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Broadband Incumbents Should Be 'a Little Bit Nervous' About Starry – Analyst

Jeff Baumgartner
11/30/2018
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Despite ongoing skepticism about the limitations of using millimeter wave (mmWave) spectrum to deliver speedy broadband services, a top industry analyst came away bullish about Starry's technology and the economics underpinning its business.

In a blog post recounting a visit with Starry Inc. this week, MoffettNathanson LLC analyst Craig Moffett said the update from the startup, now that it has some real-world data about its business, was "eye-opening."

"The short answer is... the technology, the economics, and the business itself all appear to be working," Moffett wrote.

That summation arrives as Starry, which views itself as a 5G player, prepares to launch its cap-free, low-cost fixed wireless broadband service to almost 20 more markets following initial rollouts in parts of its home town of Boston, as well as New York, Los Angeles and Washington, D.C. Other markets in the deployment plan include Denver; Cleveland; Chicago; Houston; Dallas; Seattle; Detroit; Atlanta; Indianapolis; San Francisco; Philadelphia; Miami, Memphis; Phoenix; Minneapolis; Manchester, N.H.; Portland, Ore.; and Sioux Falls, S.D. (See Starry Scores $100M More for Wireless Broadband.)

Targeting apartment buildings and other multiple-dwelling units early on with plans to offer service to single-family homes in the second half of 2019, Starry has been using mmWave signals (operating a 600MHz slice of spectrum in the 37GHz - 38.6GHz band) to deliver symmetrical speeds of 200 Mbit/s, starting at $50 per month. Starry has also filed to participate in the FCC's spectrum auction in the 24GHz band. (See Starry Sets NYC Launch, Aligns With Real Estate Developer , Starry Fixed Wireless Debuts at $50/Month and Cable Nearly a No-Show in mmWave Auction.)

A high-level view of Starry's architecture. Starry has been focused on MDUs, but has plans underway to serve individual homes in the latter part of 2019, according to Moffett.
A high-level view of Starry's architecture. Starry has been focused on MDUs, but has plans underway to serve individual homes in the latter part of 2019, according to Moffett.

Starry is a broadband-only service, but does steer its customers to various over-the-air and OTT-TV options, including YouTube TV, Hulu (live TV), Sling TV, PlayStation Vue, DirecTV Now and fuboTV.

Moffett, who met with Starry about 18 months ago, acknowledged that Starry's business is still "small." The Boston-based startup hasn't announced customer numbers, but the analyst estimates that it's reasonable to assume that it's currently measured in the tens -- not hundreds -- of thousands.

However, he said there are signs that Starry's business is ready to scale as the company heads into 2019.

Aligning on a cost model
Part of his reasoning stems from Starry's cost model, which is getting close to the company's target of $20 per home passed, or the total cost per tower divided by the number of serviceable homes in the radius of each tower, Moffett explained. He said a prototype for a new, smaller version of the Starry Beam receiver tailored for the single-family home use-case indicates that Starry has achieved its goal to get that piece below the $200 mark.

"With low costs and a price to the consumer of $50 per month... their economics are compelling," Moffett said. He added that company founder and CEO Chet Kanojia said the "breakeven" for a new microcell is a mere 120 paying customers.

Based on customer acquisition costs that come in under $450, Starry can reach breakeven on an individual customer, Moffett said.

Starry told the analyst that it typically achieves 25% market share in newly-served buildings within the first 30 days via a combo of word-of-mouth and the use of door hangers and other in-building marketing pieces. Though the buildings that Starry serves today are not huge, they are adding more than 1,000 new subs per week.

Starry's approach does, of course, draw comparisons with Verizon Communications Inc. (NYSE: VZ)'s new 5G Home product, which also uses mmWave signals and leans on a small cell infrastructure. However, Kanojia, Moffett said, is skeptical that Verizon's planned dual-use of the technology for mobility and fixed wireless broadband will be feasible. (See Verizon's Home-Grown 5G Arrives Today.)

The use of mmWave spectrum, in general, requires towers to be close to the home or building, and does not perform well in the presence of buildings, trees and foliage. It also has trouble penetrating walls and windows.

Starry disputes that its approach is saddled with those issues, claiming to Moffett that its hybrid analog/digital beam-forming technology can achieve greater propagation distances than other use cases.

Kanojia, who started up Starry after his previous company, Aereo, got run into the ground by the broadcasters, also argued that mmWave can be useful indoors, telling Moffett: "Anyone claiming these frequencies can penetrate modern construction materials -- insulation-lined walls, for example, or modern glass -- is lying." [Ed note: We've asked Starry to provide more color on how it overcomes these well-known obstacles for mmWave signals.] (See Last Chapter (11) for Aereo and Supreme Court Halts Aereo's Flight.)

Despite being impressed with what Starry has done so far, Moffett is also realistic about Starry's competitive impact on the broader US broadband market, as its approach is expected to apply to maybe a third of the country and be limited to urban areas. For now, it appears that Starry could, at the very least, be a nuisance for other service providers to be mindful of in pockets of the markets where Starry ends up.

"Thus far, Starry's serviceable markets are little more than specks on the country's broadband map," Moffett said. "Even with their rapid rate of growth, Starry won't be much more than a rounding error in broadband market share calculations for the next few years (and scaling even to that size will require additional capital and dramatic expansion of personnel, which takes time)... And, despite all the caveats, it is impossible not to be at least a little bit nervous about what Starry means for the broadband incumbents."

— Jeff Baumgartner, Senior Editor, Light Reading

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brooks7
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brooks7,
User Rank: Light Sabre
11/30/2018 | 5:46:46 PM
Re: Urban Areas?
 

I have seen WISPs that run Gigabit+ to large or high end MDUs already.  There is a lot of work going on in small cells in that space (including new mesh stuff) for suburbs.  I don't think you will see 1 answer for urban and suburban.

seven

 
Duh!
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Duh!,
User Rank: Blogger
11/30/2018 | 5:03:22 PM
Re: Urban Areas?
For now, they're focused on MDUs because of spectrum limitations. They're operating under special temporary authority in 39GHz for now, with plans to buy a bunch of 24GHz spectrum at auction and move the installed base into that band with no truck rolls. The STA limits the number of sites they can have, thus the  MDUs maximize revenue.

As far as suburbs, there are suburbs and there are suburbs. Some will be dense enough to meet their business case threshold, others not. Also, their capex per home passed is lower than the industry norm because they're backhauling over a mesh network at big savings in fiber infrastructure. 3GPP is working on something similar for 5G. Don't know how scalable that's going to be.
Jeff Baumgartner
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Jeff Baumgartner,
User Rank: Light Sabre
11/30/2018 | 3:33:59 PM
Re: Optimistic?
It's more than fair to be skeptical about any overly-bullish view, whether it's about Starry or someone else, though what I gathered is that they believe Starry has a chance to have some success in their small corner of the market-- they're not going to go out and dominate the broadband services sector in any sense, but they might prove to be an irritant whereever they do end up. 

And these are also the analysts that were majorly skeptical about Google Fiber in its early days when it seemed many others were ready to crown them King of All Broadband, so I give their informed opinions a bit more weight than I might from someone else. 

At this point, I'm also not sure how I would judge their success...What barometer are we going to use? Mere survival before the funds run out (they've raised ~$16M)? Some arbitrary subscriber number? An exit via sale? JB
mhollobow
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mhollobow,
User Rank: Light Beer
11/30/2018 | 2:48:00 PM
Urban Areas?
Aren't most residential buildings in urban areas multi-dwelling units? Unless you consider suburbs to be part of urban areas, I question the economics of Starry rooftop arrays and Beams in lower-density single-family home neighborhoods. 
DanJones
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DanJones,
User Rank: Blogger
11/30/2018 | 2:08:44 PM
Optimistic?
Seems a trifle too optimistic to me!
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