Cable Companies Figuring Out Their Wireless Strategies: Add Value To The Core Offering

from the seems-smart dept

Wed, Dec 10th 2008 11:06pm — Mike Masnick

While the cable companies have long had trouble coming up with a good wireless strategy (including numerous false starts) it looks like some may be figuring this out, in setting up business models where the wireless acts as a free value-add that keeps customers tied to their core, profitable businesses. For example, the article discusses Cablevision:

As such, Moffett likes Cablevision's WiFi strategy because it serves as a value-added service for its customers, and it's cheap to roll out. Moreover, Cablevision is pitted against Verizon in New York, and Verizon can't match the free WiFi offering.

"Their model is to pay for the WiFi network by, well, giving it away," Moffett said. "The $300 million of capital spending required to build it, and the modest operating costs to run it, can be paid for with just a small uplift in market share--either gained or retained--in their wired broadband service. At an ARPU of $35 per month and 80 percent contribution margins for wired broadband, it would take only 160,000 incremental subscribers--just 3.6 percent share of their cable footprint--to earn a 10 percent return on investment."

This is interesting for a few reasons. First, it shows yet another case where a company realizes that even if the initial costs are huge, if the marginal costs are low, and the "free" product better ties customers to a scarce product, it can make sense to give the other product away. So, yes, once again, there can be a good ROI on a "free" product -- even one that costs $300 million to roll out.

Of course, what may be even more noteworthy is the comment about how "Verizon can't match the free WiFi offering." That's quite amusing, because, five years ago, Verizon started implementing a plan to... offer free WiFi to Verizon DSL customers in NY. And, the plan wasn't even that expensive, because it made use of all the Verizon telephone booths that were already installed. In fact, the plan was seen as a pretty big success, responsible for reducing customer churn in such a way that more than paid for the service (exactly as the analyst is predicting will happen with Cablevision's offering). Yet, the bigwigs at Verizon still decided to kill the program, because, for reasons that still escape us, some execs were worried that it would compete with Verizon Wireless' EV-DO cellular wireless offering. Wonder if they regret that decision now?

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Filed Under: cable, wireless
Companies: cablevision, verizon

8 Comments

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cwl, 11 Dec 2008 @ 12:52am

Steve Jobs once said, when asked if he was worried that the iPhone might cannibalize iPod sales, "I'd rather we cannibalize our sales than a competitor." Guess Verizon didn't get that memo.
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VitaminCM, 11 Dec 2008 @ 2:17am

Cable Companies WiFi
I've been saying that they should do this for years. They already have the lines running through downtown areas everywhere. How much could it cost to throw up a bunch of routers?
I'm actually shocked that it took this long to happen.
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Matt, 11 Dec 2008 @ 5:31am

basic long term thinking
Why do all of these companies ordinarily have such a hard time with long term thinking? As such cablevision is dead on.
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chasmn84, 11 Dec 2008 @ 6:29am

wasted money
As systems like LTE and Wimax get rolled out there will already be competing technology before this even gets completed. Its nice to here they are willing to upgrade but wifi cities have failed accross the country... Dont think this will help much either.
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Michael B, 11 Dec 2008 @ 7:23am

Surely Not Comcast!
Cablevision may be forward-thinking, but the greedy SOBs at Comcast do nothing but think of ways to get more money from its customers without investing in new infrastructure. That's their business model, always has been, and always will be.
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Joel Coehoorn, 11 Dec 2008 @ 7:26am

80%
Does that "80 percent contribution margins" mean what I think it means? Because I'd sure love to that pushed down to marginal cost and only need to pay $7/mo for broadband.
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Anonymous Coward, 11 Dec 2008 @ 11:30am

$300 million? That is a lot of t-shirts!
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