The overwhelming tone of pieces about Comcast’s Xfinity Mobile service have been flat to negative during the past week. Most reporters simply reported the launch deadpan, with neither enthusiasm or critique. But if you look at what happened in France, it could give at least a hint of the market devastation which may come to pass in the US.
Coverage of both analysts and journalists this week seem to feel that the existing MNOs, such as AT&T and Verizon, have a great brand, which people love, and that Comcast has a culture of poor customer service. Those writers betrayed how they think about Comcast, as a supplier.
But the truth is that Comcast has low broadband and TV churn, despite its lower than average performance in the past in its customer service. Comcast has tried to claim that its attitude has changed here, and it may be on the way to laying that particular ghost to rest. But the truth is that it is better at marketing to its existing customer base than either AT&T or Verizon has shown in the past.
There was a moment in France when it looked like Iliad was about to buy T-Mobile USA, and at that time the combination would not have had the ingredients to offer a similar service to the one it built in France – there was insufficient WiFi in place for it to put offload at the heart of a strategy. But for Comcast the numbers are just about right to emulate what Free did in France, where it took 18% of the market in 5 years
Free managed to upset the entire French cellular system by getting first a 3G, then a 4G license in France, having been kept out of it for a decade, by Orange, SFR and Bouygues. When it finally got spectrum, it built out a minimal amount of base stations and roamed with France Telecom Orange for the rest of its cellular connections and offloaded some 70% of its traffic to WiFi.
With just 5 million home broadband lines Iliad managed to gain 13 million cellular customers in a market of around 72 million mobile users, some 18%. In that time its broadband lines rose to 6.4 million lines and cellular is still growing faster than any other operators in France.
To do exactly the same in the US Comcast would need 20 million broadband lines which terminate in WiFi, and then if all other conditions were the same, inside two years it might take 39 million mobile customers. Well it has 16 million hotspots, so perhaps just about enough to cause this amount of disruption and it can get to 20 million in two more years.
The first thing is that US commentators never assume that other markets are as competitive as the US. In this case, France is way more competitive, and the price wars were cut-throat. At the time, Free charged some €2 a month in service charges for a new cellular account at the low end. Comcast is not charging any service charges per month, but seen in their respective historical contexts, this was a dramatic price cut, and Comcast, which at the low end says its prices are only 13% below the market, is clearly hoping for a more controlled move into cellular which does not kill the profit in the entire market.
In France within a year, second placed SFR was put up for sale, and along with Orange and Bouygues, all operators had to follow suit, and offer free WiFi offload inside a year. It was these moves which have made France the most WiFi driven cellular market in the world with 70% plus of all traffic offloaded.
The offload distinction here is really important. This is not the consumer voluntarily electing to use WiFi at home or in a bar or at work. This is the operator making a seamless transition to WiFi for all data apps, virtually undetected, wherever WiFi is in reach. Within the Comcast WiFi footprint it has virtually contiguous WiFi across metropolitan and suburban regions. No other operation in the US, with the possible exception of one of the other cable operators like Cablevision, could be sure that 80% of data traffic will be carried by existing WiFi. Other cable operators are almost certain to extend their WiFi footprint, upgrade their AAA servers and build out Trusted Wireless Access Gateways in their WiFi core, over the coming year or two, and may join in with this Comcast effort to market a US wide WiFi First MNO. And as some critical point in the future Comcast and others may make a move for T-Mobile so they can put the cellular end of the equation under their own control.
Charter is known to be building out WiFi, and using its membership of the Cable WiFi Alliance to bolster broadband benefits, and Altice and its assets are sure to follow. It has already signed up 1.8 million hotspots in its more limited territory.
In the end the telcos, AT&T and in particular Verizon, will struggle with a lack of WiFi coverage in the US which will put them both at a disadvantage offering similar services. Most US observers seem to equate the Comcast service to the existing WiFi First services from Republic Wireless and FreedomPop. Imagine if either of those had really advanced seamless connection technology and if they spent over $3 billion in marketing each year – they would certainly cover more ground than the word of mouth drivers that push them right now, and they have over 1 million users.
Comcast will be marketing from its own CRM, customer lists and existing cross selling for triple play. Looking purely at its triple play penetration, Comcast has 70% penetration and has been pushing this hard for around 6 years, since 2011.
However, this will not be plain sailing. The price difference, as we said, will not be quite so marked in the US, as Free made it in France. And Comcast at present has not implemented voice over WiFi yet, so all voice traffic will have to go over Verizon’s network.
Our expectation is that Comcast will plug away for a few years, making gentle inroads at the rate of 4 to 5 million lines a year, starting with a few million in the second half of this year, and then partner with other cable operators who also begin operating MVNOs with Verizon, to extend the service to both sets of WiFi hotspots, and then finally to add another 70 million plus customers by buying T-Mobile US, to build a 100 million connection network in no time (under 5 years).
This type of approach keeps the cost down of getting into cellular and will eat perhaps 30 million subscribers from AT&T, Verizon and Sprint at the same time, something that T-Mobile USA has almost done on its own in the past five years (20 million).
To do all this Comcast would have to capture 30 million customers at the rate of around a million to 1.25 million a quarter. And to do that the remaining operators would be forced to acquire as few as 1 million each quarter between them, and the bulk of these would almost certainly all go to T-Mobile. That would limit growth in the remainder of the market to IoT connections and Connected cars, just as these companies are expecting to fund capex for 5G.
In France Free has eaten 65% of all new subs in a quarter, with the remaining 3 operators sharing 35% between them.
In France the offer was unlimited calls, three gigabytes of data for around $26 a month. But that was five years ago. Comcast suggested last week that its pricing would be $45 a month for unlimited data to existing Xfinity broadband customers with free voice and messaging. Or $12 per GB for anyone who does not need unlimited data, but this still comes with free voice and messaging.
Comcast said these deals equate to 13% below rival charges, or up to as much as a 44% reduction. At those prices, if Comcast found 30 plus million subscribers over a five year period it would up its revenues by around $16 billion annually, building about 50% of a T-Mobile USA in short order. The merger would look irresistible a long time before then.