MoffettNathanson: Robust broadband and FWA growth, but are we witnessing a fiber bubble?

According to a new comprehensive, market research report from MoffettNathanson (written by our colleague Craig Moffett), Q4 2021 broadband growth, at +3.3%, “remains relatively robust,” and above pre-pandemic levels of about +2.8%.

Meanwhile, the U.S. fixed wireless access (FWA market) captured ~ 38% share of broadband industry net adds in the fourth quarter of 2021.  Approximately half of Verizon’s FWA customers are coming from commercial accounts, T-Mobile has indicated that about half its FWA customers are coming from former cable Internet subscribers.  FWA’s strong Q4 showing left cable’s flow share at just 66%, about the same as cable’s share of installed US broadband households. “In other words, Cable likely neither gained nor lost share during the quarter, and instead merely treaded water,” Moffett noted.  FWA “has gone from low-level background noise to suddenly a major force, with Verizon and T-Mobile alone capturing more than 300K FWA subscribers in the fourth quarter,” Craig noted.  However, he isn’t sure that wireless network operators will allocate enough total bandwidth capacity for FWA to fully scale.

In 2020, a year that witnessed a surge in broadband subs as millions worked and schooled from home, the growth rate spiked to 5%. Here’s a snapshot of the broadband subscriber metrics per sector for Q4 2021:

Table 1:

Sector Q4 2021 Gain/Loss Q4 2020 Gain/Loss Year-on-Year Growth % Total
Cable +464,000 +899,000 +3.8% 79.43 million
Telco -26,000 +21,000 -0.4% 33.51 million
FWA* +302,000 +81,000 +463.9% 869,000
Satellite -35,000 -35,000 -6.6% 1.66 million
Total Wireline +437,000 +920,000 +2.8% 112.95 million
Total Broadband +704,000 +966,000 +3.3% 115.48 million
* Verizon and T-Mobile only
(Source: MoffettNathanson)

U.S. broadband ended 2021 with a penetration of 84%  among all occupied households. According to US Census Bureau data, new household formation, a vital growth driver for broadband, added just 104,000 to the occupied housing stock in Q4 2021, versus +427,000 in the year-ago period. Moffett said the “inescapable conclusion” is that growth rates will continue to slow, and that over time virtually all growth will have to stem from new household formation.

Factoring in competition and other elements impacting the broadband market, MoffettNathanson also adjusted its subscriber forecasts for several cable operators and telcos out to 2026. Here’s how those adjustments, which do not include any potential incremental growth from participation in government subsidy programs, look like for 2022:

  • Comcast: Adding 948,000 subs, versus prior forecast of +1.25 million
  • Charter: Adding 958,000 subs, versus prior forecast of +1.22 million
  • Cable One: Adding 39,000, versus prior forecast of +48,000
  • Verizon: Adding 241,000, versus prior forecast of +302,000
  • AT&T: Adding 136,000, versus prior forecast of +60,000

Are we witnessing a fiber bubble?

“The market’s embrace of long-dated fiber projects rests on four critical assumptions. First, that the cost-per-home to deploy fiber will remain low. Second, that fiber’s eventual penetration rates will be high. Third, that these penetration gains can be achieved even at relatively high ARPUs. And fourth, that the capital to fund these projects remains cheap and plentiful.

None of these assumptions are clear cut. For example, there is an obvious risk that all the jostling for fiber deployment labor and equipment will push labor and construction costs higher. More pointedly, we think there is a sorely underappreciated risk that the pool of attractive deployment geographies – sufficiently dense communities, preferably with aerial infrastructure – will be exhausted long before promised buildouts have been completed.

Revenue assumptions, too, demand scrutiny. Cable operators are increasingly relying on bundled discounts of broadband-plus-wireless to protect their market share. What if the strategy works, even a little bit? And curiously, the market’s infatuation with fiber overbuilds comes at a time when cable investors are growing increasingly cautious about the impact of fixed wireless. Won’t fixed wireless dent the prospects of new overbuilds just as much (or more) as those of the incumbents.”

Moffet estimates that about 30% of the U.S. population has been overbuilt by fiber over the past 20 years, and that the number is poised to rise as high as 60% over the next five years. But the big question is whether there’s enough labor and equipment to support this magnitude of expansion.  “Our skepticism about the prospects for all of the fiber plans currently on the drawing board is not born of doubt that there is enough labor to build it all so much as it is that the cost of building will be driven higher by excess demand,” Moffett explained. “There are already widespread reports of labor shortages and attendant higher labor costs,” he added.

“The outlook for broadband growth for all the companies in our coverage, particularly the cable operators, is more uncertain than at any time in memory. IMarket share trends are also more uncertain that they have been in the past. Cable continues to take share from the telcos, but fixed wireless, as a new entrant, is now taking share from all players. Share shifts between the TelCos and cable operators are suppressed by low move rates, likely due in part to supply chain disruptions in the housing market. This is likely dampening cable growth rates. In at least some markets, returns will likely be well below the cost of capital,” Moffett forecasts.

References:

U.S. Broadband: Are We Witnessing a Fiber Bubble?  MoffetNathanson research note (clients and accredited journalists)

https://www.lightreading.com/cable-tech/fwa-nabbed-38-of-broadband-share-in-q4-as-possible-fiber-bubble-forms/d/d-id/775819?

One thought on “MoffettNathanson: Robust broadband and FWA growth, but are we witnessing a fiber bubble?

  1. That is a good summary of Moffett’s excellent analysis. As a recent convert to fixed wireless, what impressed me most was the self-installation process. It took less than 10-minutes and the integrated WiFi made set-up a breeze. With that said, the 5 to 7 Mbs upstream bandwidth isn’t always great for video conference calls. It definitely makes me think twice before I start a large upload while others in the house might be on a video call.

    Of course, my unit is in a marginal location regarding signal transmission/reception. Still, it points to Moffett’s question about the capacity challenges that T-Mobile and Verizon will face as they add customers. Given Verizon’s millimeter-wave and close proximity of its towers to the customer, I have to wonder if they will have the same capacity constraints as T-Mobile?

    With that said, it will be interesting to see the churn rate for fixed wireless versus fiber and other terrestrial options?

    The other thing that will be curious is to see how many people/businesses are using FWA as a backup to terrestrial options. That is, how many residents/businesses have two broadband connections to ensure greater redundancy?

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