Time Warner Cable (TWC) is working with startup WeFi to expand its Wi-Fi hotspot network in the U.S. Rather than installing its own hotspots, the company can leverage WeFi's technology to create a virtual network for its customers by allowing them access to open Wi-Fi hotspots installed by governments and businesses for public use.

There is a significant potential to increase flexibility for customers if the company can include these open hotspots. The broader strategy is to improve customer stickiness, which will help drive growth in broadband business and moderate losses in pay-TV business.

Wi-Fi usage is increasing

The has been a significant increase in Internet-enabled mobile devices in the last few years. The sales of smartphones, tablets and notebooks have grown, while stationary devices such as desktops have not gained much traction.

According to Gartner's estimates, about 172 million smartphones were sold in 2009, an increase of about 24% over 2008. Growth further accelerated in 2011 when Gartner reported that in the third quarter of 2011 smartphone sales amounted to 115 million units, registering growth of 42% over the same quarter the year before. In the third quarter of 2012, this growth again increased to 47%.

With increased web activity on mobile devices, Wi-Fi usage has also increased. Smartphone owners tend to use both cellular data services as well as Wi-Fi for their Internet needs. According to a comScore report released in 2012, about 71% of iPhone users and more than 30% of Android-based smartphone users browse via both mobile and Wi-Fi networks.

Wi-Fi hotspots can be useful assets

According to a study conducted by Nokia, stationary locations such as home, restaurants, coffee shops, etc., are commonly used spots for mobile web access. Fortunately for Time Warner Cable, such stationary locations are also ideally suited for Wi-Fi hotspots.

This implies that consumers accessing the web on their mobile devices such as smartphones, tablets and laptops may find that most of their mobile web usage occurs at these stationary locations. Therefore, they could offload a significant amount of data usage to Wi-Fi.

Our price estimate for Time Warner Cable stands at $88, implying a discount of more than 10% to the market price.