Going Wireless-only for Broadband

According to New Street Research (NSR), up to 14% of homes in the US could go all-wireless for broadband. They estimate that there are 17 million homes which are small enough users of bandwidth to justify satisfying their broadband needs strictly using a cellular connection. NSR says that only about 6.6 million homes have elected to go all-wireless today, meaning there is a sizable gap of around 10 million more homes for which wireless might be a reasonable alternative.

The number of households that are going wireless-only has been growing. Surveys by Nielsen and others have shown that the trend to go wireless-only is driven mostly by economics, helped by the ability of many people to satisfy their broadband demands using WiFi at work, school or other public places.

NSR also predicts that the number of homes that can benefit by going wireless-only will continue to shrink. They estimate that only 14 million homes will benefit by going all-wireless within five years – with the decrease due to the growing demand of households for more broadband.

There are factors that make going wireless an attractive alternative for those that don’t use much broadband. Cellular data speeds have been getting faster as cellular carriers continue to implement full 4G technology. The first fully compliant 4G cell site was activated in 2017 and full 4G is now being deployed in many urban locations. As speeds get faster it becomes easier to justify using a cellphone for broadband.

Of course, cellular data speeds need to be put into context. A good 4G connection might be in the range of 15 Mbps. That speed feels glacial when compared to the latest speeds offered by cable companies. Both Comcast and Charter are in the process of increasing data speeds for their basic product to between 100 Mbps and 200 Mbps depending upon the market. Cellphones also tend to have sluggish operating systems that are tailored for video and that can make regular web viewing feel slow and clunky.

Cellular data speeds will continue to improve as we see the slow introduction of 5G into the cellular network. The 5G specification calls for cellular data speeds of 100 Mbps download when 5G is fully implemented. That transition is likely to take another decade, and even when implemented isn’t going to mean fast cellular speeds everywhere. The only way to achieve 100 Mbps speeds is by combining multiple spectrum paths to a given cellphone user, probably from multiple cell sites. Most of the country, including most urban and suburban neighborhoods are not going to be saturated with multiple small cell sites – the cellular companies are going to deploy faster cellular speeds in areas that justify the expenditure. The major cellular providers have all said that they will be relying on 4G LTE cellular for a long time to come.

One of the factors that is making it easier to go wireless-only is that people have access throughout the day to WiFi, which is powered from landline broadband. Most teenagers would claim that they use their cellphones for data, but most of them have access to WiFi at home and school and at other places they frequent.

The number one factor that drives people to go all-wireless for data is price. Home broadband is expensive by the time you add up all of the fees from a cable company. Since most people in the country already has a cellphone then dropping the home broadband connection is a good way for the budget-conscious to control their expenses.

The wireless carriers are also making it easier to go all wireless by including some level of video programming with some cellular plans. These are known as zero-rating plans that let a customer watch some video for free outside of their data usage plan. T-Mobile has had these plans for a few years and they are now becoming widely available on many cellular plans throughout the industry.

The monthly data caps on most wireless plans are getting larger. For the careful shopper who lives in an urban area there are usually a handful of truly unlimited data plans. Users have learned, though, that many such plans heavily restrict tethering to laptops and other devices. But data caps have creeped higher across-the-board in the industry compared to a few years ago. Users who are willing to pay more for data can now buy the supposedly unlimited data plans from the major carriers that are actually capped between 20 – 25 GB per month.

There are always other factors to consider like cellular coverage. I happen to live in a hilly wooded town where coverage for all of the carriers varies block by block. There are so many dead spots in my town that it’s challenging to use cellular even for voice calls. I happen to ride Uber a lot and it’s frustrating to see Uber drivers get close to my neighborhood and get lost when they lose their Verizon signal. This city would be a hard place to rely only on a cellphone. Rural America has the same problem and regardless of the coverage maps published by the cellular companies there are still huge areas where rural cellular coverage is spotty or non-existent.

Another factor that makes it harder to go all-wireless is working from home. Cellphones are not always adequate when trying to log onto corporate WANs or for downloading and working on documents, spreadsheets and PowerPoints. While tethering to a computer can solve this problem, it doesn’t take a lot of working from home to surpass the data caps on most cellular plans.

I’ve seen a number of articles in the last few years talking claiming that the future is wireless and that we eventually won’t need landline broadband. This claim ignores the fact that the amount of data demanded by the average household is doubling every three years. The average home uses ten times or more data on their landline connection today than on their cellphones. It’s hard to foresee the cellphone networks able to close that gap when the amount of landline data use keeps growing so rapidly.

A Doubling of Broadband Prices?

In what is bad news for consumers but good news for ISPs, a report by analyst Jonathan Chaplin of New Street Research predicts big increases in broadband prices. He argues that broadband is underpriced. Prices haven’t increased much for a decade and he sees the value of broadband greatly increased since it is now vital in people’s lives.

The report is bullish on cable company stock prices because they will be the immediate beneficiary of higher broadband prices. The business world has not really acknowledged the fact that in most US markets the cable companies are becoming a near-monopoly. Big telcos like AT&T have cut back on promoting DSL products and are largely ceding the broadband market to the big cable companies. We see hordes of customers dropping DSL each quarter and all of the growth in the broadband industry is happening in the biggest cable companies like Comcast and Charter.

I’ve been predicting for years that the cable companies will have to start raising broadband prices. The companies have been seeing cable revenues drop and voice revenues continuing to drop and they will have to make up for these losses. But I never expected the rapid and drastic increases predicted by this report. Chaplin sets the value of basic broadband at $90, which is close to a doubling of today’s prices.

The cable industry is experiencing a significant and accelerating decline in cable customers. And they are also facing significant declines in revenues from cord-shaving as customers elect smaller cable packages. But the cable products have been squeezed on margin because of programming price increases and one has to wonder how much the declining cable revenue really hurts their bottom line.

Chaplin reports that the price of unbundled basic broadband at Comcast is now $90 including what they charge for a modem. It’s even higher than that for some customers. Before I left Comcast last year I was paying over $120 per month for broadband since the company forced me to buy a bundle that included basic cable if I wanted a broadband connection faster than 30 Mbps.

Chaplin believes that broadband prices at Comcast will be pushed up to the $90 level within a relatively short period of time. And he expects Charter to follow.

If Chaplin is right one has to wonder what price increases of this magnitude will mean for the public. Today almost 20% of households still don’t have broadband, and nearly two-thirds of those say it’s because if the cost. It’s not hard to imagine that a drastic increase in broadband rates will drive a lot of people to use broadband alternatives like cellular data, even though it’s a far inferior substitute.

I also have to wonder what price increases of this magnitude might mean for competitors. I’ve created hundreds of business plans for markets of all sizes, and not all of them look promising. But the opportunities for a competitor improve dramatically if broadband is priced a lot higher. I would expect that higher prices are going to invite in more fiber overbuilders. And higher prices might finally drive cities to get into the broadband business just to fix what will be a widening digital divide as more homes won’t be able to afford the higher prices.

Comcast today matches the prices of any significant cable competitor. For instance, they match Google Fiber’s prices where the companies compete head-to-head. It’s not hard to foresee a market where competitive markets stay close to today’s prices while the rest have big rate increases. That also would invite in municipal overbuilders in places with the highest prices.

Broadband is already a high-margin product and any price increases will go straight to the bottom line. It’s impossible for any ISP to say that a broadband price increase is attributable to higher costs – as this report describes it, any price increases can only be justified by setting prices to ‘market’.

All of this is driven, of course, by the insatiable urge of Wall Street to see companies make more money every quarter. Companies like Comcast already make huge profits and in an ideal world would be happy with those profits. Comcast does have other ways to make money since they are also pursuing cellular service, smart home products and even now bundling solar panels. And while most of the other cable companies don’t have as many options as Comcast, they will gladly follow the trend of higher broadband prices.