For years, Comcast and other cable companies have relied on a simple strategy to offset the effects of cable cutting: charge high for home Internet services and enjoy increasing profits thanks to little or no competition.
That strategy may now be in jeopardy. Comcast’s Internet subscriber growth was: essentially flat last quarterwhile Charter 21,000 Spectrum internet subscribers lost. It is the first time for both companies that they have failed to grow their home internet business in any given quarter.
The reason isn’t a mystery either: Across the country, T-Mobile and Verizon have rolled out a low-cost home Internet service powered by their 5G networks, finally giving customers an alternative where none previously existed. In an earnings call, Comcast CEO Brian Roberts pointed to those providers as one reason broadband growth has hit a wall.
It’s a rude awakening for cable companies, whose broadband monopolies in many markets have allowed them to raise prices — and, in Comcast’s case, enforce data caps. While Comcast and Charter have tried to downplay the threat of wireless home internet, experts say the competition is here to stay.
“Across the country, ISPs of all kinds have added two new competitors,” said Kristen Hanich, research director of Parks Associates, referring to T-Mobile and Verizon. “They have to prepare for that.”
Wireless internet at home is cheaper
Both T-Mobile and Verizon are undercutting cable companies in pricing. For example, T-Mobile charges $50 per month for home internet, with typical download speeds ranging from 33-182 Mbps. Verizon also charges $50 per month with download speeds ranging from 85 Mbps to 300 Mbps according to CNetand it halves the price for customers who bundle smartphone service.
In comparison, Comcast’s non-promotional Internet pricing starts at $99 per month and Spectrum’s non-promotional Internet service starts at $75 per month.
While the wireless offering isn’t new, T-Mobile and Verizon have both expanded into more markets, boosted speeds with mid-band 5G, and marketed their services more aggressively. T-Mobile even sent a commercial for home internet during the Super Bowl.
The growth in the number of subscribers has increased accordingly. T-Mobile now has over a million home internet subscribers and 560,000 in the last quarter alone. Verizon has 384,000 wireless home internet subscriberstwo-thirds of which in the last quarter.
“That puts [T-Mobile] at about the 10th largest Internet service provider in the United States, came out of nowhere about a year ago,” Hanich says.
Can it compete?
T-Mobile and Verizon can’t cannibalize cable internet overnight. People generally consume a lot more data at home than when they’re on the road on their phones, and because wireless carriers send all that data over the same airwaves, they need to be more aware of network congestion.
That means either limiting the number of new subscribers they take on or discouraging heavy usage through data caps. To this end, T-Mobile recently introduced a version of its service with data caps in markets where it is concerned about congestion. (Verizon has not restricted data usage in any of its home markets for now.)
All this has led to a number of skepticism among analysts about the growth targets of the carriers. T-Mobile hopes to have between seven million and eight million internet subscribers by 2025, while Verizon hopes four million to five million by then. Comcast and Charter currently have 32.2 million and 30 million Internet subscribers, respectively.
Peter Rysavy, the president of telecom analyst firm Rysavy Research, says that even if wireless carriers don’t completely supplant cable internet, they should have enough capacity to support millions of subscribers.
“As a result, the market is becoming more competitive and cable operators have to assess the long-term implications,” he says.
Rysavy also believes that the current version of 5G home internet is just a stepping stone. In most markets, T-Mobile and Verizon rely on low-band or mid-band 5G, but Rysavy is optimistic about the future promise of mmWave 5G networks, which can rival the speeds of fiber Internet.
Airlines have been slow to adopt mmWave due to its short range and ability to penetrate buildings, but Rysavy points to several technological improvements on the horizon that will make mmWave more viable. These include narrower radio bundles that can reach more users at once and wireless backhaul that makes it easier to roll out small mobile sites. The result, Rysavy says, will be even greater competitive pressure on traditional Internet providers.
“Really, I see the 2020s as an arms race between these two categories of companies,” he says.
What it means to you
How this new competitive reality will shake out for customers is hard to predict.
With traditional ISPs, data shows that when people have more choices, the service gets better. An analysis earlier this year by Secretariat Economists, for example, found that internet speeds increase by about 60 Mbps when a market moves from two to three providers. Biden’s government, in an executive order last yearalso claimed that prices could be as much as five times higher in areas with only one or two reliable high-speed Internet providers.
But Pablo Varas, an associate director at the Secretariat, says the same speed increases won’t apply when home wireless internet comes to town. In reality, a study by the company has found that traditional cable providers made fewer improvements to their networks in markets with wireless home Internet options.
“One possible explanation, which has not yet been tested in data, is that the entry of lower-speed fixed wireless ISPs into a local market is shifting the competitive focus of traditional ISPs toward price and away from quality,” Varas said via email.
That in itself may not be such a bad thing. While companies like Comcast and Spectrum are aggressively pushing expensive gigabit Internet services, those speeds are overkill for most users. For example, a single 4K HDR Netflix stream consumes about 25 Mbps, meaning you can stream on about 40 screens at once before running out of bandwidth.
The presence of cheap wireless home internet could then cause ISPs to rethink the lower end of the market as they look for more growth, or at least put an end to some consumer-hostile policies, such as steep off-contract price hikes or data caps.
“Cable companies are known for luring customers in and letting things change on them,” says Rysavy. “So maybe they’ll be motivated to have more user-friendly contracts than in the past.”
Anyway, people who want a cheaper alternative to cable internet are finally starting to get it, and that should make companies like Comcast and Spectrum nervous.
“There are many people who could only choose one ISP, and regardless of their customer experience, that was what they had to have if they wanted the Internet,” says Hanich of Parks Associates. “And now they have a choice.”