When the real broadband wars started in the last decade, cable companies had a major advantage over the telcos. Cable infrastructure is based on CATV cable, which has a potential capacity of over 10 Gbps over a significant distance, while operators were stuck with twisted-pair DSL model that was taxed to deliver 25 Mbps over a mile or so. Further, CableLabs has been advancing cable broadband potential through successive upgrades to DOCSIS (Data Over Cable Service Interface Specification) to enhance its support for broadband Internet connection. Clear winner: Cable.
Then 5G millimeter wave came along. 5G/FTTN can deliver almost-gigabit speeds out to somewhere between a thousand and three thousand feet, depending on the node location/elevation and the nature of the topography and construction in the area. As an alternative to a passive-optical fiber deployment whose current pass costs are probably averaging $700, the 5G/FTTN combination could cut costs to a quarter of that.
The question for cable today is what to do about the 5G/FTTN hybrid. The faster broadband later versions of DOCSIS (like 3.1) offer has encouraged cable operators to deploy more fiber, creating more fiber-fed CATV head-end points. Obviously these could be equipped with 5G millimeter wave and turned into the same sort of last-mile delivery mechanism that the telcos are exploring. However, 5G/FTTN isn’t a slam dunk for cable operators.
The biggest problem is the in-ground CATV plant. It’s likely that 5G/FTTN would offer cable companies better profits and offer customers better service, but the cost of a changeover would be considerable, and 5G/FTTN isn’t able to carry linear TV, which then pushes the cable companies to streaming. Many of the telcos have accepted this because DSL doesn’t really offer anything but some form of streaming video and fiber can’t be provided to everyone, but cable companies have ridden on the benefits of CATV up to now. Would they be willing to bite all these bullets to move to 5G/FTTN?
There would be a lot of “CLEC-like” companies interested in getting into the broadband business by exploiting old CATV cables, just as for a time there was interest in wholesaling twisted-pair copper from telcos (and still is, in some areas). A decision by the cablecos to walk away from their CATV plant might well create a CATV-rush and a bunch of new competitors.
Another problem cable faces with the plant is that in many areas of the US, cable companies entered into sweetheart deals with developers or municipalities to provide some form of payment or benefit in return for exclusive access to rights of way for customers. There’s at least one subdivision in my own community where a single cable company is the only broadband option for residents because of this. But 5G/FTTN flies over municipal and subdivision boundaries and bypasses right-of-way deals. If cable companies were to adopt it themselves, might that encourage telcos do accelerate their own plans, and thus hasten the loss of these hamstrung customers?
The telcos might not need much encouragement, though. If FTTH is too expensive for most markets, and DSL is too slow to be competitive with cable’s CATV, what are the telcos to do? Particularly when declining profit per bit makes increasing pass cost significantly a losing proposition. And, of course, if the telcos make the move first, a lot of the 5G/FTTN issues fall away and it becomes a straight-up competitive question.
It’s also true that cable companies don’t surrender all their CATV advantages if they move to the 5G hybrid model instead. Cable has been building out fiber, as noted above, in order to reduce data congestion on CATV cable by reducing the number of subscribers per head-end connection. In many cases, that puts cable companies’ nodes in 5G millimeter wave range of customers, and in some areas they’re closer to the customer than telco DSL head-end nodes.
There are other cable liabilities to balance this asset. The internal rate of return expectations for telcos is lower than for cablecos, which means that telcos could tolerate the investment in nodal 5G more easily. In addition, telcos have only a small footprint in linear TV delivery, and thus could look at video revenue from streaming TV as an increased return on their 5G/FTTN investment. Cable companies already get linear TV revenue.
For both telcos and cable companies, the streaming-video thing may be a big question-mark. Yes, there is more revenue in offering streaming TV than in offering no TV. Particularly given the fact that there are plenty of streaming options available to consumers already, and possibly even more on the way. That means broadband customers might well elect streaming service from a third party, leaving both telco and cable companies to carry the traffic without any incremental revenue.
Cable companies are seeing growth in broadband-only customers, and a general loss of customers and premium-service revenues in linear TV. These customers aren’t swearing off TV, they’re swearing off traditional TV models, meaning linear, live, TV. Some are moving to streaming live TV, but some are just saying goodbye to the whole live network TV thing, or are moving to use antennas for network reception. The whole of the TV landscape is changing.
Which might be the critical point for the cable companies. Telcos never got the majority of their revenue per user from TV, so while a shift in viewer habits may threaten some future plans and hopes, it doesn’t (for most) mean an immediate loss. Some operators (Verizon) too offer traditional TV and some (AT&T) have satellite TV, but there are many, many, telcos who never got into the TV business. There are no cable companies who didn’t start with TV, and if TV is changing completely, cable companies have to expect that their business models and technology will have to change too.
Verizon in the US already hammers cable companies on the “same-upload-as-download-speeds” issue. 5G/FTTN offers symmetrical capacity just like PON FTTH, and many cable companies admit that their outside plant is rather disorderly to boot. At some point, might they be forced to modernize the plant? Might they have to move away from a shared-cable CATV model for competitive reasons?
“Yes” to all of the above, but perhaps not immediately. Even cable companies are starting to worry about profit per bit or average revenue per user (ARPU). I don’t think they’ll move quickly off their CATV plant, which thanks to DOCSIS upgrades still has decent legs. Before they do that, I think we could expect them to try out 5G/FTTN in new subdivisions, but even before that they’ll have to coalesce on a streaming strategy. Some (like Comcast) already have one, and so it may be that Comcast is the player to watch when handicapping the 5G/FTTN move.
For both cable and telcos, the big question is how to achieve reasonable profit per bit while providing a competitive level of broadband service. Telcos know that their legacy infrastructure cannot deliver that formula, and cablecos? Comcast will tell the tale.