While Comcast's 2011 MVNO agreement with Verizon (NYSE: VZ) has been widely viewed as an easy entry point for the MSO to create a Wi-Fi-first mobile service, the four-year-old deal actually presents Comcast (NASDAQ: CMCSA) with a range of pricing and packaging challenges.
According to the Wall Street Journal, the agreement limits Comcast's flexibility in creating plans and pricing in a market for mobile data that has advanced significantly since the deal was first carved out. The contract also doesn't provision shareable data plans, which weren't in vogue four years ago.
Further, the agreement's data prices were established before T-Mobile stared a price war in the U.S. wireless industry in 2012, significantly lowering the industry's bar for per-gigabyte pricing. Insider told the WSJ that Comcast would have trouble competing at those price thresholds.
Convinced by Cox Communications' failure to successfully operate a wireless network, Comcast, Time Warner Cable (NYSE: TWC) and Bright House Networks agreed to sell their AWS spectrum to Verizon. As part of that spectrum sale, the MSO's received $3.6 billion and what was referred to as "perpetual and irrevocable" wholesale MVNO agreements allowing them to resell Verizon's wireless service. This triggered speculation that the cable companies would use the MVNO agreement to offer a Wi-Fi-first product that would match Verizon's network for coverage.
"The devil is in the details, and we haven't seen the contract. But it certainly isn't hard to imagine that a wireless contract from five years ago would seem quaint and dated five years later," MoffettNathanson media analyst Craig Moffett told FierceCable in an email. "The MVNO component of a Wi-Fi-first service can't be overstated. Without it, a Wi-Fi-only service like Cablevision's Freewheel is nothing more than a novelty."
According to the WSJ, Comcast executives still find the deal attractive, and believe its existing terms allow the company to offer shareable data plans at competitive pricing. They also like "perpetual and irrevocable" terms that cover advances in wireless tech.
However, Verizon CFO Fran Shammo told the paper that both sides know the deal is "stale" and that the wireless company is currently in talks with the MSO about the matter.
Comcast is far and away the leader in public Wi-Fi hotspots among cable companies, touting around 10 million Wi-Fi hotspots at the end of 2014. In January, Cablevision (NYSE: CVC) launched a low-cost, Wi-Fi-only mobile service dubbed Freewheel with limited reach and features. Comcast has been coy about its wireless plans, but the MSO is actively developing various wireless technologies.
In June, for example, it filed for a patent at the U.S. Patent Office that describes a feature allowing a wireless caller to make an automatic redial should a connection get suddenly dropped.
Earlier, in February, Comcast posted a help wanted ad, seeking executives to lead the development of new "mobile-first" products and services built around the MSO's burgeoning Wi-Fi infrastructure.
Meanwhile, with its scuttled takeover bid of TWC behind it, Comcast investors are anxious to see plans for future revenue growth.
However, speaking to investors in May, Comcast CEO Brian Roberts described the launch of a Wi-Fi-first product as not being terribly imminent. "What is the right technology?" he asked "What is the right product? What is the right timing?"
Moffett added, "A deal with Verizon isn't the only route into the business. With or without the contract, there was always going to be a lot of heavy lifting before Comcast could seriously consider offering a Wi-Fi-first service to consumers, so we were always looking at 2017 or 18 at the earliest. That's still the case, and it is also still the case that Comcast's Wi-Fi presence could eventually prove to be very disruptive to the wireless carriers."
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