The wireless outfit’s just-finalized alliance with four cable-TV giants is likely to boost its earnings, raising the pressure on Telco rivals.
Four of the nation’s top cable TV providers announced a long-awaited deal to deliver their own cell phone services through Sprint Nextel Corp., creating a “quadruple play” of voice, video, Internet and wireless products for a new battle against telephone companies that are adding TV to their arsenals.
The agreement calls for Comcast Corp.; the cable division of Time Warner Inc.; Cox Communications Inc. and Advance/Newhouse Communications Inc. to invest a combined $100 million in the new joint venture with Sprint Nextel, which will also contribute $100 million to the initiative.
The move by Comcast Corp., Time Warner Inc.’s cable division, Cox Communications Inc. and Advance/Newhouse Communications will allow them to sell a package of products — cable TV, high-speed Internet, telephone and wireless phone services — to compete against "Baby Bells" Verizon Communications Inc. and SBC Communications Inc. as they launch pay TV services.
Cable providers began their long march onto the phone companies’ turf years ago by offering faster connections to the Internet. They later stepped up the attack by introducing low-cost phone calling. And now, thanks to Sprint Nextel, the top U.S. cable-TV operators will push further into the territory long dominated by phone companies such as Verizon by adding a crucial fourth missing element in their product lineup of TV, phone, and Internet access: mobile-phone service.
The four companies and Sprint Nextel also said the venture, which may reach up to 75 million U.S. homes, will develop new services by making devices work together — such as allowing customers to program digital video recorders or watch stored shows through their cell phones. The coalition adds a new competitive contingent seeking a spot in the mobile media market, pitting the cable industry and wireless industry against telephone companies, consumer electronics makers and global communications hardware makers.
The deal, rumored for nearly a year, said co-branded cell phones and services would be launched next year. It was not immediately clear however, whether each cable company would attach its own name to the product or a common brand might be adopted.
Prices for the cellular services will vary by market through an individual agreement between Sprint Nextel and the cable company serving that territory — a sign of the likely difficulties encountered in reaching an agreement among so many players with divergent interests even within a single company’s operations.
Each cable company will provide customer service for cell subscribers within its territory and bundle the charges for wireless on a single bill — considered a key selling point for consumers. The alliance also envisions an array of converged products melding phone, cable, Internet and wireless services, though the companies did not indicate when they might arrive.
HOW MANY PLAYS?
Despite the clamor in the telecommunications industry to pitch "triple play" packages of phone, video and data, or a "quadruple play" with wireless, it is not clear whether consumers want to consolidate their communications needs.
LEVELING THE FIELD:
The Sprint-cable agreement; exclusive for three years but expected to last for 20 years, goes well beyond a traditional resale arrangement. Sprint, which has already opened up its network to help cable companies provide low-cost Internet-based calling, will contribute $100 million to the venture. The cable outfits will together cough up the same amount. The money will go toward integrating the companies’ back-end systems and existing offerings, as well as toward developing new services.
It comes just in time for the cable companies, which are seeking new revenue sources as they come under attack by satellite-TV providers. Comcast, Time Warner, and the others also face a growing threat from phone companies. Verizon and SBC Communications, the two biggest carriers and part-owners of the top two mobile-phone companies, are upgrading networks so they can provide hundreds of TV channels.
MORE THAN STAPLING:
The joint venture’s partners have not released pricing plans, but they are likely to offer some fairly attractive features. Sprint and its partners intend to develop co-branded services and wireless devices with cool features mostly lacking on today’s handsets. They will include a single voice-mail box for cellular and regular phone calls as well as unlimited calling between home and the wireless device. Users will also be able to program their home digital video recorders DVR remotely with cell phones.
Plus, the joint-venture companies also hope to standardize their interface, so you could use your cell phone to browse the Web through your familiar cable Internet portal. This is more than stapling wireless onto a triple play, Gary Forsee, CEO of Sprint Nextel, said during the conference call related to the announcement.
According to analysts at Jefferies & Co., these companies are expected to offer handsets that work both on traditional cellular networks as well as with Wi-Fi technology, which allows high-speed wireless Web access within cafes, airports, and homes. That would let Wi-Fi users make cell-phone calls without using up their call-plan minutes.
EARNINGS JUMP?
To truly tap the potential of the alliances, cable companies may need to take an ownership stake in the wireless-calling providers, says King. Cox or Time Warner may try to merge with or take a stake in Deutsche Telekom’s DT, T-Mobile USA or Sprint Nextel, he reckons.
There is little doubt that the next stage of the cable-telco turf war will be hard fought. And Sprint Nextel has just given the cable operators a much-needed weapon.