The telecom companies and the cable providers, with legacies of providing phone and video services, respectively, have traditionally been like water and oil or fire and ice – industries that are diametrically opposed to each other.
But a funny thing happened: They increasingly started to look and act more like each other. Two decades ago, they both began to push the “Triple Play” bundle of voice, video and internet service. The goal would be the one to supply all the necessary communication services to a household, a concept called “convergence.”
Fast forward to 2023, and that idea is still playing out, with convergence coming back as an industry buzzword that everyone’s talking about. With online access so critical, the idea is to hook the customer with a speedy broadband service, and layer multiple services on top of that pipe, whether it’s streaming or something else. Telecom and cable companies alike are relentlessly pursuing this strategy.
“In truth, this convergence strategy has been happening for years,” said Maribel Lopez, an analyst at Lopez Research. “It’s just more obvious and more needed today than it was several years ago, especially in light of streaming services eating into the mainstream cable TV offerings.”
Just this week, the idea of cable and telecom companies starting to resemble one another played out. Comcast on Tuesday said it was launching its own wireless network in its region to better improve service for its subscribers – a step up from its current arrangement to resell wireless service from Verizon. T-Mobile, meanwhile, is reportedly working with a fiber company for a much-larger landline presence (it offers fiber in a handful of markets as a means of consumer research.
That each side is trying to expand into the other is similar to those old triple play battles. But this time around, the stakes are much higher with customers largely committed and growth meaning taking someone else’s lunch away. With cord cutting radically reducing how profitable traditional pay-TV is, it’s driving companies to move out of their comfort zone — and quickly.
“What’s changed is that any service from wireless, to home broadband, to streaming programming are nearly fully penetrated,” Lopez said. “There’s very little organic growth within any given service which means a service provider needs to get a consumer to switch as many services as possible to one provider in order to grow.”
Cable’s Wireless Growth
Cable companies have lost more than 800,000 video customers in the last quarter alone (and more than 1 million if you include Verizon and Dish), a stunning figure by any measure. But lost in the shuffle is the fact that the industry is actually making headway offering discounted wireless services to its customers.
If convergence is about offering everything to everyone with broadband as the key service, cable has been using wireless – with aggressive discounts that get customers a year of free service – as a way to keep them tied to that internet line. The cable companies can run cheaper than other resellers because so much of its traffic runs on its own Wi-Fi networks at home or throughout its region, meaning paying less to the carrier wholesaler (in this case, Verizon).
At the same time, they’re starting to eat into rivals like Verizon, which has struggled over the last year to add wireless customers, with CEO Hans Vestberg saying they’ve only just started to stabilize the customer defections.
In some ways, the cable companies are playing the wireless game better than some of the wireless players.
“We’re probably 30% to 50% cheaper in mobile,” Comcast CEO Brian Roberts said last week at an investor conference. “We’re only 10% penetrated, so unbelievable upside. The bundle creates value for our consumers to take the very best broadband, so the story really resonates.”
Charter CEO Chris Winfrey said at that same investor conference that he sees a lot of upside in the continued demand for broadband, which he bundles with wireless service. “It’ll provide a long runway for growth,” he said.
Retaliating with 5G Home Internet
Verizon and T-Mobile, however, can boast about the sheer number of 5G home internet customers it added in the period. The companies combined added nearly 900,000 broadband subscribers in the second quarter, each company outstripping the combined additions from the cable industry.
The wireless carriers have benefited from the ease of setup, simple pricing and decent speeds offered by 5G home internet, which tap into some of the frustrations consumers have with the cable industry.
When it comes to convergence, these companies are looking to get customers hooked into 5G now, with the opportunity to give them a speed boost later through better infrastructure.
“I get the customer now, and I’ll have optionality down the road if they want fiber,” Vestberg said at the investor conference. “We make sure the customer gets the broadband it wants, then decide later.”
The opportunity for telecom companies is to bundle that home wireless service with traditional mobile wireless. That’s why you’re seeing such generous offers for the new iPhone 15, including offers of $1,000 off the new device with a device trade-in, which often comes with terms that lock you for two to three years. If you’re sticking around for wireless, why not bundle home internet and video too?
“The goal now is to gain share of the wallet and reduce churn,” said Techsponential analyst Avi Greengart, referring to the rate of customer turnover.
While T-Mobile CEO Mike Sievert is enjoying even more growth in 5G home internet, he was more cool about its future in remarks last week.
“I’ve been very clear as it relates to our fixed 5G service that it plays a role in the marketplace,” he said at an investor conference, noting that he doesn’t see fixed wireless access replacing cable or fiber.
The Fiber Edge
More than a decade ago, the cable and telecom companies railed against the idea that they were simple “dumb pipes,” or connections to the internet that allowed Big Tech companies like Google and Meta to make all the money. That led to a wave of consolidation, from Comcast taking over NBC Universal, Verizon buying Yahoo and AT&T buying DirecTV and Time Warner.
While Comcast and NBC are still together, both Verizon and AT&T shed their media assets. All of a sudden being a dumb pipe wasn’t so bad – especially if it’s a big one full of capacity.
That’s why AT&T and Verizon spoke so highly of the benefits of fiber, and T-Mobile is exploring getting into this in a bigger way.
“That’s where this is all going,” AT&T CEO John Stankey said in last week’s conference. “So having robust fiber infrastructure, the right capillaries in the right place that are very defensible, right of ways where that fiber is and then being able to put different types of access technology on the end of it.”
Vestberg talked about the benefits of owners’ economics when it comes to running a network, which allows him to decide on the additional services they can offer, even if it isn’t coming from Verizon.
The cable companies, meanwhile, also recognize the importance of faster broadband, and are touting DOCSIS 4.0, a new standard of cable internet that incorporates more – you guessed it – fiber-optic lines.
It’s clear that wherever this clash goes, the adage, “the more things change, the more they stay the same,” holds true with the rivalry between telcos and cable providers.