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10 May 2022

Comcast and Charter take steps to wean themselves off Verizon MVNO  

Comcast and Charter, the two biggest US cable operators, are converging on a common 5G strategy by exploiting their own midband CBRS spectrum at 3.5 GHz to reduce dependency on Verizon as the wholesale network provider for their MVNO services.  


The two cablecos signed a 5G cooperation agreement in 2017, and enhanced it in 2018 with a deal to develop a joint back office system. This added a cellular dimension to their existing CableWiFi alliance, which saw leading cable operators building out large networks of hotspots and homespots and then providing access for one another’s customers. 


More recently, the two leaders formed a joint venture related to CBRS small cells, as well as modifying their MVNO agreements with Verizon to allow the cablecos to offload 5G traffic progressively onto their own networks, as those are built out. The main focus for that build has been on small cells for consumers and enterprises, which will add capacity at the network edge, under the full control of Comcast and Charter. This ‘heavy MVNO’ model has already been pioneered in the USA by the third cableco, Altice USA, working with Sprint (now part of T-Mobile).  


Such agreements can suit both sides if they are well balanced. In this case, Verizon is spared having to build out more quickly to cope with traffic generated by cable customers, helping ensure adequate capacity for its own direct consumer and enterprise subscribers. It can target its own small cell capacity and coverage where its primary users need it most. 


Comcast and Charter, in turn, avoid escalating MVNO fees as their 5G services ramp up, but also steer clear of having to build a macro network of their own -something that has been speculated upon since the start of the 4G era, thanks to sporadic purchases of spectrum by the cable sector. 


Comcast and Charter barely compete directly, since their footprints cover different areas, predominantly urban. Most households are passed by the network of just one cableco, which then competes in broadband provision just with fixed line telcos offering fiber or DSL connectivity. At the same time cablecos, in the USA particularly, have faced increasing competition in their other major main business domain, pay-TV, from streaming providers like Netflix, Disney+, Amazon Prime Video and the recently formed Warner Bros Discovery with HBO.  


This has led to freefall in subscriber numbers in the USA dating back a decade. This firstly spawned various mergers and acquisitions in the cable market, which led to Comcast and Charter emerging as the big two. Comcast has just over 31m broadband subscribers with a current potential of 59.7m as the number of homes passed by its cable network, while Charter has 30m broadband subscribers and 53.3m homes passed. The numbers of pay-TV subscribers are now considerably lower after the sustained falls, just over 18m for Comcast and 15m for Charter.  


Then after this consolidation had settled down, Comcast and Charter have moved at last to address their decline in video services by joining forces to launch a nationwide streaming platform aligned around a common IP platform, based on a jointly developed ‘entertainment operating system’, running on smart Internet-connected TVs and streaming devices that could be distributed directly by the respective operators, or purchased by consumers in stores on a retail basis. Multiple services will then run on top of the operating system, including existing third party streaming apps, or apps from Charter and Comcast, like the former’s Spectrum TV app. 


The initial impact on the USA’s video market will be slight, confined more to the respective operators’ own cable platforms as these migrate to the latest DOCSIS 4.0 version of the cable modem standards, which will free up capacity on the HFC (hybrid fiber cable) infrastructure by reducing bandwidth consumed by TV. But in the longer term this platform could provide stiff competition for the existing streamers in the US given the combined content portfolios of the two, effectively creating a single nationwide cable operator even in the absence of a formal merger, and that is where 5G will increasingly feature as an expanding medium for video consumption. 


Without significant spectrum or cellular infrastructure, Comcast and Charter were initially motivated to enter the mobile arena as MVNOs by the desire to offer quad play services that strengthened their overall appeal, especially on the broadband front. This led both into deals with Verizon in 2017 (when they defected from an earlier deal with Sprint). But as wholesale costs ramped up and the role of mobile both for broadband and video access expanded, both moved firstly to acquire their own spectrum, taking advantage of the midband allocations coming on-stream in the CBRS band. Comcast bought $458m worth of spectrum in that band during the auction in 2020, covering around 80% of its cable footprint, while Charter spent $464m. 


For both operators, the focus so far has been in enabling selective offload from the Verizon network onto their own during peak times, and there is no immediate prospect of either become full MNOs in their own right. However, Comcast CEO Brian Roberts indicated it had renegotiated its contract with Verizon to ensure that it would be able freely to offload traffic in denser urban areas so that it could “become a hybrid MNO”. It would then flip between the two networks on the basis of rules determined by cost and availability, increasingly resorting to its own spectrum where possible. 


The Comcast 5G employee field trial due to start in June 2022 aims to test and optimize this offload process, according to Roberts. “We have a great wireless business, an MVNO partner in Verizon and have opportunities to further improve our economics at Xfinity Mobile longer term,” said Roberts. “We’re also enhancing the value of Xfinity broadband by bundling with mobile, offering our customers the convenience of one relationship for all their connectivity at a tremendous value. This contributed to even further improvement in broadband retention and our best quarter ever for Xfinity Mobile in terms of line net additions.” 


The future then, for Comcast, is hybrid, allowing greater flexibility to assemble competitive mobile plans in the knowledge that costs can be contained. Given that both Comcast and Charter have the same wholesale partner, they have come together to streamline the offload arrangement. “We’re also able to do that in concert with Charter, so we have one technology roadmap to interface with Verizon,” said Roberts. “Verizon is happy to offload that traffic, so they don’t have to build more capital.” 


Both operators are ambitious to build their mobile subscriber base, still as MVNOs for now. Comcast currently has about 2m MVNO customers, although it has a total of 4m mobile lines given that some subscribers have multiple devices connected to the cellular service, such as watches and tablets in addition to smart phones. Of those, 312,000 of those lines were added during Q4 2021, according to Roberts. Numbers are quite similar for Charter. 


A key point is that both operators offload most of their mobile traffic onto WiFi anyway. According to London-based mobile analytics firm OpenSignal, Verizon subscribers on average offload 77.7% of their data onto WiFi, with the rest over cellular. Comcast customers offload 93.8% of their data onto WiFi, and Charter a similar proportion, reflecting the two operators’ efforts to restrict use of the Verizon network as far as possible. For subscribers on the move the offload to cellular will play an increasing role, but given neither Comcast nor Charter acquired any C-band licensed midband spectrum, when that came up for auction a year after the CBRS sale, they are not in a position to cut loose from Verizon entirely. In the USA, the C-band for operators is in the 3.7 GHz to 3.98 GHz range, coming in above the CBRS bands. 


It is worth noting that while both Comcast and Charter have flirted with fixed wireless access (FWA) as a possible way to extend footprint in rural areas, like many cablecos they hold it in disdain as an inferior offering fit only to compete with telco DSL, and instead are focused on shoring up their cable network by pushing fiber ever deeper towards the home. That may change though as they roll out their own 5G networks. 


Major cablecos in other countries have entered the mobile arena in different ways depending on their business structures. In the UK, Virgin Media consolidated its position under Liberty Global’s ownership and entered the mobile arena as an MVNO well before Comcast and Charter did.  


But then it was recast as a fully-fledged mobile operator when Liberty Global forged a 50/50 partnership with Telefónica to combine Virgin Media with the latter’s UK cellular operator O2. The resulting operation, known as Media O2, was formed in June 2021, but has yet to fully combine its web site, branding or the separate mobile services, although the aim is to offer a full multi-service offering. The operation will then be better placed on that front against BT, which in turn became a full hybrid telco with the acquisition of EE in January 2016 from Deutsche Telekom and Orange.  


Vodafone is a different case again, having evolved purely as an MNO and acquired fixed line infrastructure through acquisition mostly. In Germany Vodafone has become a significant cable operator, overtaking Deutsche Telekom as the country’s biggest fixed broadband provider when it acquired Liberty Global’s operations there in 2019 on top of the earlier purchase of leading cable operator Kabel Deutschland in 2013. This has left Vodafone well placed for fixed infrastructure in Germany, but that is not the case in some other countries, including its home UK market. There Vodafone has expressed concern that its preparations for upgrade to 5G Standalone (SA) are being hampered by paucity of fixed line backhaul infrastructure, forcing over-reliance on microwave and on the incumbent BT subsidiary Openreach for fiber connections. 


It is true that Openreach is bound by regulation to offer Vodafone the same wholesale tariffs as it does BT, but the point made by the latter’s competitors is that as a fully vertically integrated telco BT lacks the incentive to price keenly. While BT’s own retail operation has to pay the same price, the money comes back into Openreach, which is why there has been pressure for more complete separation. Meanwhile, Vodafone UK is reluctant to roll out SA 5G until it has recruited or developed other backhaul options, which means primarily upgrading to fiber, although in the longer term backhaul over millimeter wave spectrum will be a prospect, given that in India 9.85Gbps backhaul capacity has already been demonstrated over Vodafone Idea’s 5G network using Nokia’s Wavence backhaul system over E-band (60-90 GHz) spectrum. 


Another dimension to the issue of fixed/mobile convergence is at the protocol level, with growing interest among operators in developing a common stack to facilitate consolidation of core and aggregation networks. This has led to the development of an open source broadband standard called WWC Reference Implementation for 5G-RG [residential gateways], designed to allow fixed and mobile services to be consolidated over a common core. BT, Vodafone and Deutsche Telekom, among others, announced their support for OB-5WWC in October 2021. The stated objective was to provide a “production grade 5G solution stack capable of integration with OpenWRT/RDK-B frameworks”.