The Quiet Growth of the Quad Play

A few years ago, some of the largest cable companies announced they were getting into the cellular business. At the time, this got a tiny amount of press but overall the press didn’t take these companies seriously or consider them to be potential major players in the cellular business.

Comcast Charter and Altice have quietly been adding cellular customers over the last three years.

  • Comcast recently reported that the company added 216,000 cellular lines during the first quarter of 2020, bringing their total lines to 2.3 million.
  • Charter added 290,000 customers in the first quarter, bringing the company to 1.4 million mobile lines.
  • Altice added 41,000 customers in the first quarter, bringing them to 110,000 mobile lines.

These growth and total customer numbers may not sound spectacular but consider that in the first quarter saw AT&T add a small number of net customers and Verizon lose a small number of net customers. These three cable companies are definitely eating into the market growth of the big carriers. Craig Moffett, the leading analyst for the communications sector declared last December that the cable companies must be considered as serious players in the cellular space.

For now, all three companies are acting as MVNOs and are purchasing wholesale cellular minutes and data from the big cellular carriers. But that won’t last forever. Comcast has made it clear that the company is in the wireless game for the long-haul. The company purchased $1.7 billion in white space spectrum in the Philadelphia market in 2017 and said that it will be bidding in the upcoming CMRS auction.

A company like Comcast doesn’t need to worry about rolling out a big national network like Dish Networks is tackling. Comcast can improve margins on the cellular business by selectively deploying cell sites in parts of markets where they have the highest traffic volumes. Comcast should be able to deploy small cells selectively in their major urban markets and be able to peel a lot of minutes off the MVNO arrangements where it makes sense. That would significantly increase their margins.

The cable companies have something in their favor that the cellular companies can’t match – the ability to bundle inexpensive cellular service in with products that customers value like home broadband. Each of the three cable companies is only offering cellular to existing customers.

Consider the Comcast plan. It’s only available to Comcast broadband customers. Customers have a choice of four data plans 1 GB for $15 per month, 3 GB for $30 per month, $10 GB for $60 per month, or unlimited data for $45 per phone. All of these plans include unlimited calling and texting. A customer can add up to 5 devices for a plan, and that can include phones for multiple family members, tablets, etc.

I have a friend who bought the Comcast plan when it first came out and it cut her family’s cellphone bills in half. The quality is as good as when they were AT&T subscribers, and their usage is likely still riding the AT&T network.

The big cellular companies have stopped growing. They’ve seen cellular prices drop over the last two years and their revenue per customer is dropping. AT&T and Verizon will start feeling real pain if the cellular companies continue to take more than half a million customers per quarter. The two companies are faced with T-Mobile greatly expanding its number of cell sites to meet the terms of the merger with Sprint. And both companies have to worried about seeing Dish Networks hit the market in two years or so with the most modern 5G network that will be software-driven.

Americans love bundles and it’s likely that the word will continue to spread that cable companies can save them money on their cellular plan. As word of mouth continues to spread that the cable companies are in the business to stay, these companies are likely to accelerate customer acquisition. The FCC was worried about losing Sprint from the market and made the T-Mobile merger contingent upon having Dish enter the cellular business. I’m guessing they didn’t take the competition from the cable companies seriously – but over time we are likely to see real competition for our cellular business.

Do Cable Companies Have a Wireless Advantage?

The big wireless companies have been wrangling for years with the issues associated with placing small cells on poles. Even with new FCC rules in their favor, they are still getting a lot of resistance from communities. Maybe the future of urban/suburban wireless lies with the big cable companies. Cable companies have a few major cost advantages over the wireless companies including the ability to bypass the pole issue.

The first advantage is the ability to deploy mid-span cellular small cells. These are cylindrical devices that can be placed along the coaxial cable between poles. I could not find a picture of these devices and the picture accompanying this article is of a strand-mounted fiber splice box – but it’s s good analogy since the size and shape of the strand-mounted small cell device is approximately the same size and shape.

Strand-mounted small cells provide a cable company with a huge advantage. First, they don’t need to go through the hassle of getting access to poles and they avoid paying the annual fees to rent space on poles. They also avoid the issue of fiber backhaul since each unit can get broadband using a DOCSIS 3.1 modem connection. The cellular companies don’t talk about backhaul a lot when they discuss small cells, but since they don’t own fiber everywhere, they will be paying a lot of money to other parties to transport broadband to the many small cells they are deploying.

The cable companies also benefit because they could quickly deploy small cells anywhere they have coaxial cable on poles. In the future when wireless networks might need to be very dense the cable companies could deploy a small cell between every pair of poles. If the revenue benefits of providing small cells is great enough, this could even prompt the cable companies to expand the coaxial network to nearby neighborhoods that might not otherwise meet their density tests, which for most cable companies is to only build where there are at least 15 to 20 potential customers per linear mile of cable.

The cable companies have another advantage over the cellular carriers in that they have already deployed a vast WiFi network comprised of customer WiFi modems. Comcast claims to have 19 million WiFi hotspots. Charter has a much smaller 500,000 hotspots but could expand that count quickly if needed. Altice is reportedly investing in WiFi hotspots as well. The big advantage of WiFi hotspots is that the broadband capacity of the hotspots can be tapped to act as landline backhaul for cellular data and even voice calls.

The biggest cable companies are already benefitting from WiFi backhaul today. Comcast just reported to investors that they added 204,000 wireless customers in the third quarter of 2019 and now have almost 1.8 million wireless customers. Charter is newer to the wireless business and added 276,000 wireless customers in the third quarter and now has almost 800,000 wireless customers.

Both companies are buying wholesale cellular capacity from Verizon under an MVNO contract. Any cellular minute or cellular data they can backhaul with WiFi doesn’t have to be purchased from Verizon. If the companies build small cells, they would further free themselves from the MVNO arrangement – another cost savings.

A final advantage for the cable companies is that they are deploying small cell networks where they already have a workforce to maintain the network. Bother AT&T and Verizon have laid off huge numbers of workers over the last few years and no longer have the fleets of technicians in all of the markets where they need to deploy cellular networks. These companies are faced with adding technicians where their network is expanding from a few big-tower cell sites to vast networks of small cells.

The cable companies don’t have nearly as much spectrum as they wireless companies, but they might not need it. The cable companies will likely buy spectrum in the upcoming CBRS auction and the other mid-range spectrum auctions over the next few years. They can use the 80 MHz of free CBRS spectrum that’s available everywhere.

These advantages equate to a big cost advantage for the cable companies. They save on speed to market and avoid paying for pole-mounted small cells. Their networks can provide the needed backhaul for practically free. They can offload a lot of cellular data through the customer WiFi hotspots. And the cable companies already have a staff to maintain the small cell sites. At least in the places that have aerial coaxial networks, the cellular companies should have higher margins than the cellular companies and should be formidable competitors.

Should You Become an MVNO?

This article compares the price of US cell phone plans to those around the world. It shows that the basic packages from the large US providers are in some cases twice as expensive as in other countries.

The small oligopoly of nationwide carriers, being AT&T, Verizon, Sprint and T-Mobile, have no incentive to lower prices. The only thing that will get them to come down in price would be competition or some sort of regulatory action.

The large carriers have created an opportunity for some competition against their products by selling bulk minutes, data and messaging. Companies that buy these bulk minutes are known as MVNOs (Mobile Virtual Network Operators). There are scores of MVNO providers in the country with the largest ones listed here.

The three original MVNOs are TracPhone, Virgin and Boost and who still had over half of the pre-paid cellular phone business in 2012. However, note that Sprint recently bought Virgin and Boost, so perhaps part of their strategy is to create sub-markets and then gobble them up to make more profit.

MVNOs have various marketing strategies:

  • Republic relies on shunting a lot of traffic to WiFi which greatly lowers their costs.
  • Ting lets customers design their own rate plan.
  • Kajeet has plans for kids that are parent-controlled.
  • Solavei uses multi-level marketing similar to Amway.
  • Voyager Mobile competes on price and is selling very low-cost plans.

If your carrier business already has a loyal customer base you should consider becoming an MVNO. Your loyalty will bring you customers, and your existing customers will appreciate being able to save money on cell phones while buying from somebody they trust. As long as you do it smartly there are significant profits to be made in the MVNO business. All that is really needed is having good existing cell phone coverage in your area and the desire to expand your product line.

CCG can help you get into the MVNO business. We can assist you with finding a good deal on bulk minutes, help you design products and prices, help you create a business plan, and help you with technical strategies such as a handphone strategy, and using WiFi to lower costs.