The digital era is bringing fundamental, disruptive changes to traditional business models for communication service providers (CSPs), including telecom operators and cable providers, as the mobility, broadband and video industries converge more deeply. These shifts are driven by the following trends, which will gain further traction over the next several years:
- The rise of cable mobile virtual network operators (MVNOs) — New entrants including Xfinity Mobile and Spectrum Mobile are attracting wireless customers via low price points and the convenience of being able to enroll in multiple services through a single provider.
- Preference for over-the-top (OTT) video — The popularity of OTT services including Netflix, Hulu and HBO Now are contributing to video subscriber losses for cable providers and bundling opportunities for wireless operators.
- Wireless as a broadband replacement — Over the next several years, customers will gradually substitute traditional fixed broadband connectivity with wireless-based services due to enhanced 5G and LTE-Advanced coverage, fixed-wireless services, and increased data allotments for mobile hot spots.
These trends create both revenue opportunities and disruption for CSPs as cable providers have opportunity to take market share from telecom operators and vice-versa. Cross-selling multiple services enables CSPs to maximize revenue opportunities per customer while also helping to reduce churn. Conversely, the deeper convergence within the telecom and cable industries will create greater challenges for CSPs as broadband and video access will become more commoditized, which will make competitive pricing more crucial to attracting and retaining customers.
Cable MVNOs are disrupting the mobility industry
Comcast’s Xfinity Mobile has emerged as a stronger player within the U.S. wireless market as the brand has garnered over 1 million customers since launching in mid-2017 and has been able to consistently outperform AT&T and Sprint in postpaid phone net additions the past several quarters. Contributing to Xfinity Mobile’s success is the low price of its unlimited data plans, which are currently undercutting prices from all Tier 1 U.S. operators, for the underserved market of single-line customers. Xfinity Mobile is also attracting customers by offering pay-as-you-go pricing for $12 per GB, which provides price-sensitive customers who consume minimal data an alternative amid the market’s emphasis on unlimited data plans.
Xfinity Mobile will become a stronger competitor in the U.S. market over the next several years as it expands its retail footprint and Comcast gains additional broadband customers to which it can cross-sell wireless services. Spectrum Mobile, which became available across Charter’s footprint in September, will also disrupt the U.S. wireless market by offering similar pricing incentives as Xfinity Mobile. Additionally, Altice USA plans to launch an MVNO offering in 1H19 that will focus on serving bring-your-own-device customers, giving the company the opportunity to cross-sell mobility services to its current residential base of over 4.5 million customers.
To counter disruption from cable MVNOs, operators can capitalize on the value proposition offered by their unlimited data plans, which bundle in popular OTT streaming services as well as other incentives including high-speed data tiers for mobile hot spots. Telecom operators are also relying on the discounts provided to multiline unlimited data accounts, which are not currently offered to Xfinity Mobile and Spectrum Mobile customers, to undercut cable MVNOs.
Wireless begins to disrupt the traditional fixed broadband market
Significant enhancements in wireless technology over the past few years, such as the inception of 5G, which makes millimeter-wave spectrum viable for commercial use, as well as the inventions of carrier aggregation, 256 QAM and massive MIMO, have made it economically feasible for CSPs to offer mobile broadband as an alternative to traditional fixed broadband services.
Though Verizon was a major driver of this trend with its early use of 5G fixed wireless, TBR expects more CSPs will begin to leverage their wireless assets to provide similar services in 2019 and beyond. AT&T, with its Netgear Nighthawk 5G Mobile Hotspot, essentially provides a nomadic ultra-high-speed broadband connection leveraging 5G. T-Mobile is also looking to jump on the bandwagon, arguably in a much bigger and more market-impactful way, especially if its proposed merger with Sprint is approved. Regardless of whether the deal goes through, T-Mobile intends to leverage its mix of low-, mid- and high-band spectrum assets with the aforementioned wireless technologies to provide its own mobile broadband as an alternative to fixed broadband services.
A new phase of price competition for internet service could come to North America due to wireless. TBR also expects this trend to unfold in other developed and developing markets, especially where fixed access is not widely deployed. Offering wirelessly delivered, high-speed internet services could become a major new business for telecom operators that are in countries where internet penetration is relatively low.
Consumers will reap the greatest benefits from cable and telecom industry convergence
Though CSPs have the opportunity to create new revenue streams from the deeper convergence of mobility, broadband and video services within the cable and telecom industries, these benefits are largely outweighed by the competitive challenges spawned by industry convergence. Consumers will reap the greatest benefits from cable and telecom industry convergence as they gain more flexible service options as well as the ability to enroll in additional services from a single provider. The competition created from cable and telecom industry convergence will also spur CSPs to become more competitive in their wireless, broadband and video pricing to maintain market share.