Super Owner Economics - Comcast & Charter’s Network Jiu-Jitsu

Full Transcript

Don Kellogg 0m10s

Hello, and welcome to the two hundred and seventy fourth episode of the week with Roger, a conversation between analysts all things telecom, media, and technology by Recon Analytics. I'm Don Kellogg, and with me as always is Roger Reitner. How are doing, Roger?

Roger Entner 0m23s

Hey. I'm great. The holidays are almost here. Right?

Don Kellogg 0m27s

Right. You've got some stocking stuffers for folks that are still shopping for their favorite strategy groups or wireless executives. You wanna tell us about that?

Roger Entner 0m35s

Well, you know, it's this endeavor of helping our friends to liberate leftover budget so that they don't have to give it back to their CFOs and not get it back a year later. So I've put together another really interesting report about the super owner economics that when Charter and Comcast are executing their CBRS strategy, we'll enjoy and how this really is quite the ingenious, you know, way to go at it. When you look at it, Comcast and Charter bought a lot of CBRS spectrum, but in a very, very surgical way, basically, where they have the most traffic. Brian Roberts is on the record saying that in 3% of their geographical footprint, 60% of their mobile wide area traffic is happening. Knowing that, you know how they can do basically network jiu jitsu.

Roger Entner 1m31s

They are building their own CBRS network where it is the cheapest to serve, where the most traffic is happening, and they let AT&T or T Mobile take care of the traffic in all the expensive to cover areas in rural America. And with that, you get super owner economics, right? And Chris Winfrey from Charters on the record that they're planning to offload 30% of their macro traffic onto their own CBRS network. Already today, Charter is on the record with 88% and Comcast with 90% of their mobile handset traffic to go over Wi Fi or their own CBRS. And this is just taking this a step further.

Roger Entner 2m21s

And in that report, I'm really going through it of how this works, who they're partnering with, because it's two different partners. Charter picked Nokia, Comcast picked Samsung, different chipsets, different work. Right? And why this is particularly timely, this report, is in order to live up to their build out requirement, these networks have to be up and running by the end of the year. And so we will see an impact coming next year.

Roger Entner 2m51s

And what is happening? The impact will be felt by our friends at Verizon.

Don Kellogg 2m57s

Right. On one hand, a lot of the folks that are going to the MSOs are are coming from Verizon. Right? Verizon is getting wholesale revenue back. Well, absolutely.

Don Kellogg 3m6s

You make a point around this. Right? Like, it's not a zero sum game in the sense that the MSOs are also able to attract customers from other Absolute. Providers as well. So, right.

Don Kellogg 3m17s

So it's less of a direct harm to Verizon you would than you would immediately think because there's also people coming from AT&T that are now paying wholesale rates to Verizon through Comcast and Charter. Yeah. And I thought that was a really interesting part of the report because, you know, the kind of the standard viewpoint on this is okay. Oh, well, this is terrible for Verizon because they're losing all these subscribers, and it's certainly not great. But you're also gaining wholesale subscribers that weren't on Verizon to begin with.

Don Kellogg 3m44s

And that's in fact the majority of the folks that are coming in on these agreements are coming in from non Verizon sources.

Roger Entner 3m50s

Oh, yeah. It's like roughly 80% of the cable mobile customers are coming from other carriers than Verizon. Right. But that means that they're roughly breaking even.

Don Kellogg 4m2s

Right. Depending on how you model it, it could be breaking even, making a little, losing a little.

Roger Entner 4m6s

Making a little, losing a little, however. And I used in the math the $13 that friend of the show, Craig Moffett, and friend of the show, Eric Lubitschow from Wells Fargo threw out about $13. And at $13, they're losing a tiny bit, like 100 and change million dollars compared to if the cable MVNO wouldn't have happened. At $14, they would make a slight profit. The interesting thing is we all assume that the cable guys, and Craig and Eric assume, that there is a component that is fixed and that is variable in this.

Roger Entner 4m44s

And the danger of this is when the variable part, the traffic part, goes away, the revenue gets severely impacted. And when the basically, the super economic thing is hitting. In the report, I'm also, you know, providing a very solid analysis of what is the ceiling for the cable guys. This is basically a report on all the embarrassments of riches we have in our data, and is is like giving it away and, you know, probably underpricing this significantly. But just that data point alone is like, and my logic here, when I say here's the upper ceiling, is the premise that happy people bundle.

Roger Entner 5m30s

Bundling doesn't make people happier. So, if we look at the people who are very happy Spectrum and Xfinity customers, and there are a lot of them, if we take that as the upper ceiling of what they can get, then we have a pretty good analysis of how this will play out.

Don Kellogg 5m50s

Right. But I I would also say the counterpoint there is that, you know, these guys are also losing broadband subs over time. Right? So to the extent this is a bundle play, the base has got it. And, yes, there's a lot of happy people.

Don Kellogg 6m1s

Absolutely.

Roger Entner 6m2s

It's the counteroffensive. Right? That is the counter offensive.

Don Kellogg 6m5s

Right.

Roger Entner 6m6s

At the same time, as you rightfully point out, nobody's standing still here. What cable is doing here is it's coming with a steamroller. Steamrollers, by definition, are not very agile. So, as a Verizon, you need to adapt and change. Now, if this would be a Verizon run by Hans Vesberg, my money would be on cable, you know, running them over on that part.

Roger Entner 6m33s

With Dan Schulman at the top, you know, he's putting fires on people's behinds to get moving. And part of that story is, without a doubt, FWA. FWA is the Achilles heel of cable companies, and they need to figure out how they can stop the bleeding.

Don Kellogg 6m52s

Well, I think it's it's FWA today, but it may be fiber tomorrow too. I mean, that's the other piece. It may be

Roger Entner 6m57s

fiber tomorrow, right? But here's the other thing. Everything new that the cable companies are building is fiber, right? That's the other thing. Right?

Roger Entner 7m6s

It's like cable companies are becoming fiber companies. What is it? Publicly stated, I think Charter said 11% of their home Internet customers are now on fiber. Who would have thunk?

Don Kellogg 7m19s

Right. But there's a technical delivery piece of it, and then there's the customer service piece of it too.

Roger Entner 7m24s

That's how you deal with people.

Don Kellogg 7m26s

Right. Exactly. So, like, know, like, in in some perfect future, we're all on wonderful fiber connections, and then it's gonna be about, who treats their customers the best.

Roger Entner 7m34s

And if we talk about technical, you know, the cable companies are working very aggressively on DOCSIS four point o, which is really cheap to upgrade. Cable companies are talking it up. I hear it, but at the same time, if DOCSIS four point zero, is that awesome? Why are you building fiber? On the other hand, you know, when you look at the different cable companies, I thought the comments both by Comcast and by Charter were very instructive, where Comcast in the earnings call and at UBS Investor Conference were talking about their need to change and how they have to fix their issue.

Roger Entner 8m12s

And, you know, talking with them, I know that they are genuine, there's a lot of urgency there. The comments that I heard in the earnings call and out of the one at UBS was like, We have this wonderful product, why does nobody love us? Right? And it's like the customer's fault that they don't recognize of the wonderful things that Charter is doing. And don't get me wrong, Charter is doing a lot of things right, especially on the product and the other things.

Roger Entner 8m39s

But the way they interact with the customer, there's room for improvement, let's say it this way. And the memory of the customer is long.

Don Kellogg 8m48s

Well, I mean, just the fact that exploding bundles still exist, I think, is an indictment on the industry. Why would you create a flashpoint with customers a year or two in?

Roger Entner 8m57s

And I was listening to Chris Winfrey at the earnings call, and he said like, Oh, look, we have this introductory offer of $100 and then we go to $140 But at $140 I am still cheaper than the other ones. And then I'm like, Why are you not just charging $140 Tell them you're cheaper than the other guys and the price will not go up, and save the gimmickry around saving another $40 You know, I'm still very proud of the work we've done with AT&T when they came out with Fiverr, and where we basically told them, don't do exploding prices. And they listened, and thank God, we were right.

Don Kellogg 9m37s

You can see it in the satisfaction numbers too.

Roger Entner 9m39s

Yeah. You see it in the satisfaction numbers.

Don Kellogg 9m41s

You can see it in the support satisfaction.

Roger Entner 9m43s

And you see how AT&T Fiber is kicking ass. Even if it's an advantage, people hate the exploding prices.

Don Kellogg 9m51s

Well, I would say they love them at first, and then they learn to hate them eventually. Right? But, like, in an industry where you're having trouble with churn, like, doesn't make sense to give people reasons to churn. Right? It just doesn't.

Roger Entner 10m0s

With the prices that are going up all the time, you're creating a loyalty penalty. You're putting your most loyal customers in the penalty box, and what you get then is that the people who are the longest with you hate you the most and are most interested in leaving. And that is a really, really bad dynamic that you should not engage in. The longer somebody sticks with you, the worse you treat them.

Don Kellogg 10m27s

It's like the abusive spouse theory of broadband. Right?

Roger Entner 10m30s

Yeah. But it's like the increasingly abusive spouse. Don't be that. The dynamic is really, really interesting. And when you look at it in mobile, one of the things, what we've seen now is like Spectrum and we talked about Spectrum Mobile.

Roger Entner 10m46s

Spectrum Mobile's Net Promoter Score numbers overall are now exceeding Verizon's and AT&T's in our numbers. But when you look at the value numbers, they're tanking there. And so that gap between overall satisfaction and the value satisfaction is quite telling. But, yeah, it's a really interesting report. It's a 20 page page turner.

Roger Entner 11m12s

Well, that's too many pages. Right? But, yeah, if you don't wanna give your CFO your budget back, you know, you will not regret it.

Don Kellogg 11m20s

It's a good read. It's a good read, and I learned something. And I think to your point, you know, when you understand how this stuff is built and how it's structured and the economics behind it, the decisions that have been made make a lot more sense.

Roger Entner 11m31s

Oh, yeah. Absolutely. And it makes the whole, and I know we talked about it, the whole shared versus licensed spectrum dimension. This is the economic underpinning that tells you why they do these things and what is driving it. But yeah.

Roger Entner 11m49s

Anyway Alright. Happy holidays. I think next week's episode, don't miss it. It's with Ronan Dunn and Peter Adderton. Ronan, former CEO of Verizon Wireless, brand consumer, longest tenured British telecom CEO with O2, Peter Adderton, who runs MobileX, founded Boost.

Roger Entner 12m13s

And Amped. Boost and Amped. And Amped and Digital Turbine, you know, a fonterebo of the wireless industry. We have a very spirited conversation, forty five minutes long, about MVNOs and their relationship with their carrier partners.

Don Kellogg 12m30s

It was a lot of fun. Don't miss it. It's a great episode.

Roger Entner 12m33s

Alright. Well, we'll talk to

Don Kellogg 12m34s

you next week. Thanks, Roger.

Roger Entner 12m35s

Thank you. Bye.