The number of Internet giants and telcos outlining plans to use 5G and other wireless technologies to deliver fixed broadband services via high-frequency spectrum bands continues to grow.
Investors in U.S. cable and telco ISPs should keep a close eye on these moves. While there's certainly no need to panic -- especially since some big questions remain unanswered -- fixed wireless could eventually create a much tougher competitive environment in a broadband market that has long seen prices well above global averages.
Facebook (FB) and Qualcomm (QCOM) have provided the latest fixed-wireless announcement of note. On Monday morning, the companies disclosed they're teaming up to develop wireless broadband systems that rely on Qualcomm chips and Facebook's Terragraph technology (first unveiled in 2016) to deliver broadband in dense urban areas via the 60GHz. Band.
The first network trials involving the Facebook/Qualcomm project are scheduled for mid-2019. Facebook, which has unfurled a number of web connectivity projects over the years, previously said that tiny Terragraph nodes would be placed at intervals of 200 to 250 meters in urban areas, and could be "externally attached to a building and connected to an in-building Ethernet data network." In February, German telecom giant and T-Mobile US (TMUS) parent Deutsche Telekom said it will test Terragraph, as did Norway's Telenor.
Other big tech and telecom names to have shown an interest in wireless broadband include:
- Alphabet/Google (GOOGL) . The company's Google Fiber unit halted its last-mile fiber deployments in 2016, and has signaled it's interested in using high-band spectrum to provide broadband services. In 2016, the company bought Webpass, an ISP that uses point-to-point wireless links to deliver broadband to apartment buildings in a handful of cities.
- Verizon (VZ) . The telecom giant conducted 5G fixed broadband trials in 11 cities last year, and has promised to launch commercial services in 3 to 5 cities this year. "We're very comfortable with being able to deliver a Gigabit of service to everyone that we're providing service to," CEO Lowell McAdam said in January.
- T-Mobile. Since announcing its deal to merge with Sprint in late April, the self-proclaimed Uncarrier has asserted the pairing of T-Mobile and Sprint's network and spectrum assets will allow it to be a major fixed broadband player, should regulators sign off on the deal. "We think that we can be massively disruptive in broadband/cable," declared CFO Braxton Carter at a recent MoffettNathanson conference.
But while Comcast (CMCSA) , Charter (CHTR) , CenturyLink (CTL) and other major U.S. ISPs can't be thrilled to see such moves, it's not a given that wireless services will do massive damage to their broadband profits. One big reason: Historically, wireless signals delivered via high-band spectrum have had limited range and difficulty going through building walls.
The range limitations mean that homes and businesses getting wireless broadband can't be too far away from a fiber source -- AT&T (T) , which remains cautious about using 5G for fixed broadband, has suggested the source needs to be within 1,000 to 1,500 feet. And in many cases, the best available fiber source will be a cable ISP's network. For that reason, cable providers should be well-positioned to deliver fixed wireless services of their own in many locales, as well as provide backhaul services for third-party ISPs.
Moreover, in densely-populated urban areas, there are lingering questions about how clogged fixed wireless networks will become if they're widely-used. A base station with a 1,200-foot range is unlikely to get overloaded while servicing a neighborhood of suburban homes, but the story could be very different if it's surrounded by high-rises.
That said, it should be noted that fixed wireless proponents argue technology advances are making it a far more credible broadband option than it was in the past. Facebook, for example, touts Terragraph's ability to operate without a line-of-sight, and its use of routing protocols and smart antennas to avoid traditional congestion and interference issues. And backers of 5G fixed broadband solutions argue the use of beamforming and other technologies will improve range and lower congestion.
Throw in processing power advances that allow modular base stations and end-user devices to support huge amounts of bandwidth, and the amount of spectrum available at higher frequency bands, and there's a good chance that fixed wireless will eventually become a viable broadband solution in many (though not all) environments.
For ISPs that have been relying on fat broadband profits to offset TV revenue pressures caused by cord-cutting, that's worthy of concern. Even if many of these ISPs can launch their own fixed wireless offerings and/or provide backhaul services for third parties, that might not fully offset the customer losses and price pressure caused by fresh competition. Particularly given that the median cost of broadband in the U.S. (estimated to be around $80 a month) is much higher than in many other developed nations.
Should such competitive upheaval happen, it will likely take a few years to arrive. Networks don't get built overnight, especially ones that need to be approved by municipal authorities and regulators.
However, between the big-name companies that are now backing fixed wireless and the tech advances that it has seen over the last few years, U.S. broadband duopolies could be facing a major competitive threat in the early part of the next decade.
