Traditional telecom operators and cable providers are fighting out an increasingly competitive convergence battle over the consumer and enterprise market, a battle that one industry observer thinks is financially tilted in favor of one side more than the other but one that will eventually find its equilibrium.

Convergence has been resurrected as the hot term among communication service providers (CSP) looking to take advantage of technology advances to expand market opportunities. This battle is being fought most prominently in the U.S. by traditional telecom operators like AT&T, T-Mobile US, and Verizon on one side investing heavily into fiber infrastructure to bolster their broadband offerings, and by cable giants like Comcast, Charter Communications, and Cox Communications on the other side signing shrewd mobile virtual network operator (MVNO) deals to power their push into wireless communications.

Jay Robbins, leader for consulting firm EY’s Americas Telecommunications division, explained that while new entrants into any space always see an initial surge in market share, the cable operators have an advantage in this battle due to what their legacy operations are bringing to the market as opposed to what they are needing to spend in order to enter a new market segment.

“From day one, [cable providers] can offer wireless to their entire customer base, from subscriber one to subscriber ‘x’ million,” Robbins said of the cross-market arrangements. “If you contrast that to the wireless providers, they can't do that because if it's a fiber-based broadband offer, you need to have fiber over your entire footprint, and they don't.”

This numbers game is readily apparent.

Verizon, for instance, is spending $20 billion to acquire Frontier Communications in a deal that will expand Verizon’s fiber footprint past 25 million homes in 31 states and the Washington, D.C. On the other end, Comcast, Charter, and Cox can offer cellular access to all of Verizon’s wireless nationwide network that reaches more than 300 million potential customers.

Robbins also explained that cable providers are able to leverage their deployed wired assets and Wi-Fi connections to offload cellular traffic in their home markets “provides an incremental cost advantage.”

Comcast CEO Brian Roberts told investors during the company’s most recent earnings call that around 90% of Comcast’s mobile traffic is carried on its Wi-Fi network, leaving just around 10% traversing its MVNO arrangements.

“I think when people hear that they're kind of stunned,” Roberts said. “And Wi-Fi works better when you're close to a wire. And we can marry a network together better than anyone.”

One area where traditional wireless operators have seen an early market advantage is through their 5G-based fixed-wireless access (FWA) services that they are targeting as a broadband offering. Those FWA services have been the driver for all recent broadband connectivity additions and have taken a bite out of cable provider-based broadband customer bases.

Robbins did note that these 5G-based FWA services being offered by telecom operators provide a “huge advantage” as “the incremental costs of FWA is literally zero,” but capacity management for those systems remains a challenge. This is less of an issue in rural areas with less population density, which is also an area where the cable providers are less likely to deploy expensive wired assets.

A Rethink Technology Research report from last year noted that U.S.-based FWA services are generating around $58 per month in revenue per connection, with enterprise opportunities set to drive further penetration.

“For the larger operators, which are in the business of providing commercial and enterprise services, FWA could be used as a great upselling tool,” the research firm wrote. “For business premises in underserved locations, FWA opens the door for upselling various additional software and networking services. For those using wireless as a failover connection, a robust FWA service could help displace the ISP providing the primary connection. For business with lots of locations, FWA could help reduce the connectivity charges they face, and provide a clear motivation from this total cost of ownership perspective.”

Financial flexibility

This potential FWA expansion could also receive a boost from recent tax changes that Robbins said will “free up capital to be more aggressive in doing those buildouts.”

AT&T CEO John Stankey told investors during the carrier’s recent earnings call that AT&T expects to see up to $8 billion in tax savings over the next three years, with up to $2 billion of that in 2025, and up $3 billion in each of the next two years. Stankey explained that the carrier would be putting some of that expected tax windfall back into its network to the tune of $3.5 billion to accelerate its fiber internet build.

Robbins noted that this extra financing could play a role in shaping market trends.

“Once you get fiber in a market you're going to get a certain level of penetration, depending on whether it's one or two entrants that are already there. I don’t think that dynamic has changed,” Robbins said. “I think it’s just, keep executing on what you did. The downside is that takes time and money.”

Cable operators are also gaining financial leverage thanks to the competitive environment between the traditional telecom players.

Comcast and Charter recently signed enterprise-focused MVNO deals with T-Mobile US, adding that carrier’s 5G network to what has been the cable operators’ long-standing consumer-focused MVNO deal with Verizon. Analysts have noted that this arrangement will put pricing pressure on those wireless operators, which could ramp should other mobile operators enter the picture.

NewStreet Research Lead Analyst Jonathan Chaplin noted in a research report that the T-Mobile US deal opens up new opportunities for the cable providers that were limited through its Verizon MVNO arrangement. Chaplin wrote that this included potential limits on the cable providers to offer large, multiline deals that would have limited their ability to target large enterprise customers.

“We suspect Verizon wanted to protect their dominant market share in mobile amongst enterprises,” Chaplin wrote. “Arming Charter and Comcast with attractive converged solutions for medium and large enterprise customers will threaten Verizon’s share in mobile and make cable a more formidable competitor for fixed services.”

Robbins added that this upended competitive dynamic will further bolster financial leverage for those cable providers.

“If I'm Verizon, it certainly changes my perspective when those things come up for negotiation,” Robbins said of the T-Mobile US arrangement, further noting that this potential pricing impact could further accelerate.

“AT&T really hasn't played much around the MVNO space. Do they throw their hat in the ring?” Robbins said. “I don't know, but at the end of the day, I still think that's a positive for the cable companies that, one could argue at a minimum, they keep the economics of the current deals they have on the positive, and maybe they get better.”

That “better” might be important for those cable providers who have admittedly seen most of their wireless market growth on the back of free lines that aren’t generating much in the way of direct revenues but are providing a churn-reducing lever to counter fleeing broadband customers.

Robbins said that overall, this battle lends itself toward the end-user getting a better experience regardless of their connectivity choice, with that connectivity victor being the one that can meet that end-user need.

“If I was them, on the mobile side of things, on the broadband side of things, I think they've woken up to this new reality,” Robbins said. “They've got to have a simpler go-to-market, and they've got to take the next evolutionary step in improving their customer experience.