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MSOs Face a Complex 5G Market

The next major cycle of wireless upgrades has launched with 5G, so it’s important now to look at the increasing role Multiple System Operators (MSOs) such as Comcast or Cox are seeking to play, both as transport providers and as wireless operators themselves.

Looking first at the transport opportunity, MSOs see significant value in using their broadly deployed DOCSIS-based transport network to serve incumbent wireless operator X-haul needs. This opportunity will grow significantly, estimated at $60B by 2025, as 5G networks using small cells are rolled out and edge computing is deployed.

However, there has been a big tech issue regarding timing requirements. Mobile networks are synchronous, requiring sharing of a common clock. They use either GNSS for outdoor cells or PTP (IEEE 1588–2008) for small cells or indoor radios. The problem: DOCSIS, being asymmetrical, was not designed to handle these capabilities, and also needs better latency performance for many new 5G use cases.

CableLabs released a final Low Latency Xhaul spec (Version I02) in June 2020, which requires no hardware change for implementation. The synchronization specification has just been finalized last week, enabling vendors to begin providing products meeting this spec. This release has good timing with 5G transport ramping up over the next 12 to 24 months.

To see why, let’s look at the initial rollout by 5G providers in the US. All three major providers (post-T-Mobile Sprint merger) launched initial 5G deployment programs with decidedly mixed results. Piggybacking on LTE, via NSA 5G cores with dynamic spectrum sharing, has enabled a quick and broad rollout of 5G, but with performance for mobile broadband only comparable to LTE. Coupled with a lack of 5G iPhones until very recently, this has left many mobile users unimpressed or uninterested.

At the other end of the spectrum (pun intended) the launch of mmWave-based services such as Verizon‘s Ultra Wideband 5G delivers blazing fast speeds but has minuscule coverage to date.

This means that for 5G mobile broadband today, despite the massive marketing push, users can either get what they don’t want or not get what they want.

The next step for all the players involves using mid-band spectrum, the sweet spot between speed and coverage, to provide a superior product for broadband mobility that will be widely available over a reasonable time period.

T-Mobile, having acquired mid-band spectrum from the Sprint acquisition, is leading the rollout charge. To keep up, AT&T and Verizon spent a combined $69B at the FCCs recent C Band spectrum auction, some of which will be available for use by the end of this year but much of which will not be available until 2023, once the current satellite users are relocated.

At the same time, all carriers need to make the shift to a cloud-native standalone 5G core to target expected new markets in the enterprise via network slicing. A major part of this process will be the significant deployment of edge computing. This combination of new mid-band and mmWave cell sites, plus edge computing deployment, will open up a massive market for back-haul, mid-haul, and forward-haul transport over the next two or three years, giving the MSOs a good shot at taking a large piece of this business.

A second and equally interesting play for the MSOs is to build on their initial mobility offerings, especially during this transition to 5G.

Comcast and Charter entered the mobility market in 2017 and 2018 respectively selling within their own existing territories, as a Mobile Virtual Network Operator (MVNO) using Verizon‘s network. This was based on a 2012 agreement that sold spectrum owned by several MSOs to Verizon for $3.9B.

As linear broadband has felt more and more pressure from the shift to streaming services, broadband has emerged as the most important part of the service set for all MSOs.

As such, MSOs mobility offerings are primarily a way of building broad loyalty and hence reducing broadband churn. This is similar to the role played by home security, mesh Wi-Fi, giveaway products like Flex, and an embrace of competitive streaming services within their whole home gateways.

Last quarter, Comcast added 246K wireless lines to bring their total base to 2.8M lines. They generated $505M in revenue (only 3% of cable revenue) and lost $60M in income so it’s a small part of their business. Comcast has lost about $2B on mobility since its launch. Stats for Charter are similar.

On their 4Q20 earnings call, Comcast executives did highlight mobility as a strategic priority, however, and pointed to three recent actions which will help future growth, namely a new deal with Verizon on their MVNO, full integration of mobile into core operations, and full engagement by all sales channels.

Another MSO, Altice, entered the market in 2019 with MVNO deals from AT&T and Sprint (now T-Mobile). They also deployed 16,000 small cells in partnership with Sprint. They offer mobility services outside their territory, although at a higher price,

Cox Communications was an early pioneer in 3G mobility, partnering with Sprint Nextel in 2011, but abandoning it. Recently Cox has been showing strong interest in entering the market again as an MVNO, but currently has no offers.

For all MSOs, their strength in in-home Wi-Fi and Wi-Fi hotspots serves them well, and will further strengthen as Wi-Fi 6 rolls out. A mobility play also blunts the effectiveness of a bundled Fixed Wireless Access offer from the major wireless operators.

A next step for the MSOs in the mobility space is also underway. It involves building their own limited infrastructure to utilize CBRS. This mid-band spectrum was auctioned by the FCC on a local rather than national basis in August 2020 for $4.5B. The two biggest bidders were Verizon and Dish Wireless, but the number three, four, and five bidders were all MSOs. Charter spent $465M for 210 licenses, Comcast spent $459M for 830 licenses, and Cox spent $210M for 470 licenses. These licenses will allow these MSOs to build their own infrastructure in the dense urban parts of their networks, minimizing the MVNO fees they need to pay.

Another FCC auction will take place in October for 100MHz of national mid-band spectrum, expected to be sold at a significant discount to the recent C Band auction. It will be interesting to see if the MSOs participate, moving more deeply toward a viable, sustainable long-term mobility play.

The MSOs have had outstanding success with their DOCSIS-based data offering, achieving the dominant market share in consumer broadband. This gives them both the platform and coverage needed to be a major 5G transport supplier. Whether they now take the next step to move their own mobility programs beyond a tactical play remains to be seen.

Paul Connolly, Entropy Leader

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