How Much Share Does Fixed Wireless Take to be Meaningful?

You can get a robust debate pretty quickly when asking “how important will 5G fixed wireless be?” in the consumer home broadband market. Will it matter? 

Probably. But it also matters more to some than to others, and will matter even if the net result is installed base market share shifts of just a few percentage points. So there is no actual contradiction between cable operators saying “fixed wireless is not a threat” and a few firms arguing it will be highly significant as a driver of revenues. 

Keep in mind that the home broadband market generates $195 billion worth of annual revenue. Comcast and Charter Communications alone book $150 billion annually from internet access services that largely are generated by home broadband customers. 

T-Mobile has zero market share in that market. Taking just two percent means new revenues of perhaps $4 billion annually. That really matters, even if cable operators minimize the threat. 

“Addressable market” is a key phrase. Right now, Comcast has (can actually sell service to) about 57 million homes passed.

The Charter Communications network passes about 50 million homes, the number of potential customer locations it can sell to.

Verizon homes passed might number 18.6 to 20 million. To be generous, use the 20 million figure. 

AT&T’s fixed network represents perhaps 62 million U.S. homes passed. CenturyLink never reports its homes passed figures, but likely has 20-million or so consumer locations it can market services to. 

The point is that, up to this point, T-Mobile has had zero addressable home broadband market to chase. Verizon has had 20 million homes to market for that purpose. AT&T has been able to market to perhaps 62 million homes; Comcast 57 million homes and Charter about 50 million homes. 

So T-Mobile and Verizon have the most market share to gain by deploying fixed wireless. And the value will not necessarily be that fixed wireless allows those two providers to “take half the market.” The revenue upside from share shifts in low single digits will be meaningful. 

Some might counter that early fixed wireless will not match the top cabled network speeds. That is true. But it also is true that half of U.S. households buy broadband services running between 100 Mbps and 200 Mbps, with perhaps 20 percent of demand requiring lower speeds than that. 

So even if fixed wireless offers lower speeds than cable hybrid fiber coax or telco FTTH, it might arguably still address 70 percent of the U.S. market.

It is conceptually possible that untethered access could eventually displace a substantial portion of the fixed networks business, longer term. 

Up to this point, mobile networks have not been able to match fixed network speeds or costs per gigabit of usage. But that should change. 

Mobile network speeds will increase at high rates, with a rule of thumb being that speeds grow by an order of magnitude every 10 years. One might argue that is less capacity growth than typically happens with fixed networks. +

 

source: Voyager8 

But that might not be the relevant context. What will matter is how much speed, at what price points, mobile or fixed wireless solutions must offer before becoming a reasonable choice, compared to fixed access. 

Assume that in its last release, 5G offers a top speed of 20 Gbps. The last iteration of 6G should support 200 Gbps. The last upgrade of 7G should support 2 Tbps. The last version of 8G should run at a top speed of 20 Tbps.

At that point, the whole rationale of fixed network access will have been challenged, in many use cases, by mobility, as early as 6G. By about that point, average mobile speeds might be so high that most users can easily substitute mobile for fixed access.

To be sure, cost per GB also has to be roughly comparable. But, at some point, useful bandwidth at a reasonable enough price could allow wireless solutions to take lots of market share from cabled network providers. 

Matching cabled network headline speeds might not matter, as most consumers do not buy those services. Untethered options simply have to be “fast enough, priced well enough” to contend for significant share of the home broadband market.

5G Pricing So Far is Not Very "Innovative"

It always has seemed possible that 5G could lead to innovations in consumer service pricing. Though "quality" differentiation is discouraged because of network neutrality concepts, fixed network and mobile network value propositions have differed significantly.

Fixed networks differentiate based on speed tiers; mobile networks differentiate on usage allowances. Though 5G might seem to make it easier for mobile operators to shift to "speed tiers," that has not generally happened.

Nor, in more prosaic terms, have 5G prices consistently been differentiated from 4G prices.

Three possible retail 5G pricing positions are conceivable: higher than 4G; the same as 4G; lower than 4G. In the early days of 5G service, various mobile operators have adopted all three forms of early pricing for 5G services. 

Mobile operators have a few non-price tools to change value perceptions. They can increase or otherwise vary usage allowances; create speed tiers as is done on fixed networks and bundle new features. And again, various operators have opted to try one or more of those techniques.  

source: Arthur D. Little 

Relatively few mobile operators have instituted speed tiers with differentiated pricing. Vodafone, O2, Chunghwa Telecom, Elisa and FarEasTone are among the mobile operators to do so. 

Consumer internet access plans in the fixed and mobile network domains have not changed much over the last couple of decades. Fixed network services are differentiated by speed; mobile plans differ by data allowances. 

One clear example is a shift in mobile data pricing from “amount you can use” to “how fast do you want it?” That would allow mobile service providers to create tiered pricing plans that are based on “speed” rather than “data allowance.” The notion is that consumers more easily can see the value of “faster or slower” compared to “more or less.”

So far, few mobile operators have shifted from usage allowances to speed tiers. 

In modified form, both AT&T and Verizon offer speed-differentiated plans, in the form of different packages providing access to the fastest millimeter wave service.  

More common are efforts to upsell plans based on additional features, such as access to video streaming services, bundled with 5G access. 

T-Mobile Banks on Android, Google

T-Mobile announced a major deal with Google that sets Messages by Google as the default messaging solution for T-Mobile customers with Android smartphones. T-Mobile also has agreed to promote Pixel and Android devices and will use Google One as the preferred phone backup and cloud storage solution.

T-Mobile also will use YouTube TV as T-Mobile’s premium TV solution. 

The moves are a big bet on the Android ecosystem, with T-Mobile essentially betting it can take market share from other providers by doing so. The move is somewhat reminiscent of the way AT&T used its exclusive right to sell the Apple iPhone for four years, a deal many would credit with market share gains at the expense of Verizon. 

Beyond that, the move also illustrates the way mobile experiences and features now increasingly are driven by device and application providers, not mobile service providers. 

That is a rather direct consequence of the use of layers and abstraction in the software creation business. As originally proposed by the Open Systems Interconnection model, software functions are functionally separated from each other. 

source: FS 

That compartmentalization of functions is a fundamental driver of business and revenue opportunities as well. The term “over the top” exists because all lawful applications--no matter who owns them--are accessible to any customers or users who have access to the internet. 

In other words, software architecture now creates a business model reality. 

Source: pablo vaquero 

For an industry that invented text messaging, reliance on Google Messages as the default messaging solution for Android devices--instead of text messaging--illustrates the shift. 

Some might also argue that the move ratifies Google’s strong support of Rich Communication Service (RCS), originally a telco industry initiative to create rich media messaging in competition with the major app providers. 

Likewise, the replacement of T-Mobile’s own branded video streaming service with YouTube TV shows a preference for third party applications, as much as the crowded field of video streaming contenders. 

The reliance on Google One for cloud storage might be less controversial, given the growing use of hyperscale computing and storage by connectivity service suppliers for a growing range of telco applications, both internal and customer facing. 

Still, the T-Mobile move illustrates much about where value is to be found in consumer communications.

5G Adoption at 5%

“5G networks are now nearing a critical mass of global commercial network deployments and subscribers,” according to 5G Americas. According to Omdia, the world added 385.5 million 5G subscribers between the fourth quarter of 2019 and fourth quarter of 2020 to reach 401 million 5G connections globally. 

Total global mobile subscriptions in 2020 stood at eight billion. So 5G subscriptions represent about five percent of total subscriptions. As a rule of thumb, adoption reaches an inflection point at about 10 percent adoption.  

source: 5G Americas 

As of December 2020, 5G subscriptions grew at three times the adoption rate of 4G. The number of 5G connections is expected to reach 619 million globally by the end of 2021.  

source: 5G Americas

Too Bullish on IoT?

If you have been in business long enough, you learn to pay attention to business models. That applies no matter what the type of organization or revenue model. Churches and most non-profits rely on donations. Businesses rely on product, service or subscription sales. Schools rely on tuition or tax money. All government activity is funded by taxes. 

In that regard, a study produced by BCG for the European Telecommunications Network Operators’ Association illustrates important elements of the mobile and fixed network business model. 

If the report proves correct, new use cases enabled by 5G will generate nearly 66 percent of total “telco” revenues by 2025. It is not entirely clear what that claim means. In the context of an argument for government financial support, it seems to suggest that “new 5G use cases” will drive overall telecommunications revenue. 

source: ETNO 

That seems unrealistic in the extreme. For starters, mobility services in Europe account for about half of total revenues. Were 5G to displace 100 percent of telecom revenues, 5G would still account for about half of total revenues. 

Even the more-focused argument that 5G might drive 66 percent of “mobile revenues” by 2025 is plausible only if one assumes that 5G replaces most existing mobile revenue and adds substantial new fixed wireless, internet of things revenue, despite the existence of competing networks and use of premises wireless that does not necessarily create substantially higher connectivity revenues. 

Do you really believe IoT drives 35 percent of total mobile revenue by 2025? Were that the case, do you not believe revenue forecasts would incorporate that expectation? Of course, there is a rational explanation. 

Legacy telecom revenues could drop so much that new IoT revenues simply allow the industry to tread water. The larger problem is that the typical firm in the telecom industry has to expect to lose about half its current revenue about every 10 years. 

That means the mobile industry has to expect to replace about $500 billion in recurring revenue, while fixed network operators have to expect to replace $400 billion in recurring revenues, within 10 years, assuming global revenues in the $1.8 trillion range by perhaps 2025. 

Those are daunting numbers. 

source: Statista 

In Asia and much of the Pacific, mobile revenues account for something closer to 70 percent of total revenue. In the Middle East, mobile revenues account for as much as 80 percent of total revenue. In such regions, one might argue that the impact of incremental new IoT revenues could be substantial. 

source: IDATE 

But that remains a tall order. GSMA has estimated service provider IoT connectivity revenue at less than $45 billion globally by 2025. In a global business of $1.6 billion, IoT at that level would represent less than three percent of total industry revenues, but possibly six percent of mobile revenues. 

That the report is issued at all reflects the importance communications regulators have in creating and shaping the business model. It is deemed necessary, from time to time, to “remind” regulators and politicians of the economic contributions an industry makes.

In that regard, the ETNO report argues that 5G and gigabit fixed networks can provide enormous economic benefits. No surprise there. What would be surprising is an argument that no financial help is required and that 5G is such a lucrative thing that service providers cannot wait to deploy it.

U.S. Smartphone Customers Want Better Battery Life, Storage, Faster Processing, Better Photos More than 5G

A survey of U.S. smartphone users by BlinkAI suggests they want better battery life, storage, faster processors and better photo quality more than they want 5G. With the caveat that customers rarely can evaluate their demand for something they have not yet experienced, the results also suggest that device manufacturers are in better position to create more-compelling experiences than are mobile service providers.

source: BlinkAI 

The survey found U.S. smartphone owners rank longer battery life (73 percent), more storage (49 percent), a faster processor (43 percent), and better photo/video quality (41 percent) as more compelling reasons to upgrade to a new device than 5G (34 percent), BlinkAI notes. 

Android users (36 percent) said they were slightly more compelled by 5G to upgrade from their current smartphone versus iPhone users (32 percent), and were also more interested (47 percent) in the idea of upgrading to a better processor than their iPhone (43 percent) counterparts, BlinkAI says. 

Given the clear desire for better battery life and faster processing, it probably is not too surprising that applied artificial intelligence was deemed most attractive if AI could extend battery life and allow faster processing. AI was deemed helpful for security, photo image quality and speech recognition as well. 

source: BlinkAI 

The BlinkAI survey included 1,000 U.S.  smartphone owners in February 2021. The sample was nearly evenly split between iPhone (55 percent) and Android users (45 percent).

Impact of Long-Term WFH on Mobile Networks Unclear

Among the things we still do not know is how much the Covid-19 pandemic work from home policies will result in permanent changes in work venues and behavior. But if significant WFH behavior persists, there will be direct implications for mobile operator capex. 

If there are fewer people downtown, cell tower demand at the busiest sites will drop. That might mean slower upgrade investments than originally foreseen. Conversely, more people working from home might mean a shift of mobile network traffic out to the suburbs, with a possible increase in capex requirements in some areas. 

On the other hand, it seems likely that most suburban WFH data demand will be shifted to the fixed network connections, moderating any increase in mobile bandwidth demand overall. 

Less commuting to the office means less demand for data on commuting routes. On the other hand, more use of group video calling might boost demand at both suburban and urban locations. 

It is not yet clear whether there are immediate repercussions for fixed network access demand. Office locations might find they need less bandwidth than they did in the pre-Covid-19 past. Residential locations will have new and higher demand for more-symmetrical bandwidth services. 

Higher amounts of video calling could produce higher demand for 5G, if 5G improves video calling experience outside the home.  

PTC'21 — 5G+AI+IoT: Beyond Magic

If 5G is “magic,” it can only be so when artificial intelligence and the Internet of Things (IoT) are combined with it, said Jefferson Wang, Accenture global 5G strategy lead during PTC’21 PTC'21.

Unfortunately, he advised, consumer 5G services are unlikely to drive incremental revenue, so the issue is how service providers can extract value from 5G.

Simple connectivity is unlikely to be the satisfactory answer, Wang suggested. Edge computing, security, personalization, and analytics – applied to services aimed at industry verticals – are ways additional value can be created, Wang said.

T-Mobile Makes Business Push

T-Mobile’s push for more business customers includes remote location access, business phone system (powered by dialpad) and unlimited usage plans. 

T-Mobile WFX Home Office internet starts at $90 per line per month, and Enterprise Unlimited with T-Mobile Collaborate together start at $37per line per month. 

Enterprise Unlimited plans were available March 5, 2021. T-Mobile Home Office Internet and T-Mobile Collaborate will be available March 22, 2021.

As always, the fine print includes some limitations. “During congestion, customers with Enterprise Unlimited using more than 50GB per month and customers with Home Office Internet may notice reduced speeds due to data prioritization,” T-Mobile says. As often is the case, “unlimited” is not necessarily “fully unlimited.”

Video typically streams at 480p on Enterprise Unlimited plans, not 1080p or some higher resolution. 

Enterprise Unlimited/Collaborate plans require a minimum of 11 lines. Tethering is full speed up to use of 10 GB. Additional usage uses 3G speeds.

Fixed Wireless Not a Threat?

Cable operators and many observers say they do not believe fixed wireless is a threat in the home broadband market. The argument is that speeds will not match what hybrid fiber coax or fiber to the home is capable of; usage allowances will not match that of cabled networks and price discounts will not be significant enough to attract switchers. 

T-Mobile and Verizon are enthusiastic for perhaps equally-compelling reasons: $195 billion worth of annual revenue. Comcast and Charter Communications alone book $150 billion annually from internet access services that largely are generated by home broadband customers. 

But even most business accounts could be candidates for fixed wireless, including smaller businesses as well as larger entities using fixed wireless as a backup service. 

source: S&P Global 

Beyond all that, fixed wireless is interesting for attackers in the home broadband market, simply because the easiest possible business model is “same service, lower price” in a market with proven demand characteristics. And the “lower price” part of the value proposition is powerfully enhanced by fixed wireless.

Fixed wireless does not have to compete with the high-end FTTH or cable gigabit services. As history has shown, most competitive attacks in software or communications happen at the low end: a product that is “not as good as that provided by the leaders, but still useful.” 

And since at least half of all U.S. home broadband customers buy services operating in the 100 Mbps to 200 Mbps range, a fixed wireless service only has to provide about that level of performance, with adequate usage allowances and a lower price, to be competitive. 

The other issues are coverage and infrastructure cost. T-Mobile has had zero market share in home broadband because it is not in the fixed networks business. Verizon has a small geographic footprint and has never been able to compete in 80 percent of the U.S. home broadband market. Fixed wireless, provided by the same 4G and 5G networks they must operate in any case, provide a platform for doing so.

FCC to Auction Another 100 MHz of Mid-Band Spectrum for 5G

The U.S. Federal Communications Commission decided March 17, 2021 to release another  100 Megahertz of spectrum in the 3.45 GHz band for 5G, using spectrum sharing. 

source: FCC 

Collectively, the 3.45 GHz band and the neighboring 3.5 GHz and 3.7 GHz bands represent 530 megahertz of contiguous mid-band spectrum for 5G. 

Prior to the Citizens Broadband Radio Service and C-band spectrum auctions, most of the available (but not commercially deployed) capacity held by all the U.S. mobile service providers was in the millimeter wave bands. 

source: Allnet 

Future platforms, from 6G onwards, will rely primarily on new millimeter wave assets for capacity augmentation, as the low-band and mid-band coverage assets cannot be increased much more without significant effort.

U.K. Auction of Mid-Band Spectrum Proves to be Affordable for Mobile Operators

5G spectrum in the 700-MHz and 3.6 GHz to 3.8-GHz regions has been awarded by Ofcom in an auction raising £1.356 billion for 80 MHz of spectrum in the 700MHz band and 120MHz of spectrum in the 3.6-3.8 GHz band, for a total of 200 MHz of new spectrum. 

The new allocations increase mobile operator spectrum assets by about 18 percent. With the exception of the very-high 3G spectrum prices United Kingdom and elsewhere, U.K. spectrum prices have not been exorbitant.   

Prices paid for C-band spectrum (3.3 GHz to 4.2 GHz) in 5G-relevant auctions since 2015 range from $0.002 per MHz POP  (Slovakia, Norway and Romania) to $0.424 per MHz POP in Italy, according to the Global Mobile Suppliers Association. 

source: Light Reading

The sums bid are less than what many observers expected, possibly because of spectrum limitation screens that decreased demand by the largest mobile operators save O2, which could bid as much as it wanted. 

Demand might also have been shaped by expectations about the revenue and profit to be generated by 5G, as well as by the anticipation of additional auctions in the future, or memories of the overbidding that happened for 3G licenses. All those issues would depress demand. 

In recent decades U.K. spectrum prices have been somewhere in the middle of prices within Europe or internationally. 

By way of comparison, the recent U.S. C-band auction of assets in the 4-GHz range auctioned 280 MHz of spectrum, but across a much-larger potential customer base, with high average revenue per account metrics. 

The point is that U.K. spectrum prices, on a MHz-POP basis, tend to fall in the middle ranges, as was expected by some prior to the auction.

Organic Growth or Acquisition to Become a Platform or Orchestrator?

Is it necessary for connectivity providers to become a full platform to generate significant revenues from cloud-based, internet of things and edge computing solutions? How much orchestration has to occur so connectivity offers add value? The answers may well determine how successful most telcos will be in the next era. 

Also, how much orchestration of value can occur--and provide revenue growth--without a full shift to a “platform” role? That might be the more-important question, as few telcos can realistically expect to become the center of a big ecosystem, and operate as a true platform. 

Today, virtually all telcos operate as “pipe providers,” not in the direct sense of supplying connectivity services, but in the broader sense of creating a product and then selling it directly to customers. Telcos have that in common with most businesses, in most industries, most of the time. 

source: Accenture 

Accenture consultants have used a tripartite model of the potential evolution of telco services, beginning with “connectivity provider” and growing to become a “connectivity-plus-plus” provider. That would include adding roles in edge computing, security services and internet of things, for example. 

The future role of “industry orchestrator” does not actually require a switch to a “platform” business model. It does require working with third parties to create new services bundling connectivity with line of business solutions, likely in some industry verticals. 

What is important is that such an evolution does not require any telco to become a platform. It “only” requires adding more value to existing connectivity products, to provide higher value, and thereby reap a higher share of “solution” revenues. 

source: Accenture 

In large part, the move “up the stack” or “across the value chain” towards end user applications is necessary simply because the core connectivity business is close to saturation, with little revenue growth from business-to-business or consumer lines of business. 

Growth will necessarily have to come from new products beyond connectivity, as hard as that will be to achieve. That is one reason the industry has created the multi-access edge computing concept. It might allow a richer value proposition solving more business problems than “communications.” 

source: IBM Institute for Business Value 

Think of the way hyperscale data centers have created ecosystems of application, support and connectivity options for customers colocated inside the buildings. While often not a switch to a full platform model--which would require that the data center operator gets a percentage of all transactions between partner use of its platform--still uses the principle of the ecosystem to provide higher value for co-located partners, and thereby drives real estate value and revenue. 

That poses other problems. If telecom companies decide to grow by acquisition, and they acquire software, technology or content assets, they face the impact of higher valuation assets.

In 2021, for example, enterprise value multiples compared to cash flow multiples (EV/EBITDA)--the value of all stock and debt divided by free cash flow--were 44 times in the internet software business and just 6.8 times for the telecom industry, according to Statista. 

source: Statista 

Information services had a 32 multiple while software had a multiple of 31. 

Essentially, telcos will be buying pricey assets with depreciated currency when acquiring assets “up the stack.” The alternative is an organic, “grow your own” strategy. That limits investment, but also tends to limit scale. 

source: Arthur D. Little 

That valuation gap exists even within some related infrastructure areas, as data center assets, or infrastructure suppliers directly supporting data centers, have valuation multiples in the 21 range, where mobile operators are valued at about 5.8 times EV/EBITDA.  

source: Bain 

The obvious issue is that acquiring assets “up the stack” at the application layer is costly. If one assumes that connectivity providers eventually will have to make such moves, the challenge is how to amass enough free cash flow to do so. 

The other path is organic growth, where the telco grows its own new services. The traditional issue with that approach is simply that it takes time, and rarely has been the way telcos gain significant scale in any new line of business. Consider software-defined wide area network services. Arguably not a single telco anywhere in the world can claim to generate as much as $1 billion in annual revenues from its SD-WAN offerings. Very few can claim such amounts from legacy multi-protocol label switching (MPLS) services, either.

Smaller connectivity providers will have scant chances to pursue such strategies, though. As small independent providers in any industry are squeezed out as scale providers emerge, smaller connectivity providers will have few choices but to manage costs as best they can until an exit event.