Did Cablevision Just Disrupt the Wireless Market?

Cablevision (NYSE: CVC) has introduced a wireless phone alternative that operates strictly over Wi-Fi hotspots.

The new service, dubbed Freewheel, serves as a low-cost alternative to phones from AT&T (T 1.17%), Verizon (VZ 2.85%), Sprint (S), and T-Mobile (TMUS 0.55%). It costs $29.99 on its own, but the real market for the service is Cablevision's existing customer base who will pay $9.99 for unlimited calls, texts, and data.

It's a compelling offer that could provide a blueprint for other cable companies to launch similar products. But since the service depends entirely on Wi-Fi, it's somewhat limited in its usefulness as there will be areas where users cannot get access to a signal.

Cablevision is calling Freewheel a nationwide offering, but marketing efforts will focus primarily on the company's subscriber base in the New York/New Jersey/Connecticut area centered on New York City. The company explained why in a press release.

Optimum WiFi is available at 1.1 million access points and includes both indoor and outdoor locations as well as its expanding network of residential hotspots. This network covers the New York metropolitan area, Cablevision's home operating territory and where Freewheel will be heavily marketed. Freewheel allows consumers to take maximum advantage of WiFi connectivity as it becomes more ubiquitous and provides automatic access to the Optimum WiFi network.

Specifically, the service will be marketed for consumer who "spend their day in WiFi-rich environments, including colleges, offices and homes," according to the company.

Why Wi-Fi?
Cablevision has those 1.1 million of its own Wi-Fi hotspots in its coverage area and the company has been steadily increasing that number. Freewheel phones will connect to hot spots as customers enter areas served by them syncing up texts, emails, and other data.

"WiFi is already the dominant technology for mobile data communications," the company wrote in the launch press release. "Cisco Systems's latest yearly index report found that 93% of all data traffic generated by mobile or portable devices in the U.S. was carried via WiFi.^"

Cablevision isn't pushing Freewheel as a solution for everyone. Instead, it's marketing it as a good enough, low-cost option for people on a budget, families looking for devices for children, and interestingly enough, people who live in densely packed urban areas where Wi-Fi hotspots are plentiful but cell service can be spotty.

At launch  Freewheel will be available exclusively on the Motorola Moto G. Source: Cablevision

Why the big four should be concerned
Cablevision has leveraged its user base by having their home Wi-Fi routers also serve as Wi-Fi hotspots. This is done without impacting Internet download and upload speeds for the home user. That allows the company to offer a huge network of Wi-Fi hotspots. Previously, this had been used just for Internet connectivity, but it can easily be adapted for this type of phone offering.

Cablevision is not the only cable company currently using its customers hone Wi-Fi routers as public hotspots. Comcast (CMCSA -0.52%) is doing the same thing and that's a much bigger concern for the big four wireless providers.

Cablevision ended 2013 as the fourth largest broadband Internet provider among the cable companies with 2.78 million subscribers according to Leichtman Research Group. Comcast has 20.6 million of its own broadband subscribers and will add another 11.6 million if its merger with Time Warner Cable (NYSE: TWC) is approved. That's a huge number of potential Wi-Fi hotspots, as well as 32-plus million subscribers who might be tempted to leave AT&T, Verizon, Sprint, or T-Mobile for cheap Wi-Fi-based phone service.

Source: Leichtman Research Group

This may work
For years AT&T and Verizon have been taking cable and broadband customers away from companies including Cablevision, Comcast, and Time Warner. Wi-Fi-based phone service allows the cable companies to turn the tables.

Offers like Freewheel may not offer wide enough coverage areas to replace traditional wireless phones for heavy users. They should, however, be good enough for less-frequent users, children, and individuals who live and work in Wi-Fi rich environments.

This might lead to people downsizing their bills from the traditional wireless carriers by dropping lines. Freewheel may not be an equal replacement for a traditional phone, but for many it could be a cheap, good enough answer and that will lead to subscribers leaving the traditional carriers, or at least spending less, and other cable companies offering similar services.