A look at FWA's Pyrrhic victory over cable

As the second quarter earnings season comes to a close, the numbers reveal a clear victory for fixed wireless access (FWA). T-Mobile and Verizon collectively added 816,000 new FWA customers during the period, while Charter and Comcast collectively lost around 21,000 broadband customers during the same period.

"The cable companies, of course, will continue to fight back with targeted promotions, edge-outs into new markets and bundling with products like [their] low-cost wireless services. They are still a force that cannot be counted out," wrote the financial analysts at Wells Fargo in a recent note to investors. "But it's still quite surprising to us how quickly the outlook turned for cable the past few quarters. And frankly, the competitive intensity with fiber and fixed wireless should only get tougher in the years ahead."

FWA "is a new source of pressure, and it is clearly taking a toll" on cable, agreed the financial analysts at New Street Research.

Even cable executives themselves have had to acknowledge the fact that Verizon and T-Mobile are encroaching upon their core market of home Internet access.

"It's not the major component of our quarterly performance, but it is a factor," Charter CEO Tom Rutledge said of FWA services in general. He discussed the topic during his company's quarterly conference call.

"We are not seeing fixed wireless have any discernible impact on our churn, but its early growth appears to be another contributor to our lower connect activity," admitted Comcast CEO Brian Roberts during his company's quarterly conference call.

War of words

The issue is clearly a sore spot for both sides. Indeed, Verizon and Comcast have engaged in a surprisingly public war of words over FWA on Twitter.

However, it's extremely unlikely that FWA will be able to maintain its momentum against cable in the months and years to come, primarily because 5G networks don't have as much capacity as cable networks, and because FWA customers aren't nearly as profitable as standard smartphone customers.

This means that T-Mobile and Verizon will likely report significant growth in their FWA businesses throughout the remainder of 2022 and possibly into 2023. But after a certain point, their networks will be full of FWA traffic, and they won't be able to support any more customers unless they buy more spectrum or more equipment.

Loading up networks

Today's FWA land rush is being driven by one primary factor: the availability of midband spectrum for 5G, and lots of it. Both T-Mobile and Verizon are deploying up to 100MHz or more of midband spectrum in top markets across the country. That spectrum is giving them the network capacity to add FWA customers.

But FWA customers are different from mobile smartphone customers. The average Internet household chews through almost 500GB per month, according to OpenVault. The average smartphone user, meanwhile, consumes just 12GB per month, according to Ericsson.

Verizon has argued that smartphone traffic typically peaks between 12 p.m. and 6 p.m., thus freeing up network resources for FWA traffic, which usually starts after 6 p.m. Nonetheless, the fact remains that FWA customers consume around 40 times more network resources than smartphone customers, yet the two generate roughly the same profits. Indeed, both T-Mobile and Verizon have recently cut FWA prices.

Of course, T-Mobile and Verizon have options. They can deploy more spectrum, including millimeter wave (mmWave), to increase network capacity. They can also employ networking tricks like cell-site splitting, where multiple cell sites are deployed in a location previously covered by just one.

But those options carry a cost, and it's unclear whether the FWA business case will support such investments. FWA likely won't be economically viable in hard-to-reach rural areas, where there aren't enough customers to warrant the investment, or in extremely dense, urban areas, where faster, wired options are available.

FWA "is capacity limited. It won't be a perfect substitute for many cable and fiber households," argued the New Street analysts.

Figure 1: (Source: dpa picture alliance/Alamy Stock Photo)

But the FWA market isn't developing in a vacuum. Both Comcast and Charter are working to sell smartphone services to their existing cable Internet customers, an effort meant to dissuade their cable customers from fleeing to other services. Meanwhile, Verizon and T-Mobile could seek additional network capacity from satellites or unlicensed spectrum bands.

Predicting the future

That makes it difficult to gauge how the competition will ultimately play out. But it hasn't stopped prognosticators from trying. For example, the financial analysts at Cowen predict that Verizon and T-Mobile will win up to 5 million and 8 million total FWA customers, respectively, by 2025.

"Even if FWA proves unviable long term, it could still be a significant headwind for cable over the next 2-3 years," the financial analysts from Barclays argued in a recent note to investors, according to Dow Jones.

Globally, Ericsson estimates that there will be over 100 million FWA connections by the end of 2022, and the company expects that figure to more than double by 2027, reaching almost 230 million.

Similarly, CCS Insight predicts that the FWA market globally will grow 160% during 2022 to reach 7 million connections by the end of the year. "As more and more operators worldwide use 5G to provide high-speed home broadband, without the expense of deploying fiber networks, CCS Insight believes connections are set to grow, hitting 83 million in 2026," the firm wrote.

Counterpoint Research recently speculated that total worldwide FWA broadband subscriptions will climb to around 462 million by 2030, from roughly 75 million in 2021.

A hollow victory

The problem with FWA is that it comes at a significant cost. It can be profitable for operators to offer the service in the US and globally. But the incredible increases in home broadband data consumption – more than doubling in just four years – will likely put a strain on networks.

That's partly why AT&T has said it doesn't plan to enter the FWA market. "Wireless networks, in some instances, will have difficulty scaling in certain segments of the market," CEO John Stankey said earlier this year when discussing FWA.

Operators that devote substantial network capacity to FWA may be caught flat-footed by advanced 5G use cases in the future, whether that's autonomous cars or remote surgery. For example, if Apple or Google releases augmented reality glasses that require low-latency 5G connections, FWA operators may struggle to support them. That's exactly what happened to AT&T in the early days of the iPhone, more than a decade ago.

T-Mobile executives recently described FWA as the "first real 5G use case." However, it may not generate the massive revenue spikes that early entrants had hoped for. Further, a deep investment into FWA from a network capacity standpoint could hamstring network operators when the next big 5G use case comes along.

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— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano