Opinions expressed in thispiece are solely those of the author and do not represent the views of SNLKagan.
Afterdecades of big cable and wireless providers battling each other overregulations and services, the two largest cable TV operators — and — aregetting ready to offer limited wireless services in 2017 by partnering with oneof the largest wireless carriers, Verizon Communications Inc.
Seniorexecutives of the three companies separately confirmed the strategic wireless re-selling accords at arecent Goldman Sachs investment conference.
CableTV executives have been talking about eventually offering a wireless productfor years, andComcast was known to be testing a wireless service in recent .
Hereis some color on the wireless re-selling agreement as envisioned by three execs— Comcast CEO Brian Roberts, Charter CEO Tom Rutledge, and Verizon CFO FranShammo — and why I think this could be a win-win situation near term for allparties. Longer term, fierce strategic competition will likely remain betweenthe cable and wireless camps for lucrative data customers.
* Bundled services only. Comcast andCharter can only re-sell wireless subscriptions in a bundle of their existingservices within their coverage areas and not as a competing stand-aloneproduct. About 70% to 80% of Comcast customers already subscribe to bundledservices, Comcast's Roberts said at the Goldman Sachs conference, adding that hebelieves wireless services and products will be an attractive addition toComcast's existing offerings.
* Wi-Fi off-load. The cable companiesplan to control their licensing fees to Verizon by shifting wireless traffic tomillions of Wi-Fi hot spots Comcast and Charter already have working andmillions more they plan to deploy. Some analysts believe more than 75% of datatraffic can be routed through Wi-Fi, as noted in a recent articleby The Wall Street Journal and in a2015 reportby the Boston Consulting Group.
* Subscriber acquisition cost efficiencies.Verizon will gain customers at a time when its customer saturation is maturingand will lower its subscriber acquisition costs by not having to spend formarketing and retail overhead. Likewise, cable will not have to make a hugecapital investment in developing its own wireless products.
* Reduce churn. By offering moreessential services, cable should be able to reduce its churn, increase"stickiness" (of customer retention), and increase customersatisfaction. It could also help cable defend against video subscriber poachingby satellite operators and internet-based streaming services with competitiveskinny bundles.
* Increase cable penetration. Charterpasses more than 50 million homes but only about half subscribe to any Charterservice. By offering a mobile product, Charter's Rutledge penetration rates willincrease.
* Politically benign. By offeringdiscounted wireless services in a bundle, regulators should be receptive to there-selling accord because it will benefit consumers without limiting wirelesscompetition.
* Add value. Verizon's Shammo the wireless-resellingventure would be "extremely profitable" for Verizon. Meanwhile, NewStreet Research analyst Jonathan Chaplin estimatedthat a wireless business could be worth more than $14 billion to Comcast, orabout $6 per share.
Despiteall the positive commentary about the wireless reselling deal, competition willlikely ramp up between cable and wireless within a few years when the nowincubating 5G wireless standard is fully rolled out. The highly toutedtechnology is expected to be able to meet the speed and capacity demands ofcable's valuable cache of broadband data subscribers.
Allof the above should give both cable and wireless investors some comfort nearterm. It's the longer-term picture that remains unclear as to who will prosperand who might stumble in a complex three-way contest for pay and ad-driveneconomics between incumbents cable and wireless, plus emerging big internetplayers. A brawl seems inevitable.