U.S. carriers are a risky investment as cable operators plot to elbow their way into the wireless market, according to analysts at New Street Research.
Mobile network operators are facing sluggish customer growth and increased ARPU and revenue pressure, New Street said in a research note distributed to investors over the weekend, and they'll soon face competition from cable operators elbowing their way into the wireless market. Comcast (NASDAQ: CMCSA), the world's largest cable TV company by revenue, executed on its MVNO deal with Verizon (NYSE: VZ) last fall and is rumored to launch a service leveraging its Wi-Fi footprint sometime this year. And Charter Communications (NASDAQ: CHTR) CEO Tom Rutledge said last month his company could offer a nationwide wireless service because its Time Warner Cable acquisition gives it access to the same Verizon MVNO agreement as Comcast.
New Street expects both Comcast and "maybe" Charter to launch service using their MVNO agreements with Verizon later this year. "This is likely not a long-term solution; they will ultimately want more control over the network and the customer that will require a deep MVNO, a network-sharing arrangement, or an outright acquisition," the analysts wrote. And T-Mobile is the best-positioned carrier to become a long-term partner or an acquisition target for cable operators.
Cable operators could provide wireless services to 20 percent of their residential customers in the next five years, New Street said in a "very conservative" prediction, stealing 35 million customers from incumbent cellular companies. That would give cable operators 13 percent of the U.S. wireless market, leading to slower growth for T-Mobile and a 1 percent decline in Sprint's (NYSE: S) customer base over the next five years.
"We expect cable companies to launch commercial wireless offerings over the next twelve months, with Comcast likely leading the charge," New Street wrote in the 84-page note. "We would expect them to roll the product out gradually at the outset; however, once they get going, they could take share pretty rapidly."
Carriers could lose between $1.8 billion and $3.8 billion in EBITDA to cable companies during that time, New Street said, with Verizon and AT&T (NYSE: T) seeing a 7 percent to 9 percent reduction in EBITDA in 2021. T-Mobile would see EBITDA growth fall from 13 percent to 9 percent, while Sprint would see growth fall from 5 percent to roughly zero.
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