Cable's Extinct, WiFi's the Future

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Cable companies are planning to stay competitive by incorporating WiFi hotspots, expanding beyond wire lines and into the wireless trend. Traditional cable companies want to add more value to their subscribers, reducing churn rates for new customers that quit after their promotional discounts expire. A research report from Heavy Reading indicates U.S. cable firms will deploy more than 250,000 WiFi hotspots by mid 2014, an increase of 60%.

Time Warner Cable (NYSE: TWC) and Comcast (NASDAQ: CMCSA) have both announced plans for WiFi in their service areas.

Heavy Reading, the real world research website, stated the cable industry has already spent more than $175 million in deploying WiFi hotspots, and that will likely double to $350 million by mid-2014. Currently, the cable companies have deployed about 174,000 WiFi hotspots throughout the United States, which is up from the 150,000-plus hotspots deployed by members of the Cable WiFi roaming alliance, which includes Comcast and Time Warner Cable.

WiFi the wave of the future
Analysts in the Telecom arena suspect the cable companies WiFi footprint will be felt by the telecom companies that currently dominate the cellular industry. Jefferies analyst Thomas Seitz wrote in a research note that he believes the cable industry will enter the wireless market in a disruptive, WiFi/MVNO manner. These efforts, he said, coupled with Passpoint Hotspot 2.0 technology that supports cellular WiFi roaming, could allow cable companies to cut into a wireless industry currently dominated by the likes of AT&T (NYSE: T) and Verizon (NYSE: VZ) as early as next year.

Reduce your cell phone bill just use WiFi
Mobile devices like smartphones, tablets and notebooks are all able to make voice and video calls from a wireless WiFi connection. WiFi reduces subscription fees for AT&T and Verizon users.

Robert Palmer's analysis
Time Warner Cable posted annual net profits of $1.6 billion for Dec 30, 2011 and $2.1 billion for Dec 30, 2012. Fiscal year 2011 EPS was $2.71; this increased to $3.09 for fiscal year 2012. What accounted for the increase in revenue? Time Warner has aggressively targeted the residential high speed internet market and now WiFi is their next target.

Comcast posted annual gross profits of $4.1 billion for Dec 30, 2011 and $6.2 billion for Dec 30, 2012. Fiscal year 2011 EPS was $1.50; this increased to $2.28 for fiscal year 2012. Analyst’s growth estimates for the next five years is 17.5% for Comcast and 15.76% for Time Warner. This number is realistically attainable with the addition of WiFi spots for both companies.

Time Warner Cable will add more than 1,000 WiFi hotspots in Manhattan this July and 10,000 by the end of 2013 to expand its internet service. Time Warner non subscribers can use the service on a pay as you go basis for $2.95 per hour.

Comcast has introduced XFINITY WiFi free trials for new customers in addition to the XFINITY WiFi App. This allows customers to locate 150,000 hotspot locations from San Francisco to New York. Comcast is a growth stock set to soar higher with XFINITY charging $2.95 hourly to $7.95 for a day pass. The current dividend yield is 1.75%, the more subscribers come on board this should increase by several cents for next quarter.

Competitions defensive stance
How is the telecom industry reacting to the WiFi invasion? The Verizon Jetpack 4G LTE Mobile Hotspot is a portable device being marketed to people on the go like business professionals.

The AT&T Mobile Hotspot Elevate 4G compatible with up to 5 computers has been introduced to offset possible declines in subscriber usage for the internet.

Time Warner Cable and Comcast are on the offensive to get as many subscribers to try their WiFi services, Verizon and AT&T are on the defensive trying to keep existing market share and existing subscription prices high.

Consumers are tired of increasing cell phone bills, many people want mobile phone service without the burden of a subscription contract or early termination fees. The popularity of the Google Nexus smartphone that can be purchased with no contract and no termination fee has increasing appeal to consumers who do not want to commit for a 2 or 3 year term.

I am bullish on Time Warner and Comcast; both companies have great financials with higher EPS every quarter from 2011 to the present.

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Robert Palmer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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