According to new research from the financial analysts at New Street Research, a cable company like Comcast (NASDAQ: CMCSA) could entice around 20 percent of its customer base to switch to its own MVNO service within five years of moving into the wireless industry. The report offers some important implications for Verizon (NYSE: VZ), AT&T (NYSE: T), T-Mobile US (NYSE:TMUS) and the rest of the nation's wireless network operators, which may indeed compete against cable MVNOs in the coming years.
In its report, New Street considered the MVNO opportunity for the nation's leading cable operators, pointing specifically to Comcast, which recently announced its plans to engage in an MVNO deal with Verizon. The research firm said that, depending on how the MVNO agreements are structured and the service plans offered through those agreements, cable companies could create profitable MVNO businesses by stealing customers away from leading carriers like Verizon and AT&T.
"Cable companies have a distinct advantage over traditional MVNOs, including: 1) voice and data traffic can be offloaded onto Wi-Fi, resulting in lower usage costs; 2) the ability to leverage existing back office systems, resulting in lower G&A per sub; 3) the selling of an add-on product to existing subs, resulting in lower SAC costs," the analysts said in their report. "We estimate if a Cable operator can offload 75% of data and 50% of voice, this should generate a 31% EBITDA margin compared to negative margins for a traditional MVNO at the same ARPU."
The New Street analysts added that, if a cable MVNO offers service prices that allow for steady share gains but are not wildly disruptive, they could entice up to 6 percent of their existing cable subscribers to switch to their MVNO service after a year, and roughly 20 percent after five years. "Based on our ARPU assumption of $35, this would boost Cable revenues by ~10%," the analysts said.
Comcast currently counts around 22 million customers nationwide, and 20 percent of that is roughly 4.4 million.
To be clear, the analysts noted that such figures assume that at least one U.S. wireless network operator would provide reasonable MVNO terms to a cable company like Comcast, and that the cable MVNO would be able to offload a significant amount of customers' phone traffic off to Wi-Fi networks.
The report is noteworthy considering the U.S. cable industry's stated interest in entering the wireless market. "We're in the test and learn mode and I think is a natural part of the evolution of our country or participation in the mobile space beyond Wi-Fi. But we're testing and learning and nothing new to report," Comcast's Neil Smit said during the carrier's recent third quarter earnings report, according to a Seeking Alpha transcript of the event, in response to questions about Comcast's MVNO agreement with Verizon.
Separately, Cablevision (NYSE: CVC) in January unveiled Freewheel, a $10-a-month mobile service that works on a Motorola smartphone. However, the service can only work on Wi-Fi hotspots and has no cellular component.
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