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A Mature Broadband Market? (Implications and Industry Shifts)

It is becoming clear that the broadband market is reaching maturity. This is already causing havoc in the industry for ISPs that relied on year-over-year customer growth to prop up stock prices.

Earlier this year, the New Street Research, a company that specializes in research in the telecommunications and technology sectors, said that it estimated that new broadband customers would grow by about 1 million this year. That’s roughly equal to the number of new households expected to be created during the year. This is down from the two to three million new broadband subscribers added every year since 2017.

It’s always risky to say that the broadband market has matured, and experts who predicted this in the past turned out to be wrong. We might find that if interest rates go low again, the ISP industry will return to its historical growth pattern. But we are clearly approaching the point where households that can afford to buy home broadband probably have it—and that is the definition of a mature market.

Any student of economics knows that there are behaviors that should be expected in a mature market that differ from a growing market:

  • Growth is Regional. When broadband growth mostly comes from new households, then growth is regional and is concentrated in places where the population is increasing. U.S. New and World Report says that growth is continuing in parts of Colorado, North Carolina, Florida, and Texas. Other markets seeing growth are in Tennessee, Oregon, Georgia, and Arizona. A few cities are also growing the fastest, including Virginia Beach, Miami, Cleveland, and Detroit. The corollary to regional growth is that other parts of the country are losing population, adding pressure to ISPs there.
  • Price Competition. Slowing and tightening markets usually bring price competition when the only opportunity for growth comes from taking customers from competitors. Lower prices also help to reduce churn. We are seeing lower prices across the industry as cable companies are pushing low-price special packages to stave off FWA wireless providers and fiber overbuilders that offer lower prices.
  • Changes in Capital Spending. When markets get tight, a normal reaction is for companies to pare back on capital spending. However, ISPs are facing other challenges that make this hard to predict. Cable companies feel compelled to increase upload speeds to be more in parity with fiber overbuilders. As I wrote in a blog last week, it looks like many cable companies are taking the least expansive paths to increase upload speeds. Some ISPs will react to market stagnation by pouring money into expanding their broadband footprint. Charter is a good example of this and has been growing to some degree through expansion into rural markets through participation in grant and subsidy programs.
  • Mergers and Acquisitions. Mature markets usually lead to market consolidation since one of the few remaining paths to increased profitability is to improve the economy of scale by getting larger. It seems inevitable that we’ll see an increased pace of large ISPs buying smaller ones. It might be tougher for larger ISPs to merge in the current regulatory environment that frowns on monopoly consolidation.
  • Big ISPs in Distress. Continued lower earnings will cause distress at ISPs, and this might eventually lead to bankruptcies. Many of the ISPs in the industry rely on balloon financing, which requires them to retire and replace large amounts of debt periodically. Lower earnings and today’s higher interest rates are going to wreak havoc with debt refinancing.
  • Layoffs. We’ve seen staff reductions at Lumen, AT&T, Verizon, and T-Mobile. I even noticed a layoff last week announced by Comcast—a rare event in the past that will likely become more common.
  • Cuts in Maintenance. When companies stop growing, budgets get tighter. That almost always manifests in the broadband industry as a reduction in maintenance since spending on marketing goes up when markets get tough. This translates into more network problems over time and more waiting for repairs.

By Doug Dawson, President at CCG Consulting

Dawson has worked in the telecom industry since 1978 and has both a consulting and operational background. He and CCG specialize in helping clients launch new broadband markets, develop new products, and finance new ventures.

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