This week Boy Genius Report (BGR) said it had an exclusive on the pricing that Charter is adopting for its Spectrum Mobile service. However, it failed to note that, as we forecast almost a year ago, it was precisely the same pricing as Comcast Xfinity Mobile – what a surprise.
But BGR clearly had a leaked survey email which went out to Charter customers asking which pricing they would respond to, and had Charter not chosen to market test the Comcast pricing, which has been largely successful, it would have been most bizarre. It doesn’t mean that Charter management will definitely adopt that pricing, but it is likely to be very close if not precisely the same. The magic number is $45 a month for unlimited data, and the comparison with Verizon in particular, which charges $75 a month for the same service, is enough difference to shift customers in their thousands. AT&T offers a $65 unlimited service which is perhaps safer – Comcast Xfinity Mobile offers $65 to consumers who are not subscribers to its broadband services – and $45 to those who are. So it is likely that most customers will come from within the Comcast and Charter footprints.
Other pricing for customers who do not want to use unlimited data, is based on free texts and voice and just $12 per GB – again the same rate as Comcast.
We would argue that this is really a pricing learning curve – at present Comcast is picking up customers at a rate of around 200,000 a quarter and had 577,000 at last count after Q1, which is a rising count we expect Comcast to keep beating. Once it has established a stable customer acquisition rate, we may see a more aggressive pricing formula from both MSOs, but the trail that Comcast has blazed should be good enough for Charter until well into 2019.
Both Comcast and Charter use the Verizon network as MVNOs, so when Verizon loses a customer to one of them it will still make almost as much profit as it does when it supplies the customer direct. But the danger of being cavalier about this is that if Comcast and Charter collectively negotiated at a point in time to leave the Verizon network, they could take away millions of customers from Verizon. The threat of this will live with Verizon for years to come and could lead to it being used strategically to push Verizon towards the strategy of the two cable companies. We have theorized in the past that at some stage both cable companies might become significant shareholders in Verizon and offer it a far superior fixed broadband route to market in return for rapid access to 5G and a share of the investment burden to get there.
While Comcast has some 18 million WiFi hotspots to fall back on, using WiFi offload technology, Charter has been slow to convert its customer homes to obtaining a second SSID, which is required to manage offload. Verizon has yet to begin this change and has a pathetic fixed broadband base which has shrunk for the past 4 years. Charter has not advertised its strategy of creating second SSIDs for its mobile customers, but Rethink has forecast this will happen by year end, although Comcast will have reached 20 million hotspots throughout its footprint, Charter will have just 8.5 million, and that’s if it installs them at the same rate as Comcast, given it only began this process during 2016 (Comcast started in 2012/13).
BGR says the survey sent out to Charter customers implied a service launch at the end of June. It will adopt the same strategy as Comcast, using CRM data to push deals at its existing customers, and offer the same phones, on roughly the same terms – iPhones and Samsung Galaxy flagship devices.
Charter will also offer an option to mix-and-match per GB and unlimited plans on the same account – so some members of the family may have one, and other members another. There is a consistent complaint about family plans from the other operators that this is not possible, although some of these plans allow families to share a common pool of data.
Most forecasts of cable mobile customers have been higher than the current run rate, taking anything up to 20% of the mobile market in a 5-year timeframe – which would imply over 50 million accounts. The current rate is likely to be closer to Comcast and Charter each adding 200,000 a quarter, which will mean that other MNOs are collectively losing 400,000 a quarter or 1.6 million a year, but we believe this rate will accelerate. However, at their present run rate cable MVNOs will grow to around 3 million by the end of 2019 and will need a significant upturn if they are to head for the stratospheric forecasts of some analysts. At best they can double their run rate and perhaps reach just 5 or 6 million by the end of 2020.
Some of this will happen naturally as customers begin to feel comfortable with the new mobile brands and spread the word, other factors will be the arrival of zero-rated video delivery for TV Everywhere options and perhaps some new specialized video options purely for mobiles. We would not rule out further price cuts as the customer bases grow, so that as each of them are losing less money on the service or even shift into profit, they will then pull back pricing, so they are once again at best breakeven.
What will certainly happen is that as Comcast and Charter become more familiar with cellular and attract momentum, rivals will have to cut their unlimited pricing by at least $10 a month or more, to hold them at bay. This will cut into MNO profitability at a time when investment in 5G is urgent, with a resulting restriction in US MNO market capitalization – which will lead to interesting times in the US cellular market wars.