Is Comcast's New Wireless Service a Threat to AT&T and Verizon?
Comcast's (NASDAQ: CMCSA) wireless phone service plans have been in the works for a long time, but it finally revealed some details last week. Comcast's Xfinity Mobile service will be available to Comcast's cable and internet customers later this year. The service relies on an MVNO agreement with Verizon (NYSE: VZ), made as part of a wireless spectrum sale completed in 2011. So, Xfinity Mobile customers will be using the same wireless network as Verizon customers.
The new wireless service will give Comcast the opportunity to offer the quadruple-play bundle: internet, cable, home phone, and wireless. AT&T (NYSE: T) and Verizon are the only competitors to offer similar bundles. The more services customers take in a bundle, the less likely they are to cancel any of them. Comcast's pricing is designed to primarily benefit its core cable business by improving subscriber retention through bundling. At the same time, that strategy has the potential to steal away non-bundled AT&T and Verizon wireless customers.
Image source: Comcast.
Designed to be bundled
The most glaring limitation of Xfinity Mobile is its limited market base of Comcast's existing customers. As Comcast's cable footprint is limited to certain markets, it doesn't represent a major threat to the nationwide wireless carriers right out of the gate. Additionally, its best pricing is reserved for its best X1 customers, which management says comprises just 25% of its customer base. All other customers have to pay more.
Here's how Comcast's unlimited data plan pricing stacks up with AT&T and Verizon's.
Data sources: Comcast, Verizon, AT&T.
As you can see, Comcast's pricing is competitive, but it doesn't provide much value for larger family plans unless you bundle it with Comcast's preferred X1 packages. As such, Xfinity Mobile will likely appeal to Comcast's most valuable customers. On the flip side, it won't appeal to Verizon or AT&T's most valuable customers -- large family plan subscribers.
Prevent customers from switching to AT&T
Xfinity Mobile, at least in this first iteration, is about helping Comcast hold onto its video and internet subscribers. Since AT&T acquired DirecTV, it's now able to offer television, phone, and wireless service nationwide. The carrier offers a $25 discount on its Unlimited Plus plan for DirecTV and DirecTV Now subscribers.
Comcast customers that subscribe to AT&T for wireless service are especially susceptible to that kind of promotion. Xfinity Mobile provides an opportunity for Comcast to get customers to switch from AT&T's wireless service to Comcast and stick with their current cable TV plan. It's now at least a two-way street.
That's notable for AT&T investors as the telephone company has struggled to add video subscribers. Last quarter, DirecTV Now accounted for over 100% of its net additions; satellite and U-Verse combined for a net loss of 25,000 subscribers.Stealing video customers away from Comcast through bundling was one way to offset subscriber losses.
Flexible pricing could be a big differentiator
Comcast also offers a pay-by-the-gigabyte option for subscribers. Customers can pay $12 per GB, and they only have to pay for the data they use. Considering most people use less than 5 GB of data per month, and Comcast has 16 million WiFi hotspots to offload additional data, many customers could save money by going a la carte with their data. What's more, Comcast allows customers to switch to the unlimited plan mid-month, so it's effectively capping the per-gigabyte plan at $65 per month (for about 5.5 GB of data or more).
The catch is, the offer is still limited to Comcast's customers and not available nationwide. Comcast does own the rights to stream some cable networks nationwide, and it could launch a streaming TV competitor, so it's not out of the question that Xfinity Mobile could eventually become a nationwide product. If it did, it would become a much bigger threat to traditional wireless carriers.
Even so, the a-la-carte pricing appeals to lower value customers at AT&T and Verizon. While it may cut into subscriber numbers, it won't affect their bottom lines nearly as much as would stealing away large families on unlimited data plans (a segment where both AT&T and Verizon are able to match or undercut Comcast's pricing).
Xfinity Mobile isn't a big threat to Verizon or AT&T, but it could somewhat slow gross additions for both companies' wireless services as well as AT&T's television services. Another competitive force in the wireless market isn't great news for the telecom giants, but it's nothing to be too concerned about, either.
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Adam Levy owns shares of Verizon Communications. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool has a disclosure policy.