Just as the cable MSOs like to downplay the competitive impact of fixed wireless access (FWA) on their broadband businesses, wireless operators like to minimize the effect of the cable industry’s wireless gains on their core business.
Charter and Comcast reported higher-than-expected wireless subscriber numbers in Q4 with Charter adding 615,000 mobile lines in the quarter and 1.7 million mobile lines for the full year. Comcast added 365,000 wireless lines in Q4 and 1.3 million lines for the full year. But T-Mobile says these subscriber numbers aren't necessarily a good thing.
Speaking at the Deutsche Bank Media, Internet and Technology investor conference, T-Mobile CFO Peter Osvaldik said that the cable industry’s wireless growth is “not profitable” and most likely is coming from prepaid customers that are ditching their prepaid plans and moving to postpaid. “We think it’s prepaid to postpaid transference,” he said. “And a lot is coming from Verizon.”
Osvaldik noted that Verizon does benefit from those cable subscriber gains even if it is losing prepaid customers because the operator is the underlying network for both Charter Communications’ Spectrum Mobile and Comcast’s Xfinity Mobile MVNOs.
And it sounds like Q1 may be another banner quarter for the cable MVNOs. Osvaldik said that T-Mobile expects lower postpaid net adds in the quarter and projects that the industry overall will have about 7 million to 8 million postpaid net adds in 2023. He also said he believes the cable MVNOs are at risk of future churn. “This is not sustainable,” he said noting that Charter’s average revenue per user (ARPU) was down 12% year-over-year in 2022. “We are going after profitable growth,” Osvaldik countered.
But T-Mobile’s top financial guy had nothing but positive things to say about the company’s FWA offering. He said that T-Mobile is using “fallow capacity” for its FWA service. “The economics work well when you have fallow capacity."
Osvaldik also provided some insight into T-Mobile’s FWA customer base, noting that about two-thirds of the company’s FWA subscribers are from the top 100 markets and one-third are from smaller markets. He also said that the majority of the FWA subscribers are coming to T-Mobile from cable.
Osvaldik added that T-Mobile knows its FWA is having an impact on the cable companies because they are advertising against the company’s home broadband offering. Last October Comcast launched a TV ad and a website that takes aim at the capabilities of T-Mobile’s 5G home broadband service “We know when they are spending advertising dollars against us, it’s working.”
No fiber for now
Interestingly, when asked if T-Mobile is satisfied leasing backhaul fiber capacity from other providers instead of owning at least some backhaul fiber capacity, Osvaldik said that the company is currently able to get very good pricing on high-quality fiber with service level agreements. “It is such a competitive industry we can get tremendous pricing,” he said. “It’s not a place to put money.”
Osvaldik's comments are interesting because in October 2021 the company launched a residential fiber pilot program in Manhattan, N.Y. The pilot was "limited" and designed to complement T-Mobile's FWA broadband service. Nevertheless, the company still maintains it has no interest in owning its own fiber.
This philosophy is in contrast to Verizon and AT&T, which are able to connect many of their cell sites with their own fiber backhaul and claim to have “owners’ economics” because they don’t have to pay other providers for backhaul. At the end of 2022 Verizon said that it connects about half of its cell sites with its own fiber.