Quad-play overrated for cable, analyst says

Despite the oft-discussed benefits of the bundle and the relatively recession-proof nature of wireless, AT&T and Verizon Wireless are essentially the only major US operators to offer a true quad-play today. Cable companies are making moves in the wireless space, but at least one industry analyst is not convinced they should even bother with a wireless service at all.

According to Bernstein analyst Craig Moffett, academic research shows that bundles have a negative utility in economic terms, meaning customers have to be compensated for agreeing to accept restricted choice. The argument in favor of wireless is that competing telcos have it and, as more cable customers cut the cord on their landlines, they must turn to wireless to stay competitive. Moffett calls this theory thin.

“The power of bundles, after all, has little if anything to do with what customers want,” Moffett wrote today in a research report. “And it has nothing whatsoever to do with what competitors are offering. Bundles are about the network. Bundles are about supply, not demand. The power of the bundle arises from the marginal costs of delivery. In other words, it's the network, stupid.”

Bundling requires the carrier to offer a discount, which often outweighs the revenue, Moffett added. He outlined three questions that cable companies must answer in the affirmative to have a compelling reason to enter wireless. First, does cable’s current fiber/coaxial cable network confer any cost advantage in building or operating a wireless network? Second, would owning a wireless network lower the costs of operating their cable network? And third, are there products or services that can be uniquely delivered by an operator controllingboth a wireless and wireline cable network? There is little evidence to suggest that any answer would be yes, he said.

“Sure, there are opportunities for MSOs to provide cellular backhaul,” Moffett said. “That might be a big future revenue generator for cable operators, but it doesn’t take a joint venture or a bundle to do that.”

Previous wireless ventures haven’t proven effective for the cable industry and even some telcos. The demise of Pivot, Sprint’s partnership to provide wireless service with Comcast, Cox Communications and Time Warner Cable, left the cable companies to fend for themselves – if they so choose.Surewest Communications sold its wireless business to Verizon in January, and Embarq abandoned its reseller deal with Sprint back in May. Qwest, too, gave up its virtual operator relationship with Sprint to sell standard Verizon Wireless service from cellular kiosks, similar to its reseller relationship with DirecTV. Then last month, the operator began phasing out its wireless service, encouraging its customers to switch to Verizon Wireless instead.