Analysts More Than Bullish on Comcast MVNO
Verizon made it known last fall that Comcast had cashed in its chips on an MVNO agreement the two companies signed back in 2012. Comcast confirmed its plans to activate the MVNO at the time, but has been cagey ever since on how and when it intends to act on those plans.
Alex Besen, founder and CEO of consulting firm The Besen Group, however, believes Comcast Corp. (Nasdaq: CMCSA, CMCSK) will launch an MVNO service by the end of this year, or at the latest in early 2017. And fellow analysts Craig Moffett of MoffettNathanson Research and Francis McInerney of North River Ventures are also convinced that Comcast will disrupt the wireless market with its own mobile service in the near future.
The three analysts spoke on the subject of Comcast and the wireless market at the Wi-Fi Now 2016 conference. At times, they were quite blunt.
"If you aren't thinking about Comcast," McInerney told the wireless crowd, "leave this industry."
As far as McInerney is concerned, the future of the mobile market is all about capital efficiency, and that's where Comcast has an advantage. There are a couple of ways to look at that assertion. The first is by considering Comcast's more than 13 million WiFi hotspots around the country -- the vast majority of which are home hotspots that Comcast deployed as part of a normal router upgrade process. Those hotspots will help Comcast offer a WiFi-first mobile service that relies primarily on WiFi connectivity, but falls back on a cellular connection when WiFi isn't available. Comcast spent relatively little to build out its WiFi hotspots, but it can now use its existing footprint to mitigate the capital costs of starting up a mobile network service. (See Comcast Confirms It Will Activate MVNO Deal.)
The second way to look at Comcast's capital efficiency is more interesting, however. Comcast's advantage isn't really in its existing WiFi hotspots, especially considering that, as Moffett admits, the jury's still out on how well current home hotspots perform. (See also How Home Hotspots Could Hit Hurdles.)
Instead, the real leverage Comcast has is in its last-mile wireline network. Regardless of how Comcast distributes wireless connectivity from the endpoints of its HFC network, the cable company has the all-important local backhaul capacity necessary to support heavy wireless broadband traffic across large regions of the country. Incumbent wireless carriers don't.
Moffett has a theory that Comcast needs a "capacity layer" and a "coverage layer" of connectivity in order to introduce a mobile service. The capacity layer will come from WiFi, while Verizon Communications Inc. (NYSE: VZ)'s network assets will provide the coverage layer Comcast needs to support true mobile connectivity. That's a short-term view, however. Moffett believes Comcast will eventually be able to wean itself off of Verizon's network, possibly by acquiring spectrum in the current 600MHz auction. (See Comcast May Be Lone MSO Wireless Bidder.)
Comcast could also form a joint venture with Charter Communications Inc. in the future (assuming the acquisition of Time Warner Cable is successful), and use that added scale to pressure incumbent carriers further. With enough pricing pressure, Comcast could eventually even buy out a mobile network operator on the cheap.
As Moffett sardonically explains, it doesn't make much sense for Comcast to acquire one of the incumbent carriers now. "If you're going to wreck the cellular market, wreck it first and buy it later."
The big picture for US mobile operators is fairly bleak. According to McInerney, carriers won't be able to afford the local backhaul capacity necessary to support growing mobile traffic in the coming years. Companies like Apple Inc. (Nasdaq: AAPL) and Google (Nasdaq: GOOG), however, will continue to profit from traffic growth while carriers spend money to "densify" -- i.e. build out more fiber in local areas to manage higher bandwidth consumption and keep content closer to the network edge.
At the same time, Comcast should be able to undersell carriers, even as they face mounting capex demands.
It's a lose/lose proposition.
The only plus side in the forecast for carriers is that any long-term predictions are subject to an abundance of unknown forces. For example, Besen thinks the future for wireless carriers lies almost solely in the wholesale access model, where Internet companies own the consumer experience, and carriers eventually sell to those companies rather than directly to consumers. But, as Moffett points out, the move to a wholesale model would also depend on how the government decides to regulate the wireless market going forward, and that's still an "x" factor.
McInerney notes that we don't know what other innovations will occur either. What if suddenly communications networks were able to play a role in power generation? (Think solarized windows with converted energy carried as power over telecom networks.) That would disrupt mobile economics in unfathomable ways.
The bottom line is that there are too many unknowns to create a reliable long-term forecast.
The short term, however, is a different matter. The short term is easier to predict, and as far as Besen, Moffett and McInerney are concerned, mobile operators are facing one certainty: Comcast is about to make its mark on the wireless market, and that's going to mean a whole lot of new challenges for incumbent carriers.
— Mari Silbey, Senior Editor, Cable/Video, Light Reading