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Cable Wireless - No Oxymoron

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Wi Fi's new role = "Technology of Last Resort"?

Q. When does a company whose ethos and identity are wrapped around a WIRE LINE (CABLE) INFRASTRUCTURE become a company that provides BROADBAND SERVICES?
A. When it has exhausted all other options, apparently.

Back in my days at the UT Graduate School of Business, we were taught the maxim, "Don't ever become a Buggy Whip manufacturer!" That is, of course, because those companies no longer exist, because they went away with the horse-drawn buggy, as automobiles became the dominant form of people transport. We also talked about the failure of the Railroad giants to maintain their hegemony when cars came on the scene because they defined themselves in the "railroad" business, rather than the "transportation services" business. They let their infrastructure define them, rather than the services they provided their customers, rather than the market niche they filled so uniquely. GE could have stuck to light bulbs, but they didn't.

But it's taken the cables a long time to come around, even just one of them. Only when this particular cable company, the regional Cablevision, had the figurative gun to its head (competition from FIOS on the one hand and WiMAX on the other) did it opt for Wi Fi Mesh as the most viable solution to the strategic box it found itself in. As a network option of last resort, all of sudden the warts of Wi Fi Mesh faded into the woodwork, as Cablevision held its nose and opened its mind - and low and behold, there was a beauty queen of sorts, the perfect bride, the medicine that Cablevision needed to stay competitive, given the changing competitive landscape: a Wi Fi Mesh solution.

Cablevision's wi fi strategy has several things going for it. It is relatively cheap to deploy (as compared with winning licenses and building a wireless infrastructure) and can be deployed right away. Indeed, according to DSL Reports, deployment is well under way already. That gets Cablevision subscribers hooked on this form of mobility for their wireless services before Verizon can get its new 4G network up and running. Also, since it is much cheaper, customers won't have to buy a separate expensive wireless package to get what amounts to a "poor mans wireless" in Cablevision's service area.

Of course, this sort of wireless fall back will lack many of the features that future VZ wireless/wireline bundle will have - at least in the short term. But for Cablevision, it is an open question whether it will need to provide things like national coverage to compete. But my feeling is that while this limits Cablevision's ability to expand its enterprise market penetration (where high end customers will place great value on a top-notch national mobile network that works seamlessly with a wireline product and is indistinguishable from a present-day DSL connection), it is perfectly adequate for retaining customers in the face of FIOS. Cablevision has so far managed to stave off widespread defections to FIOS.

This form of poor man's mobility network is a reasonable antidote to the FIOS speed challenge - giving Cablevision time to upgrade its own capacity on the ground if FIOS gets too far ahead on speed. As noted above, most of the residential subscribers Cablevision wants to keep live on Long Island and work in NYC. WiFi access of this nature will be a real boon to them, even if it doesn't come with roaming. Verizon could respond in kind, but doing so would cannibalize a significant amount of wireless revenue by allowing easy text messaging via wifi and possibly shifting customers to VOIP-enabled devices using wifi rather than using minutes on their wireless plan. Wetmachine: Harold Feld's Tales of the Sausage Factory

It will take some time for Wi Fi Mesh to shed the tarnished image that Earthlink et al gave it. Too many still think "Wi Fi" means "Free." Maybe Cablevision is going that way, only their Wi Fi service will only be free if they give it to their customers as a bribe to stay with them. Even then, it may only be a temporary strategy to buy them more time.

In the event Verizon's quadruple play does prove attractive enough to overcome the stickiness of wifi access and switching costs generally, Cablevision can always look to other partnership options. Between Sprint and T-Mobile and Time Warner, there are plenty of folks in the NYC metro area for Cablevision to partner with in an effort to beat back the Verizon/AT&T wireless dominance. There is even a possibility that some time down the road, Cablevision could find a way to monetize its new wifi network, although that would merely be icing on the cake and I think it very unlikely. As the ongoing shake out in commercial muni wifi projects demonstrates, commercial wifi networks are likely to be low-margin businesses even where they can turn a profit at all. But again, I don't think Cablevision is trying to turn this into a new moneymaker so much as a way to stave off customer loss.

As they say, any port in a storm, and a temporary strategy is often preferred because it is "good enough for now," and so it avoids the judgment a more permanent strategy would face. If this move buys Cablevision sufficiient time to preserve its revenues, for that is really the goal of a productive network business, to hold onto current customers as long as possible, then it will have served its purpose. I wonder how many customers a Wi Fi Network needs to retain at a $1000/per subscriber multiple in order to be an attractive solution?

Harold continues ...

Where this potentially falls down is if mobile television becomes a serious technology and a serious competitive hook. But that is a sufficient long shot that it is reasonable to ignore for the moment.

So all in all, I think Cablevision has a smart strategy here - provided short-sighted analysts carping about capital investment don't drive down the stock and scare them off. It does not have the potential to become the sort of moneymaker capturing licenses in AWS or 700 MHz might have had, but it will do the job of locking customers in.

Now all we have to do is convince Cablevision that to pump up their wifi network to competitive levels, they need to push to open the broadcast white spaces.

Meet the new Wi Fi Mesh solution: "I may not be perfect, or even carrier grade, but I am cheap, I do work, and I'm available now." Works for me.

It will be interesting to see how many other regional players look into this solution as the competitive pressure builds.

Posted on May 29, 2008 at 01:38 PM

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