Outside of Wireless, Everything is a Commmodity

Includes: CMCSA, CVC, DTEGY, S, T, TWX, VZ
by: Andrew Schmitt

Businessweek writes about T-mobile (DT) and a new service they are rolling out using UMA phones (dual GSM/WiFi). These new mobile phones make use of the WiFi network and broadband connection in a users home to make phone calls off the GSM or cellular network.

Contrary to popular opinion, the real threat to the Baby Bells' residential phone business is not the cablecos' VoIP but wireless substitution. Competition from cell phones was eating away at residential lines long before the cablecos began deploying voice services.

Most baby Bells already have a wireless infrastructure. None of the cablecos do. This is why the Baby Bells ultimately have the upper hand over the cableco in the battle for residential subscribers. They can migrate their customers (and their phone numbers) to a wireless infrastructure, and Comcast (NASDAQ:CMCSA) / Cablevision (NYSE:CVC) /Time Warner (NYSE:TWX) cannot. Comcast can migrate customers to Sprint/Nextel (NYSE:S), but without owning the infrastructure they won’t extract maximum value.

Wireless is the commanding heights and the most important infrastructure to own and operate in a voice network. Everything else is a commodity.

It isn’t surprising that T-Mobile is at the vanguard here. They have no baby bell wireline component to worry about cannibalizing, nor cableco partners to upset like Sprint/Nextel. T-mobile also caters to a younger, more cost-sensitive market perfect for a service like this.

I expect to see AT&T (NYSE:T) and Verizon (NYSE:VZ) slugging it out 2 years from now, each offering a VoIP WiFi product that offers a wireless phone that roams between a home WiFi hotspot and their cellular network. This service will be nationwide, unlike the video and broadband services that will remain wired. Customers will choose a voice provider using the same criteria they evaluate wireless providers today, and a broadband/video provider based on what service is offered in their local area.

The idea of standalone residential voice is dead, regardless of whether sent over copper pair, cable modem, or $19.99 a month Vonage (NYSE:VG) service. The battle for residential VoIP customers being waged by the cablecos is futile.

The cablecos need to and will buy a company with wireless infrastructure. The spate of telecom mergers will spill into the cable and wireless sectors as reality sets in. (see ‘What To Expect Next in Telcoland‘)