Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with S&P Global Market Intelligence tech, media, and telecom news team. Welcome to MediaTalk, a podcast hosted by S&P Global, where the news and research staff explore issues in the ever-evolving media landscape. Today, I'm joined by S&P Global Market Intelligence Kagan senior research analyst John Fletcher, who specializes in the multichannel distribution realm. How are you doing today, John?

John Fletcher: I'm doing good. Mike, how are you doing?

Reynolds: Okay, good. We've got a couple of subjects on our agenda today. We're mainly going to talk about Kagan's broadband forecast. The analysis looks at the industry's performance in '23 across the four key technologies as well as a look at '24, and then it goes out a little bit further. We're also going to discuss cable, the leader in this space, and more specifically, some of the challenges it faces. Ready, John?

Fletcher: Let's do it.

Reynolds: All right. Could we just start a bit of an overview of the four technologies that drive this industry?

Fletcher: Yeah, no dial up, no 56k modems here. Like you said, cable's the leader. They got about a 63% share of the total subscriber base at the end of last year, and that's going to be Comcast Corp., Charter Communications Inc., Cox Communications Inc. and the like. And then about a quarter of subscriptions are what we call the telco providers — AT&T Inc., Verizon Communications Inc., Frontier Communications Parent Inc. These are the old DSL providers; they're the earliest on the switch to fiber, but as we'll get into, a lot of companies are getting into fiber. And third-biggest would be fixed wireless, which has been the exciting success story over the last few years. They had petered along at about 2 million subscribers for about 10 years. And then Verizon and T-Mobile US Inc. launched, and now we're up to about 11 million subscribers. So they have about an 8% share. And then we have satellite. We had these legacy players where subscribers plateaued around 1.5 million. And then you had Space Exploration Technologies Corp.'s Starlink cover the skies with low-earth orbit satellites. And so that business has also seen some tremendous growth in the last few years, but they still are very small, they have about a 2% share of the overall space.

Reynolds: All right. When you look at all four technologies together, John, how many residential customers did the industry have in '23?

Fletcher: Yeah, so they got about 131 million total, and that includes businesses and residential. If we're just talking about residential, it's about 120 million, which as a percent of occupied households, it's about 90%. Pretty much everyone's got broadband except for this 10% of households. And they're going to be the most difficult to reach as we try to close this digital divide.

Reynolds: Sure. I think there was some recessionary fears going into '23. Fortunately, they didn't materialize. What did the industry generate in terms of overall revenue in '23?

Fletcher: Yeah, it was the phantom recession that never came. That's obviously a good thing. Last year, about $116 billion in total revenue, which — I was Googling this last night, I was just curious to help put that number in perspective — that's the same size as Kenya's annual GDP. And that's just for US broadband.

Reynolds: Okay. All right. And that was up how much?

Fletcher: That was up about $6 billion from '22. And I think we front-loaded some of that growth with revenue and subscriber growth post-COVID. So yeah, it was really strong year. In retrospect, we weren't expecting it to be as strong as it turned out to be.

Reynolds: That's a good thing then. Did pricing go up a lot? I think you guys say it's about $65 per month on average for broadband.

Fletcher: Yeah, that's exactly right. And it depends on the technology, obviously. It did go up a little bit, but it's a mixed bag. When you look at each of the technologies, cable's up about a dollar to $69; fiber was up a few dollars to $58. And these are monthly rates that customers are paying. Satellite was up about $6 to $103 — it's fairly expensive relative to the other ones. And then fixed wireless is coming out of a price war. T-Mobile just announced their increase in the price of their fixed wireless service. But as of last year, they're right around $40. Yeah, if you glue it all together and average it, it's about $65 a month people are paying for broadband in the US.

Reynolds: All right. This year, I think there's some concerns that some of the low-income homes might lose their subsidies under the Affordable Connectivity Program. Can you talk about ACP and how that might impact the business this year and going out into 2025?

Fletcher: Yeah, so we estimate about 10 million homes in the US are using this program, which provides a $30 subsidy for home broadband. It's supposed to expire in mid-May. This funding is supposed to dry up. So the industry is scrambling right now to make sure they can try to keep these customers on. Comcast has already announced something called Comcast Now, which I believe charges $30 a month for a 100 Mbps plan. The gears are turning, and they're already getting prepared for this to try to keep these customers on and keep churn from increasing. But ultimately, I'm an optimist, and I think Congress will get its act together and, hopefully, we'll get that money and that subsidy renewed so this doesn't become an issue.

Reynolds: All right. When we last spoke on MediaTalk, John, our conversation involved the Broadband Equity Access and Deployment Program, or BEAD. That's one of my favorite acronyms. BEAD is going to be a key initiative to help bridge the rest of the digital divide.

Fletcher: Yeah, definitely. They're setting aside $40 billion. We think the rubber is really going to start hitting the road at the beginning of next year in 2025. It's a government plan, so there's a lot of red tape and forms that people are going to have to fill out, but we're optimistic that that's going to really help that close that gap.

Reynolds: So a lot of registration going on now?

Fletcher: Yeah, it's still in early stages. I think Louisiana is the only state to have completed all 10 of the phases at this point. The money's sitting there, and the government's very excited about fiber in particular, but I'm more excited about fixed wireless just because — dollar for dollar — it's a little bit less expensive to cover these rural markets where a lot of that digital divide exists.

Reynolds: All right, John, hoping now that you could maybe walk us through the four technologies a little bit and '23 versus '24. And then I think Kagan's projections go out to '29 and then '34 — so a decade from now. As we talked about, cable's the leader, but where do things stand for them?

Fletcher: Yeah, I think the biggest growth stories are going to be wireless technologies — satellite and fixed wireless. And a lot of that's because most of these homes that are not covered are in rural areas, and it's a lot cheaper to cover those with wireless technologies like satellite and fixed wireless than it is to dig 40 miles of a fiber line to connect one house with, for example. So we do think cable and telco are going to grow. They're going to manage to grow a little bit slower than the rate of occupied households. But we think the majority of the growth for over the next decade is going to be with satellite and fixed wireless. And when I say satellite, I'm talking about the low-earth orbit — Starlink, and Amazon.com Inc. is also supposed to get into the low-earth orbit broadband game as well.

Reynolds: So there are now thousands of satellites up in the lower orbit.

Fletcher: It's wild. So Starlink, they have thousands of satellites about a hundred miles off the ground, and the traditional satellite broadband business had a handful of satellites about maybe 10,000 miles above the ground. So, you know, the closer to a wireless tower, the better your mobile connection is going to be. The same principle applies to satellite. The satellites are just a lot closer to the earth. Faster speeds, lower latency. Unfortunately, stargazing might get weirder. You might see a lot more shooting stars than there actually are. I don't know. We'll have to see.

Reynolds: All right. With that upside for satellite, as you've mentioned throughout this conversation, fixed wireless is the growth engine at the moment.

Fletcher: Yeah, and going forward, to your question, it's all about spectrum and the big wireless operators — in particular, AT&T, Verizon and T-Mobile — they're not going to do anything that jeopardizes their existing mobile phone business. It's a very lucrative business. They've done it forever. So they're being very selective about where they roll out fixed wireless. And that's going to remain the case going forward. In fact, just [the other] week, T-Mobile announced the data cap of 1.2 terabytes per month for their fixed wireless customers. And I think that's plenty. If you think about our home, we stream everything, and Comcast says these broadband only homes are using about 700 megabits per month to go stream crazy. So 1.2 terabytes is not a bad cap. They're going to be keeping an eye on that spectrum, but I think on the other side of it is, technologies are going to improve and compressions will improve and they'll be more efficient about it. But that's the No. 1 thing facing fixed wireless is growth over the next decade.

Reynolds: All right. As you mentioned, cable has been the long-time leader in this space. Kagan projects they're going to be losing share over the course. Can you talk a little bit about that? And maybe some of the opportunities they have to build business in other aspects?

Fletcher: Yeah, they're definitely going to be losing some share to fixed wireless and satellite, or at least that's how we forecast things going out. And there's other opportunities for cable. There's B2B commercial broadband businesses that generally have higher margins because we may pay $65 a month for broadband, but businesses pay more like $200, $250 a month for broadband. So of course you're going to get a little bit better margin out of that, but yeah, as we close that digital divide, it's going to be a lot of fixed wireless, but there are other opportunities for these companies, for sure.

Reynolds: Have the Comcasts and the Charters and the Coxes — I know they've been going after business for a while — but is there still a lot of growth there to tap?

Fletcher: I think there is, especially as we close the digital divide. How many rural businesses are going to emerge over the next decade that we didn't see coming? It's still the third or fourth inning with the broadband economy, and so I think a lot more growth in small and medium-sized businesses. It's definitely coming; Americans are very entrepreneurial. And we think that's going to carry forward throughout the next decade.

Reynolds: Yeah. In the sense that I think the narrative long term has been cable guys or video providers that was their original revenue stream. Then they moved into broadband where the margins are much higher, and some of the smaller guys have moved away from video entirely with the idea that if streaming is taking over, you need good broadband, you need speed and reliable quality in order to watch Netflix Inc. or whoever the provider may be.

Fletcher: Yeah, that's right. And a lot of the smaller operators, as they turn off their video services on their coax, they get more throughput for their broadband. So it works well for them to say, "Hey, why don't you guys just go to YouTube TV or go to Netflix, go do what you want. We'll be the big fat pipe." And as their legacy, traditional multichannel businesses shrink, they get a little bit more capacity to improve their broadband speeds. Yes, absolutely.

Reynolds: How about on the mobile side? I know that Charter and Comcast — they've upped their investment in the mobile arena in the last few years.

Fletcher: Yeah. It's a weird track record with cable operators and mobile. I was very skeptical, but they've crushed it. Comcast, Altice USA Inc., Charter — they all have really successful mobile businesses, and the big reason why they're doing that is not only to increase revenue, but the more things that they can attach to a customer's bill, the less likely that customer is going to cancel. So ultimately, adding more things to that bill as people abandon traditional video, we can add mobile, then that becomes a more loyal customer over time and keeps their churn rates down. So it's a broader picture for them: Offering more services helps them retain customers over time.

Reynolds: So the triple play has a lot of value both for acquisition and retention.

Fletcher: Yeah, exactly. The cable operators love bundling mobile and broadband. And mobile is pretty saturated. Pretty much everyone over four years old or under a hundred — they've got mobile phones. We all have them. They [cable companies] are going to be stealing more customers from the big wireless carriers, which is karma because wireless carriers are stealing broadband customers from the cable operators right now. So it goes back around.

Reynolds: All right. A little back and forth there. John, as you look at the landscape here, broadband, multiplatform distribution, anything in '24 that might surprise us?

Fletcher: I think just a steady growth in fixed wireless and more of a flat line for the cable operators. We do a lot of 10-year projections here, and I was thinking last night if we did a 30-year projection, I really do think that the majority of broadband customers are going to be using fiber. If you think about what telco operators did with DSL and the old timey telephone wires — the wall phones that my kids don't understand still, I keep trying to explain to them what this was — they put the DSL on it and then they said we need to run a fiber line in parallel with this copper line. I can see the cable operators doing something like that over the next 30 years, just ripping and replacing with fiber. A lot of the wireless internet service providers also, they definitely have the majority of their business being in a wireless. But as they grow, they run fiber networks out for a backhaul. And as that grows, they say, "Hey, actually we can connect this home with just a direct fiber line." So I could see a scenario over the longer term where fiber really becomes the Rolls Royce meets Lamborghini of broadband. And if you think about the technology behind fiber, it's light. How are you going to get faster than light? So I don't know what else is after that, but we'll see. Humans are always creating interesting, new things. So I'm sure something will happen in the next 30 years that no one thought of to really blow out the broadband. We'll just have to wait and see.

Reynolds: John, I'll ring you up in 30 years, whether I'm still on orbit earth or 100 miles high in the other place, hopefully, and we'll see where we are there.

Fletcher: Yeah, someone's going to have to float around in the sky and take these satellites out of commission. So there's going to be a satellite garbage business that pops up over the next 10 years.

Reynolds: That's a new industry. There you go. All right. That concludes this episode of MediaTalk. I just want to thank John for spending a lot of time talking about Kagan's data, the broadband industry and maybe some things that are perhaps pie in the sky. Anyway, John, thank you very much.

Fletcher: My pleasure. Take care, Mike.

Reynolds: This is Mike Reynolds and thanks to all of you for listening. We'll catch up soon on the next edition of MediaTalk.