The Quick Take #2: Mutually Assured Disruption
Are wireless companies and MSO's fighting a low-key price war?
I’ve been looking at Telecoms recently and it’s pretty clear that the competitive environment is shifting massively.
For the past ten years, it looked like multiple-system operators had durable competitive advantages.
Charter and Comcast had carved the market into regional monopolies;
Entry barriers came from last mile delivery, i.e. it was expensive to lay cable to the home and required local regulatory permissions;
High-bandwidth cable met consumer needs; and,
Fibre to the home (“FTTH”) was considered expensive, unnecessary capacity.
That framework is under threat, and I’m starting to think local governments are the culprit. They’ve been getting RFP’s for FTTH from overbuilders like AT&T, and in some cases they’re choosing fibre over DOCSIS, which has upset the apple cart, and not just in urban areas.1
Charter have responded in kind with a wireless offering that is c. 40% cheaper than the incumbents, using a combination of their network and Verizon’s network,. In other words, they’re threatening AT&T with a 40% drop in ARPU.
AT&T has further escalated, arguably with more uneconomical passings. For $30bn of capex (i.e. +$1,000 / passing to 30m homes), they’re getting their own massive deterrent. In other words, they’re effectively spending 20% of their market cap on a low ROIC project to prevent Charter from hitting their ARPU by 40%.
It’s a tit-for-tat mess.
Anyone seeing this first hand in their local market?
DOCSIS is technology that upgrades the speed of existing cable infrastructure with hardware.