Quad-play overrated for cable, analyst says

Most cable companies left the wireless business due to a lack of subscriber interest resulting in a lack of revenue and a desire to put their focus elsewhere, but they also weren’t ruling out future wireless possibilities. Cox announced in October that it would launch a wireless service over its own 3G network in 2009. It was the first to unveil its wireless plans in detail, but it was soon followed by Bright House, Comcast and TWC, which all placed their bets on Clearwire. The nationwide WiMax network gives the cablecos access to high-capacity wireless broadband service, as well as to SpectrumCo AWS license in their territories, meaning they can compliment any data-centric WiMax offering with 3G services if they also choose to launch their own voice service.

Shane Dark, director of telecom and media at research firm Compete, wasn’t as quick to question the value of wireless to cable operators. Past ventures, like Pivot, failed because of the difficulty in unifying the participant’s unique agendas to create a quality customer experience, he said. Cox, in handling its own wireless, can fix this problem even though it will come at a cost. Clearwire’s venture presents another alternative, which he said is particularly viable as more consumers want wireless broadband connections on the go.

“It’s an important opportunity for the cable providers to consider wireless still,” Dark said. “We all think of wireless as typically being your cell phone, but it’s really emerging more into wireless broadband access to where, while on the go, you can consume videos and higher broadband content. The cable providers have a lot of these inlays – Comcast can be set up well to further diversify if it had wireless in place.”

As an alternative to Clearwire, Cablevision, which opted out of the partnership, is building out a $300 million WiFi network to offer free service to its 4.5 million footprint in New York. This strategy of making wireless a feature rather than a revenue generator may actually make the most sense, Moffett said. It builds the network cheaply, relying on free spectrum and low-cost equipment that the consumer foots the bill for, unlike a telecom network that requires high construction costs.

“Their model is to pay for the WiFi network by, well, giving it away,” Moffett said. “The $300 million of capital spending required to build it, and the modest operating costs to run it, can be paid for with just a small uplift in market share – either gained or retained – in their wired broadband service. At a an ARPU of $35 per month and 80% contribution margins for wired broadband, it would take only 160,000 incremental subscribers – just 3.6% share of their cable footprint – to earn a 10% return on investment.”

Cablevision’s WiFi plans pit it against Verizon in New York. The cableco’s ability to offer free broadband is something Verizon can’t match, Moffett said, and a wireless data subscription at no additional charge should incentivize customers to choose the cableco over the telco. In fairness to its cable partners, Clearwire won’t adopt Cablevision’s free business model, he added. Moffett’s main skepticism over the joint venture centers on the competing interests involved, poor spectrum propagation and a poor credit market for funding the build-out. Clearwire’s business model could be successful if the data market emerges from laptop cards, he said. But if it comes from smartphones, of which voice is fundamental, it could be a different story.

“For all the talk about a WiMax-driven wireless data ‘revolution,’ we’re skeptical,” Moffett said. “The business model seems, well, conventional. And costly. And borne of a notion about bundling that just doesn’t make sense.”