Comcast’s early results with Xfinity Mobile have raised some eyebrows, but they haven’t been strong enough to elicit a significant response from incumbent mobile services providers, according to a top industry analyst.
Powered by its MVNO agreement with Verizon, Comcast added about 187,000 Xfinity Mobile customer lines in Q4 2017, ending the year with about 380,000. Comcast launched the offering in May, and has so far seen the bulk of those customers opt for its by-the-Gig option, rather than its unlimited data option.
“Comcast’s early wireless subscriber growth is certainly impressive, but not conclusive,” Walter Piecyk, analyst with BTIG, explained in this blog post (registration required), noting that Comcast is essentially posting gross additions and will be challenged to retain those customers over multiple years.
“If Comcast added more than 325,000 subscribers in a quarter, we believe it would merit more attention,” Piecyk wrote. “However, we don’t think its current level of growth, which was only 187,000 in Q4, will evoke a response from the incumbent wireless operators, especially as growth appeared to have moderated since the initial launch.”
He also calculated that, based on Comcast’s $480 million EBITDA losses in 2017 tied to Xfinity Mobile, that it’s costing the company $1,260 per gross addition, while acknowledging that this number includes startup costs that won’t repeat. He also expects Comcast to tweak pricing and advertising as it learns more about the business.
And he also pointed out that, despite Comcast’s weaker than expected Q4 wireless results, they have not dampened expectations that Comcast could add more than 1 million wireless subs this year, adding that Charter Communications, when it launches service by mid-2018, could represent an incremental 500,000 to 750,000 wireless subs per year.
He said the concern for incumbent mobile providers is that cable, as new wireless entrants, could cut into a highly penetrated sector that’s adding about 3 million post-paid voice lines per year. The “worst-case scenario” for them is that Comcast’s efforts force incumbents into price cuts.
But, for now, there hasn’t been a material impact, Piecyk said, pointing out that T-Mobile (its CEO, John Legere, characterized cable’s latest foray into mobile as irrelevant) and Verizon have realized better than expected post-paid adds, while AT&T also beat estimates.
"These are not data points that provide convincing evidence of cable having its long-awaited impact on the wireless industry,” Piecyk wrote
He also reiterated his skepticism about the MVNO business model, costs that Comcast and other cable operators intend to offset as much as possible by tapping into the shared CBRS band.
Piecyk also isn’t ruling out potential M&A.
“We believe T-Mobile and Sprint will likely remain as an acquisition option for Comcast for the foreseeable future, if Comcast decides to abandon its MVNO strategy,” he wrote. “We would also not be surprised to see Comcast or Charter build some network underneath the MVNO in the interim, particularly with the availability of CBRS spectrum for hotspot offload.”