Wi-Fi

BTIG Publishes Research Note Detailing Uncertainty Surrounding WiFi-Biased Carrier Business Models

April 21, 2015 - Written By David Steele

BTIG analyst Walter Piecyk has written a piece detailing his belief that the new generation, WiFi-biased carriers are probably not going to be able to effectively complete with the traditional carriers. These WiFi-biased carriers aim to bias customers’ use towards connecting to the network over a WiFi network rather than a cellular data network. Some carriers felt solely on the WiFi connection whereas others use an arrangement with one or more partner networks: Google’s MVNO, Mobile Virtual Network Operator, is believed to use both Sprint and T-Mobile US networks, choosing between the networks depending on the strength of the signal.

The greatest advantage to an operator of using a WiFi network to handle calls, text messages as well as data is the much reduced cost of infrastructure. A WiFi hotspot is significantly cheaper to run compared with a mobile network mast. However, Walter’s argument regards the viability of using WiFi as the primary means of connection. He uses the example of Telnet, which has almost one million customers and high profit margins. Telnet manage a portfolio of over two thousand WiFi hotspots in Flanders and had a MVNO agreement with Mobistar for coverage away from these hotspots. However, despite the success of the business to date, Telnet bought KPN’s Belgian mobile unit BASE for $1.4 billion. Telnet’s Chief Executive Officer, John Porter, said this about the deal: “As we will gain owner economics in mobile, this transaction will allow us to continue to meet changing customer demands. By acquiring Base we will have more control over future investments and product innovation and will be less exposed to variable data costs, giving us increased long-term financial certainty.” In other words, the uncertainty of cellular roaming costs is high enough for the business to buy it’s own cellular division.

One of the issues in North America is that geographically, the country is much more spread out. WiFi hotspots have a significantly shorter range compared with cellular masts so many more must be deployed in order to ensure coverage. Walter’s observation here is that the American market is different compared with the European market. In Europe, customers are used to having capped data allowances whereas the market is less strict in North America and customers are more used to buying large data bundles up front. Another of Walter’s observations is that should the WiFi-first business model not suit say Google, it’s possible that T-Mobile US or Sprint may be a potential acquisition target. BTIG recently downgraded Sprint because of their confused strategy and there remains the chance that SoftBank’s Chief Executive Officer, Masa Son, may well sell Sprint on to another buyer. It appears that the market remains interesting.