T-Mobile continues to weave a tale about how it intends to disrupt the pay-TV market with a new, national OTT offering, set to launch later this year, without revealing much about how it actually intends to achieve this noble goal.
The vagueness surrounding T-Mobile US Inc. 's plans, centered on its $318 million acquisition of Denver-based Layer3 TV in January, continued Wednesday on the company's Q2 earnings call, though execs reiterated that part of the plan is to provide a better linkage between the consumer's mobile device and the TV. (See T-Mobile Buys Layer3 TV, Plans OTT Launch.)
"You're going to see a lot of firsts in that product, because customers have a lot of needs," said Mike Sievert, T-Mobile's president and COO. "They're sick and tired of these outdated systems that the legacy cable companies have been bringing them, with their outdated program guides and the technology island that your TV represents, as opposed to your highly connected social media-fueled life that you live in your mobile phones."
Though T-Mobile continues to hammer on cable's outdated video technology, providing a slick interface isn't much of a game-changer anymore. They're table stakes now. MSOs such as Charter Communications Inc. , Comcast Corp. (Nasdaq: CMCSA, CMCSK) (and Comcast's X1 syndication partners), as well as smaller operators that are working with companies such as TiVo Inc. (Nasdaq: TIVO), Evolution Digital LLC and MobiTV Inc. have been rolling out more intuitive cloud-based guides that work on set-tops as well as mobile devices. (See New Video Options Emerge for Indie Cable Ops .)
Traditional pay-TV service providers certainly present a soft target for T-Mobile to attack, but T-Mobile's new service will also have to contend with a market that's already littered with over-the-top TV service rivals (Sling TV, fuboTV, PlayStation Vue, DirecTV Now, Philo and Hulu) that not only have a big head-start but already employ fancy user interfaces, network DVR services and other advanced services. (See Skinny TV Services Pack on Some Pounds.)
Nevertheless, Sievert believes that there's still a lot of opportunity in attacking the video market, noting that T-Mobile has been expanding on a testbed while it develops the product that will ultimately come to market.
Before the acquisition, Layer3 TV was focused on an in-home, managed IPTV offering featuring a big channel line-up, some 4K fare, and some integrations of OTT content in a handful of markets. According to T-Mobile Securities and Exchange Commission (SEC) filings, Layer3 TV had about 5,000 customers when the deal was closed -- not a huge surprise given that the company had yet to get very aggressive with its customer acquisition marketing.
Though it's been mum on the details, T-Mobile clearly has some ideas in mind as it looks to have Layer3 TV ride its coming 5G network. But how it can truly differentiate and move the needle when it unleashes its national OTT TV service remains the big question.
It will likely have to get creative with mobile, broadband and video bundles along with special offers and perks that, for example, will enable consumers to stream video without having to fret about caps and cumbersome data-usage policies. (See T-Mobile: 5G Lets Us Take Broadband Across America.)
But for many consumers that have cut the cord or have steered clear of pay-TV altogether, the cost has been a big issue. T-Mobile could also try to resonate with aggressively low-cost services and various skinny channel line-ups, but even it will likely be hard-pressed to make the numbers add up because it has much less control on the costs of programming the service. It's entirely possible that T-Mobile will offer a pay-TV service at break-even or perhaps at a loss as it looks to prime the pump for its OTT TV offering in the early going.
A public interest statement (PDF) tied to its proposed merger with Sprint Corp. (NYSE: S) illustrates the business challenge faced by T-Mobile in the pay-TV arena. In it, T-Mobile estimates that that Layer3 TV's content acquisition costs are as much as 30% higher than larger pay-TV providers pay for the same programming. T-Mobile argued that adding Sprint to the mix will give it more scale and, therefore, more leverage at the negotiation table.
— Jeff Baumgartner, Senior Editor, Light Reading