Tag: FWA

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The Industry

Is the Broadband Market Mature?

Craig Moffett, of MoffettNathanson, was recently quoted in FierceTelecom asking if the broadband industry is reaching maturity. Other than in rural areas, where a lot of homes are still hungry for better broadband, the broadband penetration rate in cities is approaching 90%. It’s a fair question to ask if there is room for much more growth in the industry.

This is a question that has bounced around for the last five years. But there was still significant growth in broadband over the last few years. In 2019, national broadband subscribers grew by 2.6%. That leaped to 4.5% in the 2020 pandemic year. In 2021, broadband growth slowed to 2.8% but rebounded to 3.3% in 2022.

The 2022 growth rate is likely inflated by rural broadband growth, as practically all the overall industry growth for the year came from cellular FWA broadband provided by T-Mobile and Verizon. We can’t know for sure since those companies haven’t reported on the mix of rural and urban FWA customers.

What would a mature broadband market look like? It would first mean that annual subscriber growth would likely not be greater than the growth of total households. In recent years that has been in the 1% annual range and would mean perhaps 1.2 million new broadband subscribers each year nationally. This is a drastic change for the broadband industry. Consider Comcast and Charter, the two largest ISPs. These two companies represent almost 55% of all broadband subscribers. In 2019 the two companies grew by over 5%. In 2020 that leaped to over 7%. Growth for the two fell to 4% in 2021, but in 2022 was only around 1%. The stock price for these companies for the last decade has been based upon an ever-growing customer base – and annual rate increases.

We already have an idea of what a mature telecom market looks like by looking at the big cellular companies. Practically everybody has a cellphone, and the industry now expends huge marketing dollars in trying to pry market share from competitors.

There is one way that broadband differs from cellular in that cell service in much of the country is a commodity, meaning there is not much real difference between products or performance of the cellular carriers. This isn’t true everywhere, and in some places, one of the cellular companies has a superior network. But in most urban markets where most folks live, there isn’t a lot of difference between cell companies.

The broadband market is different because, in many markets, there is only one fast ISP – usually the cable company. Such markets are effectively broadband monopolies, and the monopoly provider doesn’t have to worry about a competitor taking market penetration. That means that if overall growth permanently slows that all of the wrestling for market share is going to happen in the markets that have both a cable company and a fiber competitor.

But there is another possibility. In markets where Verizon FiOS has competed against a cable company for many years, the two sides have reached a duopoly equilibrium – meaning that neither Verizon nor the cable company won the competition battle. We saw Verizon and the cable companies dukeing it out heavily in the early years of FiOS, but the marketing in these markets today has none of the desperation or vehemence of cellular competition. In a duopoly market, the two big players are happy to maintain a relatively steady market share – and the equilibrium is fine with both competitors as long as it doesn’t get too badly skewed.

If overall broadband growth slows, we’ll see different responses depending on the market. Markets without a major fiber provider will continue to be cable monopolies. This is where prices will go up every year. Markets that settle into a steady duopoly will compete with low-key advertised specials to lure folks back and forth between the two ISPs. The biggest marketing battles and the real competition will come from markets where a cable company is competing against an independent fiber provider other than the big telcos. When broadband growth inevitably slows, the industry will naturally change. But I don’t expect to see a clear-cut national response. A mature broadband market will differ according to the local mix of competitors.

Categories
The Industry

AT&T Disses FWA Wireless

In recent Telecompetitor article, AT&T Chief Financial Officer Pascal Desroches was quoted as saying that fixed wireless is “not a great product and the customer ultimately is going to reject it.” By fixed wireless, Desroches was referring to the FWA product being offered by competitors Verizon and T-Mobile. The product takes advantage of excess capacity on cell towers to sell home broadband using the same spectrum used to serve cell phones. For now, the market is embracing the FWA product. In 2022, T-Mobile sold around 2 million connections on the product, while Verizon sold almost 1.2 million.

The new product has some clear advantages in two different markets. In rural areas that don’t have any good broadband connection, the FWA product is likely to be faster than what is available from competitors. I’ve talked to rural customers using the product who say speeds are between 50 and 100 Mbps, although I talked to one customer living near a tower who is getting 200 Mbps. In many of the counties I’ve worked in, these speeds are heads and tails above the existing DSL, cellular hot spots, or more traditional fixed wireless.

In more urban and suburban areas, the attraction is price. These markets have much faster broadband available from cable companies and sometimes by fiber providers. But the faster ISPs charge a lot more than the $60 price of FWA. I think this product makes a great replacement for DSL – it costs about the same but is significantly faster. But T-Mobile and Verizon are not providing any details on who is buying the FWA product. How much of the sales are rural versus urban?

There are noted downsides to the FWA product. The primary one I’ve heard from customers is that it’s not consistent and that speeds vary a lot. This is pretty understandable considering the complex nature of cellular networks, and anybody who watches the bars on their cellphones knows that speeds bounce up and down during the day.

FWA coverage is also limited by the location of cell sites since the FWA broadband doesn’t go far. In most rural counties, only a small portion of the geography is within two miles or so of a cell tower. Hopefully, the cellular carriers will be smart enough not to sell service to folks who are at the outer fringe of a coverage area.

I’m sure that Desroches is talking about the long-term legs of the FWA product. I think he is referencing the ever-increasing demand for broadband. OpenVault recently reported that the average U.S. household is now using 587 gigabytes of data each month, up from 270 gigabytes just four years ago. You don’t have to trend that growth very far into the future when it becomes reasonable to ask if cellular networks can meet that kind of demand. Cellular carriers are using excess capacity today to sell FWA. At what point in the future does the FWA demand exceed the cell phone demand at cell sites?

FWA is never going to more than an interesting footnote for cellular companies. Even if they sell to ten million FWA customers, that’s barely noticeable compared to the hundreds of millions of cell phone customers. I can’t picture any scenario where a cellular company will endanger its cellular business by trying to meet the demands of FWA. They’ll selectively cancel FWA service at overloaded cell sites before doing that.

Interestingly, AT&T will be offering some FWA service. Desroches characterizes AT&T view of FWA as a temporary product and will treat it accordingly.

I doubt that Desroches set out to be negative about his competitors. I have to imagine that AT&T is constantly being asked why it isn’t emulating the rapid deployment of FWA, and I would guess he was responding to one of these queries. But it is interesting to see his response because it sounds like an honest assessment of the FWA business case. It’s a new broadband product that fills some interesting market niches today. But it’s reasonable to ask if it be relevant a decade from now. I would tend to agree with Desroches that FWA will have a relatively short shelf life compared with faster broadband technologies.

Categories
The Industry

Will Cellular Companies Pursue BEAD Grants?

Several people have asked me recently if cellular companies will be pursuing BEAD grants. It’s an interesting question that I don’t think anybody other than the cellular carriers know the answer. But it’s an intriguing question since it’s a possibility.

Until recently, cellular companies didn’t have a product that would have qualified for broadband grants. BEAD and other grants are awarded to ISPs that serve homes an businesses, not cell phones. But the introduction of the FWA product line has created a broadband product that might qualify for grants.

Cellular companies pass the first sniff for BEAD grants since the wireless technology uses licensed spectrum. The NTIA says it does not consider wireless broadband using public spectrum to be reliable.

The next hurdle to winning grant funding would be for cellular companies to convince state grant offices that they can deliver broadband speeds greater than 100/20 Mbps. That’s an interesting challenge for a cellular carrier. From what I’ve seen, customers living close to a cell site can easily exceed those speeds. I’ve talked to a few people getting over 200 Mbps download on FWA – but each happened to live close to a cell site.

But speeds on FWA decrease rapidly with distance. I’ve talked to customers who are less than two miles from a cell site and aren’t seeing download speeds of 100 Mbps. But that doesn’t disqualify a cellular carrier from pursuing grants. BEAD allows for grants that cover small areas, theoretically as small as a single home.

More interestingly, there is no reason that a cellular company couldn’t propose a grant to build new towers to expand the faster coverage and also the fiber lines to feed the towers. It’s not hard to picture a network in rural areas where this might be the lowest cost solution. One has to wonder if a cellular company would ever want such a network – that’s a lot of cell sites to maintain that likely each only serve a small number of customers.

Another issue to consider is that cellular carriers are currently providing priority to cell phones over FWA customers. If the network gets busy, cell phones customers get the requested broadband, and FWA customers get throttled. Broadband offices might deem this to be disqualifying in areas with any significant population – but this seems like far less of a concern in a rural setting where cell sites probably rarely get overstressed.

Yet another issue is the ability of a grant winner to serve everybody in the footprint. Unless a grant area has extremely low density, it’s likely that the cell site doesn’t have the capacity to give everybody unlimited home broadband.

Another interesting issue to consider is how mapping plays into this. I’ve heard a lot of comments from folks who are claiming that T-Mobile and Verizon are already claiming fast speeds in a lot of places. Folks are saying the coverage areas claimed in the FCC maps seem a lot larger than the reality. It’s not hard to understand the motivations for cellular companies to claim fast speeds since it helps with marketing. This is particularly important for T-Mobile, which reached an agreement with the government as a condition of the Sprint merger to cover a large percentage of the country with faster speeds.

But claiming high speeds and claiming coverage areas that are larger than reality are counterproductive to seeking grants. An ISP can’t ask for grant funding for a place it says already has fast broadband.

The more important question for the industry is how the FWA claims of current speeds and coverage might hurt other grants. Will broadband offices not award grants in places the cellular companies claim to already have fast broadband? The emergence of the FWA technology is so new that I suspect most state broadband offices haven’t come to grips with that question. Many states have been creating their own broadband maps in recent years, and FWA technology has not been factored into those maps. This is just one more complication for broadband offices – as if they needed another issue.

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The Industry

How Good is FWA Wireless?

T-Mobile got some bad news recently when the the National Advertising Division (NAD) of BBB National Programs informed T-Mobile that it could not use the words “fast” and “reliable” when advertising for its FWA fixed wireless product that it brands as T-Mobile Home Internet. This ruling came as a result of a complaint from Comcast that T-Mobile is overstating the capabilities of the FWA product in advertising.

Most large carriers belong to the BBB National Programs as a lower cost way of mitigating advertising disputes than lawsuits. ISPS agree to go along with the rulings issued by the group as a condition of joining. However, in this case, T-Mobile is appealing the decision. The news wasn’t all bad for T-Mobile since it was ruled that T-Mobile could continue to advertise that the price of FWA is ‘locked-in” since the company hasn’t raised its rates.

Anybody who has looked closely at the performance of FWA wireless from T-Mobile or Verizon would agree with this ruling. The main reason for the ruling is that the performance of FWA can vary widely. It’s a broadband product that connects to customers from a cell site, and the distance between a customer and the cell site makes a big difference in the speed being delivered. I talked to one customer located near to a T-Mobile tower who was consistently getting over 200 Mbps download and was really pleased with the product. But in this same community, customers only a mile or so away from that same cell tower were getting speeds closer to 50-100 Mbps and were not as happy with the product. A mile further away and speeds were not good at all, and I talked to a farmer who sent the receiver back. In a rural area, a mile isn’t very far, and unless there are a lot of towers, most folks are not getting the advertised fast speeds.

The one consistent feedback I’ve gotten in talking to FWA customers is that speeds vary. This is true for all cellular broadband, and cell phone customers are used to seeing a different number of bars of broadband speed over time from the same location such as home or the office. Cellular data speeds vary for a wide variety of reasons like temperature and weather.

But the biggest reason for the variability is the overall volume of data being demanded from a given cell site at a given moment. Like most broadband products, cellular broadband is a shared data product where the broadband is divvied up among the users at any given time. But unlike landline broadband networks, a cellular company cannot control the number of users at a cell site. Since cell phones are mobile, there is no telling how many people might be demanding a cellular data connection at any given time.

FWA has one more limitation in that the cellular carriers have elected to give first priority to cell phones over FWA customers. This means that when a cell site gets busy, the carrier will choke the delivered data speeds to FWA customers in order to deliver the most speed possible to cellular customers. This makes sense since each big T-Mobile and Verizon have roughly 100 million cellular customers compared to a few million FWA customers. They do not want to make cellular customers unhappy with broadband speeds, and so they throttle FWA when a cell site gets busy.

T-Mobile doesn’t hide this, and the throttling is discussed in the fine print when the product is advertised. But that throttling is part of the reason that T-Mobile can’t describe it’s product as reliable – because at busy times it isn’t.

The big selling point for FWA is the low price and I’m sure the price is what attracted urban customers. The speeds are going to be liked in rural areas where there are no alternatives, but there is definitely a severe distance limitation – in a rural area a 50 Mbps connection might be a big leap up in performance. But the FWA product is a lot slower than cable company broadband. Households who are heavy broadband users might not like the slower speeds and the variability. This ruling is telling T-Mobile that it can’t advertise in a way that makes FWA sound like an equivalent alternative to cable or fiber broadband, because it isn’t. It’s going to be interesting to see how T-Mobile adjusts it’s advertising after this ruling.

Categories
The Industry

Who’s On First?

I saw a short article in Business Wire that said that Comcast Business had landed a project to provide a private wireless network for the guests of The Sound Hotel Seattle Belltown. This is an example of the continuing convergence in the industry where the big cable companies, ISPs, and wireless carriers are freely competing on each other’s turf. For decades we’ve neatly categorized companies as telcos, cable companies, or wireless carriers, but this convenient categorization is starting to fray around the edges, and its getting a lot harder to distinguish between the big industry players.

If we look back ten or fifteen years, the distinctions between these companies were clearly defined. The big telcos served residences and small businesses using DSL. The big telcos were clearly structured in silos. There was practically no interface between the wireless companies at Verizon and AT&T and the broadband business. Verizon went so far as to set up Verizon FiOS, its fiber business, separately in every aspect from the copper and DSL business.

The cable companies had faster broadband than DSL after the upgrades were made to DOCSIS 3.0. Speeds up to 300-400 Mbps blew away the capabilities of DSL. Once those upgrades were completed, the cable companies took market share in cities from the telcos year after year until the cable companies had a near-monopoly in many markets.

The market with more balanced competition has been the large business market. This is the market where fiber quickly became king. At one point the telcos controlled most of this market, with their fiercest competition coming from a handful of big CLECs. Verizon responded to this competition by buying MCI, XO, and others in the northeast. CenturyLink become one of the nationwide market leaders through the acquisition of Qwest and then Level 3. The big cable companies cautiously launched fiber ventures for this market twenty years ago and have picked up a decent market share.

But those simple explanations of the business plans of the big ISPs is now history. As the Business Wire announcement showed, the big companies are crossing technology barriers in new ways. Comcast

Providing a private wireless network for a large hotel is emblematic of a new trend in competition. In doing this, Comcast is crossing technical lines that it would never have considered years ago. From a business perspective, Comcast is going after the full suite of services for businesses like this hotel, not just the wireless network. The newest word in the competitive market is stickiness, and Comcast is likely tying down this hotel as a customer for a long time, assuming it does a great job.

These crossovers are even more evident in the residential and small business markets. Comcast, Charter, and other cable companies are bundling cellular service with broadband and the triple play, something that the telcos have never managed to pull off. Telcos have decided to reclaim urban market share by building huge amounts of fiber. And the cable companies are reacting to that threat by rushing some early versions of DOCSIS 4.0 to the market in order to fix the upload bandwidth issues. The big wireless companies have joined the fray with the FWA cellular wireless broadband products. While these products can’t compete with the bandwidth on fiber or cable networks, the product is still adequate for many homes and hits the market at a much lower price.

This has to be confusing to the average residential consumer. Consumers who abandoned DSL years ago are being lured back by to the telcos by fiber. Folks who have been paying far too much for cellular service are moving to the more affordable cable company wireless service. And people who can’t afford the high price of cable broadband are seemingly flocking to the more affordable FWA wireless. I have to imagine that the customer service desks at the various ISPs are being flooded by customers canceling service to try something different.

Markets always eventually reach an equilibrium. But for now, both the residential and business markets in many cities are seeing a fresh new marketing efforts. A decade from now, it’s likely that we’ll reach a predicable mix of the various technologies. We know this from having watched the markets where Verizon FiOS battled with the cable companies for several decades. But much of the country is just now entering the era of refreshed competition.

Unfortunately, this new competition isn’t everywhere. There is already evidence that new investments are not being made at the same pace in lower-income neighborhoods. Some cities are seeing widespread fiber construction while others are seeing almost none. There will still be a lot of work to do to make sure that everybody gets a shot at the best broadband – but the obvious convergence in the industry shows that we’re headed in the right direction.

Categories
Improving Your Business

Competing Against Big Cable Companies

I’m asked at least twenty times a year how a small ISP can compete against the big cable companies. The question comes from several sources – a newly-formed ISP that is nervous about competing against a giant company, a rural ISP that is entering a larger market to compete, or investors thinking of funding a new ISP. These folks are rightfully nervous about competing against the big cable companies. Comcast and Charter together have roughly 55% of all broadband customers in the country, so the assumption is that they are formidable competitors.

It’s more realistic to say that they are decent competitors. They have slick marketing materials to try to lure customers. They have persuasive online marketing campaigns to snag the attention of new customers. They have good win-back programs to try to keep customers from leaving them.

But the two big cable companies have one obvious weakness – their prices are significantly higher than everybody else in their markets. Every marketing push by these companies involves giving temporary low special prices to lure customers – but those prices eventually revert to much higher list prices.

There is a great example of this in the market today. Both Verizon and T-Mobile have been adding large numbers of broadband customers to their fixed wireless FWA products that deliver home broadband using cellular spectrum. The two cellular companies have been highly successful in the marketplace, adding over 2.6 million new broadband customers through the first three quarters of 2022, while Comcast and Charter added about half a million customers during that same time period – mostly at the start of the year.

The FWA wireless product is clearly competing on price. The FWA broadband is not as fast or robust as cable company broadband, but the prices are attractive to a lot of consumers. For example, T-Mobile offers 100 Mbps broadband for a $50 monthly fee for customers willing to use autopay – a price T-Mobile says will never increase. This is far below the prices of the cable companies, which are in the range of $90 per month for standalone broadband.

I thought I’d take a look at how Comcast is competing against the lower-price FWA products. Comcast has two special offers in January 2023 for standalone broadband.

  • In a special offer that ends February 1, Comcast will provide 400 Mbps broadband for $30 per month, which requires autopay. The special price is under a contract for one year, but the special price extends for two years (meaning that if a customer terminates during the first year they have to pay for the remaining months of the contract). The special price for this product was higher in the past and likely has been lowered to compete against FWA.
  • The other offer is ongoing and doesn’t end on February 1. Comcast will provide 800 Mbps download speeds for $60 per month, which requires autopay. This is also a two-year term, with the first year under a contract.

Comcast then adds hidden fees to the special price. Unless a customer brings their own modem, Comcast charges $15 per month for a WiFi modem, a price that was increase by $1 this month. In many markets, Comcast also has data caps, and customers that exceed 1.2 terabytes of usage per month are charged $10 for each additional 50 gigabytes of data used in a month.

For the 400 Mbps product, a customer who brings a modem and who doesn’t exceed the data caps will pay $30 per month if using a bank debit and $35 per month with a credit card debit. Using the Comcast WiFi modem (which most customers do), raises the monthly price to $45 or $50 – right in line with the T-Mobile FWA product. But the kicker comes at the end of the term when the price, before a cable modem, jumps to $92 per month, and $107 with the modem. The result at the end of the 800 Mbps special is similar, with the price rising to $97 per month before a WiFi modem. Anybody buying the special today must also worry about whatever rate increases Comcast adds to the base broadband price by 2025.

The special prices offered by the big cable companies are alluring – customers can get a significant discount for a year or two. But inevitably, the prices will skyrocket – and in the case of the 400 Mbps special will more than double at the end of the discounted special.

ISPs that compete against the big cable companies have learned that all they have to do to compete is to offer fair prices and wait out the specials. Over time, customers who get tired of the pricing yoyo will come around. ISPs with fiber tell me that customers that come to them from a cable company almost never go back to cable. Customers appreciate fair pricing with no games and a reliable broadband product that delivers the promised speeds – that’s how you compete against the big ISPs.

Categories
The Industry

What Happened to Verizon Fiber-to-the-Curb?

Back in 2018, Verizon got a lot of press for the release of a fiber-to-the-curb (FTTC) technology it called Verizon Home. The first big test market was Sacramento. The company built fiber along residential streets and used wireless loops to reach homes. At the time, Verizon touted speeds of 300 Mbps but said that it was shooting for gigabit speeds using millimeter-wave spectrum. Verizon tried to make this a self-installed product, and customers got instructions on how to place the receiver in different windows facing the street to find the best reception and speeds.

There were quotes from the time that Verizon intended to build fiber to pass 25 million homes by 2025 with the technology. But then the product went quiet. In 2020, the Verizon Home product reappeared, but it is a totally different product that uses cellular spectrum from cell towers to bring broadband. This is the product that the industry is categorizing as FWA (fixed wireless access). The company no longer quotes a target broadband speed and instead sayshttps://www.verizon.com/5g/home/ “Verizon 5G Home is reliable and fast to power your whole home with lots of devices connected. So all of your TVs, tablets, phones, gaming consoles and more run on the ultra-fast and reliable Verizon network.” In looking through some Ookla speed tests for the FWA product, it looks like download speeds are in the 100 – 150 Mbps range – but like any cellular product, the speed varies by household according to the distance between a customer and the transmitter and other local conditions.

The new cellular-based product has gone gangbusters, and Verizon had over one million customers on the product by the end of the third quarter of 2022, having sold 342,000 new customers in that quarter. The relaunch of the product was confusing because the company took the unusual step of using the same product name and website when it switched to the wireless product. It even kept the same prices.

But the two products are day and night different. Verizon’s original plan was to pass millions of homes with a broadband product that was fast enough to be a serious competitor to cable broadband. Even if the product never quite achieved gigabit speeds, it was going to be fast enough to be a lower-priced competitor to cable companies.

While the new Verizon Home product is selling quickly, the product is not close in capabilities to the FTTC product. Cellular bandwidth is never going to be as reliable as a landline technology or one where fiber is as close as the curb. Verizon (and T-Mobile) have both made it clear that the FWA customers will take second priority for bandwidth availability behind cell phone customers. I don’t know that these companies could do it any other way – they can’t jeopardize unhappiness from a hundred million cellular customers to serve a much smaller number of FWA customers.

I think everybody understands the way that cellular broadband capabilities change during the day. We all see it as the bars of 4G or 5G at our homes bounce up and down based on a variety of factors such as weather, temperature, and the general network usage in the immediate neighborhood. The most interesting thing about being a broadband customer on a cellular network is that the experience is unique to every customer. The reception will vary according to the distance from the cell tower or small cell and the amount of clutter and interference in a given neighborhood from foliage and other buildings.

I expect that large bandwidth users will get frustrated with the variability of the signal and eventually go back to a landline technology. The FWA product is mostly aimed at bringing broadband to rural customers who have no better broadband alternative or to folks in towns for whom saving money is more important than performance. There are a lot of such people who have stuck with DSL for years rather than upgrading to the more expensive cable broadband, and these are the likely target for FWA. In fact, FWA might finally let the telcos turn off DSL networks.

Verizon says it’s still on track with what it calls the One Fiber initiative which is aimed at building Verizon-owned fiber to cell towers and small cell sites. This backbone was likely the planned starting point for neighborhood fiber, but now this is mostly a cost-cutting step to stop paying fiber leases.

Categories
The Industry

Fearing the Competition

Over the last six months, practically every big carrier in the industry has made a formal announcement that they are not worried about specific competitors. The latest one I read was in LightReading where Nick Jeffery of Frontier said he’s not worried about competition from the cable companies upgrading to DOCSIS 4.0 or from cellular carriers offering FWA home broadband. Frontier is building a lot of fiber, and Jeffery was commenting that he thinks fiber is a superior technology compared to the alternatives. To be honest, this might be the only claim I read where the ISP was being truthful. Frontier has been at the bottom of the heap in the industry for many years and led in the percentage lost broadband and cable TV customers quarter after quarter. It’s got to be refreshing for the company to be deploying a technology that gives it a fighting chance to succeed.

I’m not citing all of the other CEOs that said the same thing – but these announcements were pretty much across the board – basically, no carrier is afraid of other competitors.

I’ve seen all of the big cable companies quoted as saying they aren’t afraid of FWA cellular broadband. And yet, in the second quarter of this year, T-Mobile and Verizon added over 800,000 new customers, while the large cable companies collectively lost 150,000 customers during the quarter. The cable companies rightfully say they have superior technology when competing against 100 Mbps download speeds, but the FWA cellular carriers have much lower rates and are attracting customers who think that cable broadband costs too much.

The big telcos that are building fiber have all made the same claim about not fearing FWA wireless. The big telcos collectively lost less than 100,000 customers in the second quarter of this year, the best they’ve done in ages. The small loss disguises the fact that the telcos continue to lose DSL customers but are largely replacing them with fiber customers – except Lumen, which had a net customer loss for the quarter of 93,000.

I’ve seen most of the big fiber overbuilders scorning cable company broadband and saying they aren’t worried about DOCSIS 4.0 – like Frontier said. That’s a fairly easy thing not to fear for now since we’re a number of years away from any conversions to DOCSIS 4.0. But Comcast and others are talking about soon introducing some of the higher split technologies on DOCSIS 3.1 to boost upload speeds sooner. Will fiber overbuilders fear the cable companies more after some upgrades?

The WISPs that will be installing new versions of fixed wireless, including some technologies that claim to be able to deliver speeds up to a gigabit, say they are not afraid of competing against rural fiber networks built with grant funding. That’s an interesting claim since the general public seems to have grasped that fiber is better. It will be interesting to see what happens in places where rural fiber competes against fast rural broadband.

The big three cellular carriers all claim they are not afraid of Dish Network becoming the fourth major cellular carrier. It’s an odd claim to make since Dish says the only way for it to gain market share is to be extremely aggressive with prices. The cellular industry is already highly competitive, and it can’t be good for any of the bigger carriers to have to lower rates.

I get a chuckle every time I read one of these statements because when a carrier goes out of its way to mention a competitor, it is worried. The reality is that every carrier in a competitive situation has to be concerned about competitors. In the end, this is a battle that is going to be fought at the local level, market by market. I can picture that the various technologies will get a different reception depending on local factors. But for now, apparently, nobody fears the competition.

Categories
The Industry

What’s The Trend for Broadband Prices?

For years, cable companies have been raising broadband prices every year. These annual rate increases meant a huge boost the earnings of the largest cable companies like Comcast and Charter. Most of the annual price increases of $3 to $5 went straight to the bottom line. While price increases don’t hit every customer immediately because of customers on term contracts, every price increase reaches every customer eventually.

It’s going to be really interesting to see if Comcast, Charter, and the other big cable companies raise prices later this year. The industry has changed, and it doesn’t seem as obvious as in the past that cable companies can raise rates and that customers will just begrudgingly go along with it.

First, the cable companies have stopped growing, and in the second quarter of this year, both Comcast and Charter experienced a tiny loss of customers. This seems to be for a variety of reasons. First, the FWA fixed cellular carriers are thriving. In the second quarter of this year, T-Mobile and Verizon added 816,000 new FWA broadband customers using 5G frequencies. The product is not as robust as cable broadband, with download speeds of roughly 100 Mbps, but FWA has faster upload speeds than cable. What’s making FWA attractive is the price of $50 – $60 for unlimited broadband – far below the prices charged by cable companies.

The cable companies have to be feeling some sting also from the large telcos and others who are building and selling fiber in cable company markets. There must be a few million customers moving to fiber annually at this point – a number that is going to grow.

The big question is if cable companies will keep raising rates in the face of customer stagnation. This can’t be an easy decision for cable companies. New revenues from raising rates go straight to the bottom line, and it is the annual rate increases that have sustained the earning growth and stock prices for cable companies. Comcast has over 32 million customers, and Charter has over 30 million, so forgoing a rate increase would mean forgoing a lot of new cash and earnings.

The strategic question is if the cable companies are willing to accelerate customer losses for the extra earnings from higher rates. Households getting a rate increase notice are going to be prompted to look around for alternatives, and many of them will find one. The time when cable companies are a monopoly in many cities is starting to come to an end.

The rest of the industry is going to watch this issue closely because it’s going to be easier to compete against the cable companies if they continue to raise rates. Higher cable broadband prices let other ISPs creep up rates and still stay competitive.

It’s interesting that almost no ISP has raised rates during this year when inflation is a major topic of conversation. One thing this shows is that there are big margins on broadband, and there is real cash pressure to raise rates to stay whole. But this also means that the big ISPs are absorbing higher labor, materials, and operating costs without charging more – and without increasing revenues through customer growth.

The biggest cable companies have other sources of revenue. Comcast and Charter both have a growing cellular business, but many analysts are speculating that it’s not generating a big profit. However, as the cable companies start utilizing licensed spectrum it might become quite profitable.

This is a really interesting time for the industry. The biggest cable companies have been the king of the hill for a decade and could do almost anything they wanted. They’ve been converting DSL customers by the millions annually while also raising rates – meaning getting doubly more profitable. Comcast and Charter are so large that they are not going to stop being the largest ISPs for a long time to come – but they are starting to show some market vulnerability, and there are plenty of ISPs willing to pounce on their markets.

Categories
The Industry

Comcast and Charter Losing Broadband Customers

It’s big news that both Comcast and Charter lost broadband customers in the second quarter of this year. Both companies have steadily gained customers every quarter over the last decade. It was not a surprise to me to see this happen, but it happened sooner than I would have guessed.

Comcast lost 10,000 broadband customers for the quarter, a minuscule loss for a company with over 32.1 million broadband customers. To show how surprising this loss is, the company gained 262,000 customers in the first quarter of 2022, more than 1.3 million in 2021, and almost 2 million in 2020.

Charter lost 21,000 customers in the second quarter, again a small fraction of its 30.1 million broadband customers. But the loss is a big turnaround compared to the 185,000 broadband customers the company gained in the first quarter of this year, the 1.2 million customers gained in 2021, and the 2.2 million customers gained in 2020.

Comcast blames the customer loss on two factors. One is the end of the pandemic, which implies that households are now dropping broadband since the pandemic has cooled. This is the first time I’ve heard anybody make that claim. I’d love to hear if any ISPs that read this blog are seeing that same thing. Comcast also blamed the drop on the fact that fewer people than normal moved into new homes and apartments during the second quarter. That’s another claim that we’ll be able to check when the folks who track housing release statistics.

Charter blames the loss of customers on the change in the federal subsidy for low-income homes. Charter said it lost 59,000 customers when the subsidy changed from $50 under the Emergency Broadband Benefit (EBB) program to the $30 discount on the Affordable Connectivity Plan (ACP). That’s interesting, if true, and it provides evidence that many low-income households need a substantial discount in order to afford broadband. I’d also love to hear from any ISPs that are seeing this same customer trend. But I think Charter is being disingenuous to blame the drop on the low-income programs. The math doesn’t add up, and losing 59,000 in a quarter would not drive the company into having a net loss of customers.

There was something that both companies conspicuously didn’t claim – that the customer losses are due to competition. They are apparently not ready to make that claim yet because it makes them seem vulnerable. But it has been clear for some time that competition is nipping at the heels of the big cable companies. Telcos and other ISPs are furiously building fiber in urban areas in direct competition with cable companies. It’s hard to know fact from fiction, but fiber-based ISPs have high expectations – for example, AT&T says it plans to get a 50% penetration rate on fiber in a new neighborhood after three years.

Both companies are not acknowledging competition from the cellular carriers, which are selling unlimited 100 Mbps FWA broadband at an affordable price. Both cable companies have recently said they don’t fear competition from the FWA product. It’s too early to know how much of a threat wireless broadband will be – and it will take some time before we can see if the cellular networks can handle a lot of simultaneous broadband users and still maintain speeds. But for now, Verizon and T-Mobile are picking up a lot of new customers  – together, the two companies gained half of all new broadband customers nationwide in the first quarter of this year.

The stock prices of both cable companies have benefitted for years from continuous growth since analysts could count on each company growing both customers and revenues year after year. It’s going to be interesting to see what a loss of customers means to the long-term stock prices.

This new trend might change a lot of dynamics in the industry. I’ve said for years that the cable companies were on a steady march to have $100 broadband – and they still might be. It might be that raising rates is now the only path for them to increase the bottom line. But will these companies be able to raise rates in an increasingly competitive market? It seems unlikely that they will be able to keep increasing the price for the basic products, but the companies might be hoping for a continuation of the trend of customers upgrading to faster products. Both cable companies are aggressively selling cellular services, and each gained over 300,000 new cellular customers in the second quarter. But we don’t know how much margin the cellular business adds to their bottom lines.

Charter might have an easier path than Comcast to curtail losses and possibly grow again. Charter is aggressively seeking grant funding to expand into the rural areas around existing markets. These are areas that have had poor rural broadband, and Charter is building fiber in these markets – much to the annoyance of its urban customers who are not getting upgraded to Charter fiber. But this expansion should add a lot of new customers over the next four or five years. I think Charter realizes that in these markets, they will benefit by being the only provider of fast broadband – the first time the company will be operating in areas where it will largely be a monopoly.

The fact that the two biggest ISPs lost customers is a bellwether event that shows that the broadband market is now up for grabs. Who will be the big winners that fill the void if Comcast and Charter are not grabbing most of the new customers each quarter?

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