Will Comcast (NASDAQ: CMCSA), Cablevision (NYSE: CVC), Google (NASDAQ: GOOG) and other companies take a "Wi-Fi first" approach to compete with traditional wireless carriers on a large scale across the U.S.? Probably not, according to BTIG analyst Walter Piecyk.
MVNOs and MSOs are taking more of a liking to using Wi-Fi as the primary means of connectivity and falling back to cellular only when Wi-Fi is not available. Some, like Cablevision's Freewheel service, rely solely on Wi-Fi. Google's forthcoming MVNO will reportedly flit between Wi-Fi networks and the networks of Sprint (NYSE: S) and T-Mobile US (NYSE:TMUS), depending on which one provides the best signal.
The Wi-Fi-first movement "has gained a lot of proponents, but it's debatable whether cable operators can offload enough traffic to enable a viable strategy," Piecyk wrote. Indeed, he noted that Telenet, which is 57 percent owned by Liberty Global, has one of most successful Wi-Fi-first strategies, with nearly 1 million customers and over 20 percent EBITDA margins. The company has deployed more than 2,000 carrier-grade Wi-Fi hotspots in Flanders, and it signed an MVNO deal with Mobistar for usage outside of these Wi-Fi hotspots.
Despite the success of that strategy, Telenet decided to buy KPN's Belgian mobile unit BASE for $1.42 billion (€1.325 billion). "As we will gain owner economics in mobile, this transaction will allow us to continue to meet changing customer demands," Telenet CEO John Porter said yesterday on a call with investors, according to BTIG. "By acquiring Base we will have more control over future investments and product innovation and will be less exposed to variable data costs, giving us increased long-term financial certainty."
Piecyk wrote that the BASE deal "could provide an early warning to cable operators in the United States that believe they can rely on" a Wi-Fi-first or Wi-Fi-only strategy. He noted that achieving a robust Wi-Fi footprint is a bigger challenge in the United States than Europe because the United States is so much bigger geographically.
"We believe that American consumers have a greater expectation and willingness to consume data in broader geographic areas, largely because they have purchased data in large buckets from the beginning," Piecyk wrote. "Conversely, the European customer, which has a high mix of prepaid users, has historically had their usage metered, whether for voice or data usage. Vodafone, with its Red plans, and other operators are trying to shift customers to data buckets to stimulate higher usage, but searching for available hotspots might always be a consumer activity more common in Europe than the United States."
If a Wi-Fi-first model does not satisfy the goals of Comcast or Google, Piecyk wrote, "an acquisition of T-Mobile or Sprint might be an alternative solution."
"We recently downgraded Sprint over confusion about its strategy, but we can't rule out SoftBank's CEO Masa Son's willingness to sell what has been a disappointing investment," Piecyk added. "Masa might also be frustrated with his inability to purchase T-Mobile based on the pushback by regulators. We are well aware of Masa's 300-year plan and the great respect that investors have for him, but we would still not rule out Sprint's sale. Conversely, an acquisition of T-Mobile would immediately put a focus on Dish, which owns the additional spectrum that would be of intense interest to any large cash buyer of T-Mobile."
- see this BTIG post (reg. req.)
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