by Stéphane Téral, Chief Analyst at LightCounting Market Research
3Q22 was almost a carbon copy of 2Q22, which signals that the 5G-driven wireless infrastructure market is reaching its peak as the first wave of 5G rollouts wane.
Global uncertainties, lingering supply chain constraints, and forex headwinds contributed to another soft 3Q22 that followed an already sluggish 1H22. In the meantime, the wireless infrastructure market continued to operate at its equilibrium reached in 2021: the 2 opposite spheres of influence, the East led by China versus the West defined as the U.S. and its allies, are becoming more balanced.
We found that the West accounted for 50.5% of the global wireless infrastructure market while the East made up for the rest, with China accounting for more than 80% of the East.
|Historical data accounts for sales of the following vendors:|
|Vendor||Segments||Source of Information|
|Affirmed Networks (acquired by Microsoft, April 2020)||vEPC, 5GC||Estimates|
|Altiostar||vRAN (CU, DU)||Estimates|
|ASOCS||vRAN (DU)||None, supplies other RAN/vRAN vendors|
|Baicell||RAN (RU)||None, supplies other RAN/vRAN vendors|
|Benetel||Open RAN (RU)||None, supplies other RAN/vRAN vendors|
|Cisco||EPC, vEPC, 5GC||Survey data and estimates|
|China Information and Communication Technologies Group (CICT)||RAN||Estimates|
|Comba Telecom||RAN/vRAN (RU)||None, supplies other RAN/vRAN vendors|
|CommScope (acquired Phluido vRAN patents, October 2020)||vRAN (RU, DU)||Estimates|
|Dell||vRAN (DU)||None, supplies other RAN/vRAN vendors|
|Ericsson||RAN, vRAN, 2/3G Core, EPC, vEPC, 5GC||Estimates|
|Fairwaves||RAN/vRAN (RU)||None, supplies other RAN/vRAN vendors|
|Fujitsu||RAN||Survey data and estimates|
|HPE||2G/3G core, 5GC||Estimates|
|Huawei||RAN, vRAN, 2/3G Core, EPC, vEPC, 5GC||Survey data and estimates|
|KMW||RAN/vRAN (RU)||None, supplies other RAN/vRAN vendors|
|Kontron||vRAN (DU)||None, supplies other RAN/vRAN vendors|
|Mavenir (acquired ip.access, September 2020)||vEPC, vRAN, 5GC||Survey data and estimates|
|Metaswitch (acquired by Microsoft, May 2020)||5GC, vEPC and 2G/3G core||Estimates|
|MTI Mobile||vRAN (RU)||None, supplies other RAN/vRAN vendors|
|Node-H||vRAN (small cells)||Estimates|
|Nokia||RAN, vRAN, 2/3G Core, EPC, vEPC, 5GC||Survey data and estimates|
|NEC (including Blue Danube)||RAN, vRAN (RU), EPC, 5GC||Survey data and estimates|
|Parallel Wireless||vRAN (CU, DU)||Estimates|
|Pivotal||RAN/vRAN (RU/mmWave repeater)||Estimates|
|Quanta Cloud Technology (QCT)||vRAN (DU)||None, supplies other RAN/vRAN vendors|
|Ribbon Communications||2G/3G core||Survey data and estimates|
|Samsung||RAN, vRAN, vEPC, 5GC||Estimates|
|Silicom||Open RAN (DU)||None, supplies other RAN/vRAN vendors|
|SuperMicro Computer||vRAN (DU)||None, supplies other RAN/vRAN vendors|
|Verana Networks||RAN/vRAN (RU/mmWave)||Estimates|
|ZTE||RAN, vRAN, 2/3G Core, EPC, vEPC, 5GC||Survey data and estimates|
To the surprise of many, the Cable industry (Cablecos/MSOs) has captured an accelerating share of gross and net wireless subscriber additions, forcing incumbent wireless telcos (AT&T, Verizon, T-Mobile) to respond by offering lower priced alternatives. In the second quarter of the year, with cable taking nearly half (49.2%) of industry net additions in the period (after adjusting for 3G network shutdowns), according to MoffettNathanson’s latest report (subscription required) on the mobile sector. Cable’s Q2 2022 take was up from approximately 31.9% in the year-ago period.
MoffettNathanson’s analysis also showed that cable took its highest share of gross mobile subscriber adds in Q2 2022, at 11.9%. That compared to T-Mobile (30.1%), AT&T (29%) and Verizon (27.8%). Comcast, Charter and Altice USA combined to add 694,000 mobile lines in the second quarter, ending the period with 9.12 million.
Comcast, Charter, and Altice collectively added 694K new subscribers in Q2, up more than 100K from the corresponding quarter last year. That takes Cable’s subscriber base beyond 9M, or still just ~3% of the U.S. industry as per the graph below.
- Comcast disclosed that wireless penetration of its residential broadband base has reached 7.9% (or about 2.4M homes), suggesting they’ve reached nearly 2 lines per home, up from ~1.6 lines per account just a year ago.
- Privately held Cox Communications is now in beta testing on its MVNO service, and we expect it will offer pricing similar to Comcast’s and Charter’s. That will only add to the pressure on the wireless telco incumbents.
“Cable Wireless offers have been more successful than anyone had expected when they were first introduced,” MoffettNathanson analyst Craig Moffett wrote. Of note, it appears that Comcast ‘s Xfinity Mobile service has reached nearly two lines per home per mobile sub, up from about 1.6 mobile lines per account just a year ago.
Citing data from Navi, a firm that aggregates data on service plans and promos from major postpaid carriers, original equipment manufacturers and large retailers, Moffett says there’s a “clear and growing interest in Cable Wireless as a potential service provider.”
“Lower industry growth means a more challenging path forward for all carriers… particularly given the rapid share gains of the cable operators,” Craig wrote. “While Cable wireless collectively took nearly 700K net adds during the quarter, they would presumably have taken even more had the incumbents’ new basic entry plans not been introduced,” he added.
Business Wireline Status:
“While wireless is inarguably the core business for both Verizon and AT&T, the worsening conditions of the Business Wireline segment, which accounts for some 19% of revenues at AT&T and 11% at Verizon, cannot be ignored. Deterioration in the sector overall is bad enough, particularly in light of high prevailing inflation. Industry revenues are now shrinking by 3.7% per year. Excluding USF and IP sales, AT&T saw Business Wireline revenues fall by 7.6% YoY in Q2, and Verizon saw Business Wireline revenues fall by an estimated 8.2%,” wrote Craig Moffett.
AT&T’s Overlooked Assets:
MoffettNathanson is missing two key growing revenue streams for AT&T:
- Increasing fiber optic network sales to both business and residential customers: AT&T added 316,000 net AT&T Fiber subscribers during the second quarter of 2022, resulting in fiber penetration of nearly 37% with about 6.6 million total fiber subscribers. AT&T has already added nearly 2 million AT&T Fiber (brand name) locations this year. AT&T’s fast-growing fiber revenues now make up nearly half of our consumer wireline broadband revenues.”
- FirstNet network which covers more first responders than any other network. FirstNet now reaches more than 2.81 million square miles across the U.S. That is 50,000+ more square miles than the largest commercial networks (about the size of Alabama) – giving more first responders access to an entire ecosystem of innovative solutions to keep them mission ready.
Excerpts from LightShed Partners report – The Wireless Industry’s 5G Growth Problem, MAY 31, 2022 ~ by WALTER PIECYK AND JOE GALONE (Registration required):
Wireless operators in the United States committed to invest over $200 billion into 5G (spectrum licenses, network equipment and build out costs), but does anyone care? Consumers have shown little interest in switching between service providers because of 5G. They have also been slow to upgrade to higher-priced 5G rate plans with their existing provider.
5G has not been enough to attract wireless consumers to higher priced rate plans. The major telcos have enabled 5G on all of their unlimited post-paid rate plans. Verizon withholds its “Ultra-Wideband” 5G from entry level subscribers but includes this faster speed level on the rest of their rate plans. We are skeptical faster 5G is inducing many subscribers to upgrade.
Despite the macro headwinds, we expect 1.5-3.0% growth in post-paid phone subscribers going forward. That’s not terrible, but it implies that industry net adds will fall to 6.7 million this year from 9.4 million in 2021. That is 1.9 million (22%) below consensus. Our peers may be excluding ~950k of base “cleanups” and network shutdowns in their estimates. That is odd as this is churn of subs that are allegedly paying their bills. Even if we excluded this “clean-up” our estimate would still be 1 million below consensus in 2022.
So where can wireless operators find more revenue growth?
Our outlook for industry subscriber growth is clearly not enough to generate the higher sustainable revenue growth that many investors prefer unless a wireless operator is taking material share. It’s hard to make a long-term case for notable shifts in market share in the wireless industry. Network differentiation has tightened, churn rates are at record lows. Plus, any material change to pricing would have an unwanted impact to the free cash flow of their large subscriber bases. So then what?
Wireless operators can attempt to boost revenue growth with wireless home broadband (aka Fixed Wireless Access or FWA), wholesale and IoT. But post-paid phone revenue, which represents 75% of total service revenue, is still the primary driver of growth. We estimate that in 2022, post-paid phone revenue will contribute 260 basis points of the 3.4% industry growth that we forecast. And in 2023, we expect it to contribute 220 basis points of our 3.2% expected growth. Without post-paid phone revenue growth, these companies have major growth challenges.
We are skeptical that premium services like hotspot data or better video streaming quality are incentives to move up rate plans. We invite any company to offer data on why this will offer a tailwind of upgrades over the next five years.
How much extra growth does Home Broadband offer?
We expect wireless home broadband to add an incremental $1 billion of recurring revenue per year for the wireless industry. That represents about 40 basis points of our industry revenue growth estimate of 3-4%. The impact of home broadband on growth is meaningful to T-Mobile and Verizon, contributing 100 bps and 60 bps respectively to their total wireless service revenue growth. Our wireless home broadband estimates are below the guidance of these companies, and therefore also likely below consensus – as we highlighted on our recent initiation of Charter. (Link) AT&T prefers to pursue a fiber growth strategy.
Home broadband is enabled by spectrum depth not 5G:
5G proponents would note that home broadband is a 5G application that helps to justify the $200 billion industry investment. But if that money had been plowed into spectrum and capex for LTE, we believe there would be little difference in the resulting revenue generated by home broadband. The thick spectrum blocks that operators purchased or acquired help LTE speeds and capacity in largely the same way it enables 5G. In addition, we have yet to notice perceptible differences in latency between 5G and LTE as measured (perhaps incorrectly) by the ping on speed tests. Only Dish Networks appears to be taking the capabilities of 5G down a path that is materially superior than what can be achieved with LTE and traditional network design.