Is there room for Verizon and T-Mobile in the home Internet?

at Verizon‘s (NYSE: VZ) Investor Day earlier this month, the administration laid out plans to expand the home broadband subscriber base from 6.5 million to about 11 million by 2025. Most of that growth will come from expansion of fixed wireless access (FWA), which uses 5G. Network to connect the Internet to the home. at the same time, T-Mobile (NASDAQ: TMUS) It aims to add about 7 million subscribers to the FWA service in the same time frame.

Together, the two will look to add more home internet subscribers over the next four years as the entire industry did from 2016 through 2019. And cable competitors Comcast (NASDAQ: CMCSA) And the charter Communications (NASDAQ: CHTR) You won’t go down without a fight.

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Stealing customers from cable giants

Comcast and Charter represent nearly 60% of all home broadband subscribers in the United States. Moreover, they are still gaining market share, accounting for more than 70% of net subscriber additions in 2021.

For Verizon and T-Mobile to reach their long-term horizons, they will need to switch places with Comcast and Charter over the next few years. That would likely mean devouring the dominant service providers’ customer base.

To that end, T-Mobile has seen solid early results. During the company’s fourth-quarter earnings call, the VP of Emerging Products said, “The majority of our business [home internet] Customers come from suburban and urban areas.” T-Mobile management previously expected a larger proportion to come from rural markets, where cable companies do not cover many households. Similarly, during a fourth-quarter earnings call with analysts, CEO Hans Vestberg said, “These customers They mainly come from the cable and DSL areas where they use that.”

In fact, Comcast and Charter net additions to residential broadband services declined in the back half of 2021 compared to 2019.

market expansion

Investors may see adoption of Verizon and T-Mobile’s FWA services accelerate over the four-year forecast period as both expand coverage of their 5G networks. The biggest opportunity for the two wireless carriers is in rural markets, where current high-speed Internet options are very limited.

But it will take some time for T-Mobile and Verizon to build their networks in rural markets. Carriers attack low-hanging fruit for densely populated urban and suburban markets before extending coverage to rural areas. T-Mobile hopes to expand from 200 million people with its 5G network today to 300 million by 2023. Verizon has delayed further but expects to be able to commercialize its FWA service to 50 million homes by 2025. The two companies say they Need one FWA’s digital penetration rate in order to meet their long-term expectations.

The rural market will be key for T-Mobile and Verizon to achieve their goals. The current market has added an average of about 3 million net subscribers each year, and it is getting saturated with time. T-Mobile and Verizon will practically have to get 100% of all net add-ons in order to meet their goals if that doesn’t change.

T-Mobile may have an advantage in rural markets as it is ahead of Verizon in building a 5G network. But Verizon has stronger brand recognition and adoption in those markets. T-Mobile may be able to beat the Verizon brand with a bigger marketing shove as it has a lot to gain in rural markets.

However, the two wireless carriers will need to hit the cable giants in a bind in order to reach their goals. And while they are starting to see some cracks in the shield, it remains to be seen that they can win significant shares in markets where cable dominates.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.