The last post in this series discussed Cablevision’s recently launched WiFi-only service called Freewheel. It ended with the speculation that Comcast—the nation’s largest provider of cable TV and broadband services—might look to Freewheel for lessons about how to approach the WiFi-based service it is expected to launch sometime in the near future.
Though Comcast executives have so far been reluctant to discuss their WiFi plans, they did shed a little light on their thinking during the company’s February 24 yearend earnings call.
For example, during the call’s Q&A session, Comcast Cable CEO Neil Smit, describing WiFi as “a great asset,” had this to say:
We have 8.3 million hotspots now, including the in-home and outdoors…[W]e are working on how we monetize that asset and bring it to market. As you know, we have MVNO relationships with Sprint and Verizon and the use of Wi-Fi continues to go up…[W]e will be working on ways to bring it to market over the coming months… and we will announce when we’ve got the product well-refined and developed…
Clearly, the world is becoming more mobile. We have our apps, our video apps out in the mobile space and they are getting a lot of usage. Our My Account app for customer service had 41% of our customer relationships visit it in December, so we view the mobile world expanding as well as we are assessing the business opportunity.
As with Cablevision, a key element of Comcast’s WiFi network and strategy is the deployment of dual-SSID “gateway” devices in customers’ homes. In addition to supporting an in-home WiFi network, these devices also provide a second “XFINITY WiFi” network for use by other Comcast customers within reach of this second network’s signal (the XFINITY WiFi service is available free for customers subscribing to the higher speed tiers offered by Comcast).
Though I’m not aware of Comcast having released any details regarding the mix of devices in its hotspot network, it seems reasonable to assume that these in-home devices account for the bulk of the 8.3 million hotspots comprising that network. The company serves a total of 22 million broadband customers, so if just a third of them were equipped with dual-SSID gateways, this would amount to 7.3 million home gateway-based hotspots.
In response to a question during the call, CFO Michael Angelakis described Comcast’s investment in these in-home WiFi gateway devices as having “great returns on their own and…seed us for different businesses that are attractive going forward.”
This comment highlights the favorable economics for Comcast of investing in a service that leverages the WiFi coverage footprint provided by the millions of customer premise-based gateway devices it has deployed. For example:
- There’s no licensing costs associated with WiFi spectrum use (as a point of contrast, Comcast and several other cable operators paid $2.4 billion for AWS spectrum in 2006 and six years later sold it to Verizon for $3.9 billion)
- Comcast typically charges a $10 per month rental fee for its gateway devices. Based on retail pricing of integrated modem/router devices, I’d guess that this provides the company with a financial payback on these devices within 12-18 months, perhaps even less. And it’s important to remember that these same devices also support the company’s core Internet access business, which has historically generated an average revenue of roughly $40 per month, and at very healthy margins. The incremental cost of adding a public hotspot functionality to such devices is probably quite modest.
- The task of connecting wireless hotspots to each other and to the Internet is readily provided by Comcast’s existing wireline network, which is already supporting a mix of video, data and voice services to residential and business customers.
- Given Comcast’s existing technical and customer service infrastructure, the incremental operating costs associated with adding a WiFi-based service is likely to be relatively small.
Together, these factors suggest that the main cost components associated with operating a WiFi-based service will be incremental to Comcast’s core business and relatively modest, especially when compared to the cost structure of the networks operated by licensed wireless carriers.
Angelakis’s comments also suggested that, like Cablevision’s Freewheel, a future Comcast WiFi service would initially focus on providing added value to existing video and high speed data customers, by supplying them with untethered and nomadic connectivity outside the home environment. But he also suggested the company’s investment in WiFi provides a strong platform for expanding beyond this initial focus in response to the continued and rapid evolution of market demand, technology and competitive dynamics (bolding is mine).
[W]hen you think about all the investment we have made in Wi-Fi over the years and everything on our cloud DVR and our TV Everywhere platform, the real goal has been that our customers can access their video anytime anywhere whether in the home or outside the home and we think Wi-Fi is a great delivery mechanism to expand that product. If Wi-Fi can also develop into a different type of service then that is an added benefit to the Wi-Fi investment.
In a follow-up post I’ll consider public policy issues related to Comcast’s WiFi strategy in the context of its overall strategy and market position.
