What a Comcast wireless service could mean

The Washington Post’s Brian Fung reported this week that Comcast is expanding its network of Wi-Fi hotspots in an effort to “kneecap wireless providers” such as AT&T and Verizon. While the telecom giant has yet to announce any specific plans, it recently wrote in a Federal Communications Commission filing that it could build “a ubiquitous Wi-Fi network” that could connect users via Wi-Fi whenever possible, falling back to a cellular network only when necessary. The strategy could enable Comcast to deliver wireless services at a fraction of the price of traditional cellular network operators.

Comcast wouldn’t be the first company to offer a “Wi-Fi-first” service, of course: Free Mobile is disrupting France’s mobile market with its low-cost alternative, while MVNOs like FreedomPop, Republic Wireless and Scratch Wireless offer similar services in the U.S. Those small MVNOs have yet to disrupt the U.S. market in any meaningful way, but Comcast plans to operate 8 million hotspots nationwide by the end of the year, blanketing 19 of the nation’s 30 largest markets. It already has the consumer base and the deep pockets to affect the market in a big way if it opts to launch a wireless offering – and we believe it will.

A coming wave of consolidation?

A huge looming question, then, is how Comcast would launch a mobile service:  Would it partner with an existing carrier to launch an MVNO, or would it buy its way into the market via acquisition? Comcast is has already struck trial agreements to let subscribers of Japan’s KDDI and Taiwan Mobile use its Wi-Fi network, as Reuters reported last week. And it is angling to acquire Time Warner Cable, which operates roughly 34,000 Wi-Fi hotspots. It isn’t much of a stretch to think it might also consider buying T-Mobile, whose parent Deutsche Telekom continues to look for an opportunity to spin it off.

As Forbes’ Ronald Klingebiel noted this week, a tie-up between Comcast and T-Mobile makes sense on multiple levels: Mobile traffic is routed through underground networks between cell towers, and wireless carriers will have to continue to invest in that backhaul infrastructure as data usage increases ramps up on LTE networks. So a merger could enable T-Mobile to offload some of that data traffic through Comcasts’s growing network Wi-Fi network as it gives Comcast the opportunity to provide a truly mobile service to users as they move between LTE connections.

If Comcast doesn’t pursue a T-Mobile acquisition, though, launching a wireless service could actually pave the way for a merger between Sprint and T-Mobile. Federal regulators have signaled their opposition to a tie-up between the third- and fourth-largest carriers in the U.S., citing concerns about a lack of competition further consolidation could bring about. But Comcast could assuage those fears by bringing a major alternative service to market, which might encourage regulators to give the nod to any proposed acquisition of T-Mobile by Sprint. Meanwhile, AT&T appears to be moving aggressively toward a $50 billion acquisition of DirecTV.

The coming spectrum auction

Interestingly, all these scenarios are playing out in advance of the Federal Communications Commission’s auction of highly prized 600MHz spectrum. The FCC voted last week to limit the amount of spectrum AT&T and Verizon will be able to buy in next year’s auction in an effort to encourage competition, but the new rules are based on current market conditions and could be revisited if the landscape changes. A merger between Sprint and T-Mobile could open the door for Dish Network to finally launch a mobile offering, as I wrote a few months ago, if regulators require spectrum divestitures or new partnerships. If Comcast launches a wireless service in the coming months, the company could have an impact on the upcoming auction as well.