The two cablecos Comcast and Charter have proven people’s assumptions wrong by achieving high-profit margins through its MVNO deal with Verizon.
Here is what you need to learn about the news.
Cablecos Wireless Overturns Assumptions About MVNO Profitability
The cablecos Comcast and Charter have clarified several assumptions about the benefits of its MVNO agreement with Verizon.
A few years back, the joint venture Comcast and Charter signed a 5G cooperation MVNO agreement with Verizon, one of the leading telecommunication services.
Soon after this deal, many people in the telecommunication industry began questioning its profits or offerings, claiming it would not offer high benefits.
However, a new research note from financial analysts at MoffettNathanson reveals that the assumptions about low profit have been proven wrong.
Although MVNOs have a low profit yield, cablecos have been able to achieve high margins of profit on their mobile services through the deal, clearly overturning the assumptions about MVNO profitability.
MoffettNathanson noted when the agreement was made, “It’s a safe bet that no one on either side of the table was thinking about the radical differences in the cost to serve dense urban markets and sparse rural ones.”
The research further noted that ” in effect, the Verizon deal, just like every other MVNO, was based on the mean average price per minute and the mean average price per gigabyte. ”
The analysts said, “MVNOs typically pay for wholesale services on a price per minute and price per gigabyte basis.”
The analysts say Cablecos’ success is determined by two key factors. These include focusing on high-traffic areas by investing in building out wireless networks in the areas where the company can generate higher profit and using existing infrastructure to achieve significant savings.
MoffettNathanson said, “Uniquely among MVNOs, Comcast and Charter have their own ground facilities, allowing them to offload traffic selectively. And where will they offload traffic? Why, in the dense urban areas, of course, where the cost to serve is low? They will leave the high-cost areas to Verizon.”
The analysts said, “It is not inconceivable that Comcast and Charter will eventually be able to offload more than 60% of their wireless traffic onto their own networks with only incremental investment, boosting their already-high margins to as much as 85%.”
MoffettNathanson analysts say cablecos’ success can make them one of the major providers in the United States wireless market.
This achievement is crucial to increasing competitiveness among several traditional small wireless service providers and offering better services.
While the analysts have not suggested the end date of the agreement between Verizon and the two cablecos, they have presumed Verizon may ask for new terms, which could decrease the cablecos’ MVNO profit margin.
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