Can Fixed Wireless "Save" Telco Fixed Networks Business Model?

Facing new competition from Google Fiber, cable TV and telco executives insisted consumers did not “need” a gigabit Internet access speed. They essentially were right then, and the assessment generally continues to hold for most accounts: nobody really uses apps that need a gigabit.

And yet, 5G standards will include multi-gigabit speeds, and the cable TV industry already envisions 10 Gbps service. Nokia already has demonstrated 10 Gbps symmetrical speeds on hybrid fiber coax, supporting the CableLabs “full duplex” version of DOCSIS 3.1.

Comcast also is going to sell business customers 100-Gbps Ethernet in Annapolis, Md., illustrating once again that it is cable TV operators who now set the standards for much of the U.S. Internet and data communications market, consumer, small business or enterprise.

All that illustrates a principle: advertised Internet speeds are mostly about marketing, at this point, not “need.” The clearest use case for most accounts is that multiple users in a family or household watch lots of high-definition format streaming video simultaneously.

Generously allocating 10 Mbps per stream would mean a need for 70 Mbps for seven simultaneous HDTV streams.

Some users running servers out of their homes plausibly need similar levels of bandwidth. But the average consumer arguably needs nowhere near 100 Mbps.

A reasonable 2015 analysis of functional need, per user, might have looked something like this:

• 5 Mbps or less: Basic web surfing and email
• 5-10 Mbps: Web surfing, email, occasional streaming and online gaming with few connected devices
• 10-25 Mbps: Moderate HD streaming, online gaming and downloading with a moderate number of connected devices
• 25-40 Mbps: Heavy HD streaming, online gaming and downloading with a lot of connected devices
• 40+ Mbps: Hardcore streaming, gaming, and downloading with an extreme number of connected devices.

You might reasonably argue it is ultimately dangerous to invest real capital in networks whose capabilities so outstrip demonstrable present need. But it has arguably been the case for some time, in the fixed networks business, that telcos have to invest serious amounts of capital in their fixed networks simply to stay in business.

Those are strategic investment drivers--you get to keep your business--rather than the more-typical business case analysis where incremental capital is invested to gain incremental revenue.

You might argue that tier-one telcos actually are behaving rationally when “underinvesting” in fixed network capabilities--even at the risk of losing market share to cable TV companies--if they believe the future rests in their mobile networks.

In other words, some might have concluded that traditional telco fixed network economics, in competitive markets with high amounts of stranded investment, cannot fundamentally be fixed.

That is a complex matter involving high operating costs and regulatory burdens higher than faced by competitors, heavy amounts of stranded assets, and key and perhaps growing numbers of competitors with capital and operating cost advantages.

That is not to say fixed networks inevitably must lose relevance. But what one contestant can do, with one set of assets, is not necessarily what every other contestant can do. Right now, networks built using cables favor hybrid fiber coax, and cable TV operators.

It is not clear how much mobile or fixed wireless can change the equations enough to level the capital and operating cost parameters. But the effort is going to be made.