Do cablecos need to reconsider their technology strategies?

Tom Rebbeck

Hello. You’re listening to the Analysys Mason podcast with Tom Rebbeck, and I'm here with Simon Sherrington. Simon's just written a piece looking at fibre deployments in the US and what it means for cable operators. Simon, welcome to the podcast.

Simon Sherrington

Thanks, Tom. Great to be here.

Tom Rebbeck

Let's start with the cable operators. Why are they coming under pressure in the US?

Simon Sherrington

That's an interesting question, and they've been coming under pressure for a while now. I suppose what it boils down to is that competitive pressure from fibre broadband providers, specifically those providing fibre-to-the-premises infrastructure, has changed the game.

FTTP coverage was around half of all premises at the end of 2024. More than 1600 companies are providing fibre-based broadband in the US now, from the big ILECs, such as Verizon and AT&T, to a whole host of tiny local players.

At the same time, 86% of residential premises in the US are passed by at least one cable network operator. That means that the FTTP deployment is pretty much everywhere.

Historically, cable enjoyed a strong position in the US market. Operators had a strong ARPU and reliable margins; they had a service set and a technology capability that telcos struggled to match with copper-based broadband. That's just no longer true now with fibre broadband. They can match speeds. They provide symmetric services that cable operators can’t to target business customers.

The result is that cable operators are steadily losing customers to fibre providers. We also ought to mention fixed-wireless access because the big ILECs are also providing fixed-wireless access outside of their fibre areas, and they're able to do that to target cable customers in particular. The big ILECs are not tending to overbuild one another; they're just going after the cable operators.

So they're coming under strong competitive pressure in a way they never have before from the arrival of lots of new players and the deployment of new technology for those players.

Tom Rebbeck

So these fibre operators cover something like 50% of premises, and that's only going higher over time. So, we expect that to continue the pressure on cable operators?

Rising pressure from fibre providers

Simon Sherrington

Yes, it's going to get much more. The big three non-cable operators in the US (Verizon, AT&T and T-Mobile) all increased their plans for fibre-to-the-premises deployment last year and their combined coverage is going to be more than 100 million homes passed by about 2030.

AT&T plans to deploy to about 45 million homes, and it's launched its wholesale open-access joint venture with BlackRock to get to another 5 million.

Verizon is building out its Fios network. It's also in the process of acquiring Frontier Communications, which was the third-largest player in the market with around 7 million homes passed, with plans for its network to pass over a million homes a year across those footprints in the near future.

And then T-Mobile, which, until recently, was basically a mobile operator, acquired a couple of mid-tier players last year, gaining assets passing over 2 million homes, and plans to expand its coverage to about 10 million homes on its own networks, and has signed wholesale deals to be able to reach another 5 million homes.

If you combine those three with several other players that have passed more than a million homes, including Google, people don't think that Google is a particularly big player, but it's growing quite quickly in the US. Between all of these companies, we think FTTP is going to pass more than three quarters of all premises in the US by 2030. There's going to be huge cable and FTTP overlap. So the challenge for cable companies is going to get worse.

Technology paths: DOCSIS versus fibre

Tom Rebbeck

So what about the technologies? Are most of these cable operators still following the DOCSIS routes?

Simon Sherrington

Yes, certainly in the US. Outside of the US, we've seen a lot of cable operators start to self-overbuild with FTTP; it's just not happening at the moment to the same extent in the US. Altice, one of the four big cable operators in the US, announced plans to overbuild 6 million of its 10 million homes passed, but it's recently scaled that back to about 3 million. The others are following down the DOCSIS technology roadmap at the moment, with DOCSIS 3.1 having been deployed to increase the capacity of the bandwidth within their networks.

What comes next is DOCSIS 4, one of the variants of that, and they're taking different routes in that sense. Comcast is upgrading to DOCSIS 4 FDX, which stands for full duplex, which allows some of the bandwidth to be used both upstream and downstream, enabling them to deliver some sort of symmetrical retail services. There are some new amplifier technology that means you don't have to build fibre out to the last amplifier. The other player, Charter, is looking at DOCSIS for ESD, which is another slight variant of the technology, which stands for extended-spectrum DOCSIS and basically reallocates more spectrum for the use of broadband. It's scaled back its deployment path for that.

The challenge with the technologies that they're deploying is that the technology path for those currently ends after 10Gbit/s services. Whereas if you look at FTTP, there are already operators deploying 25Gbit/s symmetrical services. There's a roadmap to 50Gbit/s services already mapped out.

Charter, Comcast and Broadcom (who is one of the main suppliers of chipsets in this space) are looking at extending the spectrum available to 3GHz within the cable systems to get to about 25Gbit/s downstream. But it's not a symmetric service; the technology is not available yet. And the ecosystem hasn't got the scale of the PON ecosystem, so you're not going to get the economies of scale, and you're not going to get the second level of R&D investment. So already it’s not keeping up with PON. It's going to struggle even further to keep up with PON.

Whether consumers at the end of the day will need a 50Gbit/s service is up for debate. It might actually be irrelevant if they perceive FTTP to be superior in some way. And it's fair to say, if you look at the Net Promoter Scores for the main players in the US, that the non-cablecos do better across nearly all metrics: speed, reliability, customer service and pricing. So cable operators are already up against it.

Tom Rebbeck

It sounds like we need to learn our DOCSIS acronyms. There are so many new ones.

Simon Sherrington

There are a lot of DOCSIS acronyms, but maybe there won't be so many coming down the road in the long run. DOCSIS 5 would be the next thing if it came to pass. But as I say, there's no technology available at the moment.

Tom Rebbeck

Right. So presumably the cable operators are banking on the fact that 10Gbit/s would probably be enough for most customers. What about other disadvantages of the DOCSIS route that the cable operators are taking?

Cost disadvantages of DOCSIS

Simon Sherrington

Cost, ultimately. And by that, I mean operating costs. So the capex cost for a cable operator to upgrade to DOCSIS 4 is not as much as the capex cost for an operator to deploy a new fibre-to-the-premises access network. It's not insignificant, you're still looking at USD300 to USD400 per home passed to upgrade to DOCSIS 4. By comparison, we think in recent history it's been about USD1100 per home passed for fibre to the premises. A lot depends on whether there's access to existing infrastructure ducts and that sort of thing.

So there is a capex advantage to taking the DOCSIS route which may be one of the reasons they're following that in the short term, but long term, the total cost of ownership we think is going to be dominated by the operating cost.

The reason for that is there are many more active parts within a cable network. That means there are more parts to power, which provides a small cost increase, but more significantly, they have to be maintained and they have to be repaired. So it requires a much greater number of truck rolls and engineers going out to fix things that are breaking, and coax is intrinsically a bit more susceptible to external impacts than fibre. That can be quite significant.

Altice, for instance, in the US, where it has upgraded, reported an 80% reduction in the number of faults on its fibre overbuild compared with its legacy cable network. So that cost over 10–20 years is going to make a big difference.

Alternatives for cable operators

Tom Rebbeck

So what alternatives do you have if you're a Comcast or a Charter?

Simon Sherrington

I suppose our view is to make the move to fibre to the premises. There are a number of ways they could do that. They could overbuild their existing infrastructure with fibre to the premises. That does mean they have to deal with migration issues, which are a bit similar to the issues copper players have when they upgrade to fibre. How do you move customers across? Do you incentivise them? Do you push them? Because you don't want to be operating two infrastructures at the same time.

They could pursue an edge-out strategy, so they could start putting fibre around the edges of their cable footprints, targeting new customers initially to help them get that process started.

They could take the route that T-Mobile has taken. They could secure long-term, large-scale wholesale contracts. IRUs, indefeasible rights of use, have become quite popular in some parts of the European market, for example. If you've got a wholesale provider building out to a large area, they could get an IRU with those, that gives them guaranteed capacity to provide retail fibre services to customers without having to roll out their fibre infrastructure by that stage.

Another option, of course, is to buy existing FTTP players, although recent consolidation means the mid-tier is kind of hollowed out now, there aren't many of those attractive middle targets left. They're either very big or very small companies.

Whatever the route they decide to take, they need to be planning their strategies now, we think, because if they leave it too long, it's going to get too late. If they continue to lose market share, they'll be spreading those increased costs across a smaller base of customers, and their ability to compete on price will become challenging.

Tom Rebbeck

Yes, It just gets more and more difficult over time.

Simon Sherrington

Yes.

Future strategies for cable companies

Tom Rebbeck

Do we see any sign of the big cable operators in the US following any of these alternatives yet or not publicly?

Simon Sherrington

Not publicly, no. So far, they are sticking with their DOCSIS roadmaps, and they have made their announcements about the work they've been doing with Broadcom late last year. But if you look at the way the market is going, they're losing market share. We think there's only one way it's going to go ultimately.

Tom Rebbeck

OK, great, Simon. That's a good place to finish it. Thank you very much. If you would like to automatically receive future episodes, please subscribe to the Analysys Mason podcast. We also welcome your comments, feedback and reviews.