of 5G. His conclusion: cable operators shouldn’t sweat it out. 

According to Supino, T-Mobile is expected to attract about 3.4 million subscribers to its fixed wireless offerings by 2025, while Verizon , which is taking a different technological approach, should have about 1.3 million fixed wireless customers in their fifth year. Neither effort seems a major threat to cable’s 70% market share of nationwide broadband customers. 

According to MoffettNathanson, in Q3 2020 there were about 114 million broadband subscribers in the U.S., with 78 million coming from cable. Telcos accounted for 34 million broadband customers, so an additional 4.7 million 5G customers isn’t going to move the bar any.   

“While we do see T-Mobile and Verizon gaining fixed wireless broadband subscribers on the margin, neither poses a threat to the future of cable in the medium term,” Supino wrote. “Instead, while we see attractive incremental economics for the telcos where they have material excess capacity, we view both initiatives as constrained by spectrum capacity and/or the physical limitations of available spectrum.”

Those constraints are key. Both T-Mobile and Verizon were expected to sidestep the huge fixed costs of deploying 5G fixed wireless by utilizing spare capacity where it exists. For T-Mobile, that means using its low-band spectrum, which is mainly available in extremely rural areas where there aren’t a lot of homes. Verizon’s excess capacity lies in its MMS spectrum, which is strong on bandwidth, but weak in propagation. According to Supino that means it will work best where the telco already has fiber and small cells -- usually urban areas and high-traffic areas like stadiums and airports.

“Because the service is more competitive with cable, increased competition is a risk, but in most markets, this will resolve in a market dynamic similar to Altice/Verizon FiOS in the North East of the US,” Supino wrote. “Both Altice and Verizon have managed to grow ARPU, despite the greater level of switching between providers.”

T-Mobile has been its usual aggressive self in talking up its 5G service, essentially telling cable providers they had better get ready for a whuppin’ once their service goes live. 

In its Q3 earnings call, T-Mobile CEO Mike Sievert said that the telco was “serious about home broadband.”

“We're coming soon with home broadband,” Sievert said on the call. “We're serious about home broadband. It's going to be an important way that we grow this business and make money, and you have to have the full suite of services to really be able to serve customers there.”

Verizon CEO Hans Vestberg said back in April 2019 that its millimeter wave rollout lived up to performance expectations, but noted that it isn’t “coverage spectrum,” adding that the company will continue deploying the technology as long as it is “economically feasible.” That admission came shortly after MoffettNathanson principal and senior analyst Craig Moffett, in a research note detailing Verizon’s Sacramento, California millimeter wave rollout, where the analyst found some serious shortcomings to the technology. 

In his note, Moffett said that while the tech leaves something to be desired, the success or failure of the rollout would come down to economics. 

“At the end of the day, what matters isn’t whether Verizon can make its fixed wireless broadband network work -- of course, they can -- it’s whether they can earn a passable return on their investment doing so,” Moffett wrote in the March 2019 report. 

By Q4 2020, after spending an estimated $40 billion on wireless licenses in the federal C-band auction, Moffett noted it could be a blow to its balance sheet, but that the company desperately needed spectrum. 

In his January note to clients, Moffett wrote that while there remains constraints on growth -- gross and net customer additions were weak in Q4 -- there is some hope.

“Armed with the C-Band spectrum presumably acquired in the auction, Verizon will at last have a path to a sustainable network,” Moffett wrote. “Yes, T-Mobile is still better positioned for 5G, in our view, but Verizon’s early commitment to millimeter wave (Ultra Wideband) has the potential to differentiate their service in urban America, particularly for high value business travelers.” 

Moffett went on to add that he believes the wireless business may be in line for a reordering, with T-Mobile and Verizon “increasingly advantaged,” while AT&T,  because of its industry-leading debt, is “increasingly challenged.” 

While the jury is still out, there have been some early stumbles in the space. Vivint, which initially planned to roll out a fixed wireless service to more than a dozen markets in 2015, its first year, closed its doors in 2020. Starry, a startup that had planned to offer fixed wireless broadband to about 24 markets by the end of 2019, is only in about five markets today.  Even Verizon, despite its claims of millimeter wave’s performance -- it was launched in 2018 amid much hoopla -- hit the pause button last year as it awaited new hardware from Qualcomm and a new self-install process for customers during the pandemic. Last month it said it would increase the number of its 5G millimeter wave sites from 14,000 to 30,000 by the end of the year. But given the small footprint of each 5G cell site -- about 700 feet -- those 30,000 small cells wouldn’t cover an area as large as Delaware, according to a twitter posting by LightShed Partners telecom analyst Walt Piecyk. 

In the meantime, cable is expanding its wireline broadband footprint at a steady pace. At the beginning of the month Charter said it would invest $5 billion over the next few years to bring broadband to an additional 1 million homes.  That’s in addition to the nearly 1 million additional homes it added last year via edge-out programs. Comcast has been doing the same thing at about the same pace.    Smaller operators, like Atlantic Broadband, WOW and Altice USA all have their own smaller scale edge-out plans, and have had success in expanding their broadband reach. 

So suffice it to say that fixed wireless 5G may in fact one day take over the planet. But it won’t be soon.