T-Mobile has spent the past four years attacking wireless industry rivals to great success. But the wireless industry isn’t growing as fast as it once was, so the carrier has focused on an entirely new market: the $100 billion cable and satellite TV business.
The public kickoff of the effort came on Wednesday when T-Mobile announced it was acquiring a startup TV service in Denver called Layer3 TV. The carrier plans to use some of Layer3’s technology and relationships with TV programmers to launch its own nationwide cable competitor next year. Taking on the entrenched cable monopolies won’t be easy, but no one should underestimate the carrier and its CEO John Legere considering their prior success in wireless. The cable market “looks a lot wireless from a few years ago,” Legere said on Wednesday. Here’s what we know so far:
What will the new TV service look like?
T-Mobile hasn’t announced exact details about what will be included in its TV service or how much it will charge, but it has given some general outlines. The new service will be a hybrid between a traditional cable TV subscription from Comcast cmcsa or Charter chtr and Internet-based services like Dish Network’s dish Sling TV, or Google’s googl YouTube TV. T-Mobile says it wants to offer something like Layer3 TV’s current 256 channel service, and not a so-called skinny bundle that features fewer channels like plans from the Internet players. T-Mobile’s service will also integrate popular Internet streaming services like Netflix nflx and Hulu. T-Mobile tmus also plans to offer multiple options to add channels, instead of just one or two packages. But just like the streaming services, T-Mobile’s will also be delivered online, not through dedicated cable wires.
How will T-Mobile make money?
Many cable competitors have come and gone over the years, done in by the expense of wiring every customer’s home. Verizon’s Fios service largely stopped expanding years ago and the carrier sold off a big chunk of the business in 2015. Google also found it costlier than expected to roll out its Fiber service, and has cut back on expansion. Both companies are looking at shifting to cheaper wireless delivery in the future.
T-Mobile says that by relying on Internet-based delivery, it won’t need to wire millions of homes with new connections. Customers will be able to use whatever provider they have. “It will work on your Comcast Internet connection,” chief operating officer Mike Sievert says. The carrier also plans to leverage its base of 71 million wireless subscribers and 16,000 retail stores to help attract customers. And in addition to the usual service fees, T-Mobile sees the possibility of selling TV ads using targeting technology that is more precise than what is possible through cable networks. Whatever the cost of rolling out the new TV service, the carrier said it is not changing its three-year forecast for increasing its free cash flow by 45% to 48% annually.
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What happens to Layer3 TV customers?
Layer3 TV will continue providing its service in the handful of markets where it already operates. All of the company’s employees will join T-Mobile, including CEO Jeff Binder and two key cable industry veterans, chief content officer Lindsay Gardner and chief technology officer Dave Fellows. Gardener, a 30-year industry veteran, led sales, marketing and distribution at Fox Network before joining Layer3, while Fellows was the chief technology officer at Comcast, where he helped develop the “triple play” bundle.
Could the lack of net neutrality rules be a problem?
The Federal Communications Commission this week is expected to gut its 2015 rules that protected Internet services like T-Mobile’s new TV offering from being blocked, slowed, or otherwise discriminated against. T-Mobile executives dismissed concerns that the lack of net neutrality protections would be a problem. “We’re not worried about that,” COO Sievert said. But cable TV providers are also the leading providers of home Internet service. Though they likely couldn’t get away with blocking the T-Mobile service outright, they could make life hard on the competition by imposing data caps on customers, charging extra fees or degrading the quality of video delivered over the Internet.