Is Fixed Wireless Ready To Take On Cable? It’s Early, But The Initial Data Seem Promising

Economists have been debating the issue of “wireless substitution” for years—whether wireless technologies can serve as a substitute for wireline technologies. I’ve been skeptical that wireless could offer a comparable experience to wireline (cable modems and fiber to the home), particularly for tasks that require a stable and fast connection, such as filling out a job application or participating in a Zoom call. Sure, wireless could displace a landline connection for many if most applications, such as browsing the Internet, and even provide mobility to boot. But could a broadband household really survive on an exclusively wireless diet?

Enter fixed wireless access, a new broadband access solution that relies on spectrum to deliver broadband connections for the home or business (or any fixed location for that matter). In May, Wells FargoWFC
issued an equity research note asserting that fixed wireless is a “viable competitive threat, particularly in rural areas,” and “the biggest disrupter” in the broadband marketplace in the near term, capturing a full 60 percent of broadband “net adds” or new subscribers through 2024. Coincidentally, the research analysts also expect cable modem’s share of net adds to fall by 60 percentage points, from 94 percent over the past three years to 30 to 35 percent. Along with fiber-to-the-home connections, Wells Fargo predicts that fixed wireless “permanently slows gross adds and depresses valuations” of cable operators. Pretty bold stuff. And if these predictions are correct, what does that mean for spectrum policy, given spectrum is the “wireless” part of fixed wireless?

Before exploring the evidence on the competitive impact of fixed wireless, it’s worth quickly explaining how fixed wireless works. Using spectrum as the conduit, the Internet is sent from the main access point, typically supplied with high-speed fiber-optic lines, to individual receivers installed at businesses and homes; no phone or cable lines are needed. These receivers use high-gain antennas that are mounted outside the user’s residence or business to avoid first-wall attenuation, providing better coverage and speed. The user installs a gateway inside the house, which contain the 5G modem, antennas, router, and Wi-Fi. To receive quality service, the user typically must have a line-of-sight connection with the main access point and reside within ten miles of the access point. The data speeds delivered over fixed wireless are generally between 100 and 300 Mbps, compared to 1,000 Mbps (a “gigabit” per second) offered by fiber to the home and cable modem service.

Which carriers are taking the lead in deploying fixed wireless access?

Per Wells Fargo, the leading fixed wireless carriers to date are Verizon (marketed under the name “5G Home”) and T-Mobile (marketed under the name “5G Home Internet”). The two mobile operators are forecasting ten to twelve million net subscriber adds via fixed wireless through 2025. T-Mobile announced it reached one million fixed wireless subscribers in April. The bank expects the technology to take hold as mid-band spectrum, ideal for 5G because it can carry plenty of data while also traveling significant distances, is rolled out to more markets. Wells Fargo expects that in 2023, fixed wireless will add $1.5 billion and $1.0 billion to T-Mobile’s and Verizon’s revenues, respectively.

Fixed wireless is expected to achieve its highest penetration in rural areas and low-income areas that are outside the footprints of cable and telco providers. But even inside these wireline footprints, fixed wireless will offer price-sensitive customers an alternative, lower-cost option. Wells Fargo expects fixed wireless to be “disruptive” even in urban areas “due to its low price points and bundling discounts with existing mobile subscribers.” The bank estimates there are already 7.7 million fixed wireless subscribers nationwide, which should rise to 17.5 million by 2027.

So is fixed wireless an economic substitute for cable modem?

Moving beyond functional substitutability, fixed wireless is an “economic substitute” to cable modem to the extent fixed wireless disciplines the price of cable modem service. (A bus is a functional substitute for a car, but buses don’t discipline the price of cars and are thus not economic substitutes.) Fixed wireless plans are typically offered at a much lower price point than cable modem or telco fiber service. Wells Fargo found that fixed wireless can be as much as 50 percent cheaper than a lower-tier cable plan over multiple years. For existing (post-paid, premium, unlimited) mobile subscribers of Verizon and T-Mobile, the incremental cost of adding fixed wireless home Internet service is between $25 and $30 per month. Wells Fargo estimates that there are nearly 50 million customers enrolled in post-paid, premium, and unlimited plans that could take advantage of those bundled discounts.

Although the experiment is fairly fresh, there is some evidence that cable operators are responding to fixed wireless by reducing the price of cable modem service, indicating what economists call “cross-price elasticity” between the two offerings. Part of cable’s response to fixed wireless entails the bundling of mobile plans with their (wireline) broadband products. For example, ComcastCMCSA
recently dropped the price of its 300 Mbps Internet plan by $20 per month (for a new price point of $30 per month) for a two-year contract for Comcast (Xfinity) mobile customers. This offering suggests that Comcast feels pressure from Verizon’s and T-Mobile’s comparable bundle that includes fixed wireless for home-based Internet.

Complicating cable’s response to fixed wireless is the fact that cable is also fending off inroads by fiber-to-the-home offerings. Per Wells Fargo, fiber companies typically undercut cable on price by roughly 20 percent. In response to fiber entry (and only in these markets), Comcast and Charter dropped their prices for gigabit speeds to $80 per month—$29 below Comcast’s and $35 below Charter’s standard prices—and extended the promotion from one to two years.

These episodes are consistent with the downward trend in wireline Internet access prices, as recorded by the Bureau of Labor Statistics (BLS). The BLS’s Producer Price Index (PPI) measures “the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.” Notably, the PPI category titled “Wired telecommunications-carriers-Internet access services” has generally declined since January 2020, a sharp departure from the inflationary patterns experienced in the rest of the economy. The Consumer Price Index (CPI) for “Internet services and electronic information providers,” which includes wireless services, increased slightly since January 2020 (about two percent), still well below the pace of general inflation.

Regulators should take note of these developments. The agencies charged with overseeing competition in these areas, particularly the Federal Communications Commission and the National Telecommunications and Information Association, should get on the stick and figure out the spectrum pipeline that can expand the capacity and reach of mobile broadband networks so that fixed wireless can proliferate and bring even more competition to cable. It’s rare to see prices heading downwards these days, and consumers could use all the good news they can get.

Hal Singer is managing director of Econ One and an adjunct professor at Georgetown’s McDonough School of Business. He has consulted to wireless providers, including AT&T and Verizon. Along with several economists, he signed an amicus brief in opposition to T-Mobile’s acquisition of Sprint
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