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|
|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