Coming to bullish conclusions about Comcast’s soon-to-launch Xfinity Mobile service, New Street Research said the product will be able to undercut most existing wireless services on price, particularly for the segment of the market that users less than 5 GB of data a month.
“Comcast’s metered data plan will be extremely appealing to low-usage subs,” said New Street analyst Jonathan Chaplin in a note to investors. “For anyone consuming 3 GB per month or less, this will be the best offer in the market for a premium wireless service. We will show that this is a bigger portion of the market than some realize.”
Comcast revealed specifics of Xfinity Mobile during an April 6 presentation to investors.
Preferred customers of its advanced X1 video system will pay $45 each for up to five lines on an unlimited data plan, before taxes and fees, while the typical Xfinity broadband rank and file will pay $65 a line for unlimited service. There’s also a pay-by-usage option priced at $12 per gigabyte.
“For single-line accounts, Xfinity is cheaper than all alternatives at all usage levels for those eligible for $45 unlimited, and it is cheaper than AT&T and Verizon but comparable to TMUS above 5GB of usage for those eligible for $65 unlimited,” Chaplin said. “For four-line family plans, Xfinity is cheaper up to 4GB of usage but more expensive thereafter. Two- and three-line accounts fall somewhere in between.”
Chaplin’s analysis found that Xfinity Mobile is priced below existing wireless offers for 66% of current mobile customers, “the vast majority of which consume less than 5 GB per month.”
He added, “Some subs will be quite profitable, while others will generate a loss.”
Chaplin estimated a blended EBITDA margin of 18% at current Wi-Fi usage levels.
Comcast is basing Xfinity Mobile on the foundation of its 16 million Wi-Fi hotspots, as well as an MVNO deal with Verizon.
“However, this [margin estimate] assumes all voice goes over cellular and that Comcast doesn’t offload any incremental data traffic to Wi-Fi,” Chaplin added. “If Comcast moves to 100% VoIP, we estimate margins would increase to 29%, and if Comcast can shift just an incremental 5% of traffic to Wi-Fi, margins would increase to 43%. Some of the successful Wi-Fi centric MVNO providers like FreedomPOP and Republic Wireless have been able to shift over 90% of data traffic to WiFi (and they don’t own infrastructure like Comcast does).
The analyst predicts Comcast will achieve market penetration of about 16% in five years. “At an ARPU of $39, this drives revenues of $6BN after 5 years,” he added.