As cellular networks pack on more capacity and become increasingly reliable, the shift to unlimited wireless service models pose a small, but still concerning, threat to cable operators and other providers of wired broadband services, MoffettNathanson's Craig Moffett concludes in a report published Wednesday.
While emerging 5G-based fixed wireless options are considered a long-term risk as a substitution for wireline broadband, there are “more proximate risks” posed by current LTE services that are attached to unlimited wireless data plans, he explained.
Currently, there’s not much for cable operators and other traditional ISPs to worry about, as 2015 U.S. Census Bureau data shows that just 6% of total households or about 7% of Internet homes relied exclusively on mobile broadband services, Moffett found, noting that those numbers haven’t budged since 2013.
While there’s no question that some homes will “cut the cord” for broadband as some have done with pay TV, the big question is how many?
“We concluded that the risk (to wired broadband providers) of wireless substitution from the wireless industry’s new unlimited LTE data plans is lower than intuition might suggest,” Moffett wrote.
However, he added, it likewise “reasonable to expect at least some substitution around the edges from light users.”
But Moffett doesn’t expect a mass movement to wireless-only broadband, even if LTE is a sufficient option for a subset of consumers.
Though there are gaps between average speeds and average usage volumes with cellular options, “there are perhaps some customers – light users who are particularly price sensitive – for whom going ‘wireless only’ will have at least intuitive appeal.”
Based on somewhat recent usage models, Moffett said homes for which cellular broadband makes the most sense are those in which no single member uses more than 10 gigabytes of data per month on traditional PCs, and no more than 22 to 30 GB cumulatively between their traditional computers and smartphones.
That model assumes that a consumer would require 23 GB of hotspot data and 14 GB of cellular data to match their ideal bandwidth usage, the report holds, citing a somewhat recent report from Comcast that the median broadband home used 88 GB of data, with the typical person using 34 GB using Census data showing that the average home contains 2.6 people.
The rub is that most unlimited plans include just 10 GB of hotspot data and 22 to 30 GB of cellular data. “That’s about the right total amount, but the wrong distribution,” Moffett wrote.
So, to make cellular broadband a viable substitute for an average user, the consumer would have to shift a large swath of Internet usage to the mobile device.
The other tricky part with the model, Moffett explained, is determining the savings a home could achieve by dropping wireline broadband for a wireless-only play, as one would need to know the incremental cost of upgrading to an unlimited wireless plan alongside the current cost of the wired broadband service.
As for the risk posed, cable operators appear to be the least exposed, given their robust wired networks and wireless options, Moffett said.
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The telcos are more vulnerable especially where they have not upgraded to fiber-based offerings, and are more exposed based on how heavily they currently lean on wired broadband.
“If you believe that wireless substitution is a risk to wireline operators, CenturyLink would be the name to watch,” Moffett wrote.
Generally, he expects that lower income customers are the most likely to consider a wireless-only play.
“The very narrative of wireless substation poses a risk, even if it is a tiny issue for the actual numbers,” Moffett wrote, but stressed that “the risk is not zero.”
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