Of Fiber Castles, Cable Forts, FWA Camps, and Satellite Warbands

Full Transcript

Don Kellogg 0m10s

Hello, and welcome to the two hundred and eighty eighth episode of the week with Roger, a conversation between analysts about all things telecom, media, and technology by Recon Analytics. I'm Don Kellogg, and with me as always is Roger Entner. How are you doing, Roger?

Roger Entner 0m23s

Hey. I'm great.

Don Kellogg 0m24s

So, Roger, the topic today, fiber castles, cable forts, FWA camps, and I think we have a metaphor for satellite as well. What was it? Warbands? Tell us about this.

Roger Entner 0m36s

Well, one of the things that we're increasingly seeing in the data again is an ILEC two point zero advantage. Like if we go back into the early days of wireless, the ILECs, the incumbent local exchange carriers, when we go back to eight fifty, all the ILECs, all the incumbent local exchange carriers got for free an eight fifty MHz license. And then there was a beauty contest for the other eight fifty MHz license. And because the ILECs were better funded and ran faster to it, they gained more market share. And also they were able to sell it to their wireline customers.

Roger Entner 1m19s

You know, Maritech Mobile, Ball Atlantic, NYMEX, Pacific Telesis, E mobile, all of these guys had a noticeable market share gain. You don't see it that much, you know, what is it, forty five years later, but you could still see it like in the mid 2000s. This is coming back. And what we're increasingly seeing is that we have fiber castles. And what I mean with that is where Telco has fiber, they are winning disproportionately.

Roger Entner 1m53s

You can see it in AT&T's case very clearly and you can trace the numbers. You have 460,000 net adds. You take the voice part of FirstNet away and do your math, you can do it, or at least we can do it. And then you have the converged percentage. If you do that math, you will realize that the non converged net adds that AT&T had, which were 69,000, then we can see in the data how many non converged AT&T customers were added in the fiber footprint.

Roger Entner 2m30s

And that means that AT&T lost customers outside their fiber footprint and inside, and they only gained inside their fiber castle. What we also see very clearly in our data is that Verizon is growing in the Northeast, and it's losing everywhere else. Again, the Northeast is where their fiber castle sits. And so the effect of bundling, and we talked about it earlier, talked about that the new theme is convergence. We are seeing this really, really well playing out in the data already today.

Roger Entner 3m6s

And so convergence is really this play. Cable has a much larger footprint. Cable is now building also fiber. So we need to call them not cable because it's not only cable. Like Charter has like 11% of their customers are actually fiber customers.

Roger Entner 3m24s

And so that hurdle, that Ford, they have a Ford and actually Charter has also a castle, right? And that Ford is lower, the satisfaction is lower, and so the opportunity for them to bundle is also lower. But what we've seen very, very clearly every quarter, cable's NPS is slowly increasing, which means that ceiling amount for convergence is going up. We live here with what we can see, happy people Bundling doesn't make people happier. So the happy cable customers are much more likely to bundle, which is logical, right?

Roger Entner 4m3s

You don't give money to somebody who pisses you off.

Don Kellogg 4m6s

Or more money to somebody that pisses you off.

Roger Entner 4m8s

Yeah, you don't give more money to somebody who pisses you off. You give money to somebody who makes you happy. And you're like, yeah, I'll give you more money, make me happier, right? And so we see that. And then we have FWA, where you can create a bundle, but it's a different dynamic because the customers are customers who optimize around good enough and lower price.

Roger Entner 4m32s

So they're like warbands that are roaming around. And then we have satellite in the end that is sniping down from above where nobody else has built fortifications. And so one of my friends is a board member at a rural carrier. And when he read my satellite report from November, his feedback was like, you know, I thought our DSL markets would be eternally defendable. Now I know that their days are numbered, especially with Bead and other incentives, will be gone.

Roger Entner 5m3s

We have no chance whatsoever. Because it's way too expensive to serve these people. When it costs more to connect the person than the price of the dwelling that they're in, and when it costs more to connect than their ARPU over 100, it just doesn't make sense. And so it is really this new dimension when it comes to competition that we will see more and more emerging as time plays out. And it becomes very, very interesting.

Roger Entner 5m37s

Now, the other things that we also are seeing is one third of customers want to bundle. One third of customers want to have best of breed. And the third in the middle, you can persuade, either with better services, a better experience, or with less money. And so it's that one third where the battle will be. The interesting part here is T Mobile, Right now, the best, best of breed player in the market.

Roger Entner 6m7s

It has tried to do fiber and it is trying to do fiber. And it makes its fiber customers very, very happy. They're doing a really good job. Again, we're seeing it in our numbers. But is it enough?

Roger Entner 6m20s

Can they be enough places that it turns into a fiber castle instead of like fiber towers here and there, where you have like watchtowers?

Don Kellogg 6m30s

So what do you say to like you know, if I put my John Stankey hat on, right, and I say all networks are fiber networks, they're just different endpoints.

Roger Entner 6m39s

Yep.

Don Kellogg 6m39s

Because I think I can make an argument, okay, well, like satellite is gonna be capacity constrained pretty severely at some level until there's a bunch

Roger Entner 6m46s

of Yeah. Do you in rural America?

Don Kellogg 6m47s

Satellites up there. Yeah. It's in rural America, but you said there's a limit to how many folks can be on a satellite at a given time. Yeah. Same thing with FWA, you know, and then as you get to cable, you get more capacity and fiber is not capacity constrained for the most part, right?

Don Kellogg 7m0s

So Well, yes and no. Well, it's not the limiting factor in most circumstances.

Roger Entner 7m5s

Yeah, but it's how much does it cost you to connect, right? Right. You have like 100 to $300,000 of fiber mile, depending if you aerial or trench this.

Don Kellogg 7m16s

Trench it, yeah.

Roger Entner 7m17s

Right? I know Elon Musk is not there yet, but one day he might be able to launch a satellite into space for that amount of money. I don't completely agree with the assertion that everything is a fiber network and it's just the endpoint.

Don Kellogg 7m31s

Satellites are not fiber networks, but everything else is a model.

Roger Entner 7m34s

Yeah, yeah, but fiber networks are a little bit more complicated. John ran into trouble with that assertion when the iPhone came out, when he was CTO. But other than that

Don Kellogg 7m45s

Well, was more of a function of the radio network, but yeah, I know.

Roger Entner 7m48s

Well, thank you. Might be an episode, complete other episode, talk about that issue would happen there. But satellite is competitive. The less people live there, the more competitive satellite will be. And satellite has a sweet spot and it gets weaker and weaker simply with FWA.

Roger Entner 8m8s

With FWA in rural America, you don't build a new sell side. You put in new more channel cards. When you look at what Verizon has in rural America, look at the c band that Verizon has in rural America. Right? 200 megahertz.

Don Kellogg 8m23s

Yeah. But mean, think the carriers would say the carriers would say, like, let satellite have, like, all the places where there's no cell coverage. Right?

Roger Entner 8m30s

Exactly. Exactly. Nobody is going to build another cell site for FWA. The money is just not there. But I can put a channel card in there.

Roger Entner 8m40s

Channel card is really cheap. It's a few thousand dollars. You put in more channel cards in there. 200 megahertz of C band spectrum is 4.2 gigabits of speed per cell side sector. It's nuts.

Roger Entner 8m54s

You can throw fiber away with that speed if you don't have a lot of people on it. That's what you can do with FWA. Satellite can never touch Consumer

Don Kellogg 9m2s

cable. If you're on, 10 yeah. XGS PON two or something. Yeah.

Roger Entner 9m6s

I'm talking about rural. Right?

Don Kellogg 9m9s

Yeah. Yeah. Yeah.

Roger Entner 9m10s

So look at all the cell sites that you have already and just jack up the channel cards in it, and neither fiber nor nor satellite has a chance. FWA will win this battle hands down every day of the week. And then you run into capacity issues when more and more people are there, and that's when FIBOR will win. But the interesting part, where is that line where FWA and FIBOR will play and in what customer segments? Because not everybody wants to have and pay for ultra good fiber with endless capacity and all of this stuff.

Roger Entner 9m48s

A lot of people, and we see it in our data, half of the FWA customers don't know what speed they have. Why? Because it's good enough. And they never had a reason to do speed tests. Why do you do speed tests?

Roger Entner 9m59s

For two reasons. A, the damn thing doesn't work and you want to know why. Or you want to show off to your friends. If it just works, you know, I don't check my air pressure in the car when I drive every time. I check it when I have an alert or when something doesn't work.

Roger Entner 10m17s

Same with oil, right? And it's the same thing with speed test. By the way, that's the fundamental weakness of a lot of the speed tests, when they are user driven. That's why it's a lot better to have a speed test.

Don Kellogg 10m28s

Selection bias.

Roger Entner 10m29s

It's a selection bias, very, very clearly. Especially when everybody knows what servers you have and where you do the speed test with and you give out rewards. And then some people shockingly are choosing the connection. Oh, didn't think about that. So it's very, very interesting to see how this plays out.

Roger Entner 10m52s

And what's also fascinating, and I gave this presentation to two carriers, because we see in our data, 10% of Starling customers come from FWA. And they asked like, what? Why? And we could very clearly see it in our data that in parts where coverage is running out and capacity is getting constrained and the scores are trending down, these people are peeling off FWA and go to Starlink. Because they prefer to pay $120 for something that works than 25 or 50, whatever it is, for something that doesn't work.

Don Kellogg 11m31s

Right. You've got to have something going wrong to pay two to three times as much.

Roger Entner 11m35s

Yes.

Don Kellogg 11m35s

For similar lower speeds, right?

Roger Entner 11m37s

Yes. But then, especially in out of market, like Charter shows up, which is a big fiber builder in out of markets in exactly these rural areas, they show up and they absolutely kill Starlink. And the number is dropping like a rock. It's like you show up with a herbicide, you know? Everything dies.

Roger Entner 11m59s

Starlink just dies when fiber shows up. It's like insane what it shows up in our data.

Don Kellogg 12m5s

Starlink is the new connection of last resort, right? Away from like, you know, wisps and things like that. I think they're taking a big chunk out of wisps. They're taking a big chunk out of DSL where it exists too, right?

Roger Entner 12m15s

And by the way, I don't want to shit on Starlink. Starlink is phenomenal. Its customers are extremely happy. The router that they have is phenomenal. I don't know what magic they do and what standard, plus some additional work they have done.

Roger Entner 12m33s

I never opened one and but their stuff, that software stack is phenomenal.

Don Kellogg 12m39s

$350 will buy you a reasonably good router, right?

Roger Entner 12m42s

Yeah, but it's better than a reasonably good router. Like AT&T and Verizon, and the cable guys also now with the new routers are putting out really, really good routers. From what the data says, at least the Starlink router is better.

Don Kellogg 12m56s

Right. And I mean, I think this is all about comparison too. Right? If you're coming from like a crappy wisp that you're getting maybe two or three megabits and paying probably as much as Starlink was.

Roger Entner 13m6s

It's not just that, don't believe me. And then

Don Kellogg 13m8s

you get go to something that's 10 times faster Don. It makes a big difference. Right?

Roger Entner 13m13s

Yes. That helps. But trust me, there's more than that going on.

Don Kellogg 13m17s

Yeah. I mean, I mean, is going back to like, drying people don't like water and, you know, people dying of thirst do, right?

Roger Entner 13m23s

Don, believe me. I'll leave it at that. Alright.

Don Kellogg 13m28s

Well, is a report that you're you're working on right now. Right? And it's gonna be coming out soon?

Roger Entner 13m32s

Yeah. I'll write a research note probably coming out the week of this. We have the team working on a on a longer report where we go in detail about this. Cool.

Don Kellogg 13m42s

Alright. Well, we'll make sure to post the link to the report when it's out and we've got a lot more reports coming up here pretty soon. So Yeah. I think we should have some really good topics to talk through. Alright.

Don Kellogg 13m52s

Alright. We'll talk next week.

Roger Entner 13m54s

Thank you. Okay. Bye bye.