As I discussed in the context of the Sprint/Clearwire/Etc. spectrum menage (and discussed a bit more with Gordon Cook on his blog), the reality of the post-700 MHz auction world makes it necessary for cable operators to have some kind of wireless strategy if they want to meet the potential next generation competitive threat from either AT&T and Verizon or possibly from newly en-spectrumed DISHTV. At the same time, cable operators are desperate to avoid the downdrag on the their stock that would come from a heavy investment in wireless licenses and further nvestment in infrastructure — especially when analysts don’t give them a prayer of taking on the wireless carriers in what has become a reasonably mature market. How to resolve this difficult dilemma?
Those cable systems with the combination of resources and forethought to address this have opted for different solutions. Comcast, Time Warner and Brighthouse –through their new partnership with Sprint/Clearwire etc. — have flopped back to the old cable standard of joint ventures and strategic investment. (Anyone else remember @Home Network?) Cox went out and won its own set of licenses covering its cable service area, as did Charter parent Vulcan Enterprises (as have a few lesser systems, such as Washington Post owned CableOne, which captured a bunch of licenses in the AWS auction).
Cablevision tried twice to acquire its own set of licenses: first in the AWS Auction in 2006, and again in the 700 Mhz Auction. Both times Cablevision went home empty-handed, outbid by the wireless giants. With no new spectrum on the horizon, and apparently no invite into the Sprint/Clearwire Happy House ‘o WiMax partnership, Cablevision found itself in need of a spectrum “Plan B.” Happily for Cablevision, there is also such a thing as “unlicensed spectrum” which — as I and other boosters of the competitive power of open spectrum continually point out — is available to everyone and cheap to deploy (relative to building a licensed network from scratch).
Hence the recent Cablevision announcement that it will deploy a wifi network in conjunction with its cable network. As a Plan B, it has some real advantages over using licensed spectrum, as well as some potential disadvantages. But given Cablevision’s unique deployment situation — it is primarily located in New York City and Long Island which gives it incredible population density for its relatiely small footprint — this fall back position may work for it where it would not work for other cable companies.
A bit more analysis below . . . .
Cablevision’s wifi strategy has several things going for it. It is relatively cheap to deploy (as compared with winning licenses and building a wireless infrastructure) and can be deployed right away. Indeed, according to DSL Reports, deployment is well under way already. That gets Cablevision subscribers hooked on this form of mobility for their wireless services before Verizon can get its new 4G network up and running. Also, since it is much cheaper, customers won’t have to buy a separate expensive wireless package to get what amounts to a “poor mans wireless” in Cablevision’s service area.
Of course, this sort of wireless fall back will lack many of the features that future VZ wireless/wireline bundle will have — at least in the short term. But for Cablevision, it is an open question whether it will need to provide things like national coverage to compete. But my feeling is that while this limits Cablevision’s ability to expand its enterprise market penetration (where high end customers will place great value on a top-notch national mobile network that works seamlessly with a wireline product and is indistinguishable from a present-dy DSL connection), it is perfectly adequate for retaining customers in the face of FIOS. Cablevision has so far managed to stave off widespread defections to FIOS.
This form of poor man’s mobility network is a reasonable antidote to the FIOS speed challenge — giving Cablevision time to upgrade its own capacity on the ground if FIOS gets too far ahead on speed. As noted above, most of the residential subscribers Cablevision wants to keep live on Long Island and work in NYC. WiFi access of this nature will be areal boon to them, even if it doesn’t come with roaming. Verizon could respond in kind, but doing so would cannibalize a significant amount of wireless revenue by allowing easy text messaging via wifi and possibly shifting customers to VOIP-enabled devices using wifi rather than using minutes on their wireless plan.
In the event Verizon’s quadruple play does prove attractive enough to overcome the stickiness of wifi access and switching costs generally, Cablevision can always look to other partnership options. Between Sprint and T-Mobile and Time Warner, there are plenty of folks in the NYC metro area for Cablevision to partner with in an effort to beat back the Verizon/AT&T wireless dominance. There is even a possibility that some time down the road, Cablevision could find a way to monetize its new wifi network, although that would merely be icing on the cake and I think it very unlikely. As the ongoing shake out in commercial muni wifi projects demonstrates, commercial wifi networks are likely to be low-margin businesses even where they can turn a profit at all. But again, I don’t think Cablevision is trying to turn this into a new moneymaker so much as a way to stave off customer loss.
Where this potentially falls down is if mobile television becomes a serious technology and a serious competitive hook. But that is a sufficient long shot that it is reasonable to ignore for the moment.
So all in all, I think Cablevision has a smart strategy here — provided short-sighted analysts carping about capital investment don’t drive down the stock and scare them off. It does not have the potential to become the sort of moneymaker capturing licenses in AWS or 700 MHz might have had, but it will do the job of locking customers in.
Now all we have to do is convince Cablevision that to pump up their wifi network to competitive levels, they need to push to open the broadcast white spaces.
Stay tuned . . . .