Telecom companies and cable providers, with their heritage in providing telephone and video services, respectively, have traditionally been like water and oil or fire and ice – industries diametrically opposed to each other.
But a funny thing happened: they increasingly began to act and act like each other. Two decades ago, they both started pushing the “triple play” package for voice, video and Internet services. The goal will be to provide all necessary communications services to the family, a concept called “convergence.”
Moving forward to 2023, this idea is still in play, with convergence back as an industry buzzword everyone is talking about. Since online access is so critical, the idea is to connect the customer to a fast broadband service, and layer multiple services on top of that pipe, whether that’s streaming or something else. Telecom and cable companies alike are pursuing this strategy relentlessly.
“In fact, this convergence strategy has been happening for years,” said Maribel Lopez, an analyst at Lopez Research. “It’s even more evident and needed today than it was several years ago, especially in light of streaming services taking over mainstream cable TV offerings.”
Just this week, the idea emerged that cable and telecom companies are starting to resemble each other. Comcast said Tuesday that it will launch its own wireless network in its area to better improve service for its subscribers — a step up from its current arrangement to resell wireless service from Verizon. Meanwhile, T-Mobile is reportedly working with a fiber company for a much larger landline presence (and is offering fiber in a few markets as a means of consumer research).
Each side trying to expand on the other is like the old three-way battles. But this time, the stakes are much higher with customers largely committed and growth means taking someone else’s lunch away. Because cord-cutting radically reduces how profitable traditional pay TV is, it’s pushing companies out of their comfort zones — and fast.
“What has changed is that any service, from wireless, to home broadband, to streaming software is almost completely hacked,” Lopez said. “There is very little organic growth in any given service, which means the provider needs to get the consumer to switch as many services as possible to a single provider in order to grow.”
Growth of wireless cables
Cable companies lost more than 800,000 video customers in the last quarter alone (and more than a million if you include Verizon and Dish), a staggering number by any standard. But what gets lost in the shuffle is the fact that the industry is actually making progress in offering discounted wireless services to its customers.
If convergence means offering everything to everyone with broadband as the primary service, cable is using wireless — with deep discounts that give customers a year of free service — as a way to keep them tied to that Internet line. Cable companies can operate cheaper than other vendors because much of their traffic runs on their own Wi-Fi networks at home or around the area, which means paying less to the wholesale carrier (in this case, Verizon).
At the same time, they’re starting to eat into competitors like Verizon, which has struggled over the past year to add wireless customers, with CEO Hans Vestberg saying they’re just starting to install customer defections.
In some ways, cable companies play the wireless game better than some wireless operators.
“We’re probably 30% to 50% cheaper in the mobile space,” Comcast CEO Brian Roberts said last week at an investor conference. “We’re only 10% penetrated, so the upside is incredible. The package creates value for our customers to have the best broadband ever, so the story really resonates.”
Chris Winfrey, Charter’s CEO, said at the same investor conference that he sees a lot of upside in the continued demand for broadband, which he combines with wireless service. “This will provide a long runway for growth,” he added.
Revenge using 5G home internet
However, Verizon and T-Mobile can brag about the sheer number of 5G home internet customers they’ve added in this period. The companies combined added nearly 900,000 broadband subscribers in the second quarter, more than all the combined additions from the cable industry.
Wireless carriers have taken advantage of the ease of setup, simple pricing and decent speeds offered by 5G home internet, which taps into some of the frustrations consumers have with the cable industry.
When it comes to convergence, these companies are looking to connect customers to 5G now, with the opportunity to give them a speed boost later through better infrastructure.
“I’ve got the customer now, and I’ll have a choice in the future if they want fiber,” Vestberg said at the investor conference. “We make sure the customer gets the broadband they want, and then we decide that later.”
The opportunity for carriers is to bundle this home wireless service with traditional mobile wireless communications. That’s why you see such generous offers for the new iPhone 15, including offers of $1,000 on the new device with a trade-in, that often come with terms that lock you in for two to three years. If you’re going wireless, why not combine home internet and video as well?
“The goal now is to capture share of wallet and reduce churn,” Techsponential analyst Avi Greengart said, referring to customer turnover.
While T-Mobile CEO Mike Seifert enjoys more growth in 5G home internet, he was more upbeat about its future in his remarks last week.
“I’ve been very clear that our fixed 5G service is playing a role in the market,” he said at an investor conference, noting that he doesn’t see fixed wireless access replacing cable or fiber.
For more than a decade, cable and telecom companies have objected to the idea that they are just “dumb pipes,” or Internet connections that allow big tech companies like Google and Meta to make all the money. This led to a wave of mergers, with Comcast acquiring NBC Universal, Verizon purchasing Yahoo, and AT&T purchasing DirecTV and Time Warner.
While Comcast and NBC are still together, Verizon and AT&T have both divested of their media assets. Suddenly, a tube being stupid wasn’t so bad – especially if it was a big tube filled to capacity.
That’s why AT&T and Verizon have been vocal about the benefits of fiber, and T-Mobile is exploring getting into this in a bigger way.
“This is where everything is headed,” AT&T CEO John Stankey said at a conference last week. “So, having a strong fiber infrastructure, the right capillaries in the right place that are highly defensible, the right ways in which those fibers are located and then being able to put different types of access technology on their end.”
Vestberg talked about the benefits of economics to owners when it comes to operating the network, allowing him to decide what additional services they can offer, even if they’re not coming from Verizon.
Meanwhile, cable companies are also realizing the importance of faster broadband, and are promoting DOCSIS 4.0, a new cable Internet standard that includes more fiber-optic lines.
It is clear that wherever this clash goes, the adage “the more things change, the more they stay the same” applies to the rivalry between telecom companies and cable providers.