Can 4G wireless take on traditional broadband?

Clearwire says half of its subscribers are using the 4G wireless service as a replacement for broadband. Could 4G wireless be the long sought-after third competitor to broadband?

The 4G revolution in wireless won't just make Web surfing on your mobile phone faster; it could help you say good-bye to traditional cable and DSL broadband.

Clearwire's 4G WiMax service , currently the only 4G wireless service on the market, offers average download speeds between 3Mbps and 6Mbps, which are comparable with many DSL and cable modem services on the market.

4G wireless graphic

As a result, consumers in the 27 markets where Clearwire currently offers service now have another choice for their broadband service. And many are deciding to ditch cable and DSL for 4G wireless.

Tim Elliott, who lives in Atlanta, is one of those customers. Ten months ago when Clearwire came to town, Elliott, who had subscribed to an AT&T DSL package, canceled his service and signed up.

Elliott said he was convinced to subscribe to the service because he got a free Netbook as part of a promotion. He added that he plans to stick with Clearwire even after his contract expires because he likes the convenience of having broadband anywhere. Even though he could have gotten free Wi-Fi access to any AT&T hot spot as part of his old AT&T DSL subscription, Elliott said the ubiquity of WiMax makes the service more valuable to him.

"I love being able to go anywhere in town with my laptop and not worry about finding a hot spot," he said.

"I love being able to go anywhere in town with my laptop and not worry about finding a hot spot."
--Tim Elliott, Clearwire subscriber

Elliott isn't the only subscriber who has decided to cancel his existing broadband service for Clearwire's 4G wireless service. In fact, Clearwire's chief commercial officer, Mike Sievert, said during the company's fourth-quarter 2009 earnings call last month that roughly half of the company's subscribers are using its new Clear brand 4G wireless broadband service as a replacement for DSL and cable modem services.

Sievert's comments are the first indication that 4G wireless could actually compete in the duopolistic broadband market. Wireless executives at this week's CTIA trade show in Las Vegas may downplay this fact as they tout new mobile devices for 4G. But as 4G wireless speeds continue to match speeds for traditional broadband, 4G wireless will serve as a viable replacement for some consumers who are not interested in subscribing to a costly triple-play package of TV, phone, and Internet services.

Indeed, other 4G wireless services will offer similar speeds to those offered today from Clearwire. Verizon Wireless is building its own 4G network using a technology called LTE and is expected to launch the service in 25 to 30 markets by the end of the year. It claims that the average download speeds it has seen in its test networks are between 6Mbps and 12Mbps.

But Verizon and AT&T, which will test 4G LTE technology later this year, have been careful not to talk much about 4G wireless as a broadband replacement service. After all, these companies sell DSL services and they have each invested billions of dollars upgrading their wired networks to provide faster fiber-based services. Verizon has taken fiber all the way to the home with its Fios service. And AT&T has extended fiber to neighborhoods to boost high-speed Internet speeds.

Neither AT&T nor Verizon Wireless have talked about how they will price their 4G wireless services. There are some indications that the companies plan to implement usage-based pricing, which would likely discourage many people from using their 4G wireless services as a replacement for DSL.

But it's clear from the recently released National Broadband Plan that the Federal Communications Commission expects 4G wireless to be a broadband competitor. Today, about 95 percent of the U.S. population has access to at least one broadband provider, according to the FCC's report. About 13 percent have access to only one provider, while the vast majority, roughly 78 percent, have access to two providers, cable and DSL. Only 4 percent have access to three or more providers.

The FCC recognizes that broadband needs to be delivered not only to the 4 percent who don't have it, but also that more competition is needed in markets with only one provider. Even though two competitors are better than one or none at all, three could be even better, which is why many consumer groups have advocated for more competition even in markets with two suppliers.

The problem is that putting broadband infrastructure in the ground is expensive. And earlier attempts to force competition in the telecommunications market through regulation have not been successful.

Now it looks like the FCC has acknowledged that getting a "third wire" into the home is unlikely, and it has instead turned its attention to 4G wireless.

"Bringing down the cost of entry for a facilities-based wireline service may encourage new competitors to enter in a few areas, but it is unlikely to create several new facilities-based entrants competing across broad geographic areas," the National Broadband Plan says. "Bringing down the costs of entry and expansion in wireless broadband by facilitating access to spectrum, sites, and high-capacity backhaul may spur additional facilities based competition."

Aside from the economic drivers that make 4G wireless a good choice as a third competitor to traditional broadband, other factors will likely drive it in this direction.

Just as people fell in love with the idea of being able to talk on the phone wherever they were with a cell phone, it won't take long before people will also begin to appreciate accessing broadband anywhere and everywhere. Once mobile broadband becomes ubiquitous, it's easy to see how some of these people may decide to stop paying for two broadband services, much like many cell phone users decided to get rid of their home phones. In fact, 2009 marked the first time that cell phone households in the U.S. surpassed households that only had traditional phones.

"People first added cellular phone service to their monthly budgets because they wanted mobility," Sievert said. "We are starting to see the same thing in mobile broadband. People are attracted to the convenience, but they'll eventually realize they can consolidate services."

Spectrum of broadband options
This chart shows competitive pricing in the U.S. market for residential high-speed Internet access.
Slowest, cheapest Fastest, most expensive
AT&T DSL 768Kbps download/384Kbps upload, $20 6Mbps download/768Kbps upload, $40
AT&T U-verse 3Mbps download/ 1Mbps upload, $35 24Mbps download/3Mbps upload, $65
Cablevision 15Mbps download/2Mbps upload, $50 101Mbps download/15Mbps upload, $100
Clearwire 1.5Mbps download/500Kbps upload, $30* 6Mbps download/1Mbps upload, $40
Comcast 12Mbps download/2Mbps upload, $43 50Mbps download/10Mbps upload, $100
Cox 1Mbps download/256Kbps upload, $23 50Mbps download/5Mbps upload, $90 to $145**
Time Warner Cable 10Mbps download/512Kbps upload, $43 50Mbps download/5Mbps upload, $100
Verizon DSL 1Mbps download/384Kbps upload, $35 7.1Mbps download/768Kbps upload, $55
Verizon Fios 15Mbps download/5Mbps upload, $55 50Mbps download/20Mbps upload, $145
*This service comes with a 2GB-per-month usage cap.
**Pricing depends on promotion used.

Source: CNET research/provider data

The trend is seen first among young adults. Just as people under 30 were the first to ditch home phone service, they are also the first to use wireless-only broadband.

"Right now, substituting 4G wireless for regular broadband appeals mostly to young people who often live with roommates," Sievert said. "They want to be able to take their broadband anywhere."

To be fair, wireless-only broadband will not appeal to every consumer, especially ones who consume a lot of bandwidth. Because of the physical limitations of any wireless service, it will never keep pace with the super-fast speeds of services delivered on fiber networks. Therefore, 4G wireless will never satisfy the needs of the most bandwidth-hungry users.

That said, average users looking to reduce their overall monthly communications spending could see wireless broadband as an alternative to pricey triple-play packages that promise lower prices for broadband in exchange for subscribing to expensive TV packages and phone service.

But will 4G wireless networks help force down the price of their competitors? Maybe. If the FCC can successfully make 500MHz more bandwidth available in the next decade as they plan, new wireless companies may emerge, which could translate into three, four, five, or even six broadband competitors in any given market. This level of competition could finally force prices lower on broadband services for consumers.

Today, the market is a long way from major shifts in price. Currently, Clearwire's prices are competitive, but the company's not undercutting traditional broadband players by much if at all in some markets. In fact, its unlimited home service, which offers up to 6Mbps on downloads and 1Mbps on uploads, is priced comparably to AT&T's 6Mbps DSL service, which is also $40. Verizon, which offers a 7Mbps DSL service, charges $55 for the service. Meanwhile, cable operators typically offer faster speed connections for roughly the same price as the Clearwire service.

It's evident that Clearwire isn't looking to compete on price.

"There may be some people who subscribe to our service to save money," Sievert said. "But I don't think that's the main motivation. I think people like the convenience of the mobile experience."

One reason Clearwire may not be launching a price war could be that two of the nation's largest broadband providers are investors in Clearwire. Time Warner Cable and Comcast have each contributed billions of dollars to Clearwire to help the company complete its network. As part of the deal, they are reselling the 4G service as an add-on to their existing broadband customers.

Even without significant discounts for the Clearwire 4G wireless service, this still offers broadband subscribers a choice. In the second half of this year, even more consumers in cities such as New York, San Francisco, Boston, and Washington, D.C., will also have the option of ditching their cable modem or DSL providers to get broadband wirelessly. And for some people, a little bit of choice is better than no choices.

"It's nice to just be able to have a choice," said Elliott, who also admitted the Clearwire service costs almost as much and performed as well as his previous broadband service. "I guess it's the lesser of the other evils out there."

 

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