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Evolution of the 4th Utility: Fixed Broadband

Broadband at Home has become "the fourth utility" in US households, many of which have multiple connected devices and viewing screens. According to Parks Associates, more than 85% of American homes have a broadband service, and 93% of them have high speed Internet services over DSL, fiber optic or cable.

The demand for broadband fixed broadband is a major contributor to operator revenues and profitability, particularly because of the decline in pay and fixed-line subscribers.

The competitive market has changed dramatically over the past two years, as have the services available. AT & T acquired DirecTV and launched an online pay-TV service (DirecTV Now) that combines broadband, satellite television and mobile.

Charter acquired TWC and Bright House to become Spectrum, which serves approximately 30% of the US fixed broadband residential market – approximately 23 million consumers – the size of Comcast's customer base. Google halted the expansion of its optical fiber service last year after disrupting and accelerating broadband competition across the American landscape.

Broadcast Services

The way people use broadband has also changed. Streaming services are a key part of home entertainment. Music streaming is seen as a source of new hope for the troubled music industry, and subscriptions to OTT video services have become the norm. Netflix, Amazon, Hulu and CBS All Access offer high quality original content exclusively for online distribution through their services.

Operators and device manufacturers have partnered with OTT video services, seeking to leverage their brands and popularity to support the adoption of higher data rates and electronic devices connected mainstream.

For example, Consolidated Communications recently announced a partnership to offer HBO Now with its broadband services, offering an alternative to the traditional dual-play bundle. These types of partnerships will become increasingly common as OTT operators and services adapt to the new consumer entertainment market.

Despite the demand for data, some fixed line operators are worried that consumers will turn to their smartphones and cellular plans for home Internet connectivity. Half of US consumers using fixed broadband also use their smartphones or tablets to connect to 3G or 4G at home, according to Parks Associates.

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Fixed benefits

However, fixed broadband has several key advantages over wireless data services that prevent consumers from completely shutting down the broadband cord:

  • Cost – Compared to the average cost of fixed fixed broadband, mobile data is much more expensive at the price per bit. In fact, costs can be up to 70 times higher, depending on the plans and monthly data allocations selected.

    In some cases, fixed broadband service providers have no data limit, which leads to a fixed broadband pricing model that further increases the value of actual usage of the service. Fixed broadband also sets mobile data costs, providing consumers with low-cost connectivity for mobile home traffic.

  • Speed ​​and Latency – Mobile data services offer consumers the convenience of having data on the move, but often lack the high speeds and low latency available via fixed networks. Many consumers are aware of this gap, especially in the use of applications that require high bandwidth or low latency, including file downloads (or downloads), online video games and video streaming.

     average latent graph by network type

    The quality of the mobile Internet network has improved, but the mobile Internet has an average latency of 50% higher than DSL, the most widely used fixed-line connection technology. slow. This difference in performance is often the deciding factor in determining the data network and devices that consumers choose to use.

    At the same time, mobile use cases often require lower data network performance levels than use cases for devices that typically use a fixed broadband connection. For example, only 20% of broadband households broadcast TV and movie content on a smartphone from OTT services such as Netflix or Hulu, according to Parks Associates research, while 51% broadcast this long content on their TVs and TVs. % on their computers. .

  • Connected Devices – Home broadband allows a large number of consumer entertainment devices to be simultaneously connected to the Internet while performing broad bandwidth activities.

    At the beginning of 2017, American broadband homes had an average of eight connected devices, including computers, entertainment devices and mobile devices. Computer penetration among US households is up 87%, including laptops and desktops, Parks Associates reported.

    Beyond the general use of data (email and browsing), computers are a prominent platform for streaming video and downloading large files, two cases of use requiring broadband connections. The adoption of other home entertainment devices, including smart TVs and streaming media players, has increased and they have become the most often used devices for home entertainment.

    Fixed broadband is essential for smart home appliances and the Internet of Things.

    "You can not have a smart home without seamless connectivity," said Miles Kingston, general manager of Intel's smart home group, during Connections 2017.

    Most smart home devices are designed to connect with smartphones and other devices. To fully integrate these devices, it is necessary to have a network capable of connecting multiple devices simultaneously. For this reason, broadband is the first functional base for connected home devices because of its cost-effectiveness and reliability.

  • Data Limitations – More than half of mobile and wireless Internet traffic in 2016 comes from video streaming (Ericsson Mobility Report June 2017) and consumers are increasingly relying on fixed broadband for this case of use. The use of high bandwidth, especially for 4K videos via services such as Netflix or Hulu, can quickly burn large amounts of data, posing a problem for services that impose relatively high data limitations low.

    Although unlimited mobile data plans are becoming more commonplace, many operators implement mechanisms to limit the throughput to a specified threshold of data speed or capacity.

    Although mobile data is not an adequate substitute for all consumers, fixed broadband is not without drawbacks. Cost is one of the main reasons why consumers do not have fixed broadband and rely exclusively on mobile data. As consumers begin to take a closer look at their household expenses, cost considerations will go beyond subscription costs.

    Fixed broadband home requires local equipment, or CPE, for home access. Unlike a multi-functional, consumer-owned mobile device, most fixed-broadband CPE equipment in the US market is owned by the operator, leased to the user, and is used only for one user. end, making it a preferred target for households to reduce spending.

    Parks Associates does not expect consumers to abandon fixed broadband for mobile data services en masse but in an environment of extreme competition, operators can not afford to neglect these threats.

Work in tandem

Mobile service providers will push their benefits, which includes a direct connection to consumers via their smartphones. Mobile services have begun to position fifth generation (5G) wireless technologies to compete with wireline technologies, which will provide more options for consumers and further encourage fixed broadband operators to innovate to retain their customers.

Fixed line operators will protect their fixed line revenues by increasing throughput, innovating in their CPEs, reducing costs, and expanding the coverage of their fiber optic deployments. There is already evidence of this, with fixed broadband providers and mobile data providers looking for new ways to add value to their services, such as free WiFi hotspots and zero-rating video streams. associated with OTT services.

They will also explore new areas, including underserved and rural areas of the United States, where fixed wireless technologies could be the best solutions for last mile connectivity.

Although some substitutions may occur, fixed and mobile data will continue to work in tandem to meet the insatiable data needs of consumers. Fixed-line operators will benefit from wireless technologies in a number of ways over the next few years to improve their satisfaction and increase their revenues, strengthening their position as reliable data providers.

Brett Sappington is senior research director at
Parks Associates.