Let’s go beyond a “Tale of Two Cities” to a “Tale of Three Operators”. AT&T, Comcast, and Verizon all reported their numbers for the last quarter, and there was some interesting stuff to be learned, mostly by comparing results and delving into how the findings reflect on operators and tech overall. Fierce Network did a story on each of the three, and I’ll include the links and cite that source in all three cases, for consistency.
Let’s start off with AT&T. The company announced over half a million postpay wireless ads, with prepay flat. It also added just over a quarter million fiber broadband sites, and over a hundred thousand FWA sites. Wall Street generally applauded their numbers.
Comcast had a less positive story. It gained almost three hundred thousand wireless (MVNO) customers but lost 65 thousand broadband subscribers, almost triple what it lost last quarter. Significantly, the company cited competition in the business space from FWA.
Verizon’s numbers were also less positive than its AT&T rival. Their wireless lost 158 thousand postpaid, and 216 thousand in prepaid, but their gained almost four hundred thousand broadband customers. FWA accounted for 354 thousand of that.
OK, what can we read here. First and foremost, FWA is clearly a key factor in broadband, perhaps the key factor, more so than fiber to the home. One major reason for this, I believe, is that operators inevitably focus on market segments in order of ROI, which means that they’ve all tended to push out infrastructure where it would do the most financial good. Over time, of course, you tend to pluck all your low financial apples, leaving only areas/customers with less ROI potential. Many of these simply cannot be served with premium FTTH offerings
This ROI stuff relates to two factors; pass cost and demand density. The pass cost of FTTH is the highest of any broadband option, which means that what it passes needs to be a primo revenue generator. Verizon has a very dense territory, and so was able to quickly deploy FTTH to many areas, including ones with lower ARPU potential that were still profitable given the local density of customers. AT&T has much lower demand density, and so it was more cautious in FTTH rollout. Today, it’s working to catch up in areas where local demand density is high enough, helped by the fact that PON improvements have driven down FTTH pass costs by as much as forty percent.
Cable MSOs like Comcast relied initially on exclusively CATV, delivering linear RF for live TV before they even got into the broadband business. Because of the broadcast-distribution mission, cable systems passed many customers with a single span, and so when broadband first came along, cable companies had a medium suitable to carry it at least at speeds superior to telco DSL, and a very low pass cost, perhaps as low initially as a seventh that of FTTH. As broadband expectations rose, improvements in cable broadband kept up for a time, but also increased pass costs. Still, in most areas, cable pass cost is a quarter to a fifth of FTTH.
Enter FWA. In both its millimeter-wave form and as a repurposing of traditional mobile technology, FWA has a pass cost lower even than cable in most geographic conditions. Obviously, T-Mobile has relied on FWA to address fixed sites, and that in part surely influenced others like AT&T and Verizon, though I believe Verizon jumped into FWA more aggressively to prevent cable MSOs from siphoning off customers in areas where FiOS just wasn’t profitable enough to deploy. AT&T should have been even more aggressive, but it held back on FWA and is only now taking it seriously. Their problem with broadband adds, I believe, can be traced to this.
If the broadband market is now seeing most additions at the low end of the ARPU spectrum, then FWA would be expected to have the greatest competitive impact on MSOs like Comcast, and that seems to be the case. FWA limits the Comcast pass-cost advantage, but it has another significant impact too. Like many cable MSOs, Comcast regularly entered into exclusive agreements with towns and subdivisions, building out infrastructure in return for a lock on the geography. But these agreements can only stop competitors from deploying, not FWA insinuating itself in from the outside directly to a home or business. AT&T’s decision to focus FWA attention on business broadband has, so I’ve heard, impacted cable success there, and Comcast seems to have acknowledged that this quarter.
One reason for a business focus for FWA is concern over whether video content could overload FWA in consumer applications, something AT&T specifically cited. Insiders at all the US telcos tell me that this is a valid concern, and one they share (in private). This concern is most felt in the form of FWA where mobile 5G infrastructure feeds it rather then where FWA uses FTTN and a dedicated FWA node, even millimeter wave, because of the risk that a heavy video user might either compromise mobile service capacity, or that performance issues would create pushback, support calls, and churn.
That last point may well be because the quarter shows that mobile continues to be a hotter space than fixed broadband, and the fact that a telco (most of whom offer mobile services) can bundle their mobile and fixed services is likely one reason why MSOs enter in to MVNO relationships. However, MSOs don’t want to feather their competitors’ nests more than they have to. Comcast has been promoting its WiFi hotspot services, which do manage to offload a lot of mobile video traffic from MVNO services.
AT&T still sees FWA as a “bridging” strategy, a rest stop between the DSL that AT&T favored in the past to the FTTH it wants for at least their higher-density areas today. Given that I believe AT&T has been hurt by FWA reluctance up to now, I wonder whether this view comes more from a desire to defend a past bad move, than a realistic view that the FTTH step would actually be taken. Even the best FTTH pass costs would be many times higher than FWA, so it’s hard to see how it could generate enough ROI to be a smart move.
I think FWA is clearly one common thread here. It threatens cable companies by offering telcos a technology with lower pass cost. It provides a way of leveraging 5G investments that many telcos feel have failed to pay off. But another common thread is that broadband access in every form is losing differentiation, and no amount of cost management is going to fend off problems in the long term.
