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Cable operators look to Wi-Fi hotspots as customer retention strategy

U.S. cable operators are making free Wi-Fi hotspots in select cities part of their customer retention strategy -- a move expected to eventually evolve into revenue-generating services based on or tied to Wi-Fi.

Cable operators have encroached on nearly every part of traditional telecom turf over the past few years, with one notable exception: wireless. In an effort to reduce churn and get in on the rapidly growing mobility market, U.S. cable companies are making free Wi-Fi hotspots in select cities part of their customer retention strategy

Operators can use Wi-Fi hotspots to cost-effectively extend wireless services to subscribers on top of their existing infrastructure,
Mike Jude
Program ManagerFrost & Sullivan
-- a move expected to eventually evolve into revenue-generating services based on or tied to Wi-Fi.

"If you look at this in isolation, you'd say it doesn't make any sense. But if you look at it in [light of] the value proposition, it makes a lot of sense," said Mike Jude, program manager for Stratecast, a division of Frost & Sullivan. "This integrated service environment is starting to set the standard for [the perceived value of services]."

With thousands of miles of cable plant already in the ground and no appetite for spending billions to build mobile networks from scratch, cable operators can use Wi-Fi hotspots to cost-effectively extend wireless services to subscribers on top of their existing infrastructure, Jude said. It's a natural choice for operators since many mobile devices, including most smartphones, now support Wi-Fi, he added.

Although Wi-Fi has a much shorter range than cellular signals -- feet versus miles -- the capital expense of a few thousand wireless access points (APs) in select cities is dramatically below the cost of building cell sites and base stations nationwide.

Free Wi-Fi with widespread coverage is also more palatable to consumers who are weary of shelling out $15 to $30 every month for 3G data services, which notoriously slow to a crawl in the same cities that cable operators are peppering with hotspots.

"Wi-Fi really isn't that expensive an adjunct to a cable operator's business. In fact, it's a lot less expensive than offering cellular data," Jude said. "We're almost certain that it's a value-add [service] for customer retention and maybe some customer attraction."

Wi-Fi surpasses cellular speeds, but will it reduce churn?

Although the forthcoming next-generation cellular technology, Long-Term Evolution (LTE), offers a theoretical 100-150 Mbps downlink in pristine laboratory conditions, the latest Wi-Fi standard, 802.11n, blows it away with a 600 Mbps theoretical max. Those throughputs will be tough to achieve outside labs, but 802.11n APs still typically offer 300-450 Mbps, whereas actual LTE speeds are expected to be between 5 and 12 Mbps.

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Incumbent hotspot vendors are introducing new products to meet demand from cable operators. Bel Air Networks, which names Comcast Corp. and Cablevision Systems Corp. as customers, launched its strand-mounted 802.11n AP with an integrated Data Over Cable Service Interface Specifications (DOCSIS) 3.0 cable modem in February. Ruckus Wireless recently announced that its new strand-mounted 802.11n DOCSIS 3.0 AP with its patented beamforming technology is available for cable operators to test.

Comcast Corp., Cablevision Systems Corp. and Time Warner Cable announced an agreement in April to allow subscribers in the New York metro area, including parts of New Jersey and Connecticut, to roam between all of the operators' previously independent Wi-Fi networks. Each wireless AP displays authentication options for all three services -- Cablevision's Optimum Wi-Fi, Time Warner Cable Wi-Fi and Comcast's Xfinity Wi-Fi.

Meanwhile, Cox Communications has generated some revenue from its free Wi-Fi strategy. The cable operator installs and manages wireless APs in customer-facing Rhode Island and Connecticut businesses, selling the service to businesses as a way for them to attract customers. Cox-branded Wi-Fi is free to anyone near the hotspot, regardless of whether or not the user is a Cox subscriber.

"It's a wireless land grab," said David Callisch, vice president of marketing at Ruckus. "Whether you're a wireless company, a cable company or a podunk LEC, everybody's trying to grab subscribers, and they're doing it any way they know how."

Cable operators' Wi-Fi strategy: A threat to telcos

Although free Wi-Fi hotspots alone are unlikely to poach a significant number of new subscribers from traditional telecom and mobile carriers, analysts say they have the potential to be a selling point -- and profitable -- if cable operators can tie them into fixed-line services.

"This integrated services environment is starting to set the standard for value perception," Jude said. "Now you can say that it's not just a video service. Now you have data, and if you're located in [a Wi-Fi coverage area], you can extend that data presence to wherever you are."

For now, however, Wi-Fi hotspots appear to be a customer retention strategy to reduce churn and keep pace with traditional telecom and mobile operators, which now have one more reason to see their cable operator brethren as a credible threat.

While many telecoms will view this Wi-Fi strategy as a threat, others might seize it as an opportunity, according to Bill Rubino, principal analyst at ACG Research. Some wireless carriers may ultimately lease Wi-Fi from cable operators as a cheap means of wireless backhaul.

"I think initially it's a way to differentiate themselves. But I think as things evolve, especially in terms of 3G offload … you're going to really see the marriage of the cable operators and the mobile carriers take off," Rubino said.

"It's not a rational market, in the sense that nobody knows what's going on," Jude said. "We're making up the rules as we go along. We don't really know what's ultimately going to define the market."

Cable operators have become "a serious threat to telcos" because of their ability to deliver faster throughput and more tightly integrated services, he added. The attempt to usurp mobile broadband with free Wi-Fi is just "upping the ante" and forcing telecom operators to invest more in integrated services.

"I think you can expect to see a lot of innovation coming out of [telecoms], and they wouldn't [do that] if they didn't feel threatened by Comcast and the other cable MSOs [multiple system operators]," Jude said. "Everything's a threat to them."

Let us know what you think about the story; email: Jessica Scarpati, News Writer

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