Why Cable Companies Are Still Interested In The Cutthroat Wireless Market

Cable and pay TV operators have expressed increasing interest in the wireless market in recent years. For instance, Comcast (NASDAQ:CMCSA) intends to launch an MVNO service in partnership with Verizon (NYSE:VZ), while picking up some spectrum in the FCC’s recently concluded auction, potentially laying the groundwork for its own network. Comcast’s pay TV rival Dish Network has been amassing a spectrum hoard of its own, while cable major Charter Communications has also said it would introduce a wireless product in 2018. This interest seems odd on the surface, as growth in the wireless market has largely tapered off and the nationwide carriers are in the midst of a full blown price war. Below we take a look at why the wireless market remains attractive to cable companies, despite the current headwinds.

Mobile Content Consumption Poses A Threat To Cable Business Model

Cable and pay TV companies are essentially content delivery platforms, delivering video content to their subscribers’ homes via cable or satellite. However, people are spending less time watching television in general, while spending more time consuming video and other content on mobile devices such as smartphones and tablets. For perspective, the digital ad market (which is increasingly mobile-based) was projected to surpass the TV ad market in the United States in 2016. By having control of the wireless last mile, cable companies could effectively hedge the future of their businesses.

Bundling A Wireless Service Can Improve Customer Loyalty

Cable companies typically offer bundled services  to customers (pay TV, broadband, fixed line phone) as a means to improve customer loyalty and relationships, while bringing down churn rates. By adding a wireless service – which has become indispensable for most Americans – to the mix, carriers could offer a so-called quad-play bundle, potentially deterring customers from cancelling their services and migrating to  rivals. Retaining existing customers is becoming more important to cable companies at a time when cord-cutting is gaining steam.

5G Could Play To Strengths Of Cable Operators

The next generation of wireless data services, 5G, may also presents an opportunity for cable players. Unlike 4G and prior technologies, for which towers are often placed miles away from each other, 5G requires a large number of smaller cells to provide coverage, as it will largely use higher-band spectrum. Additionally, the data traffic from cells needs to be transferred to high-speed networks (backhaul) that can transport it to its ultimate destination. This could play to the strengths of cable companies, who hold vast networks of fiber optic lines, particularly in densely populated areas.

Cost Synergies In The Event Of M&A

While wireless carriers and cable companies are quite different operationally, there still may be significant scope for cost synergies in the event of a merger. For instance, sales and marketing spending could be reduced by offering bundled services and potentially reducing the number of stores and service centers. Costs related to other back-office operations such as billing and customer service could also see a reduction, on account of greater scale. There may also be some operational overlaps such as backhaul, where some savings could be realized.

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