A new report from Sanford C. Bernstein analyst Craig Moffett questions whether U.S. cable MSOs can capitalize on offering wireless services as part of a bundle. He wonders if the cable operators can provide anything unique.
Of course his report comes just as cable operators are jumping into the wireless industry as a way to capitalize on its growth and keep their own customers. Cox will launch its own 3G network in 2009, while Comcast, Time Warner and Bright House, as part of their investment in Clearwire, have the option of buying network capacity from Clearwire to create their own service offerings.
I agree that if cable operators want to enter the highly competitive mobile market successfully, they have to come to market with something revolutionary or view wireless as a value-added feature for their existing customers. As such, Moffett likes Cablevision's WiFi strategy because it serves as a value-added service for its customers, and it's cheap to roll out. Moreover, Cablevision is pitted against Verizon in New York, and Verizon can't match the free WiFi offering.
"Their model is to pay for the WiFi network by, well, giving it away," Moffett said. "The $300 million of capital spending required to build it, and the modest operating costs to run it, can be paid for with just a small uplift in market share--either gained or retained--in their wired broadband service. At an ARPU of $35 per month and 80 percent contribution margins for wired broadband, it would take only 160,000 incremental subscribers--just 3.6 percent share of their cable footprint--to earn a 10 percent return on investment."
Comcast also has innovative plans for WiMAX. Dave Williams, Comcast's senior vice president of wireless and technology, revealed earlier this year that part of the cable company's deal with Clearwire calls for 5 megahertz of spectrum across the U.S. to be set aside solely for WiMAX femtocells. Femtocells will enable it to cost-effectively deliver wireless to the home. Moreover, femtocells can help cable operators stave off mobile operators encroaching on their turf. These residential mini base stations will require the mobile traffic to backhaul through a wireline broadband connection. Once consumers begin using their cable connections for such a purpose with mobile operators behind the initiative, cable operators risk losing their VoIP customers while giving up their bandwidth to the competition. Plus a player like Comcast has the power to guarantee QoS in the home.
Another innovative service I can think of that would give cable operators a leg up in the wireless world is video. Of course MSOs have the expertise there, and wireless video is in its infancy in terms of any compelling integrated services. At any rate, it will be disappointing to see any cable operator coming to market with a me-too wireless service.--Lynnette