Kagan: Why is cable TV losing money with wireless service?

It was exciting when Comcast entered wireless with Xfinity Mobile. The same when Charter entered with Spectrum Mobile. I think the same thing will happen when Altice Mobile enters later this year. However, as exciting as this is, there is also a growing concern. Why are they losing money?

Xfinity Mobile was first, so they have covered the most ground. So far, they have won 1.2 million wireless customers in their first two years. That’s good, however, during that same time they also lost $1.22 billion in the process.

So, what’s going on? What is the difference between Xfinity Mobile and the cable TV wireless entry, and wireless leaders like AT&T Mobility, Verizon Wireless, T-Mobile and Sprint who are profitable and making money? Or for that matter, other MVNO wireless resellers like Tracfone, Consumer Cellular and countless others?

The only point of difference that may be a difference is their typical customer is older than other competitors. That means they don’t use as much wireless data. Could that be part of the problem?

Bottom line, cable TV is winning new customers, but they are also losing money in the process in an industry that is profitable. So, what is wrong, and can this be turned around?

Wireless industry leaders are AT&T, Verizon, T-Mobile and Sprint

Wireless is a rapidly growing and changing industry. There are lots of growth opportunities for new competitors to this space. And these growth opportunities are only increasing with new technologies like 5G, AI, IoT, the cloud and more.

I expect to see many other brand name companies from other industries enter wireless, just like Comcast, Charter and Altice. I am also sure these other companies are closely watching the cable TV players and the amount of money that is at risk.

Since wireless is such a healthy business, why is cable TV losing money with it? They don’t even own the network.

The answer to cable TV financial loss in wireless is simple

I think the answer is simple. It’s just a matter of finding and managing the right price. And that may be the entire point.

Cable TV is not interested in wireless as a stand-alone opportunity for growth. Rather, it is looking at wireless as a leg on the stool they are building to create a sticky-customer.

Xfinity Mobile has been in wireless longer than any other cable television company. So, they have covered much more ground compared to Spectrum Mobile. Altice Mobile hasn’t even launched yet.

How Xfinity Mobile, Spectrum Mobile, Altice Mobile will do long-term

To date, Xfinity Mobile is both the most successful winning new customers, and have lost the most money in the process.

Xfinity Mobile earnings are right in the middle. AT&T and Verizon customers have the highest earnings. T-Mobile and Sprint customers have the lowest earnings. Xfinity Mobile is in between these two groups.

We don’t yet know how Charter Spectrum Mobile will compare. However, since they are following Xfinity Mobile and pricing model, I would expect the results to be similar. Gaining customers and losing money. And if that’s the case, I think that’s what we can expect from Altice Mobile as well when they launch later this year.

Being as successful as AT&T Mobility and Verizon Wireless is very difficult

Making money in wireless can be harder than most think. Remember a few years ago how Amazon Fire Phone and Facebook smartphone tried to break in, and failed? There are so many companies who want to enter wireless because as an industry, it is at the center of the universe.

However, success takes more than just adding customers. It also depends how much it costs to provide service. It’s a matter of spending money in the right places to improve growth and profitability.

But I think the truth may be something else. Whether Comcast, Charter and Altice are profitable in wireless or not, is not the most important issue for them. They don’t see wireless as a stand-alone or growth opportunity.

Cable TV goals for wireless are different

If the typical wireless competitor was not profitable, they would simply pull out. Not with the cable television players.

The reason is simple. They see wireless as a tool to maintain their customer base. Just another leg on the stool they need to keep their customer base intact.

It’s all about creating a sticky-bundle of services to maintain their customer base. The cable TV competitors have changed their focus over the last several years. Today, their primary service is high-speed Internet. Cable TV, telephone and now wireless are just legs of the stool to keep their customers where they are.

What that means is, even if one leg of the stool is not profitable on its own, it is still very important to the larger story.

Sticky-bundle of services like wireless with Comcast, Charter and Altice

This is the sticky-bundle of services the cable television industry is depending on to stabilize their customer base. They want to create a sticky-customer. To do so, they have to create a sticky-bundle of services.

Looking at traditional cable TV, we can see everything is changing. The leaders of yesterday are being challenged by new competitors and new technologies. This will only continue and intensify.

So, companies like Comcast, Charter and Altice are doing the right thing by trying to create their own sticky-bundle.

Wireless is part of that sticky-bundle. The more services a customer uses, the more benefits and discounts they get, and the stickier they become. This is how cable TV stabilizes their customer base. This is how they reduce churn and customer loss.

So, even if one part of that bundle costs them, they still see it as worth it in the larger picture.

Of course, it would be much better if each leg of the stool would be profitable as well, rather than being a black-hole sucking in hundreds of millions of dollars while other competitors are profitable. Bottom line, they are accomplishing their goal with wireless. Let’s just hope they can turn things around, because profitability is always better.