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Constraints on cable MVNOs raise competition questions

Early lessons about cable's fledgling wireless services are raising questions over whether offerings from Comcast Corp. and Charter Communications Inc. represent a true competitive threat in the mobile space.

T-Mobile US Inc., which is hoping to win regulatory approval for its pending merger with Sprint Corp., has repeatedly pointed to these cable efforts as evidence of a very competitive environment in wireless. However, Charter and some analysts say it is hard to view the cable companies as true competition given that both rely in part on reselling wireless service from Verizon Communications Inc.

"As a nonfacilities-based offering, they don't really add to the competitive landscape," Ian Olgeirson — an analyst with Kagan, a research group within S&P Global Market Intelligence — said of the mobile offerings from Comcast and Charter. The mobile services leverage each cable company's respective network of Wi-Fi hotspots and a mobile virtual network operator agreement with Verizon. As such, any mobile usage that occurs off the Wi-Fi network leads to payments to Verizon from Comcast and Charter.

Yet due to their packaging strategies and product bundles, Xfinity Mobile and Spectrum Mobile "do add more choice for consumers," Olgeirson said.

New entrants in wireless

Asked about the competition from cable, T-Mobile CEO John Legere said during an Oct. 30 earnings conference call, "There are clearly two additional players in the wireless space now, in Comcast and Charter, and I'm sure others to follow." It is widely believed regulators might approve the deal if T-Mobile and Sprint can show there will still be sufficient competition even if two of the big four U.S. mobile providers combine.

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As of the end of the third quarter, Comcast had 1 million Xfinity Mobile customers, while Charter's Spectrum Mobile counted 21,000 customers less than one month after its full market launch.

Charter itself raised questions about its ability to compete in a filing with the U.S. Federal Communications Commission. In response to inquiries connected with the agency's review of the T-Mobile-Sprint deal, Charter said it has been hampered by the "contractual and technical constraints" of its MVNO agreement with Verizon, adding that it "actively explored parallel MVNO agreement opportunities ahead of launching its Spectrum Mobile service."

Charter indicated Sprint might have been a potential partner but said a clause in the Sprint-T-Mobile merger agreement "prohibits Sprint from entering into an MVNO agreement with any third party during the pendency of its proposed transaction with T-Mobile."

As a result, Charter said the deal "eliminates the one company willing to enter into the kind of mobile virtual network operator (MVNO) agreement that would have enabled Charter to be a robust mobile competitor." Meanwhile, Comcast's answer to the FCC on how the T-Mobile-Sprint deal would impact Xfinity Mobile was redacted and marked "highly confidential."

MVNOs and slower speeds

Tutela, a mobile data and analytics company that monitors network quality of experience using software embedded in more than 250 million mobile Android and Apple Inc. iOS handsets, said in its latest U.S. LTE network report, which covers the first eight months of the year, that MVNO customers broadly — and Xfinity Mobile customers, in particular — see slower download speeds than subscribers on the host networks.

Based on measurements from only those regions where Xfinity Mobile is available, Tutela said Xfinity Mobile subscribers saw an average download speed of 12.6 Mbps, compared to the Verizon average of 24.0 Mbps. While the differences in speed could suggest different treatment for Verizon and Xfinity Mobile traffic, Tom Luke — Tutela's vice president of sales, marketing and partnerships — said it "cannot say for certain that throttling or degradation is happening." The report did not include measurements for Charter's MVNO with Verizon, as Spectrum Mobile just had its full launch Sept. 4.

A Verizon spokesman said the company "makes available the same data speeds to our MVNOs that we do to our customers." Comcast did not have a public comment.

Xfinity Mobile's site says users of LTE, a 4G mobile communications standard, should see "typical download speeds of 5-12 Mbps." In July, Verizon cited Tutela data, covering April, May and June of 2018, which showed Verizon users averaged a download speed of approximately 21 Mbps. In line with that, Verizon in July also cited RootMetrics data showing its network delivered median download speeds of at least 20 Mbps in 106 markets.

Alex Besen, founder and CEO of the mobile data consulting firm The Besen Group LLC, said in an interview that he was not necessarily surprised by Tutela's findings because Comcast and Charter "do not own the core network or architecture," which limits their control.

Besen believes host networks such as Verizon should not be slowing down speeds for their MVNO partners, but he noted the report also showed network operators' own prepaid brands — such as AT&T Inc.'s Cricket, Sprint's Boost or T-Mobile's MetroPCS — also having slower speeds.

Luke said the deprioritization of traffic from prepaid and MVNO services is not unknown or even unreported in the industry.

"Some of the MVNOs and sub-brands do mention in the small print — though it is in small print — that you are going to get a worse experience," Luke said in an interview.

A footnote from MetroPCS' website, for example, states that "MetroPCS customers' data is prioritized below data of T-Mobile-branded customers at times and locations where competing network demands occur, resulting in relatively slower speeds."

In terms of what this means for Comcast and Charter in the wireless space, Olgeirson said, "I think it would take a more actively owned and managed network from the cable operators, even if it's still alongside a reseller agreement, to make a real mark on the competitive landscape."