Altice USA Joins the Cable Mobility Fray

MSO set to launch consumer MVNO service by summertime
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Suburban New Yorkers will once again be able to buy a cellphone plan from their cable operator.

Altice USA — which put Cablevision Systems’ WiFi-only mobile play, Freewheel, out to pasture when it bought the Bethpage, N.Y.-based cable company shortly after its 2015 launch — is on track to deploy its own consumer wireless service this summer.

Altice USA CEO Dexter Goei

Altice USA CEO Dexter Goei

According to The Wall Street Journal, which said it spoke to unnamed company sources, the service will likely be called Altice Mobile and will be bargain priced somewhere between $20 to $30 a month.

That price undercuts roughly by half the base mobile plan for Sprint, from which Altice leases 4G LTE network resources via a mobile virtual network operator (MVNO) agreement signed in 2017.

It’s unclear at this point if that price applies to an unlimited plan or a “by-the-Gig” data scheme that is used by Comcast and Charter Communications in their respective already launched MVNO-based mobile services. Comcast, for example, offers customers the opportunity to structure their mobile plan in $12-per-Gigabyte increments. (That, of course, is a bargain for minimalist users who consume very little data on the mobile network.) Altice USA did not respond to a request for comment by press time.

Also unclear: Can Altice make money on bundling mobile plans using another company’s network?

Not a Cash Cow

So far, it doesn’t appear that mobile has generated a ton of revenue for either Comcast or Charter, both of which have MVNO agreements with Verizon Communications, and also collaborate on technology and business plans for their services.

Comcast said Xfinity Mobile, which launched back in early 2017, generated $225 million in revenue in the first quarter, up from $185 million in Q1 2018. Comcast ended the January-March period with 1.4 million Xfinity Mobile customer lines, up from 577,000 the Q1 prior.

Charter, which launched Spectrum Mobile last year, said it now has 310,000 wireless lines in the market, after adding 176,000 in the first quarter.

Charter hasn’t disclosed revenue figures for its nascent mobile service, but chief financial officer Christopher Winfrey did say during the operator’s Q1 call that “mobile is ramping nicely and the early results of this product launch remain promising.”

This growth is occurring in a saturated U.S. wireless market, where the big incumbents, Verizon, AT&T, T-Mobile and Sprint are engaged in an aggressive promotional war for customer growth.

Analysts, however, don’t seem impressed by the market infiltration for either Xfinity Mobile or Spectrum Mobile.

“It should be clear by this point that the current [MVNO] deal is a money-loser for the cable operators; it’s not profitable and it likely never will be,” MoffettNathanson principal and senior analyst Craig Moffett wrote in a recent report.

Moffett’s issues stem from the cost of the MVNO agreement, which were supposed to be offset by the offloading of mobile data traffic to the respective Comcast and Charter WiFi networks. With both cable companies pricing their respective unlimited plans at $45 per line, the analyst estimates that a customer using 8 Gigabytes a month generates around $40 in network leasing costs.

“Throw in, say, another $5 per month for voice, and unlimited customers are already underwater even before customer service, customer acquisition costs and [selling, general and administrative expenses],” Moffett said.

As for the WiFi offloading plan, he added, “Cable’s out-of-home WiFi network is a bust; the industry stopped expanding it years ago after it became clear that it was never going to provide a robust out-of-home user experience.”

For their part, both Comcast and Charter have touted the value of their mobile services as churn busters — yet another reason for customers to be tied to the wireline internet and TV bundle. “Churn reduction arguments are nice,” Moffett said, “but they’re really just tiebreakers.”

So into this market comes Altice USA, with 3.3 million video customers and 4.1 million internet customers. It has what it believes to be an edge: owner’s economics on the Sprint network. Partial owner’s economics, anyway.

Under the agreement signed with Sprint, Sprint can build as many small cells as it wants on Altice’s network to, among other reasons, expand its 5G wherewithal. Sprint doesn’t have to pay any lease or backhaul fees, only for the hardware and construction costs. Altice, meanwhile, incurs no costs when it uses those small cells to support its mobile service.

Speaking recently about what he calls an “infrastructure-based MVNO,” Altice USA CEO Dexter Goei said Sprint has already deployed around 19,000 small cells on its network.

“We have relatively attractive wholesale economics compared to other MVNOs,” Goei noted on Altice’s May 2 first-quarter earnings call. “Our core network infrastructure is ready to go, giving us full access control over the customer experience and allows us to better manage traffic.”

Small Cells Save on Costs

Indeed, the more small cells that are added, the more Altice’s MVNO costs will come down over time. Further, T-Mobile has already agreed not to disrupt the deal if and when it closes on its $26 billion bid to acquire Sprint.

“It’s a rather elegant solution,” Moffett said. “Sprint gets a huge cost and time-to-market advantage versus Verizon, AT&T, and — if the [merger] deal is rejected — T-Mobile. And Altice USA gets an MVNO agreement which gets cheaper and cheaper over time as more and more traffic is carried by their joint small cells.”

Goei added, “We’re doing a similar MVNO price point to other MVNOs out there, and it’s going to be profitable right out of the box.”

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