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Are Cable And Mobile Companies Going To Converge In The Future?

Are Cable And Mobile Companies Going To Converge In The Future?

Although there's a growing trend among US consumers for "cutting the cord" and giving up on cable TV service, cable companies are here to stay. Cable providers now get more revenue from broadband service than traditional cable TV. They're already a crucial part of how America accesses the Internet. Is a move into the world of wireless communications their next step?

What's Making Waves

People are talking about potential unions between cable and mobile providers because T-Mobile CEO John Legere brought the subject up at the company's latest investor conference in September. It's not the first time Legere's expressed an interest, either. He mentioned the idea of unifying cable and wireless during T-Mobile's first quarter conference call in April, too.

As Legere sees it, the increasing use of the Internet for media consumption and the increasing commonality of mobile devices are pushing cable and media companies into the same business. He sees considerable potential for profitable collaboration in the future, although it's hard to predict just what form these partnerships might take.

History Snapshot: What's Been Tried Before

This is hardly the first time cable companies and mobile providers have looked covetously at each other's businesses. Several major cable providers (including Comcast and Time Warner Cable) created a joint venture in 2008 to buy their own slice of the wireless broadcasting spectrum. The clear intention was to create their own independent mobile networks.

This deal came to nothing, and the temporary partnership dissolved. The surplus spectrum was sold off to Verizon, and it seemed like the existing separation between cable and mobile providers would last. But that separations days may well be numbered.

More Viable Options

Cable networks looking to enter the mobile arena have two other options available to them. They could form direct agency partnerships with mobile companies that allowed them to offer their services to the mobile providers' customers. This is an appealing prospect because it offers minimal competitive risk to the cable companies. However, it also limits their reach and would require them to commit to exclusive agreements.

A third option exists that would be a hybrid between agency and independent networks. Cable providers could lease mobile spectrum from existing mobile companies and offer their own services directly to consumers. This would grant them considerable freedom. However, they would face a stiff challenge at the negotiating table as they would be asking mobile providers to help enable direct competitors.

Even though it might seem to be against their better interests, this is not an entirely new idea to them. Several prepaid mobile networks are already operated under similar principles (such as Virgin Mobile and Boost Mobile), and most of the major mobile companies (Sprint especially) already lease access to their network infrastructure to smaller companies.

The Regulatory Picture

One of the biggest draws to a combination between cable and mobile companies on the cable side is the difficulty the giant cable conglomerates have experienced in attempting to merge in recent years. The massive merger between Comcast and Time Warner Cable was struck down by the FCC because it would create a near-monopoly in broadband service for many consumers.

It's entirely possible that regulatory agencies would be more friendly to a cable company moving into the world of mobile, though. If handled properly, such an alliance could offer consumers a wider range of choices without limiting their options, and that's always something that pleases the FCC.

For Now, Nothing But Speculation

It has to be stressed that at the present time, there are no formal deals between mobile companies and cable companies. It's hardly a possibility that could be ruled out, though. Despite the issues discussed above, certain factors make a cable / mobile merger attractive to a number of parties on both sides.

Note that the entire issue was dragged into the limelight by T-Mobile's CEO, John Legere. Given T-Mobile's perennial third-place position in the mobile market behind Verizon and AT&T, it's hardly surprising to see Legere exploring out-of-the-box options. Sprint too is in a vulnerable position where an alliance with a major cable provider could provide a big boost.

What Consumers Could See

With the current discussions on the topic still extremely speculative, it's hard to predict exactly what consumers might expect from either a combined cable / mobile provider or a cable company retailing its own mobile services. While there are certainly worst-case scenarios that spring to mind -- cable-company customer service applied to phone service problems? -- there's no reason to assume that a merger between cable and mobile providers must necessarily be a bad thing.