The cellular business is a perfect fit for a cable company. They already have fiber deep into every neighborhood, which makes it easy to strategically locate small cell sites without building additional fiber. The big cable companies have put a lot of effort into WiFi which can save money by capturing a lot of cellular backhaul traffic from customer phones.
Having the ability to leverage the existing network also gives cable companies a lot of flexibility. They can continue to buy wholesale cellular minutes in areas where the cell traffic volume is light and use their own cellular network where customer usage is high. This is a cost advantage over the cellular companies that must provide their networks everywhere.
It’s an interesting dynamic. I think the cable companies got into the cellular business as a way to increase customer stickiness – meaning making it harder for customers to leave them. The cable companies will only sell cellular to customers who buy their broadband, meaning that a customer that wants a new ISP must also change to a new cellular provider. But now that cable companies are gathering a mass of customers, I have to think they are now looking at cellular as a big profit opportunity.
To a lesser degree, large cellular companies are building a converged network when they are using excess capacity on the cellular network to provide FWA home broadband. This has obviously been a winning strategy in the last year when Verizon and T-Mobile were the only two ISPs with big growth.
But as I look at the long-term outlook for FWA, this doesn’t seem like as strong of a converged strategy as what the cable companies are doing. To me, the difference is in the capability of the two networks. A cable company’s last-mile network can absorb cellular backhaul from customers with barely a blip in network performance. But the same can’t be said for cell sites. It’s far easier for cell sites to reach capacity, and cellular companies have made it clear that they will prioritize cellular data over FWA broadband performance. Maybe cellular carriers can solve this problem by eventually fully implementing the 5G specifications. But for now, cable company networks can handle convergence much more easily than cellular networks.
I have been wondering why fiber providers have not made the same push for convergence. The one exception might be Verizon, which has said in recent years that it now considers all arms of its business when building fiber assets. In the past, the company treated its fiber Fios business, the cellular business, and the CLEC business as arms-length businesses. From what I can tell, Verizon is still not as converged into what the cable companies are heading for – but there might be a lot more of that going on behind the scenes that we don’t know about.
I’m surprised that nobody has tried to integrate the cellular business for small fiber providers. There is a pretty decent list of fiber providers today that have between 100,000 and 1 million customers – and most of them are growing rapidly. It would be a major challenge for a single ISP with a few hundred thousand customers to launch the same kind of MVNO cellular operation that has been done by Comcast and Charter. But it seems like there ought to be a business plan for fiber ISPs to collectively tackle the cellular business. A last-mile fiber company can bring all of the same benefits to an integrated cellular business as the cable companies and are only lacking economy of scale.
I can think of a few reasons nobody has made this work. Taking time to consider cellular is a major distraction for a fiber ISP that is building fiber passings as quickly as possible. There is also getting the many mid-sized fiber providers to trust each other enough to be partners. But at some point in the future, it’s hard to think that somebody won’t figure this out.
If fiber ISPs enter the cellular business, broadband becomes a truly converged market where cable companies, cellular companies, and independent fiber providers compete with the same suite of products. I know that’s what the public wants because it breaks some of the monopolies and increases choice. My crystal ball says we will get there – I’m just fuzzy about how long it will take.