Verizon CEO Ivan Seidenberg and AT&T CFO Rick Lindner both addressed a key question in the broadband market: Will 4G lead to cable cord cutting in households? The verdict: In the long run, 4G will be a substitute for wired services for some folks.
Seidenberg had the most interesting comments since he also has a horse in the wireline race with Verizon’s FiOS service. Here’s what Seidenberg had to say at the UBS Global Media and Communications Conference:
There will be some substitution. I wouldn’t doubt that. I don’t see — at least our engineers don’t tell me yet that LTE displaces a full cable system or a full FiOS in the home. But here’s what I do think happens, and it’s what has always happened with new technology.
I think customers will use combinations of technology to, in effect, reduce some of the growth that you would see. So I think what will happen is people will figure out they don’t have to buy, for example, expensive voice service from a cable company.
They can use their LTE, and they can use the cable company’s broadband pipe for over the top. So I think what you will see is, on the margin, some of the growth that exists in the existing platforms will change. By the way, that also applies to FiOS. We think some of that will happen in FiOS. And what our solution to that has been, of course, is higher speeds, 3-D, things that LTE can’t do. So I believe that in the next year or so you will see some substitution on a limited basis.
But more, you will see the things you can’t see that will occur. And you will see 4G starting to take away some of the discretionary growth that comes from — this is the reason I think that, while I got into a little hot water last conference because I talked about cord cutting. And if I actually defined it a little differently, so the cable industry says, well, we haven’t seen any signs of cord cutting. Fair enough.
But my guess is you’re going to start to see signs of growth slowing down in some of the premium services because people are going to use alternative technologies. We’ve seen this movie before, and we see exactly how it works out. So I think, in time, 4G will be a modest substitute.
When you look at the introduction of all these new technologies, this is a pattern that has followed for the last 20 years. So the first five, six years a new technology is introduced, it’s generally additive. So 4G will generally be additive, just like 3G was, just like broadband was. But over a three- or four- or five-year period, you start to see the mainstream of that technology become somewhat substitutable. And we’ve seen that over the course of the time.
That latter point is notable. Seidenberg projects that 4G won’t ding wired broadband in the near-term. Over the long run, it’s a different story.
Here’s what AT&T's Rick Lindner had to say about cord cutting at the same UBS conference:
So as we go to LTE, will it cannibalize other services? I think what will happen very simply in wireless is this. Customers will naturally migrate from — over time from their 3G devices and their 3G networks to LTE.
There are also been questions about will these wireless — advanced wireless data capabilities, will they cannibalize some of the wireline products and services, the wireline broadband? And I think to a large degree the answer there is probably not.
There may be some customers who decide, okay, I’m going to go wireless in terms of my broadband needs. But the truth is, if you look at a graph, you look at a graph of Internet traffic, wireless still today is a very small component of it. They are huge amounts of traffic that are carried over wired broadband connections.
And the reality pure and simple is, there’s not enough capacity available, not enough spectrum available to move all of this traffic from the wired environment to wireless. So again, to my earlier comment, I think the best way to provide what customers are looking for is through a combination of both wired and wireless capabilities.
The reality of cord cutting will largely depend on your time frame. In the long run, it’s highly likely that 4G will ding wired broadband. If your time horizon is five years or less, you can sit in the no-cord-cutting-here camp.