US cablecos poised to fulfil their wireless potential at last

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The story of cable WiFi is, so far, one of fascinating potential rather than actual achievement. In the US, the major cablecos are investing heavily in WiFi hotspots and homespots, laying the foundations for disruptive services which are yet to materialize. Cablevision’s WiFi-only FreeWheel, and even WiFi-first offerings like Republic Wireless, have tiny market share. The real potential lies in WiFi-centric multiplay bundles, but these have not been developed in many markets. However, between them, Google and Comcast look poised to accelerate their efforts, and the US MNOs should look across the Atlantic to the example of France’s Iliad, and arm themselves for a battle.

The potential of cable WiFi is far-reaching. It would allow cable and broadband operators to harness WiFi – with its increasingly carrier-grade features – as the wireless leg of a multiplay platform, in order to disrupt the mobile operator business. That would then tilt the telecoms balance of power and growth away from MNOs and towards cablecos. The latter would reduce their reliance on MVNO deals for wireless services, eating into mobile operators’ revenues and power. The cablecos would then be able to launch competitive wireless and multiplay services, with lower costs than a cellular alternative, and use these to steal market share from the MNOs.

MNO and MSO – friend or foe?

In reality, the picture will not be so black and white. Both sides have key assets which the other will be keen to access, via sharing deals or full acquisition. The MNOs’ licensed spectrum gives them the ability to guarantee quality and security to a far greater extent than WiFi’s unlicensed bands, and so to deliver SLA-based services, which carry the highest fees and profits. Conversely, the WiFi infrastructure owners and service providers have lower cost of ownership, because they are free of those licences, and can scale up coverage and capacity rapidly in response to demand. This is currently very important to MNOs and MVNOs which are launching coverage-reliant services like voice over LTE, but do not have LTE everywhere yet (so supplementing with VoWiFi is a popular option).

Factors like this can make MNOs and MSOs more complementary than competitive, and even lead to the kind of mergers that are increasingly common in Europe, in particular. But just because cable companies like Liberty Global are buying cellular operators such as Base in Belgium, does not mean that WiFi loses its strategic importance. Even for a company with an LTE network, WiFi-first provides the ability to extend the network and the services portfolio at lower overall cost than going cellular-first. It gives the operator flexibility in its charging and QoS models – for instance, giving the option to reserve its expensive LTE network for high value applications that require SLAs.

Most importantly, as Iliad demonstrates with its Free Mobile launch in France, the MSO controls the broadband line inside the home or office. The seat of the MNO’s power is outdoors, where the bulk of its cell sites are located, and when inside, users have had to put up with the inconsistent signals that penetrate the walls from those sites. As the bulk of mobile usage has shifted indoors, the MNO’s hold over the user has weakened. Small cells will help densify the network, and improve customer experience, from the inside out – but only if the MNO can access the broadband line to backhaul its cells, reversing the balance of power of the traditional MVNO arrangement. And meanwhile, the telcos and cablecos have made an alternative which they control, the WiFi router, into the ubiquitous indoor wireless connection, backhauled by their own lines.

The next logical step has been to open those WiFi gateways for public use, via the homespot (which has a second, open SSID), thus extending coverage and capacity far more quickly and cheaply than any MNO’s inside-out LTE project. Combine that with pricing mechanisms which have actively encouraged users to switch to WiFi whenever possible, and the reason why Free has been so disruptive is clear. The French provider has used its base of broadband lines to backhaul both homespots and cellular femtocells, creating a blanket of coverage at extremely low cost compared to its rivals, and that has enabled it to undercut those competitors on price and unleash a price war which has up-ended the whole French market.

Iliad/Free is adamant that the cellular component is needed to be fully competitive, and US history suggests that is correct. Cable-driven wireless initiatives have had little impact so far – the Pivot deal with Sprint, the investments in Clearwire, Cablevision FreeWheel and so on.

Liberty Media chairman John Malone said at the firm’s recent investor day in New York that US cablecos will “inevitably” add a cellular component to their offerings, but cautioned them to be wary of buying spectrum, and instead to continue to rely on MVNO deals to supplement their WiFi activities. Charter Communications, in which Liberty is the largest shareholder, has said it is open to a deal with T-Mobile to support a mobile launch, while Malone has been looking for MVNO partners across Europe to support impending quad play services, Liberty has announced the acquisition of Caribbean-based operator Cable & Wireless.

“I believe the quad play is going to be enormously important so you can satisfy customers in their desire to have everything, everywhere in high quality, including on mobile devices,” Malone said. “The convergence of the service offering we’re seeing in Europe, in the Caribbean, we saw it in Japan. This is inevitably going to be part of the service bundle.”

But Malone also highlighted the importance of being cautious about cellular investments and to focus on WiFi wherever possible. “Feel your way into it, understand what you’re dealing with, what the consumer preference is, what the cost structure is,” he said of cellular capability. “Don’t look at it as a profit opportunity upfront; look at it as a learning experience.”

He added: “If you’re sufficiently successful in growing an MVNO to scale, then you can consider what kind of network investment might make sense to improve the economics of your MVNO and clearly in parallel, developing the WiFi potential of the terrestrial networks, making devices seamless so that essentially any WiFi cooperating entity can roam on everybody else’s

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Caroline has been analyzing and reporting in the hi-tech industries since 1986 and has a huge wealth of experience of technology trends and how they impact on business models. She started her career as a journalist, specializing in enterprise and carrier networks and in silicon technologies. She spent much of her journalistic career at VNU Business Publishing, then Europe’s largest producer of technology publications and information services . She was publishing director for the launch of VNU’s pan-European online content services, and then European editorial director. She then made the move from publishing into technology market analysis and consulting, and in 2002 co-founded Rethink Technology Research with Peter White. Rethink specializes in trends and business models for wireless, converged and quad play operators round the world and the technologies that support them. Caroline’s role is to head up the wireless side of the business, leading the creation of research, newsletters and consulting services focused on mobile platforms and operator models. In this role, she has become a highly recognized authority on 4G systems such as LTE and WiMAX, and a prolific speaker at industry events. Consulting and research clients come from major mobile operators, the wireless supply chain and financial institutions.

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