Comcast Makes Moves Toward WiFi-First

Exercising Verizon Option Could Be Start of Hybrid Mobility Play
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Cable’s WiFi-cellular prospects got a shot in the arm last week with news that the largest U.S. cable operator is making moves that could lead to a hybrid WiFi-cellular phone and data product.

Comcast wouldn’t say what, when or even if a wireless product would come to life, but it’s putting together the pieces. The first step was to exercise a MVNO (mobile virtual network operator) option with Verizon Communications, and Comcast is planning to begin evaluating a potential offering in about six months.

“We believe that wireless obviously is an important area for consumers,” Comcast chairman and CEO Brian Roberts said during the company’s third-quarter earnings call. “We are going to trial some things, we are going to test some things after we activate and we’ll update people as that progresses. But it’s an opportunity to take the network and the successful investments that we’ve made, and try and see if we can continue relationships and product innovation that the team is working on.”

One of those successful investments was SpectrumCo, a consortium that also included Time Warner Cable and Bright House Networks and which sold wireless licenses to Verizon for $3.6 billion in 2012. The MVNO rights spring from that sale.

CHARTER, TWC ON DECK

Comcast might not be alone in its wireless aspirations, MoffettNathanson principal and senior analyst Craig Moffett said. Charter Communications, which is in the process of purchasing both Time Warner Cable and Bright House, believes the MVNO rights are transferable and has expressed a desire to at least entertain the idea of a quad-play service.

Charter and Comcast could partner on a service, Moffett said in a note to investors, and jointly bid for broadcast spectrum. That would make economic sense but would likely draw an unfavorable reaction from regulators.

A WiFi-first phone and data product — one that uses the cable company’s WiFi network and hands off to the traditional cellular network to round out coverage — could be the answer to the elusive quad play of video, voice, data and wireless.

In the past, cable operators have tried their hand at offering a wireless product, through failed partnerships with Sprint and Clearwire. But this time may be different. The popularity of cable WiFi products, the low cost of the spectrum and the growth of mobile video could make a WiFi-first offering a success.

Adding to the urgency are recent moves by cable’s telco competitors. AT&T, which completed its $48.5 billion merger with DirecTV in July, has pushed heavy discounts for wireless and video service. Verizon, which already has about 5 million subscribers to its wireline FiOS TV product, also launched a free, ad-supported mobile-only video service — go90 — to limited audiences.

Cable companies have spent years building their WiFi networks. Cablevision Systems, which in September agreed to be acquired by European telco Altice, was the first, committing about $300 million to a WiFi buildout.

Other operators were later to the game but have stepped up efforts in past years.

But WiFi remains mainly a broadband retention tool except in the case of Cablevision, which launched Freewheel, a $9.95 per month WiFi-only phone and data service, in February.

Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said a wireless play makes sense for cable operators that have already ramped up their WiFi offerings. “Why not offer consumers a low-end add-on wireless service that defaults to the WiFi network initially and then uses an MVNO to fill in the blanks?” he asked.

With about 80% of wireless data usage occurring in the home or office — two areas where cable is uniquely positioned — there is a high potential to offer a low-cost wireless service, as cable did with wireline phone service.

SPECTRUM AUCTION NEXT?

Moffett said he believes Comcast’s MVNO decision is the first in a series of dominoes to fall. The next could be its participation in the upcoming 2016 broadcast-TV spectrum auctions.

Bidding on and winning the lower-frequency broadcast licenses would allow Comcast to offer a service that would use WiFi in more populated areas and low-frequency spectrum in less dense locations.

On the earnings call, Roberts said Comcast hasn’t decided if it will bid on spectrum, saying it doesn’t feel the need for “owner’s economics” in a wireless offering. (Comcast-owned NBCUniversal expects to participate in the auction as a seller, Roberts also said.)

Whatever Comcast decides to do, they will be just the first steps in “what is likely to be a rather long and slow evolution,” Moffett said.

NUMBERS: Hot to Trot

Cable companies have been beefing up their WiFi networks, substantially increasing the number of hotspots available to their customers.

Company               No. of Hotspots
Comcast . . . . . . . . . . .11.7 million *
Cablevision . . . . . . . . . 1.1 million *
Time Warner Cable. . . . 400,000 +
Charter . . . . . . . . . . . . . . . N/A

* Includes indoor, outdoor locations in hotspot numbers
+ Per Cable WiFi Consortium, which includes Comcast, TWC, Bright House Networks, Cox and Cablevision

SOURCE: Individual companies, published reports

Cable’s WiFi-cellular prospects got a shot in the arm last week with news that the largest U.S. cable operator is making moves that could lead to a hybrid WiFi-cellular phone and data product.

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