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Last year, Comcast (NASDAQ: CMCSA) sparked speculation that it was working on a wireless service. It entered as a bidder in the FCC's incentive auction for wireless spectrum, and it activated an agreement to use Verizon's (NYSE: VZ) wireless network in its own service. CEO Brian Roberts finally confirmed the company's plans at Goldman Sachs' 25th annual Communacopia conference.
"The team of 150 people today are getting ready next year ... to launch a WiFi and MVNO-integrated product," Roberts told the audience. The move would put Comcast in a better position to compete against Verizon and AT&T (NYSE: T), which recently became the largest pay-TV provider in the U.S. with the acquisition of DirecTV.
The quadruple play
The biggest advantage Verizon and AT&T have over Comcast is that both companies can offer the quadruple play in most areas where they provide television service. That means the companies can bundle TV, phone, internet, and wireless service all on one bill. Those bundles often come with additional discounts on the service, or in the case of AT&T exclusive wireless offers like unlimited data.
With its own wireless service, Comcast will be able to offer its customers a similar proposition. Customers using more than one service from Comcast are less likely to cancel compared to those who just receive internet or video service.
"We believe there will be a big payback with reduced churn," Roberts said.
Importantly, Comcast gets to offer this service without a huge investment on its part. Comcast secured the rights to use Verizon's network on a wholesale basis as part of a wireless spectrum sale it made in 2011. Additionally, Comcast has over 15 million WiFi hotspots it can tap for service before it uses Verizon's wireless network.
That means Comcast could potentially undercut Verizon and AT&T's pricing with its own service since it doesn't have to worry about the upfront cost of building out a network. Also, the service will immediately be available everywhere Comcast operates, and the network will have the same quality (if not better quality) as Verizon. That makes it a formidable competitor.
Keeping video subscribers from cancelling
It's no secret that the pay-TV industry is under immense pressure from cord-cutters and cord-nevers. The TV industry will lose nearly 1 million subscribers next year, according to eMarketer. But Comcast has been able to buck the trend recently after years of outsized losses.
Those subscriber losses came largely as the result of Verizon and AT&T expanding their pay-TV service into territories once dominated by Comcast. But both have practically completed their TV service build out, and Comcast is starting to win customers back. Last quarter, Comcast only lost 4,000 subscribers -- its best second quarter in 10 years. By comparison, AT&T lost 49,000 subscribers between U-Verse and DirecTV, and Verizon lost 41,000 FiOS video subscribers.
Part of Comcast's success with making customers more sticky has been the rollout of its X1 set-top box, which the company expects to reach 50% of its customer base before the end of the year. X1 dramatically improves the user experience with Comcast's video service, particularly its on-demand service. With X1 reaching more and more of its customer base, Comcast needs another service to improve customer retention. Wireless service may be the answer.
It'll be interesting to see the take rate on Comcast's wireless service. Getting customers to switch has been relatively difficult for traditional wireless carriers recently. But Comcast is in a strong position to provide better value to its current customers, benefiting from stronger loyalty levels.
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Adam Levy owns shares of Verizon Communications. The Motley Fool owns shares of and recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.