Cablecos’ potential 5G weapons cast new shadows over US operators

The US MNOs no longer have to worry only about the competition from one another in the 5G era. They are facing challenges from new entrants to the mobile space. Dish Network plans a national 5G build-out enabled by divestments of spectrum and customers from Sprint (assuming its merger with T-Mobile finally goes through). And more dangerously, the major cable operators plan to build on their existing services, based on MVNO deals and WiFi, by launching their own cellular networks in selected areas.

The two largest cablecos, Comcast and Charter, are particularly ominous for the MNOs, since they have a far-reaching collaboration deal ranging from R&D to roaming to cross-marketing. If other cable firms were to join, these regionally-based operators could create a near-national coverage, akin to their sharing of one another’s WiFi hotspots across the country. That would give them the opportunity to outdo the established MNOs with a low cost base – no legacy networks and services to support; heavy use of WiFi-first to minimize the amount of licensed spectrum required; use of the CBRS band to avoid having to bid in conventional auctions too often.

In addition, they have established brands and content relationships, and can use their own cables to backhaul small cells or customer premises equipment for homes, enterprises or smart cities. And they would only have to build out where there were clear opportunities rather than attempting full coverage or a ‘build and they will come’ model. Localized networks, heavily based on small cells and the cablecos’ own fiber, augmented by WiFi and by their own local cores and edge nodes, would introduce a whole new cost model to the US market. Each cableco would only have to foot the bill for its own territory, while having roaming rights everywhere else and taking advantage of collective buying power, and collective influence over vendors’ roadmaps.

This formula, or something like it, could open the USA to the kind of disruption that asset-light challengers with their own fiber have created in other parts of the world, from France to India.

For now, Comcast and Charter have mobile services based on MVNO deals with Verizon, while Altice USA has a ‘heavy MVNO’ agreement with Sprint, in which it brings its fiber to the party to backhaul Sprint small cells and offset its fees; and deploys its own core and SIM cards.

Now these operators, and others like Cox, are considering how to move from these modest beginnings in the mobile market, to the kind of 5G landscape outlined above.

Tom Rutledge, Charter’s CEO, told the firm’s third quarter earnings call that the unlicensed portion of the 3.5 GHz CBRS band will be important to the mobile strategy, and the company may also bid for licensed CBRS spectrum in next year’s auction.

He said: “The question we’re evaluating is, should we be involved in that? We haven’t determined that yet. But we’re looking at it closely. CBRS is a pretty valuable piece of spectrum.”

The FCC plans to auction 70 MHz of CBRS spectrum starting on June 25 next year. The airwaves will be offered in relatively small regional chunks and with only three-year license terms, which is designed to make the licences affordable for a diversity of service providers, not just MNOs, and to be well-suited to bidders which only need capacity in selected locations, such as industrial or WISP providers. But the spectrum will be valuable because it will support 5G from day one, whereas the unlicensed portion will have to wait until 5G standards support shared spectrum usage, which will be introduced in next year’s 3GPP Release 16.

As well as allowing it to deploy its own mobile networks in the right locations, Charter is also considering CBRS for fixed wireless to help extend the reach of the HFC cable network.

The company is currently testing dual-SIM smartphones, in New York and Los Angeles, that can hand off traffic between the macrocell and CBRS small cells.

“We’re quite optimistic about the capability of that strategy and we’re quite optimistic about the ability to make select investments in areas where traffic dictates in such a way to move services that we pay rent for onto our own platform,” Rutledge said. That could enable them to offload perhaps half of the traffic that is currently carried by the Verizon host network, in Charter’s Spectrum Mobile service, greatly improving its economics and giving the cableco control over the locations and quality of service of its network in areas of high revenue opportunity, such as city centers and business campuses.

Craig Moffett, analyst with MoffettNathanson, said Charter would be able to take the high return on invested capital (ROIC), in areas of high usage or valuable use cases, for itself, leaving the areas of low ROIC to Verizon. “But they’d be paying Verizon a wholesale price that is undoubtedly based on the average ROIC of the network,” he said.

Moffett added: “There’s an emerging bull case to be made based on traffic offload onto proprietary strand-mounted CBRS-based small cells.”

That would help the cablecos leap ahead of the MNOs in densification, since they could deploy more quickly in the most commercially attractive areas, such as city centers. The process to get municipal approval for pole-mounted small cells can take many months, and has held back the deployments planned by Sprint, AT and others, but strand-mounted cells can be rolled out more quickly because the cable operators already own the strand.

Moffett wrote in a research note: “We suspect that Altice is already assuming they can offload as much as half of their traffic onto strand-mounted small cells, allowing them to sell unlimited plans for just $20 per month. Even without core network control under the Verizon MVNO contract, Charter (and Comcast) look poised to pursue the same strategy by leveraging eSIMS and, in their case, their own strand-mounted small cells.”

In the third quarter, Charter’s Spectrum Mobile service added 276,000 net new mobile lines, up from 208,000 in the year-ago quarter. Charter ended Q3 with 794,000 mobile lines. Q3 mobile revenues were $192m, an increase of $175m on the previous year, and CFO Chris Winfrey said the EBIDTA loss per line was falling.

Charter’s cellular partner, Comcast, is also evaluating its spectrum options in CBRS, and also in the C-band spectrum, which the US operators are hoping will be made available for 5G, despite the objections of some of its satellite incumbents.

Like its partner, Comcast wants to find ways to offload traffic from its MVNO-based service, Xfinity Mobile, in the short term, and longer term, to build new revenue streams around enterprise networks or home quad play offerings.

“We are absolutely looking at options and leveraging our infrastructure with wireless options,” Dave Watson, CEO of Comcast’s cable unit, told analysts on the company’s Q3 results call. “We’re actively testing the options of being able to offload in any number of ways.”

He added: “We’ll continue to look at the trade-offs on price and volume and the amount of data on our MVNO network and when you offload data onto our own network. We’ll be opportunistic when things come up … more to come later, but we’ll actively consider that.”

Comcast is also testing eSIM and dual-SIM capabilities on IoS and Android devices. Watson added: “It’s early, but I do think that there is promising opportunities when you combine dual-SIM with the cable infrastructure.”

In the quarter, adjusted EBIDTA losses at Xfinity Mobile narrowed to $94m, from a $178m loss in the year-ago quarter, though analysts question whether the service will break even before 2021. The mobile service had 1.79m lines at the end of the quarter, having added 204,000 in the period. Comcast will also improve the economics of any cellular expansion with its 19m WiFi hotspots and homespots, which can be used to offload cellular traffic to save cost. Whenever a Comcast customer is in an Xfinity WiFi hotspot area, the handset automatically switches from Verizon’s network to WiFi.

CEO Brian Roberts said that Comcast is taking a “capital-light approach” to wireless and “we’re getting scale; we’re learning all the realities of a new business extremely well. And the technology, the innovation in the handsets, possibly spectrum, all the conversations we’re having, all of those are net positives to where we’re going.”