Jeff Heynen, Author at Dell'Oro Group

While visiting China and Taiwan, I still felt connected to the cable broadband industry in Denver via all the stream of announcements made during the show. I anticipated DOCSIS 4.0 advancements with a focus on new components, products, and partnerships to assist cable operators in transitioning from DOCSIS 3.1. In recent weeks, there have been inquiries about a single chipset supporting both DOCSIS 4.0 variants: Extended Spectrum (ESD) and Full Duplex (FDX).

As usual, where there is smoke, there is fire, as Comcast and Broadcom announced at the show silicon combines both flavors. The chips can be used in CPE, as well as in nodes, amplifiers, and Remote PHY Devices (RPDs). The new silicon is expected to be ready for trials in early 2024, with commercial deployments expected before the end of 2024.

Both Comcast and Broadcom emphasized that the unified silicon would provide operators “optionality,” allowing them to mix and match technologies based on the condition of their outside plant, the length of amplifier cascades, the overall cost to upgrade a particular system and, most importantly, the impact of competition. In theory, if an operator is facing competition from fiber overbuilders that have had success in stealing away subscribers based on the ability to deliver symmetric speeds, the cable operator could respond in targeted areas with FDX, while still pursuing a strategy of delivering ESD across the bulk of its footprint.

Unified FDX/ESD Chip Ideal for CPE, Though Questions Remain About Infrastructure

This type of optionality is a great fit for CPE, as it allows CPE vendors to reduce the number of individual products they have to develop and maintain, which is critical in the lower-margin business of consumer electronics. It also simplifies the inventory management process for operators, an important way for them to manage capex costs, particularly since CPE refresh cycles tend to occupy a significant portion of capital expenditures as they build up inventory.

But outside of CPE, it is difficult to see how the additional costs associated with supporting both DOCSIS 4.0 variants make sense. We are already expecting North American cable operators to shell out $5.8B on 1.2GHz, 1.2GHz FDX, and 1.8GHz amplifiers from 2023-2030. Those totals include our estimates for FDX amplifiers, which we expect will carry a $150 price premium over 1.8GHz amplifiers, due to the integration of DSPs (Digital Signal Processors). It is hard to imagine an operator who has committed to one DOCSIS 4.0 technology being willing to spend additional money on optionality it likely will never use in significant volumes.

Comcast reiterated that it is moving forward with FDX exclusively, so the added costs of supporting ESD across amplifiers, nodes, and RPDs makes little sense for the company, especially when the cost of FDX amplifiers already carries a significant premium over 1.8GHz ESD amps.

Although Charter, Cox, Liberty Global, and Rogers Communications have all signed on to a JDA (Joint Development Agreement) with Broadcom that includes some volume commitments and a certain level of funding for the unified silicon, it is very hard to believe that these operators, who have publicly stated a preference for ESD, would want to bear the additional cost of including FDX support across all of their outside plant when it would likely only be a deployed on a limited, case-by-case basis.

Of course, these operators haven’t ruled out FDX explicitly, so it is more likely that they are making some commitment to Broadcom so that the semiconductor company will go ahead and proceed with development. This has very much become Broadcom’s standard operating procedure when it comes to the cable infrastructure market. Broadcom had a similar JDA in place with nearly the same group of operators to commit to volume purchases of Remote MACPHY equipment and a second-generation R-MACPHY chipset from Broadcom. However, once Charter changed its technology strategy from R-MACPHY to Remote PHY, the JDA essentially dissolved, with the other operators also opting for R-PHY.

Operational Improvements a Goal For Unified Chip

The only way it makes sense for the ESD-focused operators to absorb the costs associated with a unified chipset is if they believe that the addition of an SoC (System on a Chip) which combines a DSP for echo cancellation as well as the downstream and upstream equalizers, provides them with enhanced telemetry and performance metrics that might improve overall reliability and uptime, as well as reducing the amount of money they spend on truck rolls and handheld test and measurement equipment. The FDX SoC also includes an embedded cable modem (eCM) function which can communicate with a centralized controller in the headend or data center to help automate the setup and topology of the amplifiers within a cascade—again without having to roll a truck.

So, there is potential value in paying upfront for a device that will likely be an integral part of an operator’s network for 10 years, if not more. There is also the potential for significant savings in operational costs by reducing truck rolls and technician visits to determine which amplifier in a cascade might be incorrectly configured or underperforming.

But, with Comcast having developed so much FDX technology alongside its vendor partners, other operators have to be concerned about whether Comcast would prefer to license elements of the FDX ecosystem—from RPDs to vCMTS platforms to amplifiers. Speculation on Comcast’s ambitions regarding the licensing of its broadband technologies has existed ever since it announced its warrant agreement and subsequent enterprise licensing expansion with Harmonic in 2016 and 2019. Its X1 video platform has been licensed by Cox, Shaw, and others. So, Comcast certainly has experience in this regard. Broadband is a different story, however. Unlike linear TV, which is seeing continued subscriber losses, broadband subscriptions and revenue continue to grow. Because of this, operators have been more reluctant to hand over any level of control via a similar licensing arrangement.

So, it will be interesting to see whether any of the ESD-committed operators adopt the more expensive, unified chipset from Broadcom. The operators that are part of the JDA will get first dibs on the chips when they become available, leaving those operators that aren’t part of the JDA on the outside looking in. That includes a substantial number of tier 2 and tier 3 operators all trying to determine their path forward from DOCSIS 3.1

Unlike Broadcom, MaxLinear also introduced its own Puma 8 chipset supporting only ESD that will not require a JDA. The chip is expected to reach production in the second half of 2024. At the show, MaxLinear announced that Askey, CommScope, and Sercomm are the initial CPE partners for the Puma 8. These vendors have historically maintained DOCSIS CPE lines that incorporate both MaxLinear and Broadcom chips and are likely to eventually do so to support the DOCSIS 4.0 evolution. Vantiva, which is in the process of acquiring the CommScope Connected Home division, has historically been a Broadcom-only supplier. But it remains to be seen how the vendor will move forward given CommScope’s historic support of both Broadcom and MaxLinear.

Chinese operators are moving quickly to the next phase of residential fiber deployments by extending fiber inside homes and into individual rooms through a unique combination of a centralized ONT (Optical Network Terminal) and subtended ONT access points designed to ensure advertised speeds with the option of wired and Wi-Fi connections in each room of a home. The net result of this surge in FTTR deployments has been a steady increase in FTTR-optimized ONT shipments.

Through the first half of 2023, more than 6M FTTR ONT units have been purchased by the three major operators. To provide some perspective, this total is less than 20% of the total ONT shipments in China in that same time frame. However, that growth has come in just a little over a year and a half, which signals the strategic importance of the application to the operators. Further, that growth comes from just a handful of major regional branches of China Mobile and China Unicom. China Telecom is just now getting underway with FTTR, having set forth its plan to purchase 500K FTTR ONTs earlier this year.

The three operators are expected to rapidly expand the availability of FTTR services and packages throughout the rest of this year and into 2024, as the application is viewed as a critical driver of four overarching business goals for their fixed broadband business units:

Increasing ARPU (Average Revenue Per User)
Reducing subscriber churn
Reducing energy consumption in the home and throughout the network
Reducing service and support costs by improving the quality of service

From Gigabit Cities to Gigabit Homes

Back in 2013, the Chinese Government set an ambitious goal of delivering gigabit speeds to 400M households in China’s largest cities by 2020. The project reach approximately 200M homes before the COVID-19 pandemic delayed further expansion. In 2021, the Government re-issued its objectives and set a goal of achieving the 400M home goal by the end of 2023. At this point, it is believed the total number of gigabit homes is nearing that 400M mark, as over 100 cities have now been designated as Gigabit Cities.

Historically, though, operators delivered fiber to the floor of a building and then connected each apartment via DSL or Ethernet or dropped fiber to a single ONT or ONT gateway inside the home. To expand Wi-Fi coverage in the home, subscribers could either purchase their own access points or could use those supplied by the operator. Nevertheless, in very densely-populated cities, subscribers often ran into channel contention issues, reducing the throughput of their Wi-Fi connections and reducing the overall quality of service, particularly during peak hours.

These challenges became more acute during the pandemic when cities and buildings were locked down and service provider technicians could not access residences to diagnose and troubleshoot Wi-Fi and other connectivity issues. So, even in China’s showcase Gigabit Cities, subscribers were getting far slower speeds than what was being touted by their service providers.

To solve these issues, the three major operators realized that the only way they could guarantee consistent throughput throughout the home was to extend fiber to each room. The most economical way to do this was to use the same architecture as their PON access networks, but just on a smaller scale, using a passive splitter in front of the primary ONT gateway. From there, the operators worked with domestic equipment manufacturers and cabling and component suppliers to develop solutions that would allow technicians to easily install flat fiber or fiber electric composite cables to each room, depending on whether the ONT access point required an external power supply.

Flat fiber installation tools were developed that allowed a technician to run fiber along baseboards, doors, and window frames, minimizing the obtrusiveness as much as possible. Additionally, software tools were developed to allow the technician to quickly determine the shortest route and quickest installation approach before commencing the work. The net result is that the average installation time is reported to be around 30 minutes or less.

Even before the technician arrives, the upfront work of determining demarcation between building owners and the service provider is completed, so that the FTTR service can be marketed throughout the building and installations can be scheduled and completed as quickly as possible.

Up-Front Costs, Long-Term Benefits

In a competitive environment like China, where broadband ARPU tends to be low and fairly static, FTTR has turned out to be a source of new revenue for the operators, as well as a way to get subscribers to commit to longer-term contracts. Subscribers can choose to pay 2000 RMB (US$277) up-front to cover the costs of the installation, as well as the additional ONTs, or they can commit to a multi-year contract, paying 30-40 RMB (US$4-$5) per month for a minimum of 2-3 years. Historically, broadband service contracts were limited to one year. Because of the additional labor and equipment costs associated with FTTR, operators were allowed to extend the contracts. With the additional costs of the ONTs bundled in, the operators have anecdotally said that the ARPU uplift for FTTR is around 30%. With mobile ARPUs getting squeezed, FTTR is seen as a way to recoup some of those lost margins while also ensuring improved QoS.

Speaking of QoS, the operators have reported that the combination of FTTR plus Wi-Fi 6 improves overall speeds by up to 80% over previous-generation Wi-Fi 5 access points. Much of the gain is in the improved rates and reach of Wi-Fi 6. But using fiber as a backhaul technology from the local access point to the primary ONT gateway also helps to improve speeds and reduce latency by up to 30%. More importantly, operators know that each home will have full Wi-Fi coverage, rather than assuming the subscriber has correctly placed the access points to eliminate dead zones. That helps to reduce support and troubleshooting calls.

Finally, from an environmental perspective, the use of passive splitters and components in the home offsets the increased number of powered ONT access points. But these units are also more power-efficient than previous generations of access points. When combined with the reduced power needs of PON access networks, in general, the FTTR architecture is a net reduction in carbon footprint.

Global Opportunities

Nearly all FTTR deployments have occurred in China, though there are already signs of international expansion in Hong Kong, UAE, and Brazil. Certainly, countries with high fiber penetration combined with a high percentage of MDU-based residences are the low-hanging fruit for FTTR. This is why we expect to see increased FTTR activity in markets such as Hong Kong, Singapore, the UAE, and Korea over the next two years.

In addition to high fiber penetration, regulations clearly defining the demarcation between building owners and service providers must be in place, as well as updates to building codes that clarify approved installation methods for flat fiber and best practices for fiber maintenance. In countries with low fiber penetration, these standards have yet been developed due to the need has not been there. Or in countries with FTTH deployments, standards, and demarcations have been defined for a single drop point to the customer’s residence—simply updating architectures that have been in place for decades with twisted pair and coaxial cable.

Time will tell whether an increase in fiber ISPs’ results in those ISPs differentiating their service with an FTTR offering. ISPS may offer FTTR as a premium service. At this point, however, all eyes are fixed on Wi-Fi 7 gateways and access points as the cure-all for spotty coverage and capacity issues.

Growing interest among operators to use PON technologies to offer enterprise customers an alternative to traditional Ethernet services is increasing 25GS-PON-capable OLT ports being deployed into service provider networks. Because of the increase in total 25GS-ready ports, as well as the consensus that a growing percentage of those ports will be used to deliver enterprise and leased line services, we have increased our forecasts for 25GS-PON equipment revenue (both OLT ports and ONTs).

In our most recent forecast, published in July, we increased cumulative 25GS-PON equipment revenue between 2022 and 2025 from $315M to $588M worldwide, with the majority of revenue coming from the North American and Western European markets. While that increase is significant by itself, it’s important to bear in mind that cumulative XGS-PON equipment spent during that same period will easily push $7.7B. But XGS-PON will be the dominant technology across residential FTTH networks, whereas 25G-PON will be used strategically by operators for high-end residential services, enterprises, campus environments, access network aggregation, and wholesale connections.

Through the end of 1Q23, a total of 550K 25Gbps-Capable OLT ports have been delivered to the market, largely via combo cards and optics that can support 2.5Gbps GPON, XGS-PON, and 25GS-PON from the same hardware and using the same ODN. If we assume that an average of 100-200K 25GS-capable OLT ports are purchased by service providers every quarter, by the end of 2023, there will be >1M 25GS-capable OLT ports. Continuing that incremental increase through 2025 yields over 2 million 25GS-capable OLT ports purchased by service providers. Further, let’s assume that a low single-digit percentage of those total ports are turned up to deliver enterprise services. The potential net result is anywhere from 500k-700k OLT ports in service delivering enterprise, wholesale, and mobile transport services.

That is the relatively modest strategy behind 25GS-PON: To finally expand the applicability of PON technologies beyond residential networks. Though it has been discussed by vendors and operators for years, we are finally seeing that many operators have earmarked PON as a network-flattening technology across their residential, enterprise, mobile transport, and wholesale networks. Though there certainly have been instances of operators using GPON for mobile backhaul and business-class Internet access, those use cases have been relatively limited. The combination of XGS-PON and 25GS-PON is really the first to give operators the flexibility they require to be able to address many customers and applications across the shared infrastructure. While some operators envision sharing an ODN across these use cases, others prefer to separate their ODNs because of concerns around security and significantly different SLAs. Nevertheless, PON technologies beyond XGS-PON are already central components of a larger discussion around simplifying access and edge network connectivity.

Though the ITU has determined that single channel 50G PON as defined in its G.hsp.50pmd specification is the next generation technology it will move forward with, the increasing use cases for PON combined with those use case requirements for additional speeds beyond what XGS-PON can provide have opened the door for 25GS PON as a potentially important tool in operators’ toolboxes. The current strength in fiber buildouts and the need to address new use cases today has resulted in a list of operators who simply can’t wait for 50G PON to be fully standardized, tested, and productized. As such, other industry standards group, including the Broadband Forum, are working with 25GS-PON and looking at developing testing and interoperability standards for the technology.

While standards bodies have traditionally defined which technologies get adopted and when there are certainly cases where operators have placed their thumbs on the scales in favor of a preferred option. These choices don’t generally go against what the standards bodies recommend or are working towards. Instead, they satisfy a more immediate internal requirement that doesn’t mesh with the proposed standardization, certification, and product availability timeline defined by the standards bodies and participating equipment suppliers.

Larger operators, including AT&T, BT Openreach, Comcast, and Deutsche Telekom, have also become far more comfortable over the last few years defining standards and pushing them through other industry organizations, such as ONF and the Broadband Forum. These operators know they have the scale, market potential, and, most importantly, internal technology and product development engineering teams to drive standards and thereby influence the product roadmaps of their incumbent equipment suppliers.

And that’s what appears to be happening with 25GS-PON. The growing list of service providers taking part in the 25GS-PON MSA has a general consensus around their PON technology choices: Use GPON and XGS-PON today for the bulk of your residential FTTH deployments, and then add in 25GS-PON using the same equipment and ODN where it makes strategic sense.

This strategy is no different from other access technology strategies and deployment models seen in the past. From ADSL to ADSL2+, VDSL to G.fast, and GPON to XGS-PON, broadband access networks are in a constant state of upgrade. It just so happens that they are now being extended to support other use cases and other end customers. The PON market, as well, has always been one offering different technology options to suit each operator’s unique use case requirements and competitive dynamics. That flexibility is proving to be particularly beneficial in today’s hypercompetitive broadband environment, in which each operator might have a different starting point when it comes to fiber deployments, but likely has similar goals when it comes to subscriber acquisition and revenue generation. In this environment, many operators have clearly said that they simply can’t wait on a promising technology when they need to establish their market presence today. And so, the vendor ecosystem has responded again with options that can steer them down a path to success.

As analysts, we are increasingly asked to speculate on how Artificial Intelligence will impact various segments of enterprise and service provider networks. My colleague, Stefan Pongratz, began our collective responses to these requests with an excellent piece on how AI will impact mobile RAN investments.

For my piece on how AI will impact broadband networks, I thought I would start by posing the question to ChatGPT, the generative AI platform, to see what it would suggest as AI’s impact on broadband networks and services. My specific query was “How will artificial intelligence impact broadband networks and services?” Here are the verbatim results:

Artificial Intelligence (AI) is poised to have a significant impact on broadband networks and services in several ways. Some of the key impacts include:

Network Optimization: AI can be used to optimize the performance of broadband networks by analyzing data in real-time and making adjustments to network configurations. This can lead to better utilization of network resources, reduced congestion, and improved overall network efficiency.
Predictive Maintenance: AI-powered analytics can help predict potential network failures or issues before they happen. By analyzing data from various network components, AI can identify patterns that indicate impending problems, allowing for proactive maintenance and reducing downtime.
Enhanced Customer Service: AI can be employed in customer service applications to provide personalized support, answer customer queries, and troubleshoot common issues. AI chatbots can handle a significant portion of customer interactions, improving response times and overall customer satisfaction.
Quality of Service (QoS) Improvement: AI can monitor network performance and prioritize certain types of traffic based on user demands. This can ensure that critical services, such as video conferencing or online gaming receive higher priority and a better quality of service.
Network Security: AI can play a crucial role in identifying and mitigating cybersecurity threats on broadband networks. By analyzing vast amounts of network data, AI can detect unusual patterns, potential attacks, and vulnerabilities, helping to enhance network security.
Network Traffic Management: AI can optimize network traffic routing, especially in scenarios with dynamic traffic patterns. It can analyze real-time data to redirect traffic through the most efficient paths, reducing latency and improving user experience.
Content Optimization: AI can analyze user behavior and preferences to personalize content delivery. By understanding individual preferences, AI can recommend content, advertisements, and services that are more likely to resonate with specific users.
Network Planning and Expansion: AI can assist in planning and expanding broadband networks by analyzing demographic and usage data. This can help service providers determine where to invest in network infrastructure, ensuring that resources are allocated efficiently.
Resource Allocation: AI can help allocate network resources based on demand and usage patterns, dynamically adjusting bandwidth to accommodate peak periods and preventing network congestion.
Network Virtualization: AI can be utilized in software-defined networking (SDN) and network function virtualization (NFV) to optimize the allocation of virtual resources, making networks more flexible, scalable, and cost-effective.

While AI offers numerous benefits to broadband networks and services, it also presents challenges, such as ensuring data privacy, addressing ethical concerns, and maintaining transparency in decision-making algorithms. As AI continues to evolve, its impact on broadband networks and services is likely to become even more profound.

This might be dangerous to say, but I couldn’t have said it any better myself. All of the network impacts ChatGPT identified are definitely aligned with what we hear from broadband service providers around the world. This is especially true when it comes to proactive network and infrastructure management.

We are already seeing a small, but growing list of operators using machine learning tools as a first step in improving the overall reliability of their broadband access networks. Comprehensive, active monitoring of fiber broadband networks and optical assets has generally been reserved for long-haul and metro Ethernet networks. But for broadband access networks, fiber monitoring has generally been limited to identifying physical fiber cuts or bends and then rolling a truck so a technician can use a handheld OTDR or PON power meter to determine the location of the physical issues. Broadband network operators have always struggled with balancing cost and reliability, which is why they have typically relied on reactive toolsets as opposed to proactive ones.

But with the increased investment levels and long-term strategic significance of fiber broadband networks for both enterprise and residential applications, service providers are increasingly introducing machine learning and AI platforms to help them anticipate and correct network issues before they are impactful. Self-healing broadband networks are the goal.

Beyond ChatGPT’s fairly astute responses, there are also other impacts that AI will have on broadband network spending and services:

AI will Result in Additional Subsidies to Expand Broadband Accessibility and Affordability

COVID-19 was the first of a two-part wave of governments understanding the need for their citizens to have access to broadband and, in many cases, subsidizing the expansion of broadband networks to reach previously unserved locations as well as subsidizing the affordability of those services to learn, work, and engage in commerce from home.

AI—particularly generative AI—is the second part of that wave that will keep governments investing in the broadband networks and services of the future. Somewhat lost amidst all the speculation of how transformative generative AI will be to GDP, as well as how individuals even interact with the Internet and each other, is the fact that no government and no service provider, for that matter, wants to be known as the entity that left its citizens or its subscribers behind.

Therefore, we expect legislators in many countries will push for additional investments to be made to expand the availability and affordability of broadband services. Along those lines, AI tools will prove very useful in the critical task of mapping and identifying locations and communities that lack necessary broadband speeds. In the US, for example, AI tools are being used throughout the BEAD (Broadband Equity Access and Deployment) process to get the most accurate determination of broadband availability at the census block level to start. Ultimately, these datasets can be further parsed so that availability and performance can be determined at a per-street level. The goal, of course, is to ensure that the capital is used as efficiently as possible to eliminate broadband deserts. But AI tools will eventually help governments and service providers determine where their speeds and service levels might not be evolving quickly enough to support the needs of their communities and ensure that a broadband divide doesn’t become an AI divide.

The combination of AI and the Metaverse will Drive Increasing Traffic Requirements

The metaverse is often cited as a reason why service providers need to deploy fiber networks despite today’s applications and content generally not taxing those connections. Though the metaverse will ultimately have an impact on broadband service requirements in both enterprise and residential networks, it is the combination of generative AI and the metaverse that will really be a catalyst for speed growth and continued latency and reliability improvements.

In gaming, VR, and AR applications, the combination of generative AI and the metaverse will dramatically improve how users interact with their environments. The ability to use natural language to create new worlds or to navigate those worlds while also being able to request statistics about those environments in real-time will result in a whole new universe of content creators, and game and application designers. Their ability to successfully create and interact with their 3D and immersive environments will depend largely on their connectivity.

Obviously, the data centers running the real-time engines powering these immersive environments will experience the biggest demand. But there is expected to be some distribution of processing at the device level and at the edge of networks, which means that broadband capacity and throughput will also have to scale up based on users’ requirements.

The impact of using natural language to search, shop, and interact online, as well as to control in-home or in-building IoT sensors, for example, will have a significant impact on overall traffic growth. Where online searches used to be fairly-static requests for particular URLs, using natural language to make similar requests, while a convenience for users, requires significantly more language model processing and broadband connections that can support high downstream and upstream speeds.

And it goes without saying that securing these interactions will be critical, which will also introduce additional bandwidth requirements as well as SLAs and service tiers that match subscribers’ levels of risk tolerance.

The US broadband market has certainly become the most dynamic in the world. For decades, cable operators dominated net new subscriber growth, added millions of new homes passed annually, and compiled a dominant position in the market with a penetration rate of 65% or more. Even during the pandemic, cable operators saw their net subscriber additions per quarter accelerate, as they were able to poach dissatisfied DSL customers and attract first-time subscribers with the help of the FCC’s Affordable Connectivity Program.

But just as cable operators had reached their peak of subscriber growth, the rapid expansion of 5G-based fixed wireless access services put an end to cable’s quarterly gains. Now, the largest US cable operators are dealing with flat to modest net subscriber growth on a quarterly basis, with some quarters showing net subscriber declines. As a result, cable operator CEOs have started to change their tune slightly, moving away from calling fixed wireless an “inferior technology” to acknowledging its impact in creating a “high churn environment.”

But cable operator executives still continue to downplay the long-term impact that 5G FWA will have on their addressable share of broadband subscribers. They will claim that the pull-forward of broadband net subscriber additions during the pandemic combined with the general slowdown in new housing starts and moves—the typical drivers of subscriber growth—is the reason for the poor quarterly performance in new subscriber additions. They will continue to argue that 5G fixed wireless just doesn’t measure up to current DOCSIS service tiers—let alone any of the upgrades they are making through their mid- and high-split activities.

And yet both T-Mobile and Verizon continue to add FWA subscribers (both residential and small business) at a furious clip, with T-Mobile emphasizing that 51% of its fixed wireless customers come from cable operators. Verizon just announced the net addition of 384K FWA subscribers in 2Q23, pushing the company’s total subscriber base to 2.26M. Consumer FWA additions were 251K, while business additions were 133K. T-Mobile is expected to post even stronger subscriber gains in the second quarter, even as its FWA subscriber base in 1Q23 reached 3.2M through a net increase of 523K subscribers.

Source: Dell’Oro Group Broadband Access & Home Networking 1Q23 Report

T-Mobile has a stated goal of serving 7-8 million subscribers by the end of 2025, while Verizon has a goal of serving between 4-5 million subscribers by the end of 2025. Collectively, that’s a potential subscriber base of anywhere from 11-13M subscribers. Those numbers don’t include the entry of AT&T in the 5G FWA market via its Internet Air service, which could net anywhere from 1.5-2M subscribers by the end of 2025, according to our estimates. Unlike T-Mobile and Verizon, which are offering their FWA services nationwide, AT&T’s service is aimed at retaining current DSL customers who are located in areas that will not be offered a fiber alternative as part of the company’s 30M-location fiber buildout. According to our estimates, that leaves an addressable market of approximately 13-15M locations. Though our take rate estimates are relatively low for the service, it is possible that AT&T could expand the reach of Internet Air if the service shows early signs of success at securing new subscribers and keeping churn rates low.

In total by 2025, the three major mobile operators could have a combined FWA subscriber base of nearly 15M, with a good percentage of those having shifted over from cable. And this only represents the potential subscriber drain caused by FWA. By 2025, fiber overbuilders will have dramatically increased their footprint with a product that is certainly going to have better take rates than any flavor of DSL offered over the last two decades. Suddenly, that 65% share of broadband subscribers in the US looks like it is poised to potentially drop well below 60% by 2025.

Cable operators will point to capacity issues as a major impediment to further FWA growth beyond the stated subscriber goals. But with the operators ready to unleash more C-band spectrum and likely to use that spectrum to harvest additional FWA subscribers, the short-term pain for cable operators doesn’t look like it is going to disappear.

And let’s not forget that if capacity does become an issue in certain markets, then both AT&T and Verizon can offer fiber as an alternative to ensure they don’t lose subscribers. From this perspective, T-Mobile is a bit of a wildcard. However, we believe T-Mobile will advance a strategy of partnering with open-access fiber network providers to offer a residential fiber service in markets where FWA capacity might be constrained.

Weathering the Storm

Cable operators aren’t standing still, of course. They are increasing the bandwidth and mix of service tiers through a combination of band splits and spectrum improvements in their access networks. They are improving the reliability and signal quality of their networks through DAA deployments. Compared with fiber overbuilds, these are relatively inexpensive upgrades that will pay dividends down the road.

But in the short term, the two most important tools cable operators have to combat subscriber churn are price-competitive fixed-mobile bundles and RDOF- and BEAD-subsidized rural and edge-out projects. The subsidized projects, which major cable operators like Charter have already used to expand their homes passed footprint and will continue to use through 2025, will be a major source of annual homes passed, especially in a market where new home construction through the first half of 2023 remains lower than in 2022. These subsidized buildouts are in markets that are expected to have very high penetration rates and a guaranteed return on investment. Additionally, while the number of passings for the subsidized buildouts is well-defined, there are likely to be thousands of what are known as “synergy passings,” where locations outside the subsidized census blocks can also be addressed and captured.

On the fixed-mobile bundle side, the large cable operators have consistently added a disproportionate share of new mobile subscribers over the last few quarters and are also seeing the penetration rates among their broadband subscriber base increase. This mobile growth certainly provides a counter to FWA growth. But all things being equal, the major cable operators would rather have those broadband subscribers back.

The push and pull of subscribers isn’t expected to slow down anytime soon. Certainly, with inflation continuing to put pressure on household budgets, consumers are going to be focused on keeping their communications costs low and looking for value wherever they can find it. That means we are returning to an environment where subscribers take advantage of introductory pricing on services only to switch providers to extend that introductory pricing once the initial offer expires. That shifting and its expected downward pressure on residential ARPU will likely be countered by increasing ARPUs at some providers as they move existing DSL customers to fiber or, in the case of cable operators, move customers to multi-gigabit tiers.

The US broadband market is definitely in for a wild ride over the next few years as the competitive landscape changes across many markets. The net result is certain to be shifts in market share and ebbs and flows in net subscriber additions depending on consumer sentiment. One thing that will remain constant is that value and reliability will remain key components of any subscription decision. The providers that deliver on that consistently will ultimately be the winners.

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