5G Fixin' to Become 'Largest Existential Threat' to Broadband Providers Ė Analysts

Jeff Baumgartner
8/30/2018
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Speedy fixed 5G services are sizing up to be bullies that will steal some of cable broadband's lunch money, according to Cowen Inc.'s recent analysis of the emerging technology.

With cable operators largely viewed as home connectivity companies, "we see 5G fixed wireless broadband as the largest existential threat to broadband providers, by far," Cowen's analysts concluded in an industry update report issued earlier this month.

Though AT&T Inc. (NYSE: T) will factor into that mix, Cowen views Verizon Communications Inc. (NYSE: VZ) and T-Mobile US Inc. as the largest threats to cable's lucrative and high-margin broadband business. For its part, Verizon has identified four markets for its 2018 5G fixed wireless launch (Houston, Indianapolis, Sacramento, and Los Angeles). (See Indy Is Verizon's 4th Fixed 5G City.)

T-Mobile, meanwhile, has talked about ambitious plans to capture 10 million broadband subs by 2024, largely targeting cable's footprint, Cowan noted. The firm is also somewhat skeptical of those claims, particularly with respect to 5G network capacity in non-rural areas, given the political posturing around these comments as T-Mobile and Sprint Corp. (NYSE: S) attempt to merge. (See T-Mobile: 5G Lets Us Take Broadband Across America .)

Still, T-Mobile's stated plan with 5G broadband is to provide speeds in excess of 100 Mbit/s to two-thirds of the US population by 2021, and to 90% of the US population by 2024, Cowen points out.

Back to Verizon, Cowen notes that Verizon will focus its efforts in top markets where it has deep fiber networks, augmented by its acquisition of XO Communications, and where it is not the incumbent (the firm says Verizon is a top five fiber provider in 16 of the top 30 US cities where it's not the incumbent LEC), indicating that Verizon's bent on being a disruptive force. (See Verizon Completes XO Fiber Buy; 5G Stage Set.)

In terms of the sheer number of homes under threat, Comcast Corp. (Nasdaq: CMCSA, CMCSK) and AT&T are the most exposed to Verizon's 5G fixed wireless threat, according to Cowen's analysis:

Table 1: Illustrative Households at Risk by Verizon Fixed Wireless

MSO Households at Risk % of Base
Comcast 2,181,075 8.3%
Charter Communications 1,080,670 4.7%
Cox Communications 446,145 7.9%
Altice USA 0 0.0%
AT&T 2,195,337 15.2%
CenturyLink 688,577 13.8%
Assumed BB % cable: 45% | Assumed BB% ILECs: 35% | Assumed Verizon take rate: 25%
Source: US Census, Kagan, Atlantic-ACM, Cowan.

With an assumed 25% Verizon win rate, about 2.1% of Comcast's broadband subs and roughly 1.2% of Charter Communications Inc. customers could defect to Verizon's fixed wireless offering. That represents a "limited risk" considering the multiyear timeframe to deploy, Cowen's analyst noted.

In its "worst case" analysis, Cowen sees Verizon and T-Mobile using 5G fixed wireless to secure an 11.6% penetration by 2024.

But any risk could spell troubling news for cable operators as they continue to lose video subs and as the consumer broadband sector shows signs of saturation and slower rates of sub growth in recent quarters (Q2 2018 was a recent, surprising exception as broadband unit growth rose 2.4%).

US cable operators have some serious turf to protect. To say they's been dominating consumer broadband would be a major understatement. In Q2 2018, the top US MSOs added about 585,000 broadband subs while the nation's largest telcos lost about 130,000, according to Leichtman Research Group Inc. (LRG) .

— Jeff Baumgartner, Senior Editor, Light Reading

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DHagar
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DHagar,
User Rank: Light Sabre
9/4/2018 | 6:48:20 PM
Re: smartcric is all about crictime gigabytes
@Lowas1930, I agree as things currently stand.  The packages are not compelling for a switch to higher price.  I am wondering if there will eventually be different pricing models based on different packages, bundling and delivery that will not apply the same patterns to telecom services with 5G as are currently offered with wired connections.
DHagar
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DHagar,
User Rank: Light Sabre
9/4/2018 | 6:44:16 PM
Re: It's all about the gigabytes
@Michelle, well said!  We don't need to buy technology just for technology's sake, we need continued advancement that deliver better services (including pricing) opportunities to us.
DanJones
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DanJones,
User Rank: Blogger
9/4/2018 | 3:53:50 PM
Re: smartcric is all about crictime gigabytes
With low-band (600MHz, T-Mobile) that ssems possible, yes, not practical with mmWave. Depends if you count 100 to 400-Mbit/s as broadband, the FCC sure does!
brooks7
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brooks7,
User Rank: Light Sabre
9/4/2018 | 2:05:47 PM
Re: smartcric is all about crictime gigabytes
@Lowas1930,

 

Think that they will have even deployed 5G in rural South Dakota in 2024?

seven

 
Michelle
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Michelle,
User Rank: Light Sabre
8/31/2018 | 10:51:42 PM
Re: It's all about the gigabytes
I say we don't need no 5G unless we can also get a better pricing model for mobile data usage. Providers make us pay a high price for access.
DHagar
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DHagar,
User Rank: Light Sabre
8/31/2018 | 7:13:56 PM
Re: It's all about the gigabytes
@Michelle, I am with you on this!  They need to recast the pricing with the transformative capabilities of 5G and make it truly disruptive!  Otherwise it will be compared on the basis of simplycomparative features and miss the full capabilities of the developed new technologies.
Michelle
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Michelle,
User Rank: Light Sabre
8/31/2018 | 2:24:55 PM
Re: It's all about the gigabytes
Excellent point about billing and usage. I wonder how they will distinguish this service from regular cell service. Will this impact mobile plans? I don't know how they'll sell the 5G on its own without addressing current cell data billing methods.
Jeff Baumgartner
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Jeff Baumgartner,
User Rank: Light Sabre
8/31/2018 | 11:44:59 AM
Re: It's all about the gigabytes
Yes, it will come down to how this is priced and packaged, and suspect they will try to put this into enticing bundles. I also believe that they'll have a hard time making a dent in the in-home broadband market where there are competitive wireline options, but could see them doing ok in areas, maybe rurally, where consumers are desperate for a solid broadband option. But it's hard to see that scenario adding up to an 11% penetration. Starry's use of millimeter wave spectrum to deliver a cap-free Internet service in markets like Boston could offer some guidance on what's to come competition-wise, though they have not shed a lot of detail on take rates. JB 
brooks7
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brooks7,
User Rank: Light Sabre
8/31/2018 | 9:19:44 AM
Re: It's towncalendars all about the printable calendar gigabytes
 

Well, I think we are all skeptical of 11% penetration.  The thing is how much incremental capex is required to get to that 11%?

seven
Joe Stanganelli
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Joe Stanganelli,
User Rank: Light Sabre
8/30/2018 | 11:53:56 PM
Re: It's all about the gigabytes
Between these and security concerns, going back to a flipphone is starting to look better and better -- at least, until some of these kinks get worked out.
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