Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
Cable operators are market leaders for pay TV and broadband services, and have done very well stealing fixed voice lines from traditional telephone carriers. Yet they are woefully behind when it comes to wireless service. Cable operators purchased and sold spectrum, dabbled in MVNOs, and partnered with Sprint to launch the Pivot wireless service, yet none of those strategies has worked despite the fact that the wireless market was experiencing a period of unprecedented growth.
Cable operators will soon begin feeling the pain from their past failures. While it is fairly obvious that broadband service providers (BSPs) without a wireless play will be unable to offer the holy grail of bundles, the quad play (for which demand has been relatively light to date), less obvious but just as important is the missed opportunity for these BSPs to provide the nouveau triple-play bundle of broadband, pay TV and wireless. Wireless substitution is on the rise, and it will continue to grow, particularly for young and single adults. Why? The three key reasons are:
Improved in-home coverage
Consumers rank coverage while traveling and coverage at home as the top two reasons for selecting a wireless service provider. Wireless substitution for fixed voice service only makes sense if the user has a strong signal in the home. The emergence of fixed-mobile convergence (FMC) solutions through dual-mode Wi-Fi-cellular networks (such as T-Mobile’s Hotspot@Home) and femtocells (like Sprint’s Airave product) remove in-home coverage as a barrier to adoption. Carriers increase the value proposition of wireless service within the home, while concurrently reducing congestion on their networks by offloading traffic to the Internet using the customer’s broadband connection.
Cheaper, predictable pricing
For young consumers and singles, the economics favor going wireless-only, provided in-home coverage is sufficient. For others, the emergence of all-you-can-eat (AYCE) wireless voice pricing plans will make wireless-only a relatively more feasible option. The current $99 offers for flat-rate wireless service are actually lower than were carriers’ prior pricing plans for the largest bucket of minutes, favorably comparing with the combined cost of a $50 fixed line with unlimited local and long distance as well as a $50 wireless plan. Fixed AYCE plans also add predictability to the monthly wireless bill (i.e., no overage charges), whereas none previously existed.
Personalization
The cellphone has driven the personalization of communications by associating a phone number with an individual, as opposed to a location. Consumers have likewise embraced that concept by adopting an anytime-anywhere attitude toward communications. By personalizing the communications experience, wireless carriers have driven many young consumers away from fixed voice lines, a trend which will likely continue until those users recognize the value in location-based calling, for which there is greater appreciation by family households.
Not that the cable MSOs haven’t recognized this problem. In fact, new strategies are being pursued: Cox is building out its own network using spectrum acquired in the 700 MHz auction; Cablevision is currently patching together a Wi-Fi network covering the entirety of its network footprint, and the former Pivot partners (minus Cox) have re-connected and invested in WiMAX operator Clearwire. Each strategy has its own technical issues to contend with, to be sure. But as a whole, the cable operators have their work cut out for them in entering the mature, competitive market for wireless service. To be successful, the MSOs must:
1. Offer a differentiated service. With 79% of the U.S. population subscribing to wireless service, cable operators will have to focus much of their marketing capital on migrating existing customers away from their current wireless provider. Simply offering a “me too” wireless experience will not cut it, as the Pivot joint venture proved.
2. Offer compelling value. For the same reasons, a “me too” pricing schedule is unlikely to draw the attention of potential customers. In the current economy, consumers will continue to focus on their wallets, and so should the MSOs.
3. Educate consumers about network coverage and call quality. As discussed, network coverage is a critical factor for consumers selecting a wireless provider. Furthermore, the incumbent wireless providers have been fine-tuning their networks for years. The cost and features of a cable operator’s wireless service are meaningless if consumers have any concern about network coverage.
4. Compete for top handset deals. The iPhone, G1 and Blackberry Storm have taught us that offering trendy devices is becoming increasingly important for carriers to compete in the wireless market. In classic Catch-22 fashion, a trendy handset would be a valuable customer acquisition tool for cable operators, yet without a base of wireless customers to leverage, cable operators may be unable to secure distribution rights for a trendy handset.
5. Use existing customer relationships. Cable operators do, however, have a strong existing base of TV, Internet, and voice customers to lean on. The benefit of combined wireless voice and data networks, as will be utilized by cable operators in the near future, is the ability to cross-sell to both existing broadband and existing voice customers. Service integration can play a key role here as well to attract wireless subscribers.
The big integrated telcos, Verizon and AT&T, are in the early stages of introducing wireless-inclusive bundles that offer more value than a $5 monthly discount. They are also focusing more attention on their 3G wireless networks and preparing for the shift to LTE. Cable MSOs must act quickly to take advantage of the window of opportunity that is currently open. Delayed and/or poor market entry strategies will foreclose the MSOs from the wireless market – perhaps for the last time.
Doug may be contacted at DWilliams@forrester.com. RCR Wireless News may be contacted at rcrwebhelp@crain.com.
