Cable companies’ wireless offerings are a bigger threat to telco wireless providers than telco wireless providers’ broadband offerings are to cable companies, according to a new research note from telecom industry financial analysts at SVB MoffettNathanson. It’s a contrarian view at a time when fixed wireless offerings from T-Mobile and Verizon are stealing cable broadband subscribers and the mobile market is heavily saturated.

The researchers base their analysis on several key market realities.

One of the most critical is that the wireless industry is roughly twice the size of the broadband industry. While broadband annual revenues are about $90 billion annually, wireless service and device revenues are about $185 billion, according to the researchers.

Exacerbating this, telcos have a lot to lose in the broadband market, where they currently have about 29% of the market, with revenues of $26 billion. Meanwhile, cablecos have a lot to gain in the wireless market, where they currently have a 2% share, with revenues of $4 billion.

Convergence is Key

The concept of true convergence plays heavily into the analysts’ research. Convergence means more than simply bundling services together, the analysts said.

“To qualify as real convergence, there must be a marginal cost advantage to offering two or more products together,” said the analysts.

The research note cites two examples of this type of convergence. One example is fixed wireless networks that use mobile infrastructure, yielding a cost advantage in comparison with offering both services over separate infrastructure.

The researchers expressed concerns, however, about whether mobile infrastructure can support both services long term – a concern that others also have expressed. (MoffettNathanson argues, however, that Verizon and T-Mobile FWA offerings may be able to support service in rural areas for a long time.)

Another example of a truly converged offering is cable companies’ mobile service which relies on a combination of the cablecos’ own vast Wi-Fi infrastructure and a wholesale agreement to use Verizon’s mobile network (and which in the future, will also use the cablecos’ own mobile network in some areas).

The researchers made an important observation about this.

“As it turns out, ‘owner’s economics’ in wireless are not always better than the ‘renter’s economics’ of an MVNO agreement,” the authors wrote. “In fact, the best possible strategy is in the middle, with owner’s economics in those places where traffic is heavy and the ROI of facilities deployment is high, and renter’s economics in those places where traffic is light and the ROI of facilities deployment is therefore poor. As a hybrid MNO/MVNO, cable’s marginal costs in wireless will always be higher than Verizon’s or AT&T’s. But their ROI might well be much higher.”

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