Where will net adds come from once there’s Internet for All?

U.S. President Joe Biden’s administration has set an ambitious goal to deliver Internet for All using $42.5 billion in funding from the Broadband Equity, Access, and Deployment (BEAD) program. It’s not entirely clear how realistic that goal is. But in an environment where operators have turned to expansions in un- and underserved areas to drive net additions due to low move activity, it’s worth asking what will happen to the market once every household in the country is connected.

Craig Moffett, of SVB MoffettNathanson, told Fierce that the growth rate in the broadband has already slowed dramatically. And in a post-BEAD world, “the growth rate should slow to something close to the rate of new household formation in the United States, which has historically been less than 1% per year.” Beyond that, “everything else will be a battle for market share gains,” he stated.

Moffett added a look at mature broadband markets which are already fully penetrated offers a “pretty good preview for what the whole country will look like.”

It’s worth noting that most operators are expecting BEAD funds to be allocated to the states this year and divvied up via grants to operators next year. That means customers from BEAD deployments will likely start coming online in the 2025 timeframe. Many BEAD-funded builds are expected to be fiber-based, though there will also be cable and fixed wireless grants sprinkled into the mix.

Recon Analytics founder Roger Entner told Fierce the aforementioned timeline is a good thing for cable players, since it will give them time to get DOCSIS 4.0 deployed – an upgrade which will give them speed capabilities that are roughly on par with XGS-PON fiber. He added that means that rather than competing on speed claims as they are today, operators in a post-BEAD world will likely be duking it out for customers based on claims around reliability and convenience.

Winners and losers

So, who will the winners and losers in this new world be? According to Entner, “it’s not set in stone yet.” He noted the result partially depends on whether DOCSIS 4.0 is able to deliver better reliability than DOCSIS 3.1. Entner added cable’s other big weakness today is customer service, which is a problem those operators need to solve.

And while cable and fiber players have tried to paint fixed wireless as a term-limited solution due to spectrum capacity constraints, Entner said operators like Verizon and T-Mobile which have millimeter wave assets will remain competitive even in urban areas.

The characteristics of millimeter wave spectrum mean it offers more capacity over shorter distances compared to mid-band or low band spectrum. Thus, it requires a denser network of cell sites. Though all eyes are on Verizon’s C-Band deployment, the operator noted last month it has already deployed 40,000 millimeter wave sites. Verizon’s fixed wireless product already delivers speeds between 500 Mbps and 1 gig. And if it decides to deploy in rural America – especially in places where it’s not feasible to build fiber even with subsidy money –  Entner said the operator could likely deliver 2 Gbps on that unencumbered spectrum.

Moffett flagged satellite TV as a potential loser, one which might not immediately spring to mind in a debate about ISPs. “The DBS [direct broadcast satellite] operators have increasingly focused on rural customers for whom cord-cutting isn’t an option. When wired broadband comes to rural America, the satellite operators won’t just have to compete against cable, they’ll also have to compete against Netflix and Hulu, as well,” he explained.

Other dynamics

Operators won’t just be competing against each other. Back in January, Moffett revealed in a note to investors that Federal Communications Commission data indicated broadband penetration stood at 87.4% of occupied housing units as of Q2 2022. But it’s not just access to a connection that’s an issue for the remaining 12.6% of households. As Moffett put it: “what’s left to penetrate (of what has already been wireline-enabled) will have to compete with headwinds that include poverty, illiteracy, and, of course, relevance.”

A survey conducted by Pew Research Center in 2021 found that 43% of U.S. adults earning less than $30,000 per year said they did not have home broadband, while 41% of the same cohort said they did not have a desktop or laptop computer. Only 23% of adults in this group said they had access to a smartphone, computer, tablet and home internet. Black and Hispanic adults were less likely to say they had access to broadband or a computer.

While the U.S. government has made efforts to tackle the poverty angle through programs designed to make broadband more affordable (like the aptly-named Affordable Connectivity Program, or ACP), it’s not entirely clear how long those initiatives will last. One analyst recently told Fierce the ACP could run out of money as soon as next year. If that happens, the more than 16.4 million households currently receiving free or reduced-cost internet could be left out in the cold.

Nearly half, or around 7 million of ACP participants, are using the subsidy to cover the cost of fixed, fixed wireless or satellite broadband, with the remainder applying it to mobile service.

“We wouldn’t suggest that 87% penetration of homes is a ceiling…but it is likely not far from one,” Moffett concluded in the January note. “There’s no reason to think that growth will reaccelerate [post-Covid] given that it [the U.S. broadband market] is that much closer to full saturation.”