A cooperative bank that serves industries in rural areas, CoBank, has issued a report that identifies some factors for smaller cable telecommunications operators to consider when deciding whether to offer mobile virtual network operator wireless service. The report, “Is Now the Time for Smaller Cable Operators to Enter the Wireless Market?” finds that the answers is, “It depends.”
“Smaller cable operators have been watching from the sidelines, but now could be time for some of them to go wireless given their vulnerability to fixed wireless competition,” said Jeff Johnston, lead communications economist with CoBank. “However, launching a wireless service is no small task, and smaller cable operators should consider several factors, including the competitive landscape and how to lower wholesale costs and address scale.”
National wireless operators including Verizon and T-Mobile are setting their sights on the home broadband market, aiming to take market share from incumbent cable providers, a statement from CoBank reads. It said that advances in wireless technologies and the flood of newly available spectrum are enabling national providers to enter the broadband market with a mobile virtual network operator solution.
“Large cable companies such as Comcast and Charter have prepared for the pending threat by launching mobile virtual network operator businesses in recent years,” the statement reads. “For smaller cable companies operating in mid-tier markets, entering the wireless market now before competitive FWA alternatives arrive may be a prudent strategy.”
The fixed wireless access threat to the cable providers is still in its infancy, according to CoBank, but large operators are not taking any chances. Altice USA, Charter and Comcast have each launched their own wireless smartphone services, which they bundle with their cable broadband services, the statement reads. The strategy is primarily intended to prevent their broadband customers from switching to a FWA service, the bank said, but it also is a response to evolving video consumption trends, as more consumers want to seamlessly consume video in and out of the home.
“Results to date indicate the cable giants’ multiple system operator (MSO) strategy is paying off,” the statement reads. “Over the last 12 months, cable operators’ wireless sales represented approximately 30 percent of the total wireless industry phone net additions. In recent months, each of the cable MSOs reached major milestones in growth, revenue or churn rate improvements.”
Whether smaller cable operators should follow the path of the larger companies and enter the wireless market with an MVNO strategy is dependent on several factors, according to CoBank. It said that key factors are the competitive environment, the ability to scale and technical capabilities.
In CoBank’s view, for most small rural operators, it is unlikely that a postpaid MVNO makes sense. The issue in rural America is more about connecting people with at least one operator, and less about a vibrant and competitive market that warrants defensive moves by the incumbents, the bank said.
Nevertheless, CoBank said that for some larger regional operators, the decision is more complex. It said that cable operators in tier two and three markets are particularly vulnerable to the threat of FWA network overbuilds. National wireless operators tend to have excess network capacity in these markets, the statement from the bank reads. Not surprising, the bank said, this is where they are deploying FWA networks to grow their business.
“Launching an MVNO is a major undertaking and many factors come into play,” the statement from CoBank reads. “Lack of scale for smaller operators is an issue which can lead to an unsustainable cost structure. Prospective MVNOs need creative business models to manage costs and generate new sources of revenue.”
CoBank said that smaller cable operators should explore a creative strategy that includes a buying consortium to reduce MVNO network costs and building Citizens Broadband Radio Service (CBRS) networks to generate wholesale revenue. It said other important factors to consider include cell site and network handoffs, handset testing and certification, and overall network operations.