If this is your first exposure to TMT Weekly, then that’s great for me, as you did not read the post in which I misunderstood the threat of fixed wireless to cable companies like CMCSA (Comcast) and CHTR (Charter Communications Inc), the stars of this week’s top transcript. I hope that disclosure leads you to conclude that you should not take anything in this blog as investment advice, but just in case, this is not investment advice!
It’s tempting to look at fiber providers like VZ (Verizon), be impressed with their huge cash flows, and conclude they could use fixed wireless technology to extend from fiber endpoints into, for instance, rich neighborhoods currently monopolized by a cable provider. The obvious risk of this strategy is that it triggers a race to the bottom on price given the negligible marginal cost. That’s where my analysis stopped, and why I write a blog instead of manage money. One of our clients pointed out to me that the marginal costs of VZ and CHTR are not equally negligible. Adding more home internet subscribers means adding more load to the network as a whole, to the data center switches, to the fiber connecting cities and countries, etc. VZ’s main source of revenue is wireless, which has higher unit economics ($ per sub and $ per MB) than home internet. The threat goes the other way: what if cable companies expand into the more lucrative wireless market? Specifically, moving from MVNO to their own wireless infrastructure.
I think it’s worth acknowledging the psychological aspect of investing at play here. I did not enjoy my experience as a customer of a monopoly cable provider, but I really enjoyed when VZ connected fiber to my building. Did my cost go down? No, but my emotions went up, and that’s what stuck. If you’re going to manage billions of dollars, you have to leave your emotions out of it and take very seriously the idea that CHTR is a long. I’ll give you a minute.
Now that you’re ready, I have an expert call worth your attention. Last week we published the transcript of an interview with a senior executive of CableLabs, a private company that describes itself as “the leading innovation and R&D lab for the cable industry.” You should sign up for Stream just to read this transcript, as I’m only going to give you a small sample.
Expert: If I was Charter or Comcast, the way I was thinking about it, you have your Wi-Fi network in home, some of it outside the home, in the offices, you have a CBRS network, or your private mobile network with a CBRS. In the case of Comcast, they have the licensed Spectrum [for] 600 MHz to cover outside the home. Inside the home, they’re offloading on the Wi-Fi. Outside the home, you go jump over to the Charter or Comcast mobile network, whether it was CBRS or the 600 MHz. In the situations where you have zero coverage from either, you fall back eventually to the Verizon network. The interesting thing is…
Analyst: You’re saying that’s what it will move to once they build their own facilities-based networks with the CBRS, is that what you’re saying?
Correct. If you look at traffic patterns, whether on the mobile or anything else, it’s very predictable. Humans are creatures of habit. Geographically, you can say 90% of my traffic is coming out of this geography so I can go with my CBRS network there. You don’t really have to build what I call a blanket network. It’s inefficient because today, you can easily see it’s what I call ‘traffic hotspots.’ When there’s no hotspot, it’s fine, have it fall back to the Verizon network. It’s not going to cost you that much compared to the hotspots.
Yeah. We have liked this approach because to us, it’s a smart build. You can backfill with facilities in the few places you really need to and get good owners economics there. In the other places, you can take your sweet time and it may never make sense but you certainly have the luxury of time.
Exactly. There is one advantage to that: Comcast and Charter, if and when they upgrade their Wi-Fi network, the amount of performance you can get on a Wi-Fi network to date, 4G cannot compete with it. 5G might be able to but the cost of the bit over Wi-Fi network is drastically less than the cost of a bit on a licensed spectrum network.”
Ok, so the bull case boils down to: humans are creatures of habit (which companies they dislike / where they use data), which means CHTR is a long. Not investment advice! I’ll get to why I’m not ready to extend the bull case to CMCSA in a future post / once I’ve left my Comcast customer emotions behind.
Here are the top 10 TMT expert call transcripts published by Stream last week, 5 for Comms and 5 for IT. You need to subscribe to Stream to read these.
Top Expert Call Transcripts – Communication Services
- CHTR (Charter Communications Inc) – Partner Thinks Cable Entering Wireless Seems a Better Hand Than Wireless Entering Broadband With FWA
- NFLX (Netflix Inc) – Former Director Believes NFLX’s Culture Is a Competitive Advantage
- SE (Sea Ltd) – Former Lazada Executive sees advertising driving take rate expansion but exceeding 10% may take 3-5 years given headwinds
- GOOG (Alphabet Inc) – Former Product Marketing Manager Thinks Ad Space Will Continue to Deliver Strong Growth
- META (Meta Platforms Inc) – Customer Believes the Biggest Challenge for META is Audience Engagement and the Impression that Advertising on its Platform Has Become Dated
Top Expert Call Transcripts – Information Technology
- MSFT (Microsoft Corp) – Former Director Believes Technical Differentiation Between Various Networks Is Not That Significant so Cloud Providers Have to Compete More on Other Factors
- PYPL (PayPal Holdings Inc) – Former Risk Analyst Thinks a Super App From PYPL Would Make It Stand out From Other Competitors That Are Gaining Ground
- ADBE (Adobe Inc) – Former Unit Head Sees Creative Cloud Users Growing MSD to LDD
- ADYEN (Adyen N.V.) – Former Group Product Manager Bullish on ADYEY’s Future Growth Potential but Sees Increased Competition from Stripe and Checkout
- MSFT (Microsoft Corp) – Competitor Thinks Cloud Penetration Is Still Early and Has a Lot of Runway