Craig Moffett, a top analyst in the telecommunications industry, returns to discuss cable companies potentially having a cost advantage in the wireless business. The podcast covers the impact of convergence on the cable business, the importance of cable companies in providing wireless services, and the challenges faced by wireless providers. Moffett also talks about founding MoffettNathanson, a research firm specializing in media communications.
Cable operators have a cost advantage in the wireless business by leveraging their existing cable network, allowing them to offer wireless services at lower prices compared to wireless operators.
The impact of fixed wireless and fiber builds on the cable business is not as significant as some may suggest, as cable operators still maintain a dominant position in the market.
The pricing dynamics in the telecom market are not as dire as believed, with cable operators having rational and non-cutthroat pricing models in markets with stable equilibrium.
Deep dives
Cable's Advantage in Wireless Business
Craig Moffatt explains how cable operators have a unique advantage in the wireless business by leveraging their existing cable network. They can offer wireless services at lower prices due to the cost advantage they have in offloading traffic between the cable and wireless networks. This allows them to arbitrage the difference between urban and rural network costs, resulting in lower overall costs compared to wireless operators. Cable operators, such as Charter and Comcast, have been pricing wireless services below market rates, attracting a significant portion of industry net ads.
Impact of Fixed Wireless and Fiber Builds
While fixed wireless and fiber builds are impacting the cable business to some extent, their effects are not as significant as some may suggest. Fixed wireless growth is largely driven by market expansion, particularly in the business sector, where cable operators are not direct competitors. Additionally, fiber builds from telecom companies are taking subscribers away from cable, but not at a substantial rate. The real test is whether these competitors can take more subscribers from cable in the coming years. While there is some impact, cable operators still have a dominant position in the market.
Pricing Dynamics and Converged Products
The pricing dynamics in the telecom market, especially in the 25% of the country where competition exists, are not as dire as many believe. Cable operators have rational and non-cutthroat pricing models in markets with stable equilibrium. The narrative of mutually destructive convergence between cable and wireless operators is flawed. The converged product advantage for wireless operators is yet to be realized, and they would have to lower prices to compete. Cable operators, on the other hand, have a cost advantage in offering bundled services, leading to favorable pricing. The market is demanding lower wireless prices due to cable's competitive pricing, which poses a challenge for wireless operators' margins and the potential for pricing growth.
AT&T's Rising Fiber ARPU vs Cable
AT&T's broadband ARPU, particularly for fiber, is increasing at almost 9% annually, creating a favorable environment for cable investors. This growth debunked the notion of price wars in broadband and strengthened cable's ability to raise broadband ARPU by 4%. By focusing on fiber in their strategy, AT&T's dominance in rural areas becomes a concern for long-cable investors, as AT&T's fiber footprint could eventually cover around 21% of the country. With AT&T's national wireless product primarily available in fiber-covered areas, cable companies like Charter and Comcast gain a significant advantage in offering bundle deals of fiber and wireless.
The Dilemma of T-Mobile's Fixed Wireless
T-Mobile's aggressive push into fixed wireless, while enticing, poses several challenges. The short runway of fixed wireless limits its long-term growth potential while requiring substantial capacity upgrades. T-Mobile's rapidly growing customer base, combined with the limitations of fixed wireless, creates marketing inefficiencies and customer frustration when availability fluctuates. Pricing fixed wireless at a low rate further questions their business strategy, as the revenue per bit ratio for mobility is significantly higher than fixed broadband. Moreover, the convergence story between wireless and broadband faces obstacles as customers currently perceive them as separate entities, making it challenging to market bundled offers effectively.
Craig Moffett has covered the telecommunications industry – first as a management consultant and later as a Wall Street analyst – for more than thirty years. He has been elected to Institutional Investor Magazine’s All-American Research Team in the U.S. Telecom and/or Cable & Satellite sectors on seventeen separate occasions, including nine separate appearances as the #1 analyst in America in either U.S. Telecom and/or Cable & Satellite.
Craig returns to The Business Brew to give an update on his analysis of the US telecommunications ecosystem. Craig is Co-Founder of MoffettNathanson (see https://www.moffettnathanson.com/), a research driven firm that focuses on sound analysis as opposed to the incentives that drive much of Wall Street Sell Side coverage. Craig’s most divergent view is that cable companies may end up with an cost advantaged wireless business when compared Verzion, AT&T, and T Mobile’s business. This is in large part because of postalized rates, which you will learn about in this episode. We hope you enjoy this conversation.
Please see https://podcasters.spotify.com/pod/show/william-brewster1/episodes/Craig-Moffett---A-True-Expert-e1qqks6/a-a8sd2uv for our conversation in November 2022.
For disclaimers - Bill held both Charter and Liberty Broadband
shares until recently. He sold after Charter’s most recent earnings report. Bill has talked a lot about cable and felt like he needed to sell in order to be rational about the cable thesis. We hope this conversation is as unbiased as possible.
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