Comcast, Look Up North: Canada Sets Example With Wireless Dealby and
Shaw's purchase of Wind Mobile a `laboratory': analyst
Sets an example for cable seeking to enter wireless market
In the cable industry, Canada is showing the way to a wireless future.
The surprise acquisition of a wireless carrier by Shaw Communications Inc., one of the country’s largest cable-TV providers, has set an example for U.S. peers like Comcast Corp.
As big cable operators, Shaw and Comcast appeared to have a lot in common: They wanted to create new sources of revenue as consumers ditch traditional TV packages and flee to mobile devices for their entertainment and information needs. After both abandoning early plans to enter the wireless market, the two companies had built up a network of Wi-Fi hotspots, which, combined with cellular technology, they saw as key to challenge the dominance of incumbent phone providers.
That all changed Wednesday night, when Shaw announced its C$1.6 billion ($1.2 billion) deal for Wind Mobile Corp. The rationale: while Wi-Fi is great, you really need to own your own network to become a significant wireless player.
“It does set up a model for some of the rest of the industry,” said David Heger, an analyst with Edward Jones & Co. in St. Louis.
The bigger question is why North American cable operators still want to enter the wireless industry after a history of past missteps and failures. The market, in both countries, is saturated, and established carriers are competing intensely on prices. The answer: video viewing is getting more and more mobile, and the cable giants want to capture any part of that growth.
So far, Philadelphia-based Comcast has invoked a deal with Verizon Communications Inc. to become a mobile virtual network operator -- or MVNO, a concept in which a company leases capacity on a wireless carrier’s network and resells that service under its own brand. Chief Executive Officer Brian Roberts said the company is also exploring a similar relationship with Sprint Corp. and others.
But analysts, including long-time cable observer Craig Moffett at MoffettNathanson LLC, have speculated that the cable giant would eventually try to buy a network -- most likely T-Mobile Inc. -- to take on the wireless giants.
“Investors are unsure whether this strategy will be enough to offer a competitive quad play offering,” Bloomberg Intelligence analyst Paul Sweeney said of Comcast’s MVNO deal with Verizon. “Some investors believe Comcast needs to buy an existing wireless operator. T-Mobile is the name most often mentioned.”
John Demming, a Comcast spokesman, and Annie Garrigan, a spokeswoman for Bellevue, Washington-based T-Mobile, declined to comment.
Buying the Underdog
Like Shaw and Comcast, Wind Mobile and T-Mobile are also a lot alike. They’re both underdogs that grabbed market shares from the larger incumbents with aggressive price cuts. Wind has increased its customer base by 47 percent over the past two years yet remains the No. 4 carrier behind Rogers Communications Inc., Telus Corp. and BCE Inc. While T-Mobile surpassed Sprint this year to become the No. 3 in the U.S., it still trails Verizon and AT&T Inc. in both subscriber count and average revenue per user.
“The global telecom landscape is quickly evolving towards ‘mobile-first’ product offerings,” Shaw Chief Executive Officer Brad Shaw said in the statement announcing the deal. The purchase will let the company offer a “converged solution.”
To be sure, Comcast, an industry leader with about 22 million subscribers, has a better chance than the smaller Shaw to succeed without an acquisition. Its advantage resides in a vast network of more than 10 million Wi-Fi hotspots -- versus just 75,000 at Shaw. Over the past several years, Comcast has been replacing its cable customers’ routers with new ones doubling as public Wi-Fi hotspots, which thanks to a confluence of technology advances can now rival cellular.
T-Mobile would also be a lot more expensive than Wind, with its market value of $32 billion and growing list of potential bidders, including Dish Network Corp. and France’s Altice SA, running up the sticker price. Deutsche Telekom AG, T-Mobile’s German parent company, doesn’t need to sell the carrier now because the business has performed well in recent quarters, people familiar with the matter have said.
Still, Shaw created what Edward Jones analyst Heger called a laboratory for the industry. To evidence, the shares of Canada’s phone incumbents Telus, Rogers and BCE tumbled Thursday.
“Maybe eventually someone like Comcast steps back and says we need our own network,” Heger said.