Author(s): Raghu Gopal
Yesterday Comcast, a US cable, telephony and broadband provider confirmed that it will begin offering wireless services to subscribers in 2017. Comcast offers connectivity services under its Xfinity brand.
We have long believed that Comcast would extend its multiplay offerings (see Instant Insight: Comcast Results, 4Q15). The company already had an agreement in place with Verizon to use its cellular network. In addition, Comcast has been building a Wi-Fi network across the US primarily by using a slice of its subscribers' home broadband routers. This patchwork of wireless is further complemented by partners in the Cable Wi-Fi alliance.
As a wireless mobile virtual network operator, Comcast will enter a maturing market that's increasingly competitive and in the throes of a tough price-war. Practically every wireless line it brings in will require a port from an established wireless carrier, which won't be easy to attain. To reach big numbers, it will take market churn, which is at a near record-low in the US. AT&T and Verizon, for example, both have post-paid churn rates below 1 percent. Comcast has content assets through its NBC Universal subsidiary, which it could use to bring in cord cutters. Its portfolio includes NBC Broadcasting, Universal Pictures, DreamWorks Animation and Telemundo. This approach could offer Comcast an affordable route into mobile services. But if it's serious about this opportunity, it may consider participating at the ongoing 600 MHz incentive auction for mobile spectrum in the US.
Comcast could be eyeing AT&T, which has been encouraging multiplay across fixed-line and wireless services. For example, AT&T offers its U-verse and DirecTV video subscribers unlimited LTE plans. Comcast could attempt to build its own form of unlimited mobile data by using its Wi-Fi infrastructure to supplement cellular access.
To compete against legacy players, Comcast will need to have both a retail presence and attractive smartphone offers. And although the US market has moved away from subsidies in theory, generous trade-in offers, interest-free financing and buy-one-get-one deals are all camouflaged types of subsidy.
Comcast's announcement is likely to have been driven by recent moves in the US, such as AT&T buying DirecTV, which have heaped pressure on the company to bolster its multiplay position. Comcast is likely to initially target mobile services toward its large number of Internet and TV customers. But it will face a challenging task to build a presence and reputation against established brands with huge scale. The move could also force the hand of Sprint and T-Mobile, which have shown little inclination to develop multiplay strategies.
Comcast will need to gain millions of wireless subscribers per year during the coming years if it wishes to be more than a niche player in the US. This isn't impossible given it has about 28 million customers, and it could piece together unique packages to attract potential subscribers, but moving up from zero to a million users will be a challenge. The first million is always the hardest.