Broadband companies added 1,065,000 net new subscribers in the first quarter, according to data collected by Leichtman Research. And while there are dozens of home internet providers, just four companies accounted for over 94% of all subscriber additions.
Three of them -- Comcast (CMCSA -0.52%), Charter (CHTR 0.46%), and Verizon (VZ 2.85%) -- have been in the industry for years. But one newcomer is leading the industry in net additions: T-Mobile (TMUS 0.55%).
Offering customers the best value
Cable companies stand at a technological advantage to phone companies in delivering high-speed internet to customers' homes. Cable has more bandwidth than a phone line, so they can deliver higher speeds than DSL.
While phone companies have built out fiber-optic networks, allowing for even faster speeds, they can be expensive, and those costs are passed to the consumer. Nonetheless, fiber connections are proving popular but merely offset losses from DSL and other legacy phone connections.
It's worth noting that even among cable companies, Comcast and Charter are doing better than most at adding new subscribers, even accounting for the smaller addressable markets of other cable providers. The outsized results of the two larger companies may be due to scale, which allows them to spend more on marketing and promotion.
But the introduction of fixed wireless broadband from T-Mobile and Verizon provides another competitive option to cable. These services rely on excess bandwidth on the companies' 5G networks to deliver internet service to hotspots inside people's homes. The marginal cost for the wireless carriers is minimal so that they can price competitively. That said, the service does have the potential to diminish with network congestion.
Fixed wireless also holds the potential to provide a high-speed internet option in markets where cable companies don't. As the carriers build out their 5G networks to cover rural markets, it could provide the only option for some customers to get the high-speed connections many urban and suburban households take for granted.
Data source: Leichtman Research. Calculations by author. Chart by author.
As a result, consumers are flocking to just four companies when selecting a home internet service provider. And while cable and fixed wireless ought to continue producing the vast majority of gains for the foreseeable future, investors need to be aware of how the latter is impacting the former.
Taking a share of net additions
While the two cable giants continue to add subscribers, the number they're adding dropped significantly over the past year in the first quarter. The top cable companies had half as many net additions in the first quarter of 2022 as they did in the first quarter of 2021. And first quarter 2021 additions were down 24% from 2020.
Data source: Leichtman Research, T-Mobile. Chart by author.
Indeed, fixed wireless is taking a growing share of net additions. T-Mobile's net additions have grown increasingly more every quarter since it started offering the service nationwide. That's partially due to the company rapidly expanding its 5G network, which covered 200 million people by the end of 2021. Management expects it to reach 300 million by the end of 2023. It's also been extremely aggressive in getting customers to sign up for home internet.
Investors should expect fixed wireless service from T-Mobile and Verizon to continue growing the number of net additions every year as they expand their coverage. However, they may hit a wall at some point as network capacity becomes an issue. That's a problem that doesn't apply to the cable companies.
It won't be a surprise if the cable giants see a significant drop in net additions over the next few years, possibly even turning negative. Many of their broadband connections rely on the bundle, and as more people cut the cord on video subscriptions, they may opt to shop around for broadband service.
