When it comes to wireless offerings, content is playing an increasingly important role. But industry observers say it remains to be seen whether partnerships or ownership is the smarter strategy.
Earlier this month, T-Mobile US Inc. signed an exclusive partnership with Netflix Inc. under which the wireless operator began including the streaming service as part of its T-Mobile ONE unlimited family plans at no extra charge. In announcing the offering, T-Mobile President and CEO John Legere contrasted his company's mobile video strategy with those of AT&T Inc. and Verizon Communications Inc., arguing that the other operators' purchases of content creators will only drive up prices for customers.
 T-Mobile US CEO John Legere Source: T-Mobile US |
"AT&T and Verizon are ... spending billions buying up content and cable companies — all so they can sell it to you in bigger, more expensive carrier bundles," T-Mobile said in a news release, with Legere calling this approach a series of "franken-strategies to cobble together carrier–cable–content mashups."
AT&T bought DIRECTV for $63.0 billion in 2015 and is in the process of purchasing Time Warner Inc. for $106.9 billion. Verizon, meanwhile, has pursued a series of smaller acquisitions, buying AOL for $4.3 billion in 2015 and then Yahoo's operating business for nearly $4.5 billion earlier this year.
"Everybody has realized that the No. 1 usage on mobile data networks is video … and so a way to differentiate, a way to avoid being a dumb pipe is to participate in that," Recon Analytics analyst Roger Entner — whose research has focused on the wireless experience, how it influences customer behavior and how customers make choices — said in an interview.
Entner agreed with Legere that content deals do not come cheaply, but he noted that buying rather than partnering does offer some advantages.
"Making the content when you buy someone like Time Warner is expensive, but at the same time it gives you owners' economics. If you don't have $50 billion or $80 billion laying around, you've got to rent the stuff. That means you have to buy access to someone like Netflix," he said.
T-Mobile's financial agreement with Netflix has not been disclosed. T-Mobile ONE customers will receive the Netflix plan that includes HD video and allows viewing on two screens simultaneously, a plan that typically costs $9.99 per month. It is not clear whether the operator is receiving a discounted wholesale rate as part of the agreement. Representatives from both companies said the terms of their contract are not being disclosed.
Regardless of price, both Entner and Alex Besen, founder and CEO of the mobile data consulting firm The Besen Group LLC, say mobile video is now critical to wireless operators.
According to Cisco's Visual Networking Index, mobile video traffic accounted for 60% of total mobile data traffic in 2016 and is set to account for 78% of the world's mobile data traffic by 2021. Perhaps more importantly, Entner noted other factors that previously delineated mobile network operators — voice minutes, text message packages and even data caps — have all disappeared in the current age of unlimited talk, text and data offerings.
"I can get Netflix for free with T-Mobile, HBO from AT&T. I'm sure Verizon will pull something out of its hat — maybe it will partner with [Walt Disney Co.] and its streaming service. And Sprint [Corp.] will probably have to scramble to find someone else," Entner said during a recent panel at Mobile World Congress Americas. Disney has announced plans to launch multiple branded streaming services, one oriented toward sports and another toward entertainment. Notably, Sprint could tie up with T-Mobile and eventually share in its partnership deals for content.
Besen agreed with Entner about the importance of these content deals.
"Content is king and is a key differentiator," he said in an interview, noting that including Netflix not only separates T-Mobile from the other content bundles but also highlights the capacity of the wireless network.
"Mobile network operators have to have sufficient spectrum holdings and appropriate network coverage in order to offer content. Today, we can say that T-Mobile has one of the best networks in the country; therefore, they can offer their attractive services with Netflix to their subscribers," he said.
But while Entner and Besen see a clear need for wireless operators to have a content strategy, they both noted the list of large content companies available for purchase or exclusive partnership is quite short.
"There's only a limited number of partners around," Entner said.
NBCUniversal Media LLC, of course, was already purchased by Comcast Corp. Besen also highlighted the fact that the cable operator is making its own play in the wireless space. In August, Comcast expanded its Xfinity Mobile wireless service to all Comcast markets. The offering leverages both Comcast's mobile virtual network operator agreement with Verizon and the cable company's Wi-Fi network of more than 18 million hotspots to support mobile users.
In the same way that AT&T's over-the-top offering DIRECTV Now does not count against data usage for AT&T wireless customers, Besen expects Comcast to ultimately utilize its content ownership position to sweeten its mobile offering.
"When the timing is appropriate and they launch a mobile media service, I think they can leverage the existing NBCUniversal for the mobile subscribers," he said.
Comcast may not be the only operator set to unveil a mobile video offering in the future. Verizon Chairman and CEO Lowell McAdam said at a recent investor conference that the company is "putting together some content deals that we like" that will cover Verizon's online, mobile and Fios distribution networks.
He noted that at least one of those content deals could be announced before the end of September.