Is fixed wireless ready to take the cable? It’s early, but initial data looks promising

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Economists have been debating the question of “wireless substitution” for years, whether wireless technologies can replace wired technologies. I was skeptical that wireless could provide a comparable experience to wired (cable and fiber to the home modems), especially for tasks that require a stable and fast connection, like filling out a job application or participate in a Zoom call. Of course, wireless could replace a fixed connection for many, if not most, applications such as web browsing, and even provide mobility to boot. But could a broadband household really survive on a wireless-only regime?

Enter Fixed Wireless Access, a new broadband access solution that leverages spectrum to deliver broadband connections for the home or business (or any fixed location for that matter). In May, Wells Fargo
WFC
released an equity research note claiming that fixed wireless is a “viable competitive threat, especially in rural areas” and “the biggest disruptor” in the near-term broadband market, capturing 60% of “net additions” or new subscribers through 2024. Coincidentally, research analysts also expect cable modem’s share of net additions to fall 60 percentage points from 94% over the three last years at 30 to 35%. Along with fiber-to-the-home connections, Wells Fargo predicts that fixed wireless is “permanently slowing raw adds and depressing valuations” for cable operators. Pretty bold stuff. And if these predictions are correct, what does this mean for spectrum policy, given that spectrum is the “wireless” part of fixed wireless?

Before exploring the evidence for the competitive impact of fixed wireless, it is worth briefly explaining how fixed wireless works. Using the spectrum as a conduit, the Internet is sent from the main access point, usually provided with high-speed fiber optic lines, to individual receivers installed in businesses and homes; no phone or wired lines are needed. These receivers use high-gain antennas that are mounted outside the user’s residence or business to avoid first-wall attenuation, providing better coverage and speed. The user installs a gateway inside the house, which contains the 5G modem, antennas, router and Wi-Fi. To receive quality service, the user generally must have a connection in line of sight with the primary access point and reside within ten miles of the access point. Data speeds delivered over fixed wireless are typically between 100 and 300 Mbps, compared to the 1000 Mbps (one “gigabit” per second) offered by fiber to the home and cable modem service.

Which carriers are taking the lead in deploying fixed wireless access?

According to Wells Fargo, the top fixed wireless carriers to date are Verizon (marketing as “5G Home”) and T-Mobile (marketing as “5G Home Internet”). The two mobile operators plan ten to twelve million net subscriber additions via fixed wireless through 2025. T-Mobile announced that it reached one million fixed wireless subscribers in April. The bank expects the technology to take hold as midband spectrum, ideal for 5G because it can carry lots of data while traveling significant distances, is rolled out in more markets. . Wells Fargo projects that in 2023, fixed wireless will add $1.5 billion and $1.0 billion to revenue for T-Mobile and Verizon, respectively.

Fixed wireless is expected to achieve its highest penetration in rural areas and low-income areas that are outside the footprints of cable companies and telecom providers. But even within those wired footprints, fixed wireless will offer price-sensitive customers an alternative, lower-cost option. Wells Fargo expects fixed wireless to be “disruptive” even in urban areas “due to its low prices and bundled discounts with existing mobile subscribers.” The bank estimates that there are already 7.7 million fixed wireless subscribers nationwide, which are expected to reach 17.5 million by 2027.

So is fixed wireless a cost-effective substitute for the cable modem?

Beyond functional substitutability, fixed wireless is an “economical substitute” for cable modem insofar as fixed wireless disciplines the price of cable modem service. (A bus is a functional substitute for a car, but buses do not discipline the price of cars and are therefore not economical substitutes.) Fixed wireless plans are usually offered at a much lower price than cable modem or fiber optic service. Wells Fargo has found that fixed wireless can be up to 50% cheaper than a lower-tier cable plan over multiple years. For existing mobile subscribers (post-paid, premium, unlimited) from Verizon and T-Mobile, the additional cost of adding fixed wireless home Internet service is between $25 and $30 per month. Wells Fargo estimates there are nearly 50 million customers on postpaid, premium, and unlimited plans who could take advantage of these bundled discounts.

Although the experience is relatively recent, there is some evidence that cable companies are responding to fixed wireless by reducing the price of cable modem service, indicating what economists call “cross price elasticity” between the two offerings. Part of cable’s answer to fixed wireless involves bundling mobile plans with their (wired) broadband products. For example, Comcast
CMCSA
recently dropped the price of its 300 Mbps Internet plan by $20 per month (to a new price of $30 per month) for a two-year contract for Comcast (Xfinity) mobile customers. This offer suggests that Comcast is feeling pressure from Verizon and T-Mobile’s comparable package that includes fixed wireless for home Internet.

Cable’s response to fixed wireless is complicated by the fact that cable also pushes back the inroads of fiber offerings to the home. According to Wells Fargo, fiber companies typically reduce the price of cable by around 20%. In response to the entry of fiber (and only in these markets), Comcast and Charter have lowered their prices for gigabit speeds to $80 per month – $29 less than Comcast and $35 less than standard prices from Charter – and extended the promotion from one to two years.

These episodes are consistent with the downward trend in wired Internet access prices, as recorded by the Bureau of Labor Statistics (BLS). The BLS Producer Price Index (PPI) measures “the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are those of the first commercial transaction for many products and certain services. Notably, the PPI category titled “Wired Telecommunications Services-Carriers-Internet Access” has generally declined since January 2020, a significant departure from the inflationary trends seen in the rest of the economy. The consumer price index (CPI) for “Internet and electronic information service providers”, which includes wireless services, has increased slightly since January 2020 (about 2%), still well below the pace general inflation.

Regulators should take note of these developments. Agencies charged with overseeing competition in these areas, particularly the Federal Communications Commission and the National Telecommunications and Information Association, should step up and determine the spectrum pipeline that can extend the capacity and reach of mobile broadband networks to that fixed wireless can proliferate and bring even more competition to cable. It’s rare to see prices drop these days, and consumers could take advantage of all the good news they can get.

Hal Singer is chief executive of Econ One and adjunct professor at the McDonough School of Business in Georgetown. He consulted with wireless service providers, including AT&T and Verizon. Along with several economists, he signed an amicus brief against the acquisition of Sprint by T-Mobile.

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