In an earlier post I discussed how a handful of small startups (Republic Wireless, FreedomPop and Scratch Wireless) are offering low-cost “WiFi-first” mobile services targeting mainly cost-conscious smartphone-toting millennials. In February, these relatively small-scale and modestly-capitalized “wireless disruptors” were joined by a much bigger player: Cablevision Systems, a cable operator that generated nearly $6.5 bil. in revenue last year and whose network passes more than five million homes and businesses in the tri-state New York City metro area.
As proclaimed in bold letters on the home page of its new Freewheel service, Cablevision’s marketing message is “Goodbye data limits. Hello Generation WiFi.” And, true to that message, Freewheel is a “WiFi-only” service (unlike the “WiFi-first” startups discussed in that earlier post). It offers unlimited Internet and voice service, but provides no cellular backup connection where WiFi isn’t available.
Within the tri-state NYC metro area, Freewheel’s connectivity is provided mainly via the 1.1 million WiFi hotspots Cablevision has deployed in its cable service area. While some of these are in outdoor and indoor pubic locations, a substantial number are comprised of “dual-SSID” routers deployed in customers’ homes. In addition to providing that customer with a private in-home WiFi network, these devices also serve as public-access hotspots.
I’ll be discussing Freewheel’s strategy, prospects and potential impacts—and similar moves that might be taken by other cable operators–in a subsequent post. But, before I do, it seems useful to set the stage with a brief review of the cable industry’s past efforts to develop new market opportunities in the wireless sector.
Cable & licensed spectrum: a series of failed marriages
These efforts date back to 1994, when three top-tier cable operators, Tele-Communications Inc. (then the nation’s largest cableco), Comcast and Cox formed a partnership with Sprint to deploy a mobile service based on the newly-licensed “Personal Communication Service” (PCS) spectrum. Part of their strategy was to use the cable operators’ wired network to deploy wireless antennas that serve relatively small geographic areas, an approach relatively well suited to the 1900 MHz PCS spectrum band, which has less robust propagation characteristics than the 800 MHz cellular band that had previously been relied on for mobile voice communications [On a personal note, I can remember, as a Cox cable customer, watching technicians install a small PCS antenna on Cox’s cable network, around the corner from my home].
Within a few years of the venture’s launch, however, the three cable operators found themselves spending an uncomfortably large amount of money on it, amid mounting pressure to invest in upgrades of their wired networks using the then-relatively-new “hybrid fiber coaxial” (HFC) architecture that improved picture quality while also enhancing the network’s capacity to support two-way communications. This pressure was driven by intensifying competition from direct broadcast satellites (first launched in 1994) in cable’s core video business, and an emerging competitive battle with local telcos in the still-nascent “broadband” Internet market (the first U.S. cable modem deployments date back to 1997).
By 1998, the PCS venture was abandoned…and that cable-mounted PCS antenna in my neighborhood vanished without a trace.
If we fast forward to 2005, we find the leading cable operators gearing up for another go at the mobile market.
In this iteration, Comcast (now the industry’s largest cable company), Time Warner Cable (the second largest), Cox and Bright House Networks, formed a joint venture with Sprint Nextel (Sprint had since acquired Nextel). Under terms of the deal, the cable operators would market Sprint-delivered wireless service, which they dubbed “Pivot.”. The idea was to expand the “triple-play” (video, Internet and phone) bundles that had become an increasingly central and profitable component of cable operator strategies into “quad-play” bundles that also included wireless voice service.
A year later, these same companies formed a SpectrumCo joint venture to participate in the AWS (advanced wireless spectrum) auction. Sprint was part of the venture, but had a relatively small stake in it. In the auction the SpectrumCo partners spent roughly $2.4 billion to acquire 20 MHz licenses (in the 1700 and 2100 MHz bands) that covered roughly 90% of the U.S. population.
The following year, Sprint, under pressure from Wall Street to focus on other pressing priorities, exited the venture (Cox did as well, but held onto its spectrum). The Pivot joint venture was also abandoned within a few years of the auction.
In yet another attempt to add wireless and a “quad-play” option to their service portfolio, Comcast and Time Warner in 2008 began reselling wireless services provided by Clearwire, which at the time was deploying a WiMax network in selected cities around the country, and had Sprint Nextel as a major investor. And in 2010, Cox launched a wireless service in some of its local markets using the Sprint network.
In 2011, five years after the auction was held, cable’s AWS spectrum was still lying fallow. This led some, including the National Association of Broadcasters, to claim that some of the auction winners, rather than using the spectrum to deploy networks, were warehousing it in anticipation of a windfall profit as demand for spectrum grew among established wireless carriers.
In late 2011, a deal was announced in which Verizon would purchase the SpectrumCo and Cox AWS spectrum for $3.9 billion, providing the sellers a healthy profit on their original $2.4 billion investment. Not surprisingly, this renewed claims of “spectrum warehousing,” prompting the FCC to look into the matter as part of its review of the cable-Verizon transaction.
As reported by Wireless Week on March 26, 2012:
According to the FCC, [Comcast CFO Michael] Angelakis said in 2008 that Comcast didn’t’ “feel the immediate pressure of needing a wireless product” and told investors the next year that “we don’t want to be the seventh competitor in a market that it’s mature from the voice side. And it’s a huge economic investment, which we’re uncomfortable there’s a real return for.”
Last September, just months before the cable companies and Verizon began negotiating the spectrum deal, Angelakis said: “We have no desire to own a wireless network.”
But perhaps most damming is Angelakis’ comments at an investor conference earlier this year, about one month after SpectrumCo sold its spectrum to Verizon at a net profit of about $1.5 billion: “We never really intended to build that spectrum.”
So what was it? Did Comcast and its SpectrumCo partners ever intend to build a wireless network? Or were they really planning to sit on the airwaves until they came immensely valuable?
Comcast’s condensed explanation: The wireless market changed dramatically after it first bought the spectrum six years ago, and after spending millions to clear the airwaves and evaluate all possible options, it “concluded that there were substantial financial risks associated with the construction of a wireless network… with no guarantee of a return on the investment. For all of these reasons, SpectrumCo made the business decision not to become a standalone, facilities-based wireless provider and instead entered into the proposed transaction with Verizon Wireless.”
As the FCC explained in approving the spectrum sale in August 2012, it was part of a larger transaction that also included commercial arrangements under which:
- Verizon Wireless and the cable operators act as sales agents of one another’s services (As of early March 2014, both Comcast and Time Warner Cable were still marketing Verizon Wireless service)
- Each of the cable operators may become resellers of Verizon Wireless’s services;
- The parties (other than Cox), through a joint venture, would work together “to develop ways to integrate wireline and wireless services.” (this part of the deal was later terminated by the parties).
The Verizon deal also marked the end of the Comcast/Time Warner Cable resale arrangement with Clearwire, and Cox’s similar arrangement with Sprint Nextel.
Unlicensed spectrum: the sweet spot for cable’s wireless ambitions?
In light of this history, it seems reasonable to describe cable operators’ two-decade-long effort to become major players in the licensed wireless sector as tentative, ambivalent and without much lasting strategic value to the companies (aside from the profit they made on the spectrum sale). And one could even argue (as the broadcasters’ association seemed to be doing) that it was a bad deal for the country, since valuable spectrum sat unused for six years before being sold at a handsome profit.
But cable operators’ series of failed marriages in the licensed spectrum space does not mark the end of their wireless aspirations. Instead, it seems to have shifted their focus from licensed to unlicensed spectrum, and a strategy that may be well suited to their strengths in the era of multimedia, multiscreen “nomadic” devices and services.
Central to this strategy is deployment of extensive though not necessarily ubiquitous WiFi networks—in outdoor and indoor public locations, and also, at least for some cable operators, via the in-home routers they lease to customers.
Among the drivers of this expanding WiFi deployment have been the wireless industry’s transition to: 1) ever-more-intelligent, multimedia-capable and WiFi-equipped smartphones and tablets; 2) much higher speed 4G LTE networks and; 3) capped rather than unlimited-use data plans, especially by Verizon and AT&T, the nation’s two dominant cellular carriers.
These wireless industry dynamics have driven increasing demand for WiFi connectivity to “offload” the expanding data traffic generated by smartphone and tablet users wanting to make increasing use of video and other bandwidth-intensive applications, while avoiding the often steep fees associated with exceeding their monthly data caps.
AT&T, which enjoyed exclusive U.S. access to the iPhone from 2007 to 2011, was early to move into the hotspot arena. For example, in 2008 it acquired managed hotspot provider Wayport, which increased its U.S. footprint to nearly 20,000 hotspots, a figure that has since increased to more than 30,000. The existence of these hotspots and the iPhone’s ability to use them helped relieve some of the pressure the new phone’s intensified usage patterns put on AT&T’s network.
But today, even AT&T’s extensive hotspot network is dwarfed by the WiFi networks deployed by cable operators. For example, five cable operators (Comcast, Time Warner Cable, Cox, Cablevision and Bright House) allow each other’s customers to access a network that currently includes more than 300,000 hotspots.
Cablevision alone claims to operate 1.1 million hotspots in just the NYC tri-state metro area, including those that piggyback on customers’ in-home WiFi routers. And Comcast, which has also begun using in-home routers as public-access hotspots, claims to now have millions of hotspots in its WiFi network (more on this use of in-home routers as public hotspots in a future post).
Though for years they seemed to be the odd-man out in the licensed spectrum arena, cable operators are, in key respects, ideal candidates for deploying WiFi networks capable of carrying the increasing amounts of data and video traffic generated by today’s expanding array of network-hungry digital devices.
In a September 8, 2014 FierceWirelessTech article, Tammy Parker summarized the publication’s research into “[t]he top 5 reasons cable operators are making big bets on Wi-Fi.” Here’s an abridged version of what she came up with:
- “Because they can…A Wi-Fi network requires backhaul, power and locations for access points, all things cable operators naturally have as a function of their legacy business.”
- “Wi-Fi is another service cable providers can give their customers…[to] differentiate their wired broadband offerings…[C]able companies have recognized that nomadic but stationary wireless delivery is necessary for consumption of long-form videos, such as movies, while a person is home or away though not necessarily mobile.”
- “Wi-Fi might give cable operators a leg up against wireless carriers. Cable MSOs with extensive Wi-Fi deployments make it a point to remind their broadband customers that using their cable operators’ free Wi-Fi hotpots for wireless multimedia service can be a whole lot less expensive than consuming that same data over a costly tiered cellular data plan.”
- “Wi-Fi is also helping cable operators establish beachheads outside the home and inside of businesses, and managed Wi-Fi services help drive new revenues to cable operators.”
- “Deploying Wi-Fi helps cable operators flesh out a quad-play strategy…[in] the emerging battleground between cable and cellular operators [that] involves nomadic provision of video services.”
It’s probably not too much of an overstatement to say that Cablevision’s “Goodbye data limits. Hello Generation WiFi” message marks a new chapter in the (to paraphrase Parker) “emerging nomadic multiscreen multimedia service battleground.” The company’s strategy, as embodied in its new “WiFi-only” Freewheel service, will be the focus of the next post in this series.
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