Takeaways: The strike contributed but fundamental problems remain. They have been cutting capex since 2007 and they no longer have a major edge in quality. VZ is and will be a very profitable company, but maybe not worth $200B. Wireless data growth is way down (< 40%) as I've been forecasting for several years. 5G Highband will start rolling for fixed wireless in 2018, but probably slowly. It will not add to earnings until well into next decade. The CFO forecasts very slow revenue growth. McAdam thinks best quality, video and IoT growth, and large content revenue will solve these problems. I raise doubts.
China is now 1/3rd of the broadband Internet. Over 240M are now connected by fiber home. The 3M added by CM in June was more than the entire rest of the world. It surpassed the previously monthly record, 2.65M at CM in March. China Telecom added 590,000, China Unicom 250,000, and China Mobile 3,189,000, for a total net gain over 4M.
China Telecom's landline broadband total is 118M, Unicom 74M and Mobile 66M. Add about 20M for the smaller operators and the total is 278M. That's more than the EU 28 (166M) combined with the U.S. (103M). Nearly all are on fiber home or fiber/DSL. In two years, almost 100M have shifted from pure DSL to fiber.
LTE in China in July reached 600M LTE subscriptions.
Windstream, Fairpoint watch out. T plans 3M lines of fiber to the premises (including G.fast) each of the next four years, expecting to get to 20-25% of their territory. Some of them will be "out of territory," including some of the ~2M homes they have reached with fiber already. I can't recall either AT&T (almost half the U.S.) or Verizon (about a quarter) expanding this way in the last decade.
AT&T, France Telecom, and Telefonica have discovered that fiber costs are down in favorable locations. Google Kansas City has proven fiber can be profitable, including pulling many customers from AT&T. Fiber in some places can be run for < $500/home; in others, the cost is $4,000-$5,000. It's a great business if you can cherry pick areas with low costs and weak competition.
That's exactly what AT&T is doing,
Sharon White can raise Internet speeds across Britain by 100 megabits with smart policy. British Telecom, Vodafone, Sky, and TalkTalk would all benefit if White gets this one right. More important, the Brits get a much better Internet. The only losers would be John Malone's cableco and the now outdated policy for sharing of the binder. (BT has promised 10M lines of G.fast at speeds of 200-800 megabits. My examples here are from Britain, but other countries will face similar issues.)
Competition doesn't have to die. It does have to move from the cable to the exchange. Unbundling was a great idea in 2000 and is the main reason European broadband is 30-70% cheaper than American and Canadian. The 25 or 50 twisted pairs that run together from the exchange could be split between several carriers and performance was unaffected.
Future competition will require BT's local loop monopoly to hand off to others at the local exchange at the right price. The "right price" would include a profit proportionate to the investment. BT would be welcome to recover costs plus a profit; regulated prices would prevent exploitation of the monopoly.
That was the near-ubiquitous model for unbundling until recently. Currently in the EU, monopolies are being allowed to charge far more, after Kroes and Richards were blinded by a lobbying campaign brilliantly orchestrated by Luigi Gambardella.
Outside of China, the entire industry may have been negative for years. I knew the chip business was struggling but this chart is startling. For the last five years, growth has been only ~3%. For the last ten, only ~4%. After inflation, everything stagnant.
For 2016, the new forecast is -2.4%, with the largest drop in the Americas. They forecast +2% in each of 2017 & 2018.
China has committed $60B plus to the domestic chip industry and is sure to take market share. Including Taiwan, that's the industry future. There are virtually no interesting chip startups in the U.S. The San Jose area continues booming with Google, Facebook and software/web companies but no hardware.
Silicon Valley is dying.
U.S. & Canada fixed 2016 +22%, 2020 +15%. The 2016 growth in U.S. & Canada mobile data looks to be 49%; the 2020 prediction is 38%. The VNI sees a major slowdown in both fixed and wireless growth around the world. Cisco estimates 2016 worldwide mobile growth to be 68%. They expect that to fall to 41% in 2020 when most people will have smartphones. Remember the world turns so no five-year forecast is certain.
Check the chart below and extremely rich data here and here. There's so much information I could spend a week in the analysis and still not catch all the inferences. Accuracy can't be perfect but they are clearly the best in the business.
The 100% mobile growth was an artifact, driven by people first getting smartphones. The average smartphone user is increasing data usage ~40%/year, per AT&T.
Careful: Shortage fears can lead to over-ordering and create a real shortage. Unless people panic, the problem is unlikely to be more than a few weeks delay in an order. Tan's comment in the financial call ("We're also working on resolving a few potential supply constraints in this particular segment." Details below) is likely circulating in the industry, and this article might. The instinctive action is to panic and double order, which is a pattern we see in chips on a regular basis.
Broadcom is the largest supplier of chips for both DSL & cable. The comment surprised me because the primary foundry, TSMC, is missing sales targets and generally has capacity. I haven't seen any huge increase in demand for broadband chips. Broadband subscriber growth in Europe and the United States is modest. Liberty Global is just getting started on increasing their cable coverage. Deutsche Telekom is two years behind schedule on it's big vector expansion.
China added an unbelievable 50M fiber connections in 2015 and Hock says that trend is continuing.
March's 2.65M new subscribers at China Mobile is almost certainly a broadband record. I don't remember anything close. I checked 10 years of data from China Telecom, by far the world's largest broadband provider and didn't find a peer. Most of them are on fiber. China Mobile consolidated wireline subsidiary China Tietong and now is going full speed ahead. China Telecom added 3m to 116M; China Unicom 1.1M to 73M. Add 18M cable modems and a few small players and the current Chinese subscriber base is over 270M.
Most new Chinese connections are on fiber: China added 50M fiber subs in 2015 and entered 2016 with 130M fibered. China Mobile consolidated wireline subsidiary China Tietong and now is going full speed ahead. With 800M mobile customers, they have plenty of prospects.
Update 7/22 Removed total of fiber customers. Looking at new data, I'm not sure how many are fiber home and how many fiber/DSL and didn't want to provide a figure.