from the seems-smart dept
As such, Moffett likes Cablevision's WiFi strategy because it serves as a value-added service for its customers, and it's cheap to roll out. Moreover, Cablevision is pitted against Verizon in New York, and Verizon can't match the free WiFi offering.This is interesting for a few reasons. First, it shows yet another case where a company realizes that even if the initial costs are huge, if the marginal costs are low, and the "free" product better ties customers to a scarce product, it can make sense to give the other product away. So, yes, once again, there can be a good ROI on a "free" product -- even one that costs $300 million to roll out.
"Their model is to pay for the WiFi network by, well, giving it away," Moffett said. "The $300 million of capital spending required to build it, and the modest operating costs to run it, can be paid for with just a small uplift in market share--either gained or retained--in their wired broadband service. At an ARPU of $35 per month and 80 percent contribution margins for wired broadband, it would take only 160,000 incremental subscribers--just 3.6 percent share of their cable footprint--to earn a 10 percent return on investment."
Of course, what may be even more noteworthy is the comment about how "Verizon can't match the free WiFi offering." That's quite amusing, because, five years ago, Verizon started implementing a plan to... offer free WiFi to Verizon DSL customers in NY. And, the plan wasn't even that expensive, because it made use of all the Verizon telephone booths that were already installed. In fact, the plan was seen as a pretty big success, responsible for reducing customer churn in such a way that more than paid for the service (exactly as the analyst is predicting will happen with Cablevision's offering). Yet, the bigwigs at Verizon still decided to kill the program, because, for reasons that still escape us, some execs were worried that it would compete with Verizon Wireless' EV-DO cellular wireless offering. Wonder if they regret that decision now?