At Verizon's (VZ -0.85%) Investor Day earlier this month, management laid out plans to expand its home broadband subscriber base from 6.5 million to about 11 million by 2025. Most of that growth will come from the expansion of its fixed wireless access (FWA) service, which uses its 5G network to deliver home internet. Meanwhile, T-Mobile (TMUS -0.02%) is aiming to add around 7 million more subscribers to its FWA service in the same time frame.
Combined, 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 (CMCSA -0.79%) and Charter Communications (CHTR 0.26%) won't go down without a fight.
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Stealing customers from the cable giants
Comcast and Charter account for nearly 60% of all home broadband subscribers in the United States. What's more, they're still gaining market share, accounting for more than 70% of net subscriber additions in 2021.
In order for both Verizon and T-Mobile to reach their long-term outlooks, they'll need to switch places with Comcast and Charter over the next few years. That likely means eating into the two dominant service providers' customer base.
To that end, T-Mobile has seen strong early results. During the company's fourth-quarter earnings call, its VP of Emerging Products said "the majority of our [home internet] customers are coming from suburban and urban areas." T-Mobile management previously expected a larger percentage to come from rural markets, where cable companies don't cover as many households. Similarly, during his fourth-quarter earnings call with analysts, CEO Hans Vestberg said, "These customers are coming from basically cable and DSL areas where they are using that."
Indeed, Comcast's and Charter's net additions to their residential broadband services both fell in the back half of 2021 compared to 2019.
Expanding the market
Investors may see adoption for Verizon and T-Mobile's FWA services accelerate over the four-year outlook period as they both expand the coverage of their 5G networks. The biggest opportunity for the two wireless carriers is in rural markets, where existing high-speed internet options are extremely limited.
But it will take some time for T-Mobile and Verizon to build out their networks in rural markets. The carriers attack the low-hanging fruit of densely populated urban and suburban markets before expanding coverage to rural areas. T-Mobile is hoping to expand from covering 200 million people with its 5G network today to 300 million by 2023. Verizon is further behind but expects to be able to market its FWA service to 50 million homes by 2025. Both companies say they need single-digit penetration rates for FWA in order to meet their long-term outlooks.
The rural market will be key for T-Mobile and Verizon to meet their goals. The current market has added an average of around 3 million net subscribers every year, and it's only getting more saturated over time. T-Mobile and Verizon would practically have to take 100% of all net additions in order to meet their goals if that doesn't change.
T-Mobile may have an advantage in rural markets since it's ahead of Verizon on its 5G network build-out. But Verizon has stronger brand recognition and adoption in those markets. T-Mobile may be able to overcome Verizon's brand with a bigger marketing push as it also has a lot to gain in rural markets.
Still, the two wireless carriers will need to knock the cable giants down a peg in order to reach their goals. And while they're starting to see some cracks in the armor, it remains to be seen that they can win significant shares in the markets where cable dominates.
