Looking Forward to Broadband in 2023

Service providers explore ways to bring broadband to more homes and businesses this year.

As the broadband industry looks to expand its reach into more homes and businesses in 2023, service providers are seeking ways to keep ahead of new competitive challenges and opportunities.

A Leichtman Research Group (LRG) report shows that broadband accounts for 99 percent of households with internet service. Moreover, 89 percent of all households get broadband internet service – up from 82 percent in 2017 and 53 percent in 2007. The study also found that 90 percent of households use laptop or desktop computers, up from 85 percent in 2017. Of those households that use laptops or desktops, 96 percent have internet service at home. Those who do not use laptops or desktops at home account for 58 percent of all households that don’t get internet service.

Bruce Leichtman

“The percentage of households getting an internet service at home, including high-speed broadband, is higher than in any previous year,” said Bruce Leichtman, president and principal analyst for LRG. “Computer usage and knowledge remain the foundation for internet services in the home.”

The Fiber Factor

Fiber-based broadband continues to be a factor in the broadband race. A joint Fiber Broadband Association and RVA LLC survey showed that fiber providers passed 7.9 million U.S. homes in 2022. RVA added that this milestone was met amid supply-chain challenges and labor availability.

According to the survey, there are now 68 million fiber broadband passings, up 13 percent over the previous 12 months and 27 percent over the previous 24 months.

Excluding homes with two or more fiber passings, 63 million unique homes have now been passed in the U.S. Fiber is in nearly half of primary homes and in more than 10 percent of second homes.

“This growth precedes the expected higher levels of annual fiber-to-the-home [FTTH] deployments anticipated for the next five years based on federal funding programs such as [the Broadband, Equity, Access and Deployment (BEAD) Program, the Rural Digital Opportunity Fund (RDOF), the ReConnect Loan and Grants Program], and other programs focused on specific markets and demographics,” RVA said in its survey. “Although deployment expectations from individual companies are in constant flux based on many factors, many service providers have announced network builds exceeding the fiber footprint they have built to date with private funding.”

RVA forecasts North American FTTH growth of more than $125 billion over the next five years.

Tier-1 Telcos Fine-tune Fiber Plans

The top three telcos drive fiber-based broadband growth – AT&T, Verizon and Lumen Technologies. Each provider has set aggressive fiber buildout paths for 2023 and beyond.

John Stankey

Leading the telco fiber pack again is AT&T. In 2022, AT&T added more than 1.2 million fiber subscribers. It was the fifth straight year the telco added more than 1 million subscribers. “We’ve reached an inflection point [at which] our fiber subs outnumber our nonfiber and DSL subscribers,” said John Stankey, CEO of AT&T, during the company's fourth-quarter earnings call.

Still, AT&T lost 323,000 nonfiber subscribers in the fourth quarter, up from the 272,000 it shed in the fourth quarter of 2021. Considering the copper-based DSL losses, AT&T shed 43,000 total broadband connections in the fourth quarter versus a loss of just 1,000 in the same quarter the year before.

Stankey reiterated to investors that AT&T will build fiber to 30 million residential and business locations in its footprint by the end of 2025. He said this will equate to about 2 million to 2.5 million fiber locations annually in 2023 and beyond, but added that the quarterly buildout pace will fluctuate.

Another factor influencing plans is AT&T’s “Gigapower” joint venture with BlackRock. Initially, AT&T plans to bring fiber to locations outside its legacy wireline footprint. “[Though] this deal is not yet closed, Gigapower plans to deploy fiber to an initial 1.5 million locations, and I expect that number to grow over time,” Stankey said.

As for fiber buildouts, AT&T ended the quarter with 19.1 million locations served, up from 18.5 million in the prior quarter and 16.2 million in the year-ago quarter.

New Street Research said in a research note that AT&T’s fiber network buildout pace in 2022 is “a little disappointing.” The firm pointed out that AT&T had suggested it would pass 4.5 million new locations with fiber but only passed 2.9 million.

New Street Research attributes the slower pace to a few factors: accelerating 5G capex over fiber spending and deploying fiber faster than it can sell and install the product. “They may be slowing the build, so they aren’t deploying capital ahead of when they can use it,” New Street said.

Lumen Technologies is making progress with its fiber build. In November, it announced it would extend Quantum Fiber service in more than 30 U.S. cities and metro areas.

In the fourth quarter, Lumen added 19,000 Quantum Fiber customers as it pivoted to a market-based approach and adjusted its go-to-market strategy. Lumen now has Lumen now has 832,000 Quantum Fiber subscribers. It also enabled about 97,000 locations with FTTH service, bringing the total enabled locations in the retained states to 3.1 million as of December 31.

Chris Stansbury

Chris Stansbury, CFO of Lumen, said during the UBS Global TMT conference that permitting and labor issues hindered its buildout. “There are the external factors [such as] the labor market and permitting, but there are also internal issues,” he said. “I wanted to make sure we would earn a return on any markets where we built out fiber, so we hit pause and made some adjustments to our strategy.”

Stansbury added that Lumen developed a new fiber build and marketing strategy, and it expects to scale growth in coming quarters. “It will take us probably two to three quarters to get to scale,” he said.

Jonathan Chaplin

Jonathan Chaplin, an analyst at New Street Research, said during the Broadband Trends and Controversies event that if Lumen were to halt new fiber builds, it could open the door to challengers from other providers. “The hidden value of Lumen’s business is in the consumer market, so it would be disappointing to investors if [Lumen] pulled back to focus more on the enterprise market, which is a difficult market,” he said. “Lumen’s markets are already being overbuilt, and more will be built if [it doesn’t] build fiber in those markets.”

Verizon continues to see broadband Fios gains even as it emphasizes its broadband wireless product. The company added 53,000 new subscribers and brought Fios to more locations in the fourth quarter of 2022. It enhanced its reach into several Massachusetts towns and cities, including Worcester, Brockton, Lowell, Everett, Milton, Newburyport and Plainville, making the network available to more than 70,000 additional homes.

“We expanded our Fios footprint by [more than] 550,000 locations in 2022, extending our Fios open for sales to more than 17 million locations,” said Hans Vestberg, chairman and CEO of Verizon, during the fourth-quarter earnings call. “You can expect continued fiber expansion in the years ahead.”

Tier-2 Telcos Enhance Footprints

Tier-2 telcos continue to stay active in the fiber and broadband race, adding new customers and expanding their fiber footprints. Frontier is the frontrunner in the Tier-2 race. In 2022, the service provider added 75,000 new fiber subscribers in the fourth quarter. As of December, Frontier reached the halfway point to its initial target of building fiber to 10 million locations by the end of 2025.

Nick Jeffery

Nick Jeffery, CEO of Frontier, said during the UBS Global TMT Conference that the company has four goals: building fiber, selling fiber services, streamlining operations and providing customer care. “We have made progress on all parts of our strategy,” he said. “We are one of the only companies in our sector that has increased our fiber targets over the year as a fiber-building machine.”

He added that accelerating the build enables flexibility. “It’s about building fast, and [fiber] does deliver something superior to cable, but it’s also vital we demonstrate capital stewardship and operational efficiencies,” he said.

Frontier sees its fiber additions outpace DSL losses – a trend that it expects will continue. “Fiber adds are passing copper losses,” said Scott Beasley, CFO of Frontier. “We see more [conversion] to fiber from copper.”

No less aggressive in their fiber strategies are TDS Telecom and Shentel. TDS Telecom grew its fiber footprint by seven percent in 2022 and now serves 1.5 million broadband service addresses. The telco added 33,000 fiber service addresses to its footprint in the third quarter.

Michelle Brukwicki

Michelle Brukwicki, CFO of TDS Telecom, said the company’s focus is on expanding greenfield and brownfield markets, and offering a 2 Gbps residential option and a 10 Gbps option for businesses. The telco will introduce other multi-gig products.

“We’re directing our investments to expand our fiber footprint in new and existing markets and enhance our product offerings, which are driving revenue and broadband connection growth,” she said. “In our expansion markets, we began offering service in Billings, Montana, and Green Bay, Wisconsin, and announced expansion into 18 other Wisconsin communities.”

TDS has nearly 100 communities in its fiber expansion program at various stages. In its cable markets, the company has upgraded its plant to offer 1 Gbps speeds across its footprint. “We are also deploying fiber in opportunistic areas,” said Brukwicki. “In our incumbent wireline markets, we’ve achieved market share where we’ve invested in fiber.”

With a focus on greenfield markets, Shentel plans to connect 150,000 locations with fiber over the next three years. The telco’s Glo Fiber build has different characteristics in that it’s mainly done in low-density greenfield markets.

Ed McKay

Ed McKay, COO of Shentel, said bringing fiber to more homes is critical. “A big consideration is the density of the markets,” he said. “We have averaged 90 houses per mile per fiber, so density is a big factor.”

Unlike the slew of emerging players, Shentel believes its incumbent status means it has a broader range of assets, such as its middle-mile backbone. “Being an existing provider is a big advantage,” McKay said. “We have 8,000 fiber route miles to use our middle-mile fiber network, and we
had our billing and operational systems in place. We already had pole attachments in place with power companies in our region.”

Finally, Windstream/Kinetic and Consolidated Communications are complementing their investments with government funding sources. Windstream is expanding its fiber base via capital, government funding, and public-private partnerships (P3s). In 2022, it added more than 100,000 gigabit broadband subscribers. On the P3 front, Windstream announced it would build FTTH to more than 4,500 homes and businesses in Clay, Clinch, Randolph and Schley counties in Georgia. Georgia Gov. Brian Kemp announced the grants through the Capital Projects Fund Grant Program.

Consolidated plans to build fiber to an additional 1 million locations; the provider will have more than 70 percent fiber passings by 2025. It expects to enable about 2 million fiber locations at the end of 2025.

“We are tracking $170 million in broadband government partnership opportunities throughout our service area,” said Bob Udell, CEO of Consolidated, during the company's third-quarter earnings call. “We’re pursuing grant or infrastructure funding opportunities aligned with our plan to help offset rural high-cost passings.”

Cable’s Diverse Paths

Cable companies are in transition. After a long period of growth, fiber providers and wireless broadband providers have challenged cable operators’ hold on broadband subscriber growth.

This trend was evident in the fourth-quarter results of Comcast and Charter. Comcast, which lost 26,000 broadband customers because of Hurricane Ian, said it would have added approximately 4,000. Charter fared better, adding 92,000 new broadband customers, up from the 75,000 it added in the third quarter of 2022. These providers have prioritized expanding their services to more homes and enhancing their wireless product sets.

Comcast’s passings rose 1.4 percent – to 840,000 locations. It set a target to pass about 1 million new sites to reach 62.5 million by the end of 2023, including rural edge-outs. “There’s an opportunity to do around 1 million passings,” said David Watson, president and CEO of Comcast Cable. “The opportunities within the footprint, residential, and hyper-builds – which we call the commercial growth – all still exist.”

Chris Winfrey

Similarly, Charter is extending its reach. Chris Winfrey, CEO of Charter, said the company is “focused on three initiatives: evolution, expansion and execution, which are designed to drive customer growth and long-term cash-flow growth.”

Charter will focus on initiatives that drive mobile wireless and broadband growth. It will leverage the success of its Spectrum One bundle, which includes broadband, unlimited wireless and Wi-Fi services. Winfrey noted that the Spectrum One converged offering helped drive Charter’s “strongest quarter yet for mobile lines.”

“The potential for mobile to be a significant driver of new internet sales is still largely untapped as we educate nonsubscribers of the Spectrum One value proposition,” he said. “With nearly 5.3 million lines created over four years, our converged customers have meaningfully lower internet and customer relationship churn.”

As Tier-1 cable operators set new broadband growth paths that leverage and extend their HFC infrastructure via DOCSIS 4.0, enhancing fiber reach will also be a priority.

Jeff Heynen

“With cable operators in North America and Europe facing significant competition from fiber overbuilders, the pressure is on for them to expand their fiber footprint beyond new builds to overbuild scenarios,” said Jeff Heynen, vice president at Dell’Oro Group, in a report. “For a growing list of smaller cable operators in North America, that has been their strategy and will continue to be, as DOCSIS 3.1 will likely be the last HFC technology they ever use.”

Regional Cable’s Fiber Path

Regional cable operators such as Altice USA, Breezeline, Cable One and WOW! are also experiencing broadband subscriber challenges – but they remain keen on the fiber opportunity.

Altice USA added 135,000 fiber customers and passed 321,000 new locations with fiber in the third quarter of 2022. This is part of a broader initiative to accelerate its fiber network rollout and recent build activity, including 6.5 million fiber passings across its footprint by the end of 2025. This will enable the company to compete against Verizon’s Fios service and Frontier Communications.

“We saw a further acceleration in our fiber network deployment, achieving our highest ever level of incremental fiber passings – now reaching 1.9 million total fiber passings,” said Dexter Goei, chairman of Altice USA.

In addition, Altice USA is adding new FTTH speeds. In its third-quarter earnings release, Altice USA said “the new 5-gig and 2-gig Optimum Fiber Internet tiers are available across Long Island and Connecticut in our fiber footprint.” At the end of the third quarter, the company said 41 percent of its fiber passings had multi-gig speeds, and all fiber passings are expected to be multi-gig enabled by the first quarter of 2023.

WOW!, a cable operator building FTTH in greenfield markets, will start lighting up FTTH customers during the first quarter. It set a target to build fiber to 400,000 homes by 2027.

John Rego

John Rego, CFO of WOW!, said during the UBS Global TMT Conference that it has a three-phased strategy: greenfield markets with FTTH, network edging out, and expanding business services. “We’re growing the blueprint of WOW! in 14 markets, which includes 90 percent fiber and the rest HFC,” he said. “The focus is to continue to grow the business.”

WOW! plans to capitalize on the multifamily space, which can immediately target multiple customers. “We tried to pass more MDUs,” Rego said. “For the same capital per passing, you get 20 shots versus one.”

Breezeline, formerly Atlantic Broadband, began a two-year, $400 million investment to build a fiber-based broadband network in 13 states. Since the program started, Breezeline has doubled network capacity and enhanced speeds. It also established additional redundant paths for internet traffic, deployed fiber at critical network points, and configured the network to improve network security and resilience.

The cable MSO has been making strides in expanding its fiber network across multiple states, such as Maryland, New Hampshire, Ohio and West Virginia. It enhanced its Ohio reach by acquiring WOW! operations in Cleveland and Columbus.

It is also partnering with local communities in Maryland and West Virginia. In Maryland, Breezeline is extending broadband internet in Cecil, St. Mary’s, and Queen Anne’s counties, giving broadband access to 524 homes and businesses.

“St. Mary’s County has undertaken a strategic approach to improving the county broadband infrastructure by leveraging available grants to bring broadband to otherwise hard-to-reach areas of our communities,” said St. Mary’s county commissioner president Randy Guy.

Wi-Fi 6E Adoption Shows Need for Opening 6 GHz Band

As the Wi-Fi 6E standard continues to gain momentum serving a host of consumers, businesses and service providers, calls to open all available spectrum in the 6 GHz bands continue to mount. According to the Wi-Fi Alliance, regulators and policymakers can help address the “immense market opportunity” for Wi-Fi 6E by opening the entire 1200 MHz spectrum in 6 GHz. Further, the industry forum says the 6 GHz band will impact user experiences for students, employees, health care workers, researchers and entrepreneurs in those countries. Enterprises deploying Wi-Fi 6E will also see a competitive advantage. The industry association forecasts that Wi-Fi will contribute nearly $5 trillion to the global economy by 2025.

The FWA Factor

Though cable and fiber providers have the upper hand with speed and reach, it’s hard to overlook the influence of fixed wireless access (FWA).

In the fourth quarter, T-Mobile and Verizon added 524,000 and 379,000 new FWA customers. These operators are positioning their 5G-powered FWA services to drive a wedge into cable’s long-standing growth pattern.

“We expect that wireless mobility and nationwide broadband will be the most significant contributors to Verizon’s growth for the next several years,” said Hans Vestberg, CEO of Verizon.

Smaller providers, such as UScellular, also see FWA’s potential. Leveraging its existing LTE network and, increasingly, its 5G network, UScellular is using FWA to compete with existing DSL initially.

“The broadband wireless product generally competes against DSL and satellite,” said Laurent C. Therivel, president and CEO of UScellular, during the company's third-quarter earnings call. “Although we don’t have the exact figures because we don’t see them reporting in the same way we make wireless moves, I expect that’s whom we’re taking share from.”

He added that when it activates its mid-band spectrum at the end of 2023, “I expect that mix to move more toward taking share from cable companies.”

Doug Dawson, principal of CCG Consulting, said in a blog post that cost lures consumers away from cable. For example, T-Mobile’s 100 Mbps broadband service costs only $50 a month compared with $90 for cable broadband. “The FWA wireless product is competing on price,” he said. “The FWA broadband is not as fast or robust as cable company broadband, but the prices are attractive to many consumers.”

Regardless, cable and regional telcos have been dismissive of FWA. Comcast debuted a TV ad that challenges T-Mobile’s 5G home broadband service, claiming it can’t deliver similar speeds and reliability as its cable modem service. One Comcast ad features a family of four in a therapist’s office talking about how T-Mobile’s service speeds lag during peak times during the day. Charter lodged complaints against T-Mobile's FWA ads with the National Advertising Division of BBB National Programs.

Winfrey told investors that FWA hadn’t impacted its broadband churn rate. “We’ve not seen any demonstrable impact on our churn regarding fixed wireless access,” he said. “We think it could have impacted adds we would have pulled from DSL.”

Similarly, Shentel and Frontier have not seen considerable customer churn from the presence of FWA. Shentel’s McKay said the company had not seen any impact on its fiber subscriber base. “We have not seen any impact of fixed wireless in our market,” he said. “FWA may be an option for low-utilization users, but it’s not a good alternative for our customers.”

Frontier’s Beasley said FWA “has little impact on our fiber base due to the superiority of fiber [over] fixed wireless.”

XGS-PON, CCAP Spending Drives Broadband Equipment Market

As broadband providers continue to expand their fiber and DOCSIS 4.0 networks, Dell’Oro forecasts that sales of PON equipment for fiber-to-the-home deployments, cable broadband access equipment, and fixed wireless CPE will increase from 2022 to 2027. Driven by XGS-PON implementations in North America, Europe, the Middle East, Africa, Central America and Latin America, the research firm said in its five-year January 2023 forecast report, “Broadband Access and Home Networking," that PON equipment revenue is expected to grow from $11 billion in 2022 to $13.2 billion in 2027. Payment for cable distributed access equipment (virtual CCAP, remote PHY sevices, remote MACPHY sevices, and remote OLTs) is expected to reach $1.5 billion by 2027 as operators ramp up their DOCSIS 4.0 and fiber deployments.

Rural Opportunities, Challenges

A mix of independent telcos and a growing number of electric cooperatives, rural providers are actively building fiber-based broadband networks that can deliver multi-gigabit speeds to customers.

NTCA–The Rural Broadband Association revealed in its 2022 Broadband/Internet Availability Survey Report that its member companies have “taken significant efforts to offer increasing speeds on existing fiber networks.” Nearly 82 percent of respondents’ customers can access 100 Mbps downstream speeds, up from more than 75 percent in 2021. Almost 61 percent of customers can access gigabit downstream speeds, up from 55 percent. Also, more than three-quarters (79.3 percent) of respondents’ customers are served by FTTH connections.

As they become available, high-speed services are resonating with rural consumers. Nearly 49 percent of respondents’ customers subscribe to 100 Mbps broadband or better, up from a bit more than 37 percent in 2021. For the first time, the 2022 survey found that subscriptions for speeds of 100 Mbps and faster, such as 1 Gbps, are now more popular than services between 25 and 100 Mbps.

But consumer connectivity is only one part of the equation.

NTCA members are extending fiber-based broadband to schools, libraries and other anchor community institutions. NTCA noted that network sustainability is also a vital issue. Respondents estimate that the average initial construction cost to bring all customers up to the 100 Mbps tier is $30 million. The sustainability of networks and services also remains essential, as seen in the significant efforts to increase speeds on existing fiber networks.

The rural broadband opportunity, though alluring, still faces challenges. Jeff Johnston, the lead economist for communications at CoBank, said in “The Year Ahead: Forces That Will Shape the U.S. Rural Economy in 2023,” that the “rural communications market is heading into 2023 with numerous crosscurrents.”

Though building broadband is positive, a weakening economy, tight capital markets, and buildout activity mean providers will face significant headwinds. The biggest issues will be access to labor and the supply chain. “This concerns smaller broadband operators competing against the larger national telecommunications companies for resources,” Johnston said.

Rural operators’ access to equipment and labor could be hindered by larger telcos such as AT&T, which could overbuild into rural markets. AT&T plans to expand outside traditional territory via its partnership with BlackRock. “Another factor to consider is excess overbuilding,” Johnston said. “Several telcos are aggressively building fiber to replace old copper networks or to enter a new market in what is still a land grab in many instances.”

He added that overbuilding could “negatively change the dynamics of the business case, especially if the new competition comes from AT&T or another large telco, which has access to more robust resources and suppliers.”

 

Sean Buckley

Sean Buckley is the editor-in-chief of Broadband Communities. You can contact him at sean@bbcmag.com.

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