In this segment from Industry Focus: Consumer Goods, Vincent Shen is joined by senior Fool.com contributor Asit Sharma as the pair dissect the implications of the agreement, from resource pooling to future acquisitions. Tune in to learn more.
A full transcript follows the video.
This video was recorded on May 9, 2017.
Vincent Shen: We have two beloved American institutions, Comcast and Charter. Who doesn't absolutely love their cable company?
Recently, Comcast unveiled a first look at Xfinity mobile, basically its foray into a wireless service offering. This was announced in early April. The core of this offering, Comcast wants to piggyback on the Verizon network while also allowing its mobile customers to access its wifi hotspots across the country. It actually has 16 million of them, pretty impressive. Basically, this gives subscribers connectivity at an affordable price, according to them.
If you're somewhere without a hotspot, you are on the Verizon network. Otherwise you just connect to the wifi. They tout certain figures like the fact that 70% or 80% of wireless traffic is over wifi networks, not LTE networks. I guess the icing on the cake of this recent announcement for Xfinity mobile, Comcast and Charter are now announcing this week that they would be partnering up for some of their wireless efforts, the idea being, they invest together in some of the infrastructure, the operational aspects, to tackle what is a very competitive space. What are some of your initial thoughts on Xfinity mobile or the partnership, and the idea that these companies are trying to dive into this space?
Asit Sharma: I think it's interesting how vague the wording of the agreement was. We got back that they were going to explore these operational efficiencies but nothing really specific. Some back-office billing, improvements in the mutual wifi networks. One of the interesting things of the agreement is that they're restricted, Charter and Comcast, to only supporting so-called material transactions in the wireless industry. What that means, to me, it means there could be a joint venture down the road. I think this potentially opens up the door for a team up to maybe buy a wireless network, perhaps Sprint or T-Mobile are the two companies that would come to mind. I think it's a case of, as you said, two very beloved brands -- we say that somewhat facetiously, but two very large companies that are looking for ways to continue to grow their revenue. Last year, Comcast did about $80.5 billion in revenue. Charter did $29 billion. Once you reach that size and scale, especially in the cable industry, which itself is fraught with potentially slower growth, there's almost no alternative but to try to monetize the way that each of these companies has into wifi. I think for Comcast, if they can better monetize those hotspots, that's one tangible, obvious thing they can get out of this deal. But, again, I'm intrigued by the possibility that there's something bigger in the works, perhaps, for next year in the 2018 timeframe. What are your thoughts, Vince?
Shen: That's a really interesting idea, I had not even considered that. There have been rumors in the past of deals within this space, not only on the cable company side with Comcast and Charter, but potential deals in terms of bringing in Sprint or T-Mobile, Verizon also looking at bringing in Charter, potentially, so these cross-sector deals, it's definitely an interesting idea. If you take this partnership announcement at face value, the idea that, not only with the infrastructure, but if Charter has its own wifi hotspots, and a customer who's part of this mobile offering has access to it, it expands the reach, expands the quality of the service. But something to keep in mind is, right now, the Big 4 wireless companies have already shown year after year that competition is really intense. For either of these companies, despite their size, scale, resources, to get into the wireless space will be no easy feat.
I think it's important to note that this wireless offering that Comcast is going to be giving to its subscribers, it's very much tied to its current customers. It's actually a requirement, if you want to sign up with Xfinity mobile you have to at least be an internet customer with Comcast at the moment. So targeting its current customer base. Also thinking about it on the Verizon side, they are not going to want a really big, new competitor to enter the space. Already pretty intense, they've already seen their subscriber numbers hurt by the various promotions and the really smart marketing from the smaller players like T-Mobile and Sprint. This is an interesting way for Comcast to get into the space, and it reminds me of a service that my brother used to use, I think it was called Republic Wireless, similar idea where you would only access the actual LTE wireless service when you absolutely had no access to wifi networks. It was driven mostly by wifi connectivity. But the Xfinity mobile service, though announced, is not expected to launch for at least a few more weeks. When that happens, we'll have more details there. Any final thoughts from you, Asit?
Sharma: Just that this is very similar to the previous transaction we talked about, between Kate Spade and Coach in that we're seeing this across industries that to broaden out revenue, there's consolidation that's going to occur. And it doesn't matter whether you're in handbags or wireless. The spectrum of services that you can provide is increasingly broad. So companies which -- again, Coach is similar both to Comcast and Charter in that all three are mature companies with slowing growth curves. We're going to see much more of this in the coming years, and this industry in particular, between broadband, wireless, between content. There's going to be no end to the mergers and types we'll see.