The New York area's biggest cable service provider is strategically deploying lots of local wireless access to fend off the telecom carriers
Rich Tehrani buys wireless calling from AT&T, but lately he's been surfing the mobile Web thanks to another provider—his cable company. In parts of Connecticut, where he lives, Tehrani logs onto the Internet by way of Wi-Fi hotspots managed by Cablevision Systems (CVC). "I was at a diner one weekend and it popped up," says Tehrani, who runs Technology Marketing, a publishing and trade show company. "I am pretty much hooked on it."
The same may be said for a growing number of customers of Cablevision, the largest cable provider in the New York metropolitan area. Usage of Optimum Wi-Fi—offered free to Cablevision's 2.4 million in-home Internet-access subscribers—has risen 50% a month since autumn 2008. In early April, Cablevision reported that consumers have used its Wi-Fi hotspots 1 million times in the past year.
Wi-Fi provides high-speed Internet access over a finite area, such as a home or hotel lobby. A group of strategically located hotspots can provide ubiquitous access over a larger region. Cablevision is using the technology in such commercial areas as malls and train stations so it can include mobile-Web surfing in a lineup that already includes TV, calling, and high-speed Internet access. It's a way to combat the encroachment of telecom carriers that in recent years have begun offering TV alongside their other services. Wi-Fi is by no means a substitute for the costly, coast-to-coast wireless networks maintained by AT&T (T) and such other wireless carriers as Verizon Wireless and Sprint Nextel (S). And the viability of Wi-Fi over large areas has been called into question of late, as cities across the country have shelved or abandoned plans to use the technology to blanket neighborhoods with free or cheap Internet access.
Wireless Partnerships Have Flopped
Depending on Cablevision's experience, however, Wi-Fi could present itself as one of the most effective and low-cost ways for cable companies to confront the telecom threat, at least in the near term. Other cable companies, including Comcast (CMCSA) and Time Warner Cable (TWC) may even be forced to rethink their own wireless strategies. Consultant Dell'Oro Group expects the global market for Wi-Fi access points installed by service providers to increase to 150,000 units in 2013, from 58,000 units last year. The market's pace of annual growth is expected to increase to 21% in the coming years, from the high single digits in 2008, in part because of cable company interest.
Wireless has proven a tough nut to crack for the cable industry. Some cable providers tried to offer wireless in partnership with Sprint Nextel, but the effort unraveled. More recently, Comcast, Time Warner Cable, and Bright House Networks invested in Clearwire (CLWR), a company building out an expensive, nationwide wireless broadband network. Several investors have written down their stakes as Clearwire stock plummeted on concerns over how quickly it would complete the network. Cable company Cox Communications announced that it may build its own cellular network in some markets, while working in concert with Sprint in others.
Wireless partnerships simply haven't panned out for cable companies in the past. "It makes sense to experiment with wireless broadband, but a lot of these industry consortiums have just not worked out," says Thomas Eagan, an analyst with Collins Stewart. Cablevision toyed with—and later scrapped—the idea of building its own network more than five years ago.
Wi-Fi: "A Real Wake-Up Call?"
So far this year, most cable companies have announced only limited wireless trials. Time Warner Cable plans to offer a wireless broadband offering in "at least one market," according to a company spokesperson. Comcast has announced it will start offering wireless broadband in Portland, Ore., this summer. Cox is planning to offer wireless voice and data services in a couple of markets, using either its own infrastructure or capacity it buys on a wholesale basis from Sprint. "We haven't even decided if we'd build out everywhere," says Dallas Clement, senior vice-president for strategy and product management at Cox. "It's not feasible for us to launch all markets in 2010."
Then why not opt for Wi-Fi? Cablevision's hotspots at malls, train stations, and parks let users of Wi-Fi-enabled devices stream video and make voice and even video calls. "Most of the children and the commuters [in Cablevision's area of service] are covered by the Wi-Fi network, while I can't get 100% cellular coverage [from a telco] in New York," says Richard Doherty, director at consultant Envisioneering Group. "It's a real wake-up call to other operators."
Ubiquitous Wi-Fi coverage, offered for free, could cut customer turnover by 15%, Eagan estimates. What's more, Wi-Fi could help meet the growing demand for so-called converged services, says Parks Associates analyst Jayant Dasari. Customers increasingly want communications services that seamlessly integrate voice, video, and Internet access—for instance, by letting a person watch and record a movie on a home TV, a laptop, or a mobile handset.
Other cable companies have begun to show an interest in Wi-Fi. In a trial begun in late 2008, Comcast began offering Wi-Fi to subscribers at 100 train stations in New Jersey. Cox hasn't announced plans to offer Wi-Fi to subscribers. Still, Clement says: "We like Wi-Fi. You may see us doing more and more of that in our markets. We are looking at Cablevision's success and we'll be making a determination about our strategy."