Estimating Broadband Customers

For years, I was safe using what I called the 80:20 rule for predicting broadband customers in a new market. This meant that in most markets, 80% of customers would buy the lowest-priced broadband option. I’d sometimes run into a market where that dipped as low as 70%, but I found it extremely rare to find a neighborhood where fewer than 70% of customers bought the lowest-price option.

Price alone didn’t seem to be the driver behind the 80:20 rule, and I found the same behavior in markets with high and low-income households. If somebody purchased broadband, they mostly chose the most affordable option. I always assumed that as long as the minimum speed sounded fast enough that households didn’t think they needed faster broadband speeds.

This is no longer true. Consider the following numbers that come from OpenVault that show the percentage of American homes subscribed to various download speed tiers.

Speeds Jun-20 Jun-21 Dec-21
Under 50 Mbps 18.40% 10.50% 9.40%
50 – 99 Mbps 20.40% 9.60% 7.60%
100 – 199 Mbps 37.80% 47.50% 36.90%
200 – 499 Mbps 13.50% 17.20% 28.50%
500 – 999 Mbps 5.00% 4.70% 5.50%
1 Gbps 4.90% 10.50% 12.20%

There has been a huge shift from early in the pandemic until the end of 2021. It’s obvious that a lot of people have upgraded their broadband subscription during the eighteen months. I’ve heard a lot of anecdotal evidence to support this from my ISP clients. My consulting firm does a lot of surveys and interviews, and we’ve been seeing this shift everywhere. Not that it matters much in the big picture, but I also upgraded my own broadband from 100 Mbps to 400 Mbps download.

It’s fair to note that some of these shifts didn’t come from changes made by subscribers but from changes made by ISPs. Many of the big cable companies are now defining their minimum broadband product to be 200 Mbps. Several made this change last year, and a few more announced this recently. When that change is universal, we’re going to see an additional shift from the 100 Mbps tier to the 200 Mbps tier.

Much of this change came from people deciding to make the change. People worked at home and found their broadband to be inadequate. Our surveys have consistently shown that over one-third of homes in urban markets found broadband to be inadequate when working or schooling from home, and many of them decided to upgrade.

Unfortunately, for some households, changing to a faster download speed didn’t bring any relief if their real problem was upload speed – but they upgraded and are not likely going to back to the slower speed tiers. Of particular note is the big shift of homes that used to subscribe to speeds under 100 Mbps. In just 18 months, that dropped from 29% of all households down to 17%. A shift that large sticks a fork into the idea that the public is interested in any broadband product under 100 Mbps. The public is defining the definition of broadband even if the FCC won’t.

This big shift creates a challenge for any ISP that is creating a forecast for a new market expansion. ISPs used to be able to build a business plan that assumed an 80% penetration for the first broadband product and knew they would be close. I’ve worked for various bankers over the years to review business plans from potential ISP borrowers and would laugh when I saw somebody predict high penetration of gigabit broadband as a way to justify getting a loan.

But today, all bets are off. I don’t have any advice to give to an ISP building forecasts other than to tell them that the 80:20 rule is dead. I think a new ISP needs to dig in and do the market research through surveys to get a better feel for how a given market will act. It’s a new world for anybody that wants to accurately predict how their business will fare – but the good news is that customers seem willing to pay extra for faster speeds. The 80:20 rule is clearly dead, but there is no rule to take its place.