Last quarter was a mostly solid one for the nation's wireless industry. Verizon (VZ 0.90%) only picked up 8,000 postpaid mobile phone customers, but AT&T (T 1.10%) and T-Mobile (TMUS 0.92%) more than offset that weakness by adding 708,000 and 854,000 postpaid phone customers, respectively, to their revenue mix. Growth for the full year is going similarly well, and the three mobile phone players now collectively serving on the order of 230 million postpaid phone customers. Add a few million more prepaid and non-phone mobile accounts to that figure.
But it's a number that could have been (and arguably should have been) bigger by about 10 million customers. The craziest part of this shortfall isn't its sheer size, however. What's so crazy is why the industry's stalwarts are 10 million shy of their potential customer headcount. The competition preventing the country's three biggest wireless service providers from attracting and retaining these customers isn't actually focusing on the mobile services side of the business. To these competitors, it's currently just a side business.
Regardless, given how well these alternative providers are still growing, it's competition that T-Mobile, Verizon, and AT&T can no longer afford to ignore.
They offer wireless service?
As of the end of the third calendar quarter, Comcast (NASDAQ: CMCSA), Charter Communications (NASDAQ: CHTR), and Altice USA (NYSE: ATUS) are collectively serving around 10 million wireless customers, up from none as recently as 2017.
Data source: Comcast Corp., Charter Communications Inc., Altice USA. Chart by author.
It's odd for the obvious reason -- these are organizations built from the ground up as cable television service providers. They've all evolved into broadband companies, since the infrastructure delivering cable TV is well suited to handle high-speed internet connections too. As these connectivity networks have matured and been upgraded, though, they've also become well-suited to handle cellphones.
There are some technical hurdles, for the record. Whereas traditional mobile services providers like Verizon and AT&T use networks of cellphone towers to offer seamless connectivity wherever a customer may travel, cable companies' wireless connections depend heavily on the physical infrastructure in areas where their cable service is offered. Outside of those geographic areas, all of them must hand off these connections to a conventional mobile carrier.
Still, the growth of cable's wireless customer counts suggests these handoffs are seamless enough.
The other limitation? For the time being, anyway, with the exception of Altice's Optimum, cable TV and broadband internet providers only offer mobile service as part of a package that includes high-speed internet service. Again, though, with "unlimited" plans often starting at $30 or less, consumers are OK with paying for at-home broadband service from the same provider.
Too big to ignore any longer
What started out as a curious experiment from the nation's top cable and broadband outfits has evolved into so much more. Yet, it could still become so much more than it currently is.
Altice, Comcast's Xfinity, and Charter's Spectrum are currently serving nearly 67 million high-speed internet subscribers. Most of them are eligible for mobile service, and many of them are residences of multiple consumers who might prefer multi-customer family phone plans. Given how much traction these unlikely wireless services have already gained, it's not a stretch to suggest this is the biggest competitive threat Verizon, AT&T, and T-Mobile currently face. And that's against a backdrop of existing market saturation. Pew Research reports 97% of American adults already own a mobile phone, with the majority of them being smartphones.
So, connect the dots. The wireless market was already anything but primed for growth. Now it's getting even more crowded as alternatives to traditional mobile service become available, and viable. Although not yet an outright reason to sell any of them, interested investors may want to pass on all three stocks until it's clear which -- if any -- will have an answer to this unlikely threat. It seems likely that will come in the form of an attractive entertainment and connectivity bundle rather than price cuts.
