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March 1, 2009

Cablevision's Wi-Fi a Stunt?

So claims a Verizon spokesperson: In an article in the New Jersey Star-Ledger, Comcast's possible plans to follow Cablevision's lead in pairing Wi-Fi with cable broadband are examined. But you have to read the last paragraph first to get the full impact. Verizon thinks it's a marketing stunt for Cablevision to spend $300m to cover the tri-state area of its franchises with Wi-Fi.

Let's start on the telco side. DSL from the central office into people's homes is dead, more or less, despite tens of millions of deployed lines. It's last century's technology. AT&T and Verizon have put their future into rolling out two different methods of fiber: AT&T prefers fiber to the node (FTTN), where they use very high speed DSL from a neighborhood termination point. DSL works extremely well over very short distances. Verizon has chosen the more expensive option of bringing fiber directly to the home (FTTH).

You don't hear either company talking about the future of DSL because it has none except has a very short-range technology. DSL is a tricky technology because the copper wire over which it runs can handle only so much capacity over short distances.

Cable firms have a fundamental advantage, which they're now exploiting. Cable plants, the installed wire and connection systems, are designed to carry analog frequency at a power level high enough to be received by a television set sometimes over dozens or miles or more.

Telecom landline systems were only designed to carry voice frequencies across many miles; DSL uses higher frequencies on the same wire for which the system wasn't designed. These frequencies attenuate rapidly the further you get from a central office--they become less distinguishable from noise.

Cable firms have an advantage of physics.

Verizon thinks cable operators' Wi-Fi is a stunt, while Verizon's chief telco competitor, AT&T, build a large network footprint of its own, snagged Starbucks Wi-Fi away from T-Mobile, and then purchased the largest independent hotspot infrastructure builder, Wayport, which was the firm building out AT&T's own network under contract.

AT&T has over 20,000 locations in the U.S., including most airports (through roaming deals with Boingo), and offers the footprint free to all its broadband customers, iPhone subscribers, and some other smartphone users.

Some stunt, huh? Wonder why Verizon doesn't say AT&T's Wi-Fi network is a stunt?

Now back to cable. Cable operators were originally the kind of also-rans in the broadband world. Their early networks weren't well run, had security holes, and didn't increase in speed as fast as DSL's bumps. Pricing was too high, and too often bundled with basic cable and other requirements. Cable companies had a generally bad reputation for service.

I suppose it's a wonder of what duopoly competition, with AT&T and Verizon among others delivering TV into homes, along with competition from the Internet, with downloading and streaming programming subverting traditional locked-in cable revenue.

The cable industry managed to push the broadband standard DOCSIS 2.0 out the door a few years ago, which has allowed operators to push broadband rates up gradually at first to the top level of affordable DSL now to far beyond anything DSL can offer at anything like a reasonable price.

I just switched from Qwest DSL, paying about $45 per month to Comcast, paying around the same. Instead of "up to 8 Mbps," which is really only trained to 3 Mbps because of my distance from the switch, I actually get often less than 1 Mbps. Numerous calls to Qwest's legitimately crackerjack technical support results in them moving my DSL line logically from one gateway to another, as the techs call it. This boosts my speed for a few weeks back to about 2.5 Mbps, from which is slowly declines.

From day 1 on Comcast, however, 6 Mbps is a slow downstream rate. I'm seeing higher rates all the time. My Roku Player, which handles Netflix streaming and soon Amazon Video on Demand streaming, now works perfectly, even with its HD quality content. I'm uploading video to Flickr at several Mbps, and I'm suddenly living in the future.

I shouldn't pick on Qwest. The company was poorly run, went through turmoil, and has a large hunk of customers in rural areas. Still, its incremental FTTN strategy hasn't reached my residential neighborhood in Seattle, and isn't price competitive with Comcast when it does. Qwest has no triple-play voice/video/data offering for fiber, and thus if I want video, Comcast is the choice.

And this is all before DOCSIS 3.0 starts blanketing Comcast's territory over the next year. DOCSIS 3.0 starts to compete with fiber to the node (but not to the house) on speed, and all fiber now on price. Early DOCSIS 3.0 rollouts by Comcast offer 50 Mbps for $140 per month, but the price will drop and there's room at the top for more speed now with more to come in the future. (Unused local broadcast station frequencies are used to send data over coax; when the digital TV transition is complete, that may free up more spectrum over the wire.)

What does this all mean for the hapless Verizon statement? Cablevision is smart enough in my view to figure out that there's a strong overlap between the growing market for cell phones with Wi-Fi, the increased prevalence of consumers buying laptops, and the interest in people staying put with a broadband provider.

From the start, Cablevision has described its plan in terms of marketing. The company is "giving" the service to customers in the interest of reducing churn. Every customer it loses isn't just about the revenue the firm doesn't get from that subscriber, but the lost marketing dollars it spent to acquire the household, and the amount of marketing dollars that have to spent in the future to get them back.

Cutting churn by a few percentage points will justify Cablevision's entire expense. Cutting it by double-digit numbers will turn Wi-Fi into a quasi profit center, in that it will offer a return on an investment, even though that's clearly not the precise intent.

Cablevision has already floated plans about supporting VoIP over its footprint for its customers, providing yet another tool for subscribers to reduce costs. Regular Wi-Fi hotspot subscribers with Boingo or another firm gain back $20 per month. Adding VoIP, through Wi-Fi only phones, or via partnerships with smartphone VoIP application firms.

AT&T and Verizon have offered revised estimates about how much it will cost and how rapidly they can deploy fiber. The fact is, telcos DSL wiring is essentially on fire, burning away as they lose customers to non-phone and non-DSL services.