How much market share does 5G fixed wireless have to shift before it affects the profitability of the fixed network consumer internet access market? Not much.
In recent quarters, for example, U.S. fixed network internet access net additions have totaled about six tenths of one percent of the installed base, with cable gaining eight tenths of one percent while telcos lost about two tenths of one percent.
In other words, a shift of about two-tenths of one percent per quarter halts the telco decline. A shift of perhaps six-tenths of one percent--from cable to telco--actually causes cable share to begin a decline.
That is what the stakes realistically are: a chance for telcos to halt, and perhaps reverse, the long-term decline of their market share in internet access.
Cable TV executives in the U.S. market naturally express as much skepticism about the dangers 5G fixed wireless services pose for their consumer broadband business as telco execs say they are optimistic. Basically, it will no scale, or will scale too slowly to keep up with cable’s own planned bandwidth plans, cable execs tend to say.
There is reason for the cable views. The threat of optical fiber to the home has existed for a few decades, but has not dented cable’s emergence as the leading supplier of consumer internet access connections using fixed networks. Cable has about 67 percent of the installed base and has essentially gotten more than 100 percent of the net new account additions for a couple decades.
In fact, over the last 20 years, it would be hard to find a single year where cable broadband net account gains were not about 60 percent to 70 percent of all net gains.
But the impact of 5G fixed wireless is not that it dramatically upsets the market. 5G fixed wireless might be the only way telcos collectively can halt a long-term decline of their market share.
It might be prudent not to envision any scenario where 5G fixed wireless actually upends the market share structure. Instead, 5G fixed wireless probably is relevant because it might shift just enough share to choke off the cable growth model, reverse the telco share loss trend, and then change profit margins.
It is very subtle stuff. Verizon, for example, only has to gain about 7,000 5G fixed wireless accounts per quarter to halt its customer losses. T-Mobile US and Sprint have virtually zero fixed network market share, so even smallish gains represent new accounts with average revenue possibly double what they get from mobile internet access accounts.
Cable operators have lead the consumer fixed network internet access business for two decades, despite growing telco use of fiber-to-home networks.
With cable operators already having a roadmap for growing hybrid fiber coax speeds to 10 Gbps, it appears telcos are stuck playing catch-up in the “speeds and feeds” race.
Of course, speed is one element of the buyer equation. Price and packaging are the other key elements of the value proposition. At some point, if consumers come to understand that they actually do not “need” to buy the fastest advertised speeds, the opportunity for “good enough to satisfy your needs, lower price” becomes a more-viable offer.
At the moment, despite the availability of gigabit per second services, most consumers with a choice tend to buy mid-range services. At the moment, it is conceivable that about four percent of U.S. consumers buy gigabit internet access. Perhaps 58 percent of U.S. consumers buy services with speeds between 100 Mbps and 300 Mbps.
The big take-away is that the business model and value proposition matter. Consumers show interest in gigabit speeds but that interest does not necessarily translate to adoption, a new study by Parks Associates suggests. Consumers fail to see a compelling need for gigabit services, as few households require the performance levels of these services, the firm says.
Some 22 percent of U.S. broadband households buy a service operating with speeds ranging from 100 Mbps and 999 Mbps, the most common service tier cited by survey respondents who say they know their speeds, according to Parks Associates.
Just six percent of respondents say they buy a gigabit service.
But Parks Associates also says interest in upgrading to that speed of service has declined over the past two years.
“Interest in gigabit speeds has declined, due partly to limited availability, but also as households prioritize cost over speed,” said Craig Leslie, Senior Research Analyst, Parks Associates. “Of the US broadband households that switched services in the past year, 50 percent did so to get a better price, while 36 percent switched to get better speeds.
“Households are not seeing the benefits to speed upgrades,” Parks Associates says.
The point is that raw speed is important, but only part of the value equation. As many municipal broadband providers have learned, offering gigabit speeds for much-lower prices really does shift a lot of market share.
What remains to be seen is whether a similar sort of offer--mid-range speeds at lower prices than cable--can shift significant amounts of market share.
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