Cable's 'serious' threat to wireless and how carriers should respond

With continued subscriber growth, cable's wireless offerings have arguably become a credible threat to two of the three largest U.S. carriers, Verizon Communications Inc. and AT&T Inc. But analysts are divided over how the companies should respond.

Over the past 12 months, cable wireless additions have comprised about 30% of total wireless industry phone net adds. Though their overall number of subscribers remains small — just under 6 million — in comparison to the hundreds of millions of customers served by AT&T, Verizon and T-Mobile US Inc., at least one analyst believes it is time for telecom investors to take the competitive threat from cable "more seriously."

"Cable wireless is now ready for its star turn. Cable wireless offers the potential for significant value creation for the [companies] and their investors," MoffettNathanson analyst Craig Moffett, a longtime cable bull, said in a research report. He sees cable wireless posing the greatest threat to Verizon and AT&T, while T-Mobile's lower prices insulate it from the competitive impact.

Other analysts, however, note the relatively small size of the cable offerings. They warn that overreacting to the threat, potentially by cutting prices, could be as harmful as ignoring it, if not more so.

Milestones

Major cable wireless operators have reached operational milestones in recent months. Charter Communications Inc. mobile revenue grew 90.7% in the first quarter of 2021. Altice USA Inc. had 20% to 30% improvements in churn rates as it moved traffic to T-Mobile's network in the last quarter of 2020.

But the biggest milestones came from the nation's largest cable operator.

Comcast Corp.'s Xfinity Mobile service — which, like Charter's Spectrum Mobile, relies on a mobile virtual network operator agreement with Verizon that allows it to use Verizon's network infrastructure — broke even in April for the first time since its launch in 2017.

The feat came as Comcast added 278,000 net mobile lines in the first quarter, which it described as its best quarterly result on record. By comparison, Verizon lost 178,000 net postpaid phone customers.

Price cuts

Looking to drive further growth, Comcast in April unveiled new discounted 5G unlimited plans for its wireless customers, offering unlimited 5G plans that start at $30 per line for four lines. Though technically unlimited, speeds are reduced after 20GB of usage per line.

"Xfinity Mobile's launch of family plan discounts makes the largest cable company far more competitive for families and strong advertising for it is underway," Jeff Moore, principal at Wave7 Research, a firm that analyzes competition in the telecom industry, said in a research note earlier this year.

In an interview with S&P Global Market Intelligence, Moore noted because of their size and challenger position, cable companies can afford to be more aggressive on their promotions and discounts.

"There's nothing but growth for cable wireless companies. They can afford to slash prices," he said.

But Recon Analytics analyst Roger Entner, whose research focuses on the wireless experience, believes Verizon and AT&T should be wary of introducing promotional pricing strategies to hold on to their existing wireless customers. He said big contract and phone discounts could cause deep losses in the long run.

"Competing on price is like marketing for idiots," Entner said in an interview, calling price cuts the "most effective but least elegant solution."

Alternative strategies

Moore does not see Verizon or AT&T needing to engage in pricing wars to compete with cable. Instead, he sees an increasing focus on retaining customers and boosting average revenue per user.

"They know they are not going to be winning a lot of new customers," Moore said. "The strategy is to dig more deeply into each customer to sell them more, whether it's premium unlimited, mobile hotspots, tablets, or international calling."

With connected devices and phones taken together, Verizon and AT&T each count more than 100 million postpaid connections. Given their deep customer bases, Moore said, "Getting more out of every account that they have should be their strategy."

But while Verizon and AT&T may have subscriber numbers many times larger than those of the cable operators, Entner said the wireless carriers cannot afford to turn a blind eye to the competition.

"They are absolutely taking cable seriously, and if they don't, they are negligent," Entner said.

Comcast ended the first quarter with 3.1 million mobile lines, while Charter counted almost 2.7 million. Altice's comparatively newer mobile offering counted only 174,000 lines.