Wireless biz should look past Freewheel's limitations and into Dolan's beady eyes

Daniel Frankel, FierceCableDon't expect the announcement of Cablevision's (NYSE: CVC) Freewheel Wi-Fi-only phone service  to spin Randall Stephenson into reenacting the bunker scene from Downfall when AT&T (NYSE: T) delivers its fourth-quarter earnings report Tuesday afternoon. Freewheel is, after all, a service with very significant limitations, based on a not very popular mobile device.

As it exists today, it's not a threat of any kind to the incumbent wireless industry.

Freewheel can only service callers with good, direct access to one of Cablevision's 1.1 million Wi-Fi hotspots. The MSO didn't carve out any MVNO wholesale agreements, so there is no cellular backup. It's a Wi-Fi-only deal.

Wi-Fi technology doesn't allow for any cellular-like "handoffs" yet--you can't make a call on Freewheel while you're in a car, train or stage coach, for example. It'll be a glorified home phone that also works in specific public locations across Cablevision's growing New York/New Jersey coverage area. You can call your pal from Madison Square Garden to tell him how many points the Knicks are losing by.

The cellular backup issue is a major one. For example, Sprint (NYSE: S) virtual network operator Scratch Wireless sells a Wi-Fi-first product, and its users employ Wi-Fi 84 percent of the time. However, according to Scratch VP of marketing Jon Finegold, 98 percent of customers also use the Sprint cellular network at one time or another.

"Very few customers use the service in the Wi-Fi only mode," he told FierceCable. "Even though Wi-Fi is everywhere, there are times when you are between hot spots."

It's not like the market is wide open with consumers who haven't adopted mobile phones. And there are inexpensive cellular plans available that offer gobs more functionality, too.

And it's not like the only mobile device that will work on the Freewheel plan, the Motorola Moto G, is necessarily coveted hardware. And finally, it's not like Cablevision is really first to the market with a Wi-Fi-only mobile plan. Republic Wireless has been offering a data-only plan on the same phone for $5 a month. That plan has yet to take off, Republic concedes.

But don't sleep on Freewheel.

As media analyst Craig Moffett pointed out Monday, the appeal of Freewheel--which costs Cablevision broadband users $10 a month and everyone else $29.95--is limited to the severely financially constrained, or for those who, say, want to a low-cost mobile phone for their kids.

But as Moffett also notes, the concept behind Freewheel "is a very big deal."

Cablevision CEO James Dolan's "real game," Moffett believes, is to use the service as a kind of beta test for a more evolved product down the road that will include an MVNO deal and a phone everyone wants. This service would be Wi-Fi first instead of Wi-Fi only and work pretty much anywhere.

And if such a product were to be offered by Comcast (NASDAQ: CMCSA), which has millions more hotspots spread out nationally, not to mention far greater marketing capacity, the major cellular providers could be looking at yet another serious contender, in addition to Google's just announced wireless plan.

In its own note to investors Monday, Jefferies concurred: "We see Cablevision's new Freewheel Wi-Fi phone as an early trial in monetizing its Wi-Fi hotspot investment. Given the narrow number of Wi-Fi-only use cases, we expect limited adoption, but see incremental opportunity should the company strike a MVNO relationship with a cellular carrier. We wouldn't be surprised if Comcast trialed similar products, but ultimately see mobile cable Wi-Fi telephony products as unlikely wireless disrupters."

"Cablevision's Freewheel is one more straw in the wind" for cellular companies, Moffett added. "The wireless business is in a tough spot."--Daniel