Finance

Cablevision Takes WiFi Phone for a Spin

Analysts Cool on ‘Freewheel,’ but Bullish on Its Implications 2/02/2015 8:00 AM Eastern
TakeAway

Analysts were more excited about what may stem from Cablevision’s planned Freewheel WiFi phone service than the product set to roll out this month.

Cablevision Systems’s plan to launch Freewheel, a WiFionly phone and data service, later this month got a cool reception from investors last week.

 

Market reaction was tepid, but some analysts said they see the offering as a sign of greater things to come.

 

Freewheel will ride exclusively on the WiFi network and Cablevision will make the service available this month with unlimited phone calls and data for $29.95 per month for non-Cablevision broadband customers and for $9.95 per month for existing customers.

 

At first glance, the service seems to fill a growing need — Cablevision chief operating officer Kristin Dolan said the operator has seen a trend of declining wireless voice traffic in its footprint, while data usage has soared. The company estimated that about 60% of the traffic on its Optimum WiFi network is streaming video.

 

Cablevision, with perhaps one of the most robust WiFi offerings in cable — it has about 1.1 million hotspots throughout its footprint and began building out its network in 2007 — seems like the logical company to offer such a product.

 

“It harnesses the power of the backbone that we’ve spent the past seven or eight years building,” Kristin Dolan said of the Freewheel product in an interview.

 

Despite Cablevision’s obvious enthusiasm for Freewheel, market reaction was muted. Cablevision stock rose 3 cents each to $19.72 on Jan. 26, the day of the announcement, and finished down 25 cents (1.3%) to $19.47 per share on Jan 27.

 

Some analysts were disappointed that the phone was not a dual-use phone, capable of switching from WiFi to the cellular network at whim. Without continuous voice and data service — Freewheel will lose its connection once it leaves a hotspot — the service could find it difficult to gain popularity beyond a small niche of users. The true value of the service may be in Cablevision’s existing customer base, some analysts said.

 

“While modest in its ambition, given it lacks the coverage (and cost) of a true cellular service, this WiFi voice extension is worth watching,” Morgan Stanley media analyst Ben Swinburne wrote in a recent note to clients.

 

A so-called “quad play” — tacking wireless phone onto the existing bundle of landline voice, video and data — isn’t particularly compelling to most consumers, Swinburne said. But offering a WiFi-only service for less than $10 per month to existing customers could be another arrow in Cablevision’s quiver to fight overall customer churn, he noted.

 

“We believe the biggest opportunity for cable operators is to sell into its base to drive down churn and generate modest, albeit incremental, revenue,” Swinburne wrote.

 

Cablevision, like other cable operators, could use all the churn-reducing help it can get. Over the past three quarters, the Bethpage, N.Y.-based MSO’s video-customer rolls have fallen by 98,000 subscribers. It also lost high-speed Internet subscribers for the first time in the second quarter, shedding about 24,000 data customers in the first nine months of the year. Analysts are expecting Cablevision to drop about 30,000 video customers in the fourth quarter and lose between 3,000 and 4,000 data customers. The company is scheduled to report its fourth-quarter results on Feb. 25.

 

MoffettNathanson principal and senior research analyst Craig Moffett was also more impressed by what Freewheel could lead to for the cable operator.

 

“The service itself is unlikely to be financially material for either Cablevision or the wireless industry,” Moffett wrote in a blog post. “The concept, however, is a very big deal.”

 

Moffett said he sees Freewheel as a precursor to a WiFifirst phone for Cablevision, one that will only hand off to a cellular network when it loses its WiFi connection. Such a product would be a true game-changer, he said, especially in the hands of a larger cable company.

 

“A WiFi-first service, particularly if (when) offered by Comcast, which has a vastly larger footprint and marketing capacity, has the potential to attract a meaningful number of customers if priced aggressively and could be enormously deflationary for the traditional cellular providers,” Moffett wrote, especially on the heels of Google’s expected entry into the wireless market. “Cablevision’s Freewheel is one more straw in the wind. The wireless business is in a tough spot.”

 

Freewheelin’ Fun Facts

 

Cablevision is set to launch its WiFi-only phone and data service Freewheel this month:

► Cablevision’s Optimum customers used Optimum WiFi nearly 1 billion times in Q4 2014.

► More than 7 billion Megabytes (7,000 Terabytes) of data pass through Optimum WiFi each month.

► Customers consumed more than 19 billion megabytes of data in Q4 2014.

► 3.6 million registered devices on Optimum WiFi (2.88 per home).

► More than 60% of all usage on the Optimum WiFi network is streaming video.

SOURCE: Cablevision

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