Comcast has been preparing its Xfinity Mobile announcement for the past two years, so its launch has hardly been a shock – and in its early days, it looks unlikely to trouble the major mobile operators too deeply. However, to dismiss it as just the latest in the US’s long and mainly unsuccessful history of MVNOs would be to ignore its potential to disrupt the telecoms landscape. Indeed, Wireless Watch’s sister service, Faultline, which analyzes the digital video markets in depth, believes Comcast will, over time, unleash a “marketing tsunami” which could take 8m to 10m lines from incumbent MNOs in just a few years.
Pricing is competitive but not the defining feature of the offering, whose disruptive potential lies more in its flexibility, convenience and ease of use. There are no service fees for up to five phones per home, with unlimited free calls and texts. Only data costs money and it comes in two flavors – unlimited at $45 per month for an existing customer of Xfinity X1 (Comcast’s premium service, which accounts for 25% of its base); or $65 for a regular subscriber. This ticks the number one box for any quad play bundle – adding stickiness to the existing services. For now at least, Comcast will not target non-subscribers.
For those who do not need unlimited data, there are deals for $12 per GB, and if they find they would be better off on an unlimited plan, there is a no-quibble, one-touch switchover option during any given month. The unlimited plans are throttled above 20GB.
The pricing and flexibility adds another player to the current mobile price wars, which have seen the US operators return to the unlimited plans they rejected a few years ago. Comcast is undercutting many of the MNO deals, claiming its deals are between 13% and 44% below rivals’ charges.
But more disruptively, it is also a WiFi-first provider, which means it can take on the low cost WiFi-driven MVNOs like Republic Wireless, but with all the brand recognition and customer service resources of a cableco to sweeten the deal for higher value users. The network is automatically WiFi-first – no configuration or rooting around in settings required; the handset just diverts to Xfinity WiFi wherever it can. Comcast is now up to 16m Xfinity WiFi hotspots and homespots, and it suggests that 80% of all its wireless data will go over WiFi. However, there is currently no support for WiFi Calling.
There are limitations to this, some imposed by the restrictions of being an MVNO. For instance, Comcast will not support seamless hand-off of voice or data between WiFi and the cellular network, which is supported by its MVNO arrangement with Verizon. This feature – which is supported on Google’s Fi MVNO service and some other WiFi-first offerings – is promised in future, but at launch, if a customer moves out of range of an Comcast or partner hotspot, the internet connection will drop until the mobile device re-establishes Verizon connectivity.
On the handset side, the company is offering iPhones, or Samsung or LG Android smartphones, either paid-for upfront or over 24 months in interest-free instalments.
Comcast is a master at selling such services on the web and Xfinity Mobile will be in every bundle offering, and never more than one click away from the website. Purchasing options are genuinely child’s play, as demonstrated during the launch – and support can be delivered over text, an industry first with the support number pre-loaded on the phone.
If the US experience is anything like that in France, where Free managed to get 12m subscribers from 5m existing customer homes over four years, then Comcast’s scale could attract multiple tens of millions of customers over the same timeframe from its 20m-plus homes. It says the service will be profitable at mid-single digit percentages – say 5% of homes take a mobile plan (which would be 1m phones), then Comcast will be making money.
Faultline analysts wrote: “If fewer than 100,000 sign up per month we would be shocked, and we would guess more like three times that number, totaling a 1m a quarter, with the bulk of them coming from AT&T, Sprint and Verizon. There are 130m individuals living in Comcast homes, and the cost of sale for Comcast will be almost nothing – existing mailshots, campaigns and promotions which cost Comcast $3.3bn a year will simply expand to have a mobile element and Xfinity retail stores will grow to put almost everyone within a 15-minute drive of hands-on help.” There are currently 500 Comcast stores, compared to 4,000 for T-Mobile, for instance.
“The efficiency that we gain is not just from our great MVNO. [It’s] from our lower cost to acquire, which is a big component of a wireless provider’s business model, and our lower cost to serve,” said Greg Butz, president of Comcast Mobile. “WiFi is not factored into our business case. It’s just upside from our standpoint.” He claims that the service can be cashflow positive per-subscriber even without WiFi, and without looking beyond the Comcast footprint.
Cost efficiency for Comcast, and service flexibility for users, as well as the well-tested convenience of a quad play bundles, are the real danger points for established MNOs – not the pricing per se.
“Relative to peers, the $45/line offering is competitive with AT&T and Verizon for both single and multiline plans ($180 for four lines), though, not surprisingly, above both Sprint and T-Mobile,” analyst Mike McCormack of Jefferies wrote in a research note. “The $65/line plans appear less competitive when moving beyond two lines. For consumers with limited data usage, there is also a metered pricing option for $12/GB with the option to switch to unlimited without penalty. Unlike peers, families can mix and match between unlimited and metered pricing.”
Comcast hasn’t yet given a firm date for commercial launch, just saying it will offer the new service “soon”, initially to its existing footprint, but later on a wider basis. For now, it is offering the service, which has been in test with small numbers of its employees, to any of its workers, presumably to test customer reaction and usability, and identify any scaling problems ahead of full public availability.
Meanwhile, over the pond, French-based telecoms group Iliad is increasingly setting the pace for disruptive cablecos in the wireless and multiplay space. In France, it wielded its extensive base of broadband lines to roll out an ‘inside-out’ network of WiFi homespots and residential or business small cells. This enabled it to deliver mobile broadband at low cost, since most of the traffic was offloaded from its macro network (based on an initially sparse holding of spectrum plus a roaming deal with Orange). And it passed those savings on to customers, undercutting its rivals and sparking a vicious price war which had the knock-on effect of consolidation and major job reductions at the older MNOs.
Iliad wants to be an international player. It was interested in similar disruptive antics in the US and UK, but has so far been thwarted by the failure of M&A plans. It withdrew from plans to bid for T-Mobile USA, while its rival and compatriot Altice went ahead and acquired two cablecos, positioning itself, potentially, to follow Comcast into the quad play market. In the UK, Iliad proposed taking some spectrum and network assets from Hutchison and Telefonica, to sweeten the antitrust pill of their 3UK/O2 UK merger plan.
That was not enough to satisfy the regulators, though another UK opportunity may well arise, since consolidation there is clearly not over. But in the short term, Italy is the main target.
Here, Iliad has secured a deal similar to the one it wanted in the UK. Hutchison is to merge its 3 Italia unit with Veon’s Wind Italia unit. As a sop to European Commission regulators, which are still instinctively hostile to deals which reduce the number of MNOs in a country, the operators offered a key concession – to divest infrastructure assets and spectrum to French quad play operator Iliad, to enable it to set up a fourth MNO. The result will be a stronger multiplay carrier, in the combined 3/Wind, to compete with Telecom Italia, and greater pressure on second MNO Vodafone – but also the entry of Iliad.
Iliad is paying €450m between 2017 and 2019 for 35 MHz of paired spectrum – 5 MHz in the 900 MHz band, and 10 MHz each in 1.8 GHz, 2.1 GHz and 2.6 GHz. It will also buy “several thousands of macro sites” in densely populated areas, as well as several thousand more in rural areas (though there is also an option to replace the latter with a RAN sharing agreement with the 3/Wind operator). Iliad has also negotiated a five-year roaming agreement, renewable for another five years, for the merged entity’s 2G, 3G and 4G networks.
The French firm has aggressive plans. It said last week that it was targeting 10% of the Italian mobile subscriber base within 2-3 years of launching services late this year, and that its ultimate aim was 25% market share. It would achieve this “through very aggressive offers”, sources told Reuters, and Iliad’s chairman, Xavier Niel, has made no secret of his disruptive ambitions, describing the established Italian MNOs as “the most hated in Europe”.
In France, for reference, Iliad now has 18% market share after almost five years in operation, and is also targeting an eventual 25%.
However, the Italian market may be more challenging that the French one was. The price war has already taken place, so there is less fat for Iliad to cut out of the market. When it launched in France in 2012, average postpaid ARPU was €44.95 ($47.87), well above the EU norm of €24 at the time. Those ARPUs are now down to around €22 in France. However, in Italy, Telecom Italia’s ARPU has already fallen from €19.70 in 2010 to €12.10 in 2015, and actually recovered a bit last year to €12.40, a sign that the market has bottomed out in terms of rates, and the focus is shifting to value.
In Italy, Iliad could spark a new round of price spirals, but that would confine it largely to the low end of the market since, for the user base as a whole, fees already found their acceptable level during the cuts of the past few years. Telecom Italia has a lot of restructuring still to do, but is not the fat, easy target it would have been for Iliad in previous years. And Iliad does not have the fixed-line and WiFi assets in Italy which was the engine of its strategy in France.
Rating firm Fitch, while expressing caution over Telecom Italia should a new company enter the market (in addition to a strengthened 3 Italia), does not think the competitive landscape will be redrawn as it was in France. Commenting when the deal was announced last year, it wrote: “Market leaders Telecom Italia and Vodafone are offering competitive tariffs in a lower price range, which reduces discounters’ propensity to use price-disruptive tactics. With the growing importance of mobile data, network quality is becoming an important differentiating factor for consumers. Iliad may need time to establish brand recognition and a network of appropriate quality, which may defer the negative impact on competitive intensity.”
Liberty Global CTO dismisses 5G as a fiber replacement:
Liberty Global will be watching the wireless moves of Comcast and Iliad closely. It has already invested in mobile and WiFi capabilities to move some of its European subsidiaries towards a quad play. A joint venture with Vodafone in The Netherlands could be replicated in the UK, where Liberty owns the leading cableco, Virgin Media; Liberty has acquired Belgian MNO Base to merge with its cable outfit there; it has invested heavily in WiFi hotspots and homespots in Benelux and elsewhere.
At Light Reading’s Cable Next-gen Technologies and Strategies conference in Denver last week, Liberty’s CTO Balan Nair talked about plans to upgrade all aspects of the company’s networks in Europe, as well as its CALA territories, in the coming years.
The plans include upgrade to DOCSIS 3.1, when the economics improve on the CPE side, he said, and a move to Distributed Access Architecture. The company, which is now spending 30% of its annual revenue on capital construction, will extend fiber more deeply into all its networks, and extend its footprint, especially in the UK and Germany.
Nair is also interested in 5G, especially the opportunity for non-MNOs to roll it out in unlicensed or shared spectrum, perhaps in high frequency bands. However, he is focusing on it mainly as a backhaul technology rather than for future multiplay access. He was scathing of the notion that 5G in millimeter wave could be a fiber-to-the-home replacement, dismissing this as “terribly false … bullshit.”