Does Cable Really Need Wireless?
Sanford C. Bernstein & Co. Inc. analyst Craig Moffett, in a report issued Friday, leveled his skepticism on the cable industry's ties to the Clearwire LLC (Nasdaq: CLWR) joint venture, which involves Comcast Corp. (Nasdaq: CMCSA, CMCSK), Time Warner Cable Inc. (NYSE: TWC), and Bright House Networks . (See Cable Plays Clearwire Card.)
Conventional wisdom says the cable industry needs to compete with the wireless offerings of the telcos. Plus, it seems logical for cable to prepare for the growing trend of wireline telephone customers cutting the cord in favor of mobile voice options.
Moffett isn't buying it.
"Unfortunately, the intuitive appeal of these arguments notwithstanding, the argument for including wireless in the bundle is thin," Moffett argues. "The power of bundles, after all, has little if anything to do with what customers want."
He says bundles, in economic terms, have a "negative utility, and that customers have to be 'paid' for the disadvantage of taking them."
Moreover, although service bundles have proven to reduce churn, they do come at a cost, because the offerings within those bundles are often discounted.
Moffet also questions whether a cable MSO-delivered mobile service can provide anything unique, either in cost structure or in service offerings. It doesn't necessarily take a big expensive joint venture to synch up calendars and address books across multiple platforms, or to enable customers to schedule their DVRs remotely. The latter, he says, can be done via a simple Web interface.
He also thinks Clearwire's business plan -- $13 billion of revenue within six years, equivalent to more than $4 per month for every man, woman, and child in the U.S. -- is "wildly optimistic."
"True, their model calls for lots of machine-to-machine communications, telemetry, etc. But $4 per month per person? That's a lot of wirelessly-enabled Coke machines in seven years."
High on Cablevision's WiFi approach
Moffett is much more bullish on the Cablevision Systems Corp. (NYSE: CVC) wireless strategy, which is to spend a relatively paltry $300 million to build a WiFi network and give away service for free, or at least tee up wireless as a freely added feature. (See Cablevision Plays WiFi Card .)
Cablevision is also using that money to wire up its cable plant for Docsis 3.0. (See Cablevision Begins Wideband Assault.)
Moffett believes Cablevision can pay for the buildout through the subscribers gained or retained for its wired broadband service. At an ARPU (average revenue per user) of $35 per month and 80 percent margins for wired high-speed Internet services, "it would take only 160,000 incremental subscribers – just 3.6% share of [Cablevision's] footprint – to earn a 10 percent return on investment," he wrote.
Moffett also points out that Verizon Communications Inc. (NYSE: VZ), one of Cablevision's primary competitors, is in no position to provide a free wireless option. It's just spent more than $10 billion for auctioned 700 MHz spectrum and is still in the middle of a $18 billion FiOS buildout. (See AT&T & Verizon to Use 700 MHz for 4G .)
In this competitive environment, will consumers pick FiOS and add a 4G wireless service for $40 more per month, or go with Cablevision's cable modem service, which adds a wireless play for no added charge?
"Cablevision is hoping that at least some – say, 2 percent of them – will choose the latter," Moffett says.
— Jeff Baumgartner, Site Editor, Cable Digital News