FWA: Is this boat about to hit an iceberg or transform into a luxury cruise ship?

October 17, 2023 | The words “we need a bigger boat” have been used in some recent Wall Street write ups when describing the data center space.  But listening to the announcements coming out of Mobile World Congress (MWC) last month in Las Vegas from the Fixed Wireless Access (FWA) providers, one must wonder if these words may be better used on the FWA sector and the usage consumptions being seen.

FWA services are now clearly having their day in the sun.  NewStreet estimates these subscribers accounted for approximately 80 percent of all broadband subs added in Q2’23.

And it seems these are not low-touch broadband users. Specifically, at MWC, Verizon noted its fixed wireless access customers consume approximately 300GB per month and T-Mobile cited a number closer to 450GB per month. To put this in perspective, LightReading called out the fact that OpenVault estimates broadband users (this included wired ones!) will use 566GB per month.

Many bears (including some of the public cable companies) have suggested FWA is somewhat of a passing fad and their growth will significantly slow as spectrum limits are reached.   While I agree fiber is always preferred, as consumers face some greater economic pressures (driven by student loan reinstatement, high gas / electric costs, higher credit card interest rates, etc.) and the two main FWA providers (Verizon and T-Mobile) continue to light up some of their spectrum war chests, those bear claws may get a bit less sharp.

The simple conclusion here: it may be difficult for wired broadband pricing to remain ~ 50 percent above FWA when usage and consumption is only ~ 25 percent more (and narrowing).

A simple search of broadband pricing in my hometown (the Windy City) shows that Verizon’s 5G Home (name of its FWA plan) starts at $35 per month (T-Mobile not showing availability here yet). Compare this to Comcast’s (the cable incumbent) broadband pricing in Chicago for its 400 Mbps speed tier plan is $55 per month.

While admittedly Comcast has different tiered price plans, I believe the comparison with the 400 Mbps one is a fair one. On its Q2’23 earnings call, Comcast management noted that approximately 75 percent of its broadband sub base are on plans of 400 Mbps speed or higher (higher speeds = even steeper price).  Even with this more conservative assumption, Comcast’s price plan is 57 percent higher than Verizon’s FWA plan.

So, simply put, while we all agree broadband is a utility (and the broadband bill will be the last people stop paying in an economic downturn), if the consumer economic belts continued to be tightened, FWA could be a viable option for price sensitive users.

The second leg to the FWA bear call is spectrum.  It goes like this: FWA carriers will hit a wall of spectrum and then momentum will slow.  This also is a “do the homework” type call.  The two main players offering FWA in force (T-Mobile and Verizon) may have some issues but spectrum is not one of them.

Recall, Verizon spent more than $52B (including clearinghouse costs) in the C-Band auction and is only now (the checks are due to the Clearinghouse this month!) just getting the B block spectrum from that auction two and a half years ago.  Following this spectrum clearing, Verizon will have as much as 200MHz of C-Band spectrum in some markets.  This is in addition to the over 1700MHz of mmWave spectrum it owns.  I call out these two particular bands as they are best suited to support FWA. T-Mobile is also not short of midband or high band spectrum (this spectrum position was only further helped by T-Mobile’s participation in each of the last three FCC Auctions [107, 108 and 110] as well as its 2020 merger with Sprint).  While the spectrum part of the FWA bear case has yet to play out, it is worth noting that these two players’ spectrum arsenals have only gotten deeper in the last year.

As we enter the Q3’23 earnings period, the FWA bear case will be a key thesis to test.  For those doing the work, an important word searches in these upcoming earnings transcripts will be “monthly broadband consumption” and “broadband ARPU.”

If factor # 1 goes up and factor # 2 goes down….someone has blinked!

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