A day after the announcement that merger talks between Sprint and T-Mobile US have ended, Altice USA has announced an MVNO agreement with Sprint. The US cable operator will use Sprint’s network to provide mobile voice and data services. In return, Altice has allowed Sprint to access its cable network infrastructure. This will aid Sprint’s network densification process, helping the mobile operator deploy small cells throughout the US.
Sprint will provide Altice with a ‘full’ MVNO model, enabling Altice to have greater control over the customer experience. For instance, Altice will have control over traffic management and number management of SIMs, as well as other Altice USA mobile features and functionality.
Altice has not provided a time line of when its mobile service will be introduced, nor confirmed whether its mobile service will be limited to geographical areas where it provides fixed broadband services. This approach is most likely, as it will enable the MVNO to reduce costs via usage of its own backhaul network and proactive offload of mobile traffic to Wi-Fi.
Altice USA requires a different strategy to other Altice territories
Altice USA, operating under the Suddenlink and Optimum brands, is able to leverage the knowledge and experience of the wider Altice Group which runs mobile operators in several countries, including France and Portugal. However, Altice USA must deploy different tactics to its European colleagues. In both Portugal and France, Altice bundles discounted mobile services with fixed broadband and pay TV in an attempt to cross-sell services and reduce subscriber churn. In both of these countries, Altice owns its mobile infrastructure enabling it to achieve higher margins on its mobile service. In comparison, in the USA, Altice is constrained by the economics of its MVNO agreement with Sprint. Therefore, it is highly unlikely that the cable operator will provide its US customers with a similar level of discounts for taking multiple services.
Prior to its mobile launch, Altice, a company built on strategic M&A, may look towards further US cable acquisitions in order to increase the opportunities for mobile cross-sell. Altice, with approximately 4.9 million US customers, lacks scale compared with Comcast, which began offering mobile services in May 2017 following an MVNO agreement with Verizon. During its October 2017 earnings call, Comcast management stated that the company had accumulated 250k mobile subscribers. This is equivalent to only 1.1% of Comcast’s 23.546 million fixed broadband customers and is a reflection of the competitive situation facing converged MVNOs in the US.
The US market edges towards multiplay bundles
Despite this, the US market is set to continue its trajectory towards selling bundles containing a mix of fixed broadband, pay TV and mobile services. In addition to Comcast, cable operator Charter also has an MVNO agreement with Verizon and is set to launch its mobile service in 2018. Moreover, Charter recently signed an agreement with Comcast to share expertise about the mobile market as US cable operators become increasingly serious about mobile services.
As US cable operators become more interested in mobile services, US mobile operators are turning to video in order to grow their revenues. AT&T acquired DirecTV in 2015, and is awaiting regulatory approval for its acquisition of Time Warner. In Q3 2017, the operator reported its best-ever postpaid churn of 0.84%, attributed to the bundling of video and mobile services. Meanwhile, Verizon has also turned to M&A to boost its video strategy via acquisitions of AOL (2015) and Yahoo (2017). T-Mobile US, focussing its video efforts on US cord-cutters, has inked a partnership with Netflix.
What next for Sprint?
For Sprint, the end of merger talks with T-Mobile US provides a reflection point. The operator lacks scale and momentum, and with M&A seemingly unlikely in the short-term, it may have to look towards further MVNO agreements with fixed broadband operators to drive revenues and provide a hedge against the take-up of competitor multiplay bundles. In the longer term, the success of multiplay in the US is likely to influence the likelihood of closer integration between mobile and fixed operators.
The agreement with Altice to provide access to the cable operator’s network infrastructure aids Sprint’s network densification efforts, albeit limited to geographies where Altice has a network presence. The US operator has significant spectrum holdings, but lacks the physical infrastructure to take advantage of these assets. This is especially problematic as a large portion of Sprint’s spectrum is at 2.5 GHz, which is less suited to wide-area coverage. Sprint is therefore likely to use Altice’s infrastructure to deploy small cells throughout the US, in order to improve mobile network coverage.
The H1 2017 mobile network performance by RootMetrics, an IHS Markit company, placed Sprint behind Verizon & AT&T for mobile performance with a score of 87.9, compared with Verizon’s 94.5. This network performance is an issue for Altice as well as Sprint, as the former’s existing customers may be reluctant to switch to an Altice MVNO using the Sprint network. Altice’s move to allow Sprint access to its infrastructure, which will support network improvements at a lower capital outlay, is therefore beneficial to both parties.