Comcast (NASDAQ:CMCSA) recently installed 2,500 WiFi hotspots in the parts of eastern Massachusetts and southern New Hampshire.  This move comes as the company continues to expand its network of WiFi hotspots in the U.S. This approach is not unique to Comcast, but something that cable companies are doing together. Comcast, Time Warner Cable (NYSE:TWC) and other cable operators in the U.S. are building out a nationwide network of WiFi hotspots for their subscribers. The cable companies have agreed to share WiFi hotspots with one another. This could be a significant shift in telecom industry if the strategy serves its purpose. While it can help the cable operators in reducing their churn and expanding their user base, it can negatively impact the wireless carriers.
Mobile Devices Are Increasing, So is WiFi Usage
The last few years have seen a significant increase in internet-enabled mobile devices. The sales of smartphones, tablets and notebooks have increased while stationary devices such as desktops have not gained much traction. According to Gartner’s estimates, about 172 million smartphones were sold in 2009, an increase of about 24% over 2008 figures. The growth further accelerated in 2011 when Gartner reported that Q3 2011 smartphone sales amounted to 115 million units, registering a growth of 42% over Q3 of 2010. For the full year 2011, the total smartphone sales stood at more than 430 million units.
With increased web activity on mobile devices, Wifi usage has also increased. Smartphone owners tend to use both cellular data services as well as Wifi for their internet needs. According to a comScore report released in 2012, about 71% of iPhone users and more than 30% of Android-based smartphone users browse via both mobile and WiFi networks. 
WiFi Hotspots Can Be Useful Assets
According to a study conducted by Nokia, stationary locations such as home, restaurants, coffee shops etc. are commonly used spots for mobile web access.  Fortunately for cable companies, such stationary locations are also ideally suited for Wifi hotspots. This implies that consumers accessing the web on their mobile devices such as smartphones, tablets and laptops, may find that most of their mobile web usage occurs at such stationary locations. Therefore, they could offload a significant amount of data usage to Wifi.
Cable Companies Could Experience Increased Subscriber Retention & Addition
The U.S. wireless carriers are moving away from the unlimited data plans and adopting tiered pricing with usage limit. This is somewhat at odds with the consumer shift towards increased data usage on mobile devices. In such a scenario, a nationwide WiFi hotspot network could provide consumers an opportunity to make a more economical choice when it comes to their mobile data plans. They could subscribe to lowest priced data plan with their wireless carriers, and utilize WiFi hotspots for bulk of their data usage, thus saving money.
While such a situation could bring some trouble for the wireless industry, it would be immensely beneficial to cable operators who have struggled with their subscriber growth in the recent years. Customers may choose to go to cable operators instead of defecting to, or opting for, satellite operators and telcos for their broadband services. This could also prompt them to utilize bundling opportunity and save money by subscribing to other services with their cable broadband providers such as pay-TV and VoIP. A successful implementation of WiFi hotspots could potentially be a game changer for the cable industry.
Our price estimate for Comcast stands at $37, implying a premium of between 5% to 10% to the market price.Notes: