Will 5G Fixed Wireless "Surface" the "Reasonable Speed for Reasonable Price" Market Segment?

It is too early to say whether fixed wireless platforms will be long-lasting drivers of market share in internet access markets, or only relatively temporary. Some believe speed limitations will ultimately reduce fixed wireless attractiveness. Others think fixed wireless capacity can keep growing. 

But at least for the moment, it is hard to ignore U.S. cable operator lost market share and the availability of fixed wireless from Verizon and T-Mobile. In the near term, fixed wireless market share gains seem a certainty. 

Comcast continues to claim that fixed wireless is not damaging its home broadband business, and that might well be correct. For any ISP, a customer move is an opportunity to gain or add an account, so lower rates of dwelling change should logically reduce the chances of adding new accounts. 

In the second quarter of 2022, Comcast reported a net loss of customer relationships and “flat” home broadband accounts. 

That might suggest to some observers that stepped-up telco fiber-to-home and fixed wireless account gains might be starting to change market share dynamics. Those trends possibly were not obvious in the first quarter of 2022. 

All that said, there are possible signs of change. Fixed wireless already is driving net home broadband additions for T-Mobile. On its second quarter earnings report, T-Mobile added more than half a million net new home broadband accounts, which might put it on track to be the biggest net gainer for the third quarter in a row. 

In the fourth quarter of 2021, fixed wireless represented 74 percent of Verizon net home broadband additions.  

Comcast did not gain net accounts for the first time, ever, according to market watchers. Verizon added significant numbers of new home broadband accounts in the same quarter.  

The longer term  issue is demand as typical data consumption keeps growing, and “typical speeds” likewise keep climbing. 

Perhaps use of millimeter wave assets and better radio technologies will solve much of that problem for fixed wireless operators. Perhaps new wholesale arrangements will develop. 

What might also be happening is that consumer appetite for “more affordable” internet access is substantial. That especially appears to be the case for Verizon and T-Mobile customers who also have mobile service from either of those two providers.

Many households might be willing to trade “speed” for “lower price.” In other words, as with any product, value is a combination of features and price. Fixed wireless might show the existence of a market segment that cares about “reasonable speed for a reasonable price” more than “fast” levels of service. 

That is not the whole market, but it is potentially a big enough segment to shift billions of dollars of home broadband revenue and significant market share.

SpaceX to Provide Coverage to T-Mobile Customers

Satellite services always have been the go-to platform for connectivity in places where other terrestrial infrasturcture is unavailable. That continues to be the case, even for SpaceX, which has inked a deal with T-Mobile to provide lower-bandwidth coverage (2 Mbps to 4 Mbps) to T-Mobile phone users. 

5G Will Not Move the Revenue Needle for Asia-Pacific Mobile Operators by 2026

As hopeful as optimists are about revenue generation from 5G network slicing, edge computing, private networks and fixed wireless, none of those sources is likely to make much of a contribution to Asia-Pacific region mobile operators by 2026 or 2027. 

IDC’s latest estimate of 5G enterprise services revenue in Asia Pacific, for example assumes 5G network slicing revenue growth at a 269 percent compound annual growth rate, with a CAGR of 125 percent for multi-access edge computing. 

Also fixed wireless growth rates of about 73 percent; 5G private wireless takeup of about 64 percent will contribute. 

By 2026, 5G enterprise revenue might hit $8 billion, IDC projects. Not all of that revenue might accrue to service providers, though. Edge computing will probably involve quite a bit of revenue sharing, while private 5G revenue might often be earned by infrastructure providers and system integrators, rather than mobile service providers. 

source: IDC 

Also, even if all $8 billion were to be earned by service providers, each discrete revenue component is relatively small, with none generating more than $3 billion in annual revenue, across the region, by 2026. 

By about 2027, according to Frost and Sullivan, region revenue should be about $489 billion. So even network slicing, the projected largest revenue generator IDC identifies, would account for less than one percent of region revenues in 2026 or 2027. 

While it always is possible that revenue generation is more robust in other regions, it seems unlikely to vary all that much from Asia Pacific, which is one of the bigger connectivity global markets, and also one of the fastest-growing.

C-Band Spectrum Value Driven by Demand, of Course

Spectrum prices always are driven by mobile operator need, general price levels in the market and perceived competitive value. C-band spectrum, by those measures, is considered critical in the U.S. market, especially for Verizon, as well as in Taiwan. 

source: GSA

Flat-Rate Pricing with Unlimited Usage is Not Fully Rational

U.S. mobile operators are encouragng customers to upgrade to "unlimited usage" plans that produce higher recurrring revenue. Whether that is fully rational or not is questionable.

Flat rate pricing for unlimited usage might well be cited as the key change of business model from the voice era, where most usage was metered, creating incentives for customers not to "waste" resources. Other utility industries also use incentives--such as differential or dynamic pricing--to create incentives for customers to reduce "peak" hour usage.

That was a staple of the voice industry in the past, and arguably should be part of the pricing mechanism for home broadband and internet access as well. The point is that flat rate pricing coupled with unlimited usage creates disincentives for consumers to regulate their usage.

Though it is clear why consumers prefer unlimited usage, it also is clear why mobile operators do not actually offer it. After some amount of unthrottled usage, customers face restrictions on access speed. In other words, unlimited access to networks that provide unsatisfactory experience is what "unlimited" access actually means.

Access to the best networks (5G, for example), is not actually "unlimited."

So conventional wisdom and reality often are at odds, which is why it is good to quantify.

But it also is important to know when "average" is misleading. Reported results from a recent NBC News poll, for example, suggest about half of students would consider living with a roommate who voted for the opposing presidential candidate in 2020. 

That might suggest an equally-divided set of responses. But Axios, looking deeper at the results, finds a sharp difference in responses, when sorting the data at a more-granular level. 

source: Axios 

The point is that “average” (“mean” response) often is misleading. We find this all the time in internet behavior, as “average” conceals as much as it reveals. "Average" mobile data consumption is one thing; actual usage in different markets is quite something else. 

source: OpenVault 

“Average” data consumption on U.S. fixed networks also varies significantly. Customers buying access at 1 Gbps consume an order of magnitude more data than customers buying service at  less than 50 Mbps, for example. 

In the mobile business, North American customers typically buy “unlimited usage” plans, which of course have the effect of increasing consumption. The saving grace--for mobile operators--is that “unlimited” plans generally impose usage caps, after which data speeds are throttled, so the plans are not actually “unlimited” in terms of access quality. 

source: Cisco 

And, as the adage goes,  “yesterday’s power user is today’s ‘average’ user.”

Power users who consume more than 1 TByte per month are growing, as a percentage of total users, while lower-usage tiers are shrinking, according to OpenVault. 

 In 2017, 2TB power users only represented .12 percent of subscribers. In 2021 the percentage had risen to 2.74 percent. 

Over the same period, subscribers who consume 100 GB or less fell from nearly half of all subscribers (49.7 percent) to just 26 percent.

Consumption will climb further as video applications assume more importance with higher-definition video formats and eventually immersive virtual reality apps. 

source: Cisco 

So home broadband is a race between increasing consumption and decreasing cost to supply. 

source: NCTA 

The saving grace is that access bandwidth increases at about the same rate as Moore’s Law suggests: about a doubling of capability every 18 months. 

source: Brookings 

The point is that retail cost per bit keeps dropping. Some of that price decline is a result of network upgrades. In other words, wholesale price is dropping. 

Some of the reported decline is offset by other “below the top line” charges. And some of the gross revenue is increased as consumers upgrade to higher-priced plans. 

source: Mobile Experts 

That means some of the consumption increase is offset by performance enhancements of the access network. 

But capital intensity tends also to increase over time, meaning other tweaks to the business model are necessary. 

Pricing and packaging strategies might have to change in ways that encourage customers not to “waste” bandwidth. Consumers prefer flat-rate pricing, in large part because that provides predictable recurring charges. 

But flat rate pricing and unlimited usage encourages behavior that boosts consumption, as there are no incentives to manage usage. That is why most mobile “unlimited” plans are not actually “unlimited.” At some point, access is throttled down to 2G or 3G speeds. That, in turn, discourages mobile network usage, as experience suffers, and encourages offloading access to the fixed network. 

How Much 5G Economic Impact by 2035?

ABI Research now predicts 5G economic benefit will amount to as much as $7 trillion in economic value by 2035, of which about $4 trillion is the value of direct spending on mobile subscriptions. 

Some of us might argue that is too high by about 100 percent. Something on the order of $2 trillion seems more realistic. 

But all such estimates must be further  qualified when estimating industry impact on gross domestic product or economic growth. 

Analysys Mason estimates that a 100 percent increase in mobile data traffic translates into a 0.98 percent impact on gross domestic product. That is a correlation, not necessarily causation, as always is the case for economic impact studies. 

But that is the problem with all efforts to quantify the economic impact of any particular innovation, product or industry. We might estimate impact, but we cannot prove the causal relationship of any single input when results (economic growth, for example) is caused by multiple inputs.

Consider that, in addition to the volume of mobile data traffic, the capacity of undersea cables, home broadband adoption, use of information technology,  transportation systems, energy supplies, broadband speed, educational attainment, household wealth, housing density, business activity levels, ethnicity and age can be correlated with gross domestic product as well. 

It is impossible to clearly separate the impact of each input when determining countrywide economic output. During the Covid pandemic, we discovered correlations between risk factors and deaths. But correlation is not causation. 

One might argue for a correlation between electricity consumption and GDP, for example. 

Among OECD member countries, for example, gross domestic product increases by 1.7 percent per year. Electricity use increased by 0.9 percent per year between 2015 and 2040. In non-OECD countries, GDP increases by 3.8 percent per year, and electricity use increases by two percent  per year over the same period, according to the U.S. Energy Information Administration. 

The point is that there is a correlation between electricity usage and GDP. 

source: Our World in Data 

Higher GDP is associated with higher energy consumption. 

source: EIA 

The other problem is that if one were to try and add up all the claimed economic benefits caused by each input or industry, the results would not comport with reality. The claimed output would vastly exceed reality. 

“We find that a 10 percent increase in the fraction of the population ages 60+ decreases the growth rate of GDP per capita by 5.5 percent,” the RAND Corp. has found. “Two-thirds of the reduction is due to slower growth in the labor productivity of workers across the age distribution, while one-third arises from slower labor force growth.”

Transportation might be correlated with about five percent of GDP as well.  

The point is that better communications and connectivity always are assumed to correlate with better GDP outcomes. We can disagree about the magnitude of such correlations while assuming there is a correlation. 

How "Temporary" is Fixed Wireless?

Fixed wireless long has been the go-to platform for wireless internet service providers operating in U.S. rural areas. The issue now seems to be how important fixed wireless could be for some internet service providers such as Verizon and T-Mobile, who do not have the financial resources to overbuild 80 percent of the U.S. home market (Verizon) or all of that market (T-Mobile).

It is one matter to argue that "fiber to the premises" is the long-term answer. It is quite another thing to argue that T-Mobile and Verizon have the ability to overbuild 80 percent to 100 percent of the country. They simply do not. And that might suggest neither company has a long-term roadmap to competing in the future home broadband business, even if they can take share in the short term from cable operators. 

So some argue fixed wireless is a temporary solution. But that arguably is not the issue.

Fot both Verizon and T-Mobile, the present consumer home broadband market does represent an immediate chance to take market share from cable operators using their 5G nationwide networks, boosting annual revenue by billions of dollars in annual revenue.

The issue for both those firms is not “fixed wireless versus FTTH” but rather “fixed wireless versus doing nothing.” And the simple fact is that, for some time, 5G fixed wireless will provide enough capacity, at a reasonable price, to be attractive to a segment of the market, allowing Verizon and T-Mobile to add accounts, revenue and profit when building “out of region” FTTH simply is not an option. 

In that sense, fixed wireless is best viewed as an immediate driver of market share gains in home broadband where neither Verizon nor T-Mobile have the ability to compete using FTTH facilities they own or might build. 

The long term solution is not yet clear. Advancing technology might allow both firms to keep upgrading fixed wireless to continue to serve a segment of the market. 

Long term, both firms face a problem in the fixed networks space, as capital to overbuild 80 percent to 100 percent of the U.S. home market is not likely to become available. 

Perhaps the fixed network equivalent of mobile virtual network operators will eventually emerge at scale, allowing T-Mobile and Verizon to partner in some way with other entities to create or use FTTH facilities. 

That is a “tomorrow” issue. The immediate issue is whether fixed wireless can shift a few points of home broadband market share. 

By some estimates, U.S. home broadband generates $60 billion to more than $130 billion in annual revenues. 

If 5G fixed wireless accounts and revenue grow as fast as some envision, $14 billion to $24 billion in fixed wireless home broadband revenue would be created in 2025. 

5G Fixed Wireless Forecast
	2019	2020	2021	2022	2023	2024	2025
Revenue $ M @99% growth rate	389	774	1540	3066	6100	12,140	24,158
Revenue $ M @ 16% growth rate	1.16	451	898	1787	3556	7077	14,082
source: IP Carrier estimate

If the market is valued at $60 billion in 2021 and grows at four percent annually, then home broadband revenue could reach $73 billion by 2026.

		2022	2023	2024	2025	2026
Home Broadband Revenue $B	60	62	65	67	70	73
Growth Rate 4%
Higher Revenue $B	110	114	119	124	129	134
source: IP Carrier estimate

If we use the higher revenue base and the lower growth rate, then 5G fixed wireless might represent about 10 percent of the installed base, which will seem more reasonable to many observers. 

Assuming $50 per month in revenue, with no price increases at all by 2026, 5G fixed wireless still would amount to about $10.6 billion in annual revenue by 2026 or so. That would have 5G fixed wireless representing about 14 percent of home broadband revenue, assuming a total 2026 market of $73 billion.

If the home broadband market were $134 billion in 2026, then 5G fixed wireless would represent about eight percent of home broadband revenue. 

That is a serious incremental share gain for the likes of T-Mobile and Verizon, even if it leaves the long-term strategy undeveloped. To be sure, 6G will come, and will increase capacity at least 10 times over 5G. Using other tools, it might still be possible to boost fixed wireless capacity further, or to create mechanisms for offloading much mobile traffic to the fixed networks. *-/9+88/7

Comcast and Charter continue to claim that fixed wireless is not damaging its home broadband business, and that might well be partly correct. For any internet service provider, a customer move is an opportunity to gain or add an account, so lower rates of dwelling change should logically reduce the chances of adding new accounts. 

But that is akin to retailers blaming “the weather” when they have a revenue miss. Weather does play a role, but most often is not the only driver of results. 

In the second quarter of 2022, Comcast reported a net loss of customer relationships and “flat” home broadband accounts. 

Fixed wireless might not be a “long term” solution for every customer. But it might remain an option for a significant percentage of customers, especially if the long-term solution for T-Mobile and Verizon is yet to be created.