Liberty Media Chairman John Malone said he thinks cable operators, including those in the U.S. market, will inevitably add a cellular wireless component to their bundle of service offerings, calling the addition something of "enormous" importance. He said the easiest way to jump into wireless will be through MVNO deals and cautioned against buying spectrum and building out networks too soon.
The comments from Malone are not terribly surprising given the signals that have already been sent by Charter Communications (NASDAQ: CHTR), the MSO backed by Liberty (Liberty is Charter's largest shareholder). In August, Charter CEO Tom Rutledge said the cable company is looking to launch some kind of mobile wireless product and is willing to explore working with T-Mobile US (NYSE:TMUS) or any other wireless carrier. However, Malone's comments, which he made at Liberty's investor day in New York, also come as there is increased interest and speculation about whether and when Charter and its rivals, including Comcast (NASDAQ: CMCSA), will jump into the wireless market.
According to Multichannel News, Malone noted that quad-play offerings have worked well in some parts of the world, including Japan and the Caribbean. The plans are certainly more popular in Europe than the United States. He said Liberty has been looking to strike an MVNO deal in Europe and that it might be time for the same thing to happen in the U.S. market.
"I believe the quad-play is going to be enormously important so you can satisfy customers in their desire to have everything, everywhere in high-quality, including on mobile devices," Malone said. "The convergence of the service offering we're seeing in Europe, in the Caribbean, we saw it in Japan. This is inevitably going to be part of the service bundle."
Malone noted that the wireless strategies for cable firms will vary by market and company but said the easiest way to get in is through an MVNO. Late last month Comcast CEO Brian Roberts said that it will take around six months for Comcast to activate its MVNO deal with Verizon Wireless (NYSE: VZ). He said Comcast is "going to trial some things and test some things after we activate and we'll update people as that progresses" but that he had "no news" about a wireless offer that would leverage Comcast's 10 million Wi-Fi hotspots and Verizon's wireless network. "We're in the test and learn mode" Comcast Cable CEO Neil Smit said.
Roberts and Charter's Rutledge said last month that their companies are considering participating in next year's incentive auction of 600 MHz broadcast TV spectrum. "We're studying the auction. We're interested in it," Rutledge said. "And I talked extensively in the past about the opportunities in being a mobile business, and there are a variety of ways to go into it."
However, Malone said buying spectrum and building a new network should be put off until cable companies can achieve some scale in the wireless business. "Feel your way into it, understand what you're dealing with, what the consumer preference is, what the costs structure is," Malone said. "Don't look at it as a profit opportunity upfront; look at it as a learning experience. If you're sufficiently successful in growing an MVNO to scale, then you can consider what kind of network investment might make sense to improve the economics of your MVNO and clearly in parallel, developing the Wi-Fi potential of the terrestrial networks, making devices seamless so that essentially any Wi-Fi-cooperating entity can roam on everybody else's Wi-Fi-equipped [device] on a global basis. I believe ultimately the cellphone manufacturers will put that capability in their devices with authentication riding in the cloud."
In a research report, Barclays analysts Kannan Venkateshwar, Shelley Yang and Amir Rozwadowski said that "based partly on the experience of the company and other cable companies, we believe the core objective for Comcast in getting into wireless is likely to be churn reduction in its core base rather than sustaining independent economics for a wireless business."
The analysts noted that many U.S. cable providers have made multiple attempts over the last decade to enter wireless through ventures like Northcoast, Pivot, SpectrumCo and investments in Clearwire, and most of those have failed. "While different iterations of this plan have largely failed in the past, the difference this time around, in our view, is in part evolution of: (a) cable infrastructure; (b) technology platforms & handset ecosystem; and (c) consumption patterns," they said.
The Barclays analysts noted that cable providers have been building extensive Wi-Fi hotspot networks they can leverage. "If extended to a majority of the cable homes, the network of cable Wi-Fi hotspots will be one of the largest in the world," they said. "Beyond neighborhood hotspots through in-home modems, cable providers are also installing outdoor hotspots in public spaces like shopping centers, commuter stations, elsewhere, along with free Wi-Fi hotspots to their business customers, which is one of the fastest growing segments for most cable providers."
Further, the analysts said that newer smartphones support Hotspot 2.0, "which has enabled the network identification and authentication process of Wi-Fi networks to become as seamless as cellular networks," and that carriers have increasingly embraced Wi-Fi calling.
Additionally, the analysts said that the "bulk of a smart device's use is actually in a location which has Wi-Fi and these locations are growing faster every year due in part to the investments by cable providers. Based on this data, if cable providers were to launch Wi-Fi first networks, the need to offload traffic to cellular network would arise likely only ~10-20% of the total time that a consumer spends on the device."
- see this Multichannel News article
T-Mobile exec: Convergence between wireline and wireless will come to the U.S., and we'll have options
Analysts: Comcast, Charter, Dish and Google might bid in 600 MHz auction - but won't be building out networks
Comcast, Charter may participate in 600 MHz auction, while Time Warner Cable plans to stay home
Comcast continues to hint at wireless plans, says NBC will likely give up spectrum in incentive auction
Charter's Rutledge: We should have a mobile wireless product
Malone: Merged Charter-TWC could challenge Verizon, AT&T in wireless