What to Expect From Altice Mobile

Mike Dano
News Analysis
Mike Dano, Editorial Director, 5G & Mobile Strategies
9/10/2019



Now that Altice USA has officially joined the mobile industry with its Sprint-powered MVNO service -- starting at $20 per month for its own cable customers -- what should we expect from the company in the coming months and years?

Customers
The cable industry -- specifically Comcast's Xfinity Mobile and Charter Communications' Spectrum Mobile -- is gaining share in the mobile space, and Altice USA is expected to accelerate that trend. According to the Wall Street analysts at research firm Cowen, Charter and Comcast commanded 0.9% of the total US wireless market at the end of Q2 2019, but represented fully 34% of postpaid phone net customer additions during the past two quarters.

However, the Wall Street analysts at New Street Research noted that Altice USA's cable service footprint covers just 6% of the country (Altice USA is marketing its new mobile service nationwide, however), whereas Comcast and Charter collectively cover 75% of the country. Further, the firm reported Altice USA counts just 80 total retail stores in its service footprint, a figure that is dwarfed by the thousands of retail stores that AT&T and Verizon operate around the nation.

As for Altice USA's customer-acquisition prospects, the analysts at Cowen predicted the company would gain 48,000 mobile lines in 2019, a figure that would grow to 295,000 in 2020 and fully 1.7 million by 2023. That 2023 figure would represent around 13% of Altice USA's wired Internet subscriber base.

Network economics
Altice USA has described its mobile service as an infrastructure-based Mobile Virtual Network Operator (iMVNO) because the cableco operates its own core infrastructure for the offering, rather than relying on Sprint's infrastructure. Altice USA has also constructed around 20,000 small cells for Sprint using its cable network for backhaul. And, like other cable MVNOs, Altice USA plans to offload Altice Mobile traffic onto its public WiFi hotspots. Those moves position Altice USA as a different kind of MVNO because it operates some elements of a wireless network, rather than just slapping its brand on top of Sprint's wireless network, as most MVNOs do.

Indeed, due to that structure, Altice USA executives predicted the company's mobile offering would reach profitability within a year on a standalone basis.

Analysts appear to agree with that assessment: "Altice is able to achieve profitability more quickly than its peers because of its unique agreement with Sprint relative to the typical MVNO agreement," wrote the Wall Street analysts at research firm Nomura's Instinet. "Specifically, Altice will operate the Home Location Register (HLR), which is the core of the wireless network, thereby enabling Altice to control the traffic riding over the Wi-Fi and cellular networks, which reduces the cost per gigabyte (GB). Altice will also provide its own SIM cards and can negotiate its costs directly with the SIM supplier. Finally, because Altice controls the core wireless network, it can onboard subscribers from all four wireless carriers without swapping out the SIM cards, which drives a spike in churn."

And the analysts at New Street even provided some estimates for Altice USA's mobile business model, including how much the company is paying to Sprint for wholesale access to its mobile network (the companies won't disclose those financial terms). The New Street analysts said Altice USA is likely paying Sprint $2.25 for every GB its mobile customers use, which they said implies incremental earnings before interest, tax, depreciation and amortization (EBITDA) of $5 per month, or a 23% margin. "Assuming fixed costs of ~$5 million annually, Altice would breakeven around 1.1 million subscribers, or 10% penetration of Altice's broadband households," the analysts wrote.

The Cowen analysts reached a similar conclusion, estimating that Altice USA pays $2.50 to Sprint for every GB the company's mobile customers consume.

Impact to AT&T, Verizon, Sprint and T-Mobile
"We expect to see a limited impact on Big 4 wireless churn as we view Altice's offering as largely a niche play," wrote the analysts at New Street Research, arguing that Altice Mobile simply won't cover much geographic territory to be much of a threat on a nationwide scale. However, the firm added that Altice USA likely will focus much of its mobile efforts in New Jersey and New York, where it has deployed many of its WiFi hotspots and small cells for Sprint.

And, according to New Street Research, Altice Mobile could eventually pull up to 1.5 million total customers away from the likes of Sprint, Verizon, AT&T and T-Mobile.

Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

(0)  | 
Comment  | 
Print  | 
Copyright © 2019 Light Reading, part of Informa Tech,
a division of Informa PLC. All rights reserved.
Privacy Policy | Cookie Policy | Terms of Use