Among the wave of M&A that has swept the wireless industry in recent years, I believe Dish-Sprint offers the most intriguing possibilities for innovative service and business models. The combination of assets could help redefine what broadband and video delivery services look like, over the next five years.
To begin with, it is clear that Charlie Ergen wants the whole enchilada--Sprint and Clearwire (though some of Clearwire's spectrum might end up in Verizon's hands). This combined entity would have more than double the aggregate spectrum assets of Verizon or AT&T. This spectrum, combined with the LTE-A roadmap and evolution of Dish's satellite infrastructure, could lead to a new connectivity model for U.S. consumers.
Let's first take stock of where we are today. The U.S. leads the world in the deployment of 4G networks. Within a year, more than 70 percent of U.S. consumers will have four facilities-based LTE networks from which to choose, with average speeds exceeding 10 MB in most cases. The picture is not as rosy in the fixed broadband market. The U.S. is in the middle of the pack compared with other OECD countries. According to Cisco's Visual Networking Index, only 46 percent of broadband subscribers have average connection speeds of greater than 10 MB, and only 3 percent have speeds greater than 50 MB. Only 10 percent of subscribers have fiber-to-the-home. Verizon has stopped building out FiOS, and cable hasn't painted much of a roadmap beyond DOCSIS 3.0. This picture is not impressive by developed country standards.
The market for fixed broadband services is not especially competitive. At best, consumers can choose between two providers, though there are still many markets where broadband is either a monopoly or where the second provider offers an inferior service (such as DSL).
Broadband service prices are also among the most expensive among OECD countries, especially when viewed on a price per MB per advertised speed basis, with many cable companies charging a premium price to subscribers who want to unbundle broadband from TV and phone. Take a look at the average "connected" household today, let's say a family of four with three smartphones and a feature phone on Verizon's Share Everything plan, plus Comcast's Triple Play bundle of TV, phone and Internet. After taxes and fees, that's close to $400 per month, or nearly $5,000 per year, just for connectivity. And that's before connecting additional iPads and other connected devices, purchasing additional premium channels or on-demand programming, or the increasing dollars being spent on apps and content storage.
Hence the opportunity for Ergen & Co. His combined assets, including satellite, Sprint, and Clearwire, would enable Dish to offer an alternative vision for broadband services. Using LTE-A and a fixed wireless terminal in the home, Dish could offer a wireless version of a "triple play" service, combining traditional satellite TV, fixed wireless broadband, and a VoIP phone. A "mobile data" option could be added as the fourth leg of a quad play service. Given capacity limitations of the wireless network, the home broadband service could not compete with the higher end FiOS or DOCSIS 3.0 services, either in terms of speed or very high usage caps. But for more price sensitive users, or for households that are un- or under-served by broadband today, a case could be made for, say a $30 fixed wireless internet plan which includes 20-25 GB that can be used in the home at an average download speed of 20 MB. A "mobile" option could be added for, say, $5 per GB. There is enough intelligence in the gateways and back office systems to offer a different grade of service (as in higher throughput) when in the home compared to when mobile.
I realize that wireless will not be able to offer a competitive alternative to higher end fixed broadband services, in terms of throughput or capacity. But there's a fairly significant segment of the market that can't afford both fixed and mobile services for whom an affordable, combined package would make a lot of sense. And if they buy satellite TV too, they will be less reliant on OTT video services in the home, hence reducing their internet-based video consumption.
With small cells, proliferation of Wi-Fi, and LTE-A, the distinction between fixed and mobile networks will blur. This will lead to attractive opportunities to package data services. Just as the market today is moving toward a model of choosing a bucket of GB that can be shared across devices, in a couple of years we could see plans that allow users to buy a "connectivity service" of X # of GB, with differentiated, and dynamic pricing and performance depending on context (fixed or mobile, type of content, etc).
I believe Ergen is also betting on disruption to the content distribution model. Yes, Dish today looks very much like a cable operator. Now, we don't know exactly how OTT options will evolve or whether they will be able to fully substitute for the cable/satellite model in the U.S. But there enough going on in OTT-land--Netflix, Hulu, Apple, Amazon, Google, Intel, Aero--that we can predict that there will be sufficient disruption and growing alternatives to the prevailing content distribution model. Dish's Hopper service has already put Ergen into media companies' "frenemy" territory. He is the sort of maverick that could disrupt the current content distribution framework with a more a la carte approach to programming.
Again, many households will continue to stick to the prevailing, and expensive, model with which they purchase connectivity and content. But a growing number will be interested in a more a la carte approach, either because of price sensitivity and/or because they want greater choice and flexibility. A company like Dish might offer a bundle of services for budget-conscious consumers, who might be prepared to make certain compromises with regard to internet speed, capacity, and breadth of programming. At the other end of the scale, the Verizons and Comcasts of the world might get sick of ever-escalating programming fees and provide consumers with a premium-priced, ultra-fast, tons of GB broadband service and let customers buy their content a la carte. Let's call it BYOC (Bring Your Own Content).
We are steadily headed toward a connectivity and content world where traditional distinctions between devices and services will increasingly blur: phone and tablet; tablet and PC; fixed and mobile networks; apps and software; movies and TV; TV and on-line programming; home and mobile. With its bid for Sprint, Dish has the long-term view of the evolution of connectivity and content, and wants to get the ball rolling.
Mark Lowenstein, a leading industry analyst, consultant, and commentator, is Managing Director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter at @marklowenstein.