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Comcast Is Wooing Cord Cutters Over Heavy Mobile Users

If there’s one thing everyone seems to agree on about Comcast’s new wireless service, it’s that the cable giant is playing it safe, and the four major carriers don’t have much to worry about.

At least not yet.

A day after Comcast revealed its wireless strategy in detail, analysts say the planned offering wasn’t aggressive enough on pricing, features, or availability to truly threaten the big players. But by giving a special deal to its best cable TV subscribers, Comcast signaled that it’s taking aim at the still small, but growing threat from TV-like services delivered over the Internet.

The new wireless service, called Xfinity Mobile, will be available later this year—but only to customers who live in Comcast’s current 39-state region. Comcast will charge $65 per line for an unlimited data plan, but only $45 per line for customers of its high-end X1 video and Internet packages. Comcast doesn’t have its own wireless network so the service will run on a combination of leased airwaves from Verizon and the cable company’s 16 million Wi-Fi hotspots.

Overall, Comcast’s initial strategy is low cost and low risk, notes Goldman Sachs analyst Brett Feldman. Comcast won’t have any big capital outlays to build some kind of new network and, by focusing on wooing existing customers, additional marketing and billing costs will be minimal, Feldman says. But for the existing mobile carriers, the “initial launch into an already competitive wireless market is not likely to be meaningfully disruptive,” he writes.

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Still, after a year or two, Comcast could make modest inroads particularly with the higher-income households that it already has as customers, Feldman expects. That would make the service more of a threat to Verizon (VZ) and AT&T (T) than T-Mobile (TMUS) and Sprint (S), which have lower market share in that segment, Feldman says.

Comcast’s goal at the start is mostly to protect its cable TV business, according to Macquarie Research analyst Amy Yong. The company could be under a new attack within a year or two as the wireless carriers deploy super-fast 5G networks that can easily carry streaming video services capable of replacing the cable bundle. But that gives Comcast some time to figure out how to best to shape its wireless offering, she says.

“The strategic/financial rationale was clear: protect their core cable business rather than compete with the Big-4,” Yong writes. “Their wireless pursuit will be measured and methodical as they crawl, walk, and run.”

Cowen analyst Colby Synesael agrees that Comcast’s initial wireless foray appears to be more of a trial at this stage. “Xfinity Mobile could be seen as ‘testing the waters’ as Comcast will use the knowledge gained, and level of success (or lack of success), in determining next steps in the inevitable convergence of content and wireless distribution,” he writes.

The proposed pricing is most appealing for a single customer with high data usage who already subscribes to one of Comcast’s top X1 video plans and would qualify for the $45 unlimited plan–cheaper than any major carrier currently offers. At $65 per line for anyone not already paying Comcast’s (CMCSA) premium video rates—and with no family plan discount—the service isn’t particularly competitive for many other wireless consumers.

The target profile matches young millennial customers most at risk of cutting the cord and switching to one of the new Internet TV services, sometimes called over-the-top or OTT, from AT&T, Dish Network (DISH) or Google’s (GOOGL) YouTube, J.P. Morgan Chase analyst Philip Cusick notes.

“We find it particularly interesting that the package could be most attractive to single users that take high-end video–theoretically a customer base that could be most at risk to moving to an OTT video offer,” Cusick writes. “If dropping video for an OTT offer would cost the customer her bundle discount on wireless as well as broadband, the economic incentive to switch erodes quickly.”

Ultimately, though, the prospect of cable companies offering wireless service and wireless companies offering video TV service could be bad for investors in both industries, until the market sorts out the long-term winners, Pacific Crest analyst Andy Hargreaves says.

“The incremental competition (Comcast wireless) represents will spur additional efforts from major wireless players to compete in video and in-home broadband, setting up a battle in all three major markets that is likely to be waged over the next decade,” Hargreaves writes. “While the winners are likely to emerge as even larger and more durable franchises, we see the battle as a negative for both big wireless and cable.”