Comcast and Charter Want In On Wireless
According to the Wall Street Journal the two largest cable operators in the country, Comcast and Charter Communications, have entered into a partnership to offer wireless communications services non-competitively; in reality the two are not “competitors” as they each serve different territories with virtually no overlap. The two hope the partnership will allow them to share best practices in service plans and back-office billing operations, and possibly achieve cost efficiencies. Further, the two agreed not to make a material merger or acquisition in wireless (e.g. “Buy T-Mobile”) without the other’s consent for one year. The big question is, why would they want to wade into a fiercely competitive wireless market?
The mobile industry is currently engaged in the fiercest price war we have seen in years, and Verizon and AT&T seem to be getting the worst of it. Verizon showed a net loss of customers in the first quarter and saw its customer base drop by 307,000- and they lost their former spokesperson, Paul Marcarelli, to Sprint. In the meantime, AT&T lost 61,000 post-paid subscribers in Q1 2017 and saw revenues decline 3%. Who in their right mind would want to wade into this bloodbath?
However, the cable companies have long been envious of the wireless business and they are concerned the impact that “cord cutters” might have on them going forward. Apparently, they feel they could increase customer loyalty by turning their triple-play (TV, Internet and phone) into a quadruple-play. Of course, there are no guarantees in that.
Comcast’s desire to get into the mobile business go back to at least 2008, when it joined Time Warner Cable and Bright House Networks and jointly invested $2.37 billion in the 700 MHz spectrum auction. The consortium sold those 700 MHz holdings to Verizon in 2011 for $3.6 billion in return for the rights to resell Verizon's network under their own brands.
Then last September, Comcast announced its intention to enter the wireless business with a Wi-Fi/cellular service based on that Verizon resale agreement. It was still something of a surprise when Comcast decided to plop down $1.7 billion in the recent 600 MHz FCC auction.
Clearly, you’re not going to build much of a wireless network with a mere $1.7 billion worth of spectrum, and it is unclear whether Comcast will build any cellular infrastructure at all. However, Comcast does have around 15 million Wi-Fi hot spots. According to a report by New Street Research cited in the Wall Street Journal, when combined with Charter’s Wi-Fi footprint, the partnership could cover about 80% of the country. Comcast, along with Charter subsidiaries Time Warner Cable and Bright House Networks, is also part of the CableWiFi Alliance along with Cablevision and Cox Communications, potentially giving Comcast and Charter access to even more hot spots nationwide.
The bigger question is, will consumers warm to Wi-Fi First phone services? As I noted in this NoJitter post last September heralding Comcast’s announcement to enter the wireless business, there has been a spate of Wi-Fi First or Wi-Fi Only mobile offerings from the likes of Google, Republic Wireless, Scratch Wireless and Cablevision, but customers have not been enthralled with the idea, particularly since most offer a very limited range of Android handsets. Further, the traditional mobile operators are also making use of Wi-Fi offloading to reduce congestion in their networks and they support Apple and even Windows Mobile handsets as well as Android.
In her article in the Wall Street Journal Miriam Gottfried insinuates that this Comcast Charter partnership might be the lead up to some merger or acquisition play. The Obama administration turned down Comcast’s request to acquire Time Warner before Charter snatched them up, but maybe the Trump administration might look more favorably on a Comcast-Charter hook up and this partnership is a way of testing the waters. In light of the AT&T’s failed bid to acquire T-Mobile followed by Sprint’s failed attempt to buy the company, it appears that mergers among wireless carriers are all but impossible. However maybe Comcast or a combined Comcast-Charter bid for T-Mobile might pass muster. Again, one stipulation of the partnership agreement is that neither company could go after a carrier on their own without the agreement of the other.
All of this activity might leave you pining for the good old days when cellular was a boring, predictable but growing business. The ongoing price wars are eating into profits while Accenture is predicting that the US wireless carriers will have to invest $275 billion over seven years for their 5G rollouts. Somehow this doesn’t smell like a business that needs yet another competitor, and market saturation is clearly driving the carriers to seek new revenue sources either through wireless service to support the Internet of Things or non-communicatons investments like AT&T’s purchase of DirectTV and Verizon’s grab for AOL and Yahoo.
In any event, we consumers can continue to enjoy lower wireless bills while this ruckus works its way out.