Amid a frenzy of fiber-to-the-premises (FTTP) network building activity that might foreshadow the formation of "fiber bubble," recent fixed wireless access (FWA) deployments have begun to make a dent in the market and steal some of the broadband spotlight.
Based primarily on the results of Verizon and T-Mobile, the US FWA market captured about 38% share of broadband industry net adds in the fourth quarter of 2021, according to a new market analysis from MoffettNathanson (registration required). While about half of Verizon's FWA customers are coming from commercial accounts, T-Mobile has indicated that about half its fixed wireless customers are being pulled out of the cable pool.
It's early days for FWA, but recent subscriber results indicate that the category "has gone from low-level background noise to suddenly a major force, with Verizon and T-Mobile alone capturing more than 300K FWA subscribers in the fourth quarter," MoffettNathanson analyst Craig Moffett noted. But he still wonders if wireless operators can and will allocate enough capacity for FWA to fully scale.
US cable treads water
But FWA's strong Q4 showing left cable's flow share at just 66%, about the same as cable's share of installed US broadband households. "In other words, Cable likely neither gained nor lost share during the quarter, and instead merely treaded water," Moffett noted.
MoffettNathanson noted that Q4 2022 broadband growth, at +3.3%, "remains relatively robust," and above pre-pandemic levels of about +2.8%. In 2020, a year that witnessed a surge in broadband subs as millions worked and schooled from home, the growth rate spiked to 5%. Here's a snapshot of the broadband subscriber landscape for Q4 2021:
|Sector||Q4 2021 Gain/Loss||Q4 2020 Gain/Loss||Year-on-Year Growth %||Total|
|Total Wireline||+437,000||+920,000||+2.8%||112.95 million|
|Total Broadband||+704,000||+966,000||+3.3%||115.48 million|
|* Verizon and T-Mobile only|
US broadband ended 2021 with a penetration of 84% among all occupied households. According to US Census Bureau data, new household formation, a vital growth driver for broadband, added just 104,000 to the occupied housing stock in Q4 2021, versus +427,000 in the year-ago period. Moffett said the "inescapable conclusion" is that growth rates will continue to slow, and that over time virtually all growth will have to stem from new household formation.
Factoring in competition and other elements impacting the broadband market, MoffettNathanson also adjusted its subscriber forecasts for several cable operators and telcos out to 2026. Here's how those adjustments, which do not include any potential incremental growth from participation in government subsidy programs, look like for 2022:
- Comcast: Adding 948,000 subs, versus prior forecast of +1.25 million
- Charter: Adding 958,000 subs, versus prior forecast of +1.22 million
- Cable One: Adding 39,000, versus prior forecast of +48,000
- Verizon: Adding 241,000, versus prior forecast of +302,000
- AT&T: Adding 136,000, versus prior forecast of +60,000
Possible 'fiber bubble' forming
Moffett is not convinced that a flurry of FTTP network building activity – with the potential of nearly 40 million new fiber passings between 2020 and 2025 for overbuilds alone – will pay off for operators across the board.
He estimates that about 30% of the US, by population, has been overbuilt by fiber over the past 20 years, and that the number is poised to rise as high as 60% over the next five years. But the big question is whether there's enough labor and equipment to support this magnitude of expansion.
"Our skepticism about the prospects for all of the fiber plans currently on the drawing board is not born of doubt that there is enough labor to build it all so much as it is that the cost of building will be driven higher by excess demand," Moffett explained. "There are already widespread reports of labor shortages and attendant higher labor costs."
On that point, he notes that Steve Nielsen, CEO of contract installer Dycom, recently acknowledged that adding capacity through new hires and semi-skilled labor has become more expensive.
When factoring rising labor and equipment costs, higher costs per homes passed in low-density markets and rising capital costs due to inflation, it creates a recipe for a lower return on investment. But the analyst also acknowledges that every FTTP deployment is different and that average fiber costs are variable – more expensive if it involves underground construction, and less expensive when buildouts benefit from aerial plant. Market density and penetration rates will also play big roles in the return on investment.
"In at least some markets, returns will likely be well below the cost of capital," Moffett predicts.
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— Jeff Baumgartner, Senior Editor, Light Reading