David Gray
January 27, 2025
In 2024, U.S. existing-home sales fell to their lowest level since 1995, driven by persistently high mortgage rates ranging from 6% to 8% and record-breaking home prices that made purchases unattainable for many buyers. Despite a slight uptick in sales toward the end of the year, overall activity remained subdued, with inventory shortages and rising property costs further exacerbating the slowdown. The outlook for 2025 remains uncertain, hinging largely on whether mortgage rates can decline from their current elevated levels. (WSJ: U.S. Homes Sales in 2024 Fell to Lowest Level in Nearly 30 Years, Nichole Friedman, 1/24/25)
Moreover, new household formation has slowed and is projected to remain subdued for the foreseeable future. According to Harvard University's Joint Center for Housing Studies (JCHS), the U.S. is expected to add 8.6 million new households between 2025 and 2035—signifying a notably slower growth rate than in the past three decades. This deceleration is attributed to an aging population, declining birth rates, and uncertain immigration patterns. (https://www.jchs.harvard.edu) Similarly, the National Association of Home Builders (NAHB) highlights these factors as contributors to declining housing demand, with annual new housing unit demand expected to drop from 1.4 million to 1.1 million during the same period. (https://www.nahb.org)
One key downstream effect of these trends is the impact on the residential broadband market. Historically, the two primary drivers of broadband growth have been new household formation and increased penetration in existing passings. Regardless of market-level share shifts between competitive providers at the market level, a slowdown in new household formation diminishes growth upside across the entire industry. In periods of robust housing market expansion, broadband providers benefit from a strong tailwind. However, in the absence of such growth, providers must innovate and adapt to sustain momentum.
Current broadband market dynamics continue to evolve. Over the past two years, cable operators experienced net broadband subscriber losses. Yet, with the negative effects of the ACP program expiration now behind them and the growing success of bundled broadband and mobile services, cable’s losses are expected to moderate in 2025. Fixed Wireless Access (FWA), which emerged as a disruptive player in 2020, captured significant market share for several years, but its net impact declined materially in 2023 and 2024. Similarly, FTTH providers have also seen slowed growth; according to Craig Moffett, telco and independent fiber operators in Q3 2024 reported the lowest subscriber growth since 2016 (source: MoffettNathanson Research: U.S. Cable and Telecom: Broadband 2025, January 16, 2025). While fiber deployment continues at a rapid pace, most high-density markets have already been overbuilt, leaving primarily lower-density markets with higher costs per passing (and less opportunity per mile).
In the absence of strong tailwinds from new household formation, coupled with rising costs and other market pressures, broadband service providers must sharpen their Go-to-Market strategies and execution to ensure their programs deliver results. Do you have a robust (and current) understanding of your competitors? What are your potential vulnerabilities and what are you doing about them? Are your direct marketing programs optimized and meeting connect volume goals? What steps are you taking to mitigate sales leakage? Is consumer awareness of your brand and products sufficient? Are penetration rates in new build areas consistent across projects, or are some lagging behind? Is your direct sales program driving incremental growth, or is it simply contributing to churn and wasting precious resources? Are some business challenges taking a disproportionate amount of time and resources to diagnose and resolve?
To succeed, broadband service providers—and the digital infrastructure private equity firms backing them—must aggressively focus on driving profitable growth while reducing the cost of revenue. These challenges are certainly not new, but in a market marked by decelerating growth and intensifying competition, addressing them effectively is more critical than ever.
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