Cable MSO Mobile Alliance a Smashing Idea

Yesterday CDN Editor Alan Breznick blogged on a report that U.S. cable operators are negotiating with investment bankers to form a mobile joint venture. While a cable wireless venture is a linguistic oxymoron, it is a smashing idea. Here's why. At the top of the list, MSOs' network coverage is hyper-regional, meaning no cable operator has a national footprint needed to support mobile services. By working together, they can create one. Or at minimum, create tremendous barraging power with existing mobile carriers that already have nationwide coverage. More importantly, though, are trends in mobile and landline usage. There are now more than 169 million mobile customers in the U.S. alone, according to trade group CTIA. IDC found mobile users make 36% of their personal calls from home with a cell phone. Additionally, their monthly expenditure on mobile phone service is higher than spending on either broadband Internet, cable, satellite TV or landline phone services. This reality creates an interesting intersection between consumer demand for communications services and the strength of cable MSOs' network infrastructure. On the consumer side, mobile customers are showing their preference for using their cell phones, versus landline, for a large portion of their calls. And they're willing to pay a hefty premium for the privilege. Therefore, a wireline-only cable voice service misses a high-value segment of the voice communications market. Looking at the network side, more than a third of cell phone traffic could be backhauled over cable modem connections, assuming the phone can interface with an embedded multimedia terminal adapter (E-MTA) via WiFi. This would allow a mobile operator to increase their network capacity by a third without making any investments in spectrum or cell sites, an incredibly attractive economic proposition. By integrating mobile with cable, MSOs can offer a better phone service than either wireless or landline offers alone. Mobile phone reception and call quality in the home would improve. Enhanced data services and multimedia messaging perform better with a broadband connection. And consumers could enjoy a 'one number' voice service, collapsing their cell phone and home phone together, simplifying today's multiple voice mail and email account nightmare. Initial negotiations between individual MSOs and mobile carriers like Sprint and T-Mobile have ended with mutual dissatisfaction, as each side has struggled to understand who really has the leverage. By pooling their clout together as an industry block, the scale starts tilting toward MSOs. They want a deal with a mobile carrier that will fully account for the economic value MSOs bring both in terms of network assets and customer relationships. And they're far more likely to get it when mobile players are faced with an all or nothing broadband RFP. If they don't cable could opt to simply build their own mobile network, though cooperation would be far more rational than competition. As evidenced by the creation of @Home and Road Runner, for better and worse, MSOs have show their preference for off-balance sheet vehicles for initial forays into what they perceive to be non-core businesses. The strategy allows them to avoid adding debt to their cable operation balance sheets, while creating new revenue streams for their cable income statements. Not only are they looking for consumer service revenue from mobile, they also want to tap into commercial service revenue from mobile carriers by backhauling their cell site traffic. A cable industry mobile deal will reflect these economic drivers. When matching up cable companies and telcos head-to-head, the only real differentiation telcos have today is through their mobile communications businesses. Fortunately for MSOs, telcos have done a poor job of integrating wireless with landline phone and DSL services to date. Instead, they're foolishly obsessing about adding video to their service mix by investing in ultra-costly fiber-to-the-premises (FTTP) technology, or hybrid fiber-copper architectures that incorporate DSL. They're starting to wake up to their idiocy, though, and soon, by integrating wireless, telcos will have a communications bundle that cable cannot currently match. So, it's a good thing that cable is finally starting to make serious moves into mobile. Forget the triple play. Going forward, it will be the home run that defines the bundle.
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