Are service providers too focused on speed?

Omdia predicts that the North American digital home market will be worth $632 billion by 2028, with fixed broadband maintaining its position as the biggest market sector at an estimated value of $128 billion by 2028. Despite heavy saturation in the market, Omdia still expects subscriptions to grow, predicting an increase from 144 million in 2023 to 160 million in 2028. In the same time span, residential broadband penetration in the North American market is expected to reach 97%, up from 92%, and fiber and fixed wireless access (FWA) will be the fastest-growing access technologies.

“We also see that the average advertised speed that these households subscribe to will grow from 588 Mbps in 2023 to 1.4 Gbps in 2028,” said Fellenbaum. “If we focus specifically on the speeds, we can see that the number of households subscribing to home broadband services with speeds higher than 1 Gbps is growing rapidly in the North American market, from 15 million in 2021 to 53 million in 2024, and then further to 79 million by 2028, when gigabyte households will account for over half of connected households in the region.”

Providers, she says, have long used speed tiers and discounts to differentiate their offerings in a competitive market, but this could lead to a race to the bottom.

“If service providers are not careful, they will get dragged into a promotional frenzy that can see them offering premium fees for only marginal price increases, and that’s something that we actually see across the world,” she said.

What to do about ARPU

Omdia took data from seventy countries over five years and found that service providers have not been able to grow ARPU at the same rate that speeds are increasing.

“On average, the actual global speed offered has increased by more than 950%,” said Fellenbaum, “but the actual ARPU reduced by 26%.”

China, she reported, has seen average speeds increase by more than 4000%, while ARPU fell by 23%. In the United States, speeds grew by over 500%, while ARPU increased by only 20%.

Fellenbaum said that the gap between speed and ARPU growth is the result of service providers focusing almost exclusively on broadband speed and price: to stay competitive, providers offered more speed for the same or reduced rates.

To avoid falling into this cycle, Omdia suggests service providers increase their focus on quality of service and experience. In the North American market specifically, Omdia found that consumers are concerned with speed but place a higher value on a reliable and consistent connection along with efficient and high-quality customer support.

“If service providers can turn their attention to providing and marketing an overall superior quality of broadband service that meets all of these requirements, they will be able to capture greater market share and also convince many customers to pay more,” said Fellenbaum. “And the primary place where service providers can do all of this is in the home network.”

The need for more than speed

A Parks Associates report from earlier this year found that, in 2023, the average home had 17 connected devices. According to the report, 89% of U.S. internet households have a video streaming service, 66% have a smart TV, 42% have at least one smart home device, 39% have a smart watch, and 31% have a security system. All these devices, connected concurrently, can strain the home network.

“If neglected, the home network can become a real pain point which will not be entirely solved by fiber deployment because fiber only targets bandwidth issues up to the point of the home,” said Fellenbaum. “If the home network is not properly managed, it will become the bottleneck and an issue for service providers because they will still get blamed for services and devices not working properly in the home.”

Fellenbaum suggests that, in addition to providing appropriate hardware, service providers should also implement smart management software that can allow them to detect and intercept issues before they impact the customer.

“From our research and speaking with some service providers that have actually implemented smart Wi-Fi management platforms, we can see that they’ve experienced major improvements in operational performance, such as reduction of setup calls by up to 60%, reduction in customer support calls by up to 30%, and fewer engineering visits, which were down by up to 30%,” said Fellenbaum. “This, in turn, leads to higher Net Promotor Scores (NPS), can specifically impact the churn reduction by 12-30%, and can also lead to ARPU increase.”

According to Fellenbaum, the quality of experience and services can drive incremental revenues. She said there are also opportunities through personalization, offering plans and services that are tailored to the specific needs of different customer groups.

“Rather than just focusing on pure speed offering, targeting users based on their user preference, based on what they do, based on their personas, can help,” she said. “So, we can talk about lower latency for gamers and dedicated Wi-Fi traffic streams for home workers. Families will appreciate parental controls and more cybersecurity for their kids. If someone is an online entertainment buff and wants the highest quality video, that can also be tailored and prioritized. And for social media users, upload speed boosts, for example, are another way of monetizing and offering a value-added service.”