Convergence between wireless and wireline finally appears to be within reach, begging the question of whether cable companies or fiber-forward telcos like AT&T and Verizon will come out on top. A new analysis from MoffetNathanson tackled the topic, concluding the latter could be at a competitive disadvantage.
MoffettNathanson’s argument in cable’s favor boils down to a few main factors: timing, coverage and cost. For instance, in terms of timing, the analysts noted it will take years for telcos to roll out and achieve significant penetration with new fiber builds, whereas cable companies can move more swiftly to implement competitive wireless MVNO offers that benefit their broadband service.
Earlier this week, analysts at New Street Research argued there’s plenty of room for cable companies to compete in the wireless space at the entry-level tier, but pointed out Comcast and Charter will likely lose out with customers who want device subsidies since they don’t currently offer any. They added aggressive wireless pricing can also help cable companies “hold share in the broadband market as new competition from fiber and fixed wireless arrives.”
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Additionally, cable companies can cover more ground with bundled mobile-broadband offers since “their broadband service availability is ubiquitous in footprint, and their wireless service is national,” MoffettNathanson analysts wrote. “The TelCos, by contrast, can bundle wireless and fiber-based broadband only where they have fiber-based broadband.” As things stand today, Verizon and AT&T each cover just a fraction of the U.S. with fiber, while T-Mobile doesn’t offer any fiber coverage at all.
But perhaps the biggest risk to telcos related to convergence is the cost associated with deploying fiber. MoffettNathanson noted while cable operators are paying for their wireless MVNO service on a “success-based basis,” telcos are paying for fiber rollouts upfront. That leaves them exposed “if prices or penetration falls, or if costs to deploy rise,” the analysts explained. The usual six-to-ten-year period it takes to earn a return on fiber investments could be dragged out or even become “unattainable,” they warned.
“The broadband/wireless bundle of today (or tomorrow) is about price; operators will have to pay customers, in the form of a discount, for the disadvantage of forced choice,” MoffettNathanson concluded. “Cable’s cost structure and infrastructure advantage allows for them to do that. Verizon’s and AT&T’s do not.”
That doesn’t mean that cable is immune to fiber’s impact, though. New Street Research analysts predicted cable will “continue growing broadband subscribers, though growth will slow sharply as fiber deployments gain pace over the next five years.” They pointed to Altice USA as the cable player with the most exposure to fiber-to-the-home buildouts, followed by Comcast and Charter.