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Cable is having a bigger impact on wireless than anticipated

Charter Communications (NASDAQ:CHTR) CEO Tom Rutledge thinks mobile is his company’s biggest opportunity in 2022. Meanwhile, T-Mobile (NASDAQ:TMUS) CEO Mike Sievert said Charter and Comcast’s (NASDAQ:CMCSA) virtual networks are taking a much larger share of the customer base than anticipated. He also said DISH Network (NASDAQ:DISH) is already a significant threat after it acquired Boost Mobile as part of T-Mobile’s merger with Sprint.

At the same time, though, prepaid wireless subscriber growth at the big three wireless carriers continues to outpace population growth by a wide margin. At some point, something has to give.

Cable companies taking 10% of switchers
T-Mobile’s Sievert shared some industry data at a recent investors’ conference. The cable mobile virtual network operators (MVNOs) from Charter and Comcast are taking about 10% gross additions in the wireless industry every quarter, and they’ve done so for about two years straight.

Comcast had 3.7 million wireless customers as of the end of the third quarter, and Charter had 3.2 million. And Charter’s Rutledge says it was operating with limited capacity to scale until recently. “We’ve actually had to hold back marketing and efforts to grow that business because of the scale issues,” he said at the investors’ conference.

That means cable could start taking an even greater percentage of gross additions going forward. And if churn rates at the big three start moving higher again after plummeting at the start of the coronavirus pandemic, there could be a lot more gross additions to snatch up. As such, Charter and Comcast could see even faster subscriber growth in 2022 than in 2020 and 2021.

DISH Network is already a factor
DISH currently uses T-Mobile’s network for its Boost Mobile service. It has 8.8 million subscribers as of the end of the third quarter, but that number is actually declining. It lost 121,000 subscribers last quarter, and it’s down from about 9.6 million since it acquired the wireless customer base last summer.

Nonetheless, T-Mobile’s Sievert views DISH as a meaningful factor in the wireless industry right now. The satellite TV company has a trove of valuable radio spectrum it’s deploying to build out its own network. It also signed a new MVNO deal with AT&T (NYSE:T) earlier this year, which was a small blow to T-Mobile’s wholesale business.

DISH has been aggressive lately with pricing, offering long-term subscribers heavily discounted prices. Last month it launched a plan with 1 Gb of data per month for just $100 per year, and it followed it up with an unlimited plan for just $300 per year. The catch is that customers have to commit to a year of service, theoretically leading to lower churn rates.

Pricing is a significant factor in switching, according to analysts at MoffettNathanson. And while they favor T-Mobile’s combination of best-in-class pricing among the big three carriers and its 5G network advantage, DISH could undercut T-Mobile’s pricing while riding on its network. (It still has the rights to use the network through 2027.) That could lead it to turn around its subscriber loss over the past year and start growing Boost Mobile again.

Can the carriers fight back?
The carriers are in a tough position. They cannot obtain a true network advantage, since the cable operators use their networks. Charter and Comcast use Verizon’s (NYSE:VZ) network, and DISH can now use T-Mobile’s or AT&T’s network. The pay TV operators also have the potential to bundle their services like home internet and multichannel video. The carriers have tried (and mostly failed) to offer similar television services.

2022 is already shaping up to be a tough year for wireless carriers. AT&T Communications CEO Jeff McElfresh doesn’t expect the robust postpaid phone net additions the industry saw in 2021. The carriers will need to have a greater focus on subscriber retention.

And that’s the best way to fend off fledgling competitors like the cable companies. If Charter and Comcast are taking 10% of switchers, they’ll see fewer subscriber additions if there are fewer people who switch.

So promotions like free lines and free or heavily discounted phones — which T-Mobile and AT&T have been aggressively offering — can have a substantial effect on fending off the pay TV providers. Additionally, bundling services customers already use — like T-Mobile’s deal with Netflix — can provide sustained subscriber retention.

In the future, carriers may be able to fight more directly with Comcast and Charter by offering home broadband service over 5G. Doing so would allow AT&T and Verizon to expand the footprint in which they offer competitive internet service. T-Mobile has already made substantial progress with its home internet service, with over 500,000 customers signed up.

Ultimately, the carriers need to take control of churn rates in order to fend off smaller competitors. Motley Fool

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