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Sprint/Cable Joint Venture: Who Wins? Who Loses?

News Analysis By Robert Liu


 

NEW YORK Imagine the day when you can watch live television as it happens ... on your cell phone. Well, that day may not be very far off. In fact, if Gary Forsee has his way with the cable industry, its closer than you think.


Last month, the president and CEO of Sprint Nextel finally hammered out a long-awaited deal to partner up with some of the biggest cable operators in the U.S. The newly formed joint venture with Comcast, Time Warner Cable, Cox Communications, and Advance/ Newhouse Communications gives the cable operators the wireless leg of a quadruple play offering. Of greater significance, it puts Sprint in the unique position to access to cables valuable TV content.

This agreement puts us well on the road to deliver a new Sprint, Forsee said during a press luncheon to detail the joint venture to media and analysts.

But despite his enthusiasm, the new venture has still been characterized as an important but modest first step by some industry observers. The biggest obstacle remains the fact that Sprints new partners will need to re-negotiate with content providers for the wireless rights to carry their TV signals.

It seems highly uncertain to us that the cable operators will be able to develop a meaningful model relating to delivering content to wireless phones, since Hollywood will be trying to create such businesses directly with wireless operators, Doug Mitchelson, analyst at Deutsche Bank, wrote in a recent report.

In exchange for a $100-million investment, Sprint will jointly develop new consumer convergence services with the cable partners, which have also agreed to collectively invest $100 million. Whether the initial capitalization will actually be used to fund R&D or a bulk of the marketing, billing, and back office expenses remains to be seen, but the hope is it will eventually lead to more than simply stapling wireless as cable CEOs put it onto a Triple Play offering of video, voice, and data services.

The goal, as Forsee explained, is to introduce consumers to the third screen beyond the living room TV and the iridescent glow of a PC monitor. Sprint and cable executives demonstrated the power of convergence first-hand at a press conference last month. Using Sprints new Power Vision phones, attendees were able to watch a live stream of a Comcast video feed, access phone and e-mail mailboxes, and even remotely program a DVR.

The real value is creating compelling new services, said John Garcia, Senior Vice President of Strategic Partner Programs at Sprint Nextel.

And not a moment too soon! While Forsee spent the last three years on a plan to reposition Sprint Nextel (shedding its eroding landline business and transforming it into a next-generation wireless services provider), the venture is said to have taken as long as 18 months to iron out. During that time, Verizon made significant progress deploying its IPTV service called FiOS and, more importantly, striking deals with content providers to carry TV programming. In addition, Verizon Wireless (the Baby Bells own venture with Vodafone) launched an EV-DO-based cellular network a year before Sprint and now offers video clips through a partnership with VCAST.

Garcia told INTERNET TELEPHONY the new venture not only enables Sprint to catch up to but surpass Verizon. The software to enable the phones to receive the TV signal will be available in six to nine months right around the time that Verizon and SBC Communications with its Project Lightspeed initiative will roll out IPTV.




Sprints new joint venture could further deflate the Baby Bells business. Cell phones and voice over IP (VoIP) already account for most, if not all, of their landline erosion. Next year, the venture is considering integrated service packages, such as enabling Sprint Nextel customers to make free, unlimited calls to any phone served by the cable partners. Thats because VoIP customers will be able to interconnect directly with Sprints wireless network, bypassing the Public Switched Telephone Network and any related fees, Garcia said.

If Sprint and its new cable partners do succeed, other cable companies that are initially excluded from the venture namely, Cablevision and Charter Communications could end up losing out to any Baby Bells IPTV bundling that encroaches in their footprint. Although Forsee said any cable operators are welcome to join the venture, Sprints 20-years deal is mutually exclusive for the first three years. Sprints mobile virtual network operator (MVNO) partners are also placed at a disadvantage because MVNO wont be provisioned to offer the higher capabilities to prospective customers.

On the other hand, IP equipment providers represent one constituency that stands to greatly benefit from the new venture. Cable executives acknowledge that they still need to build out the IP backhaul of their networks to support next-generation platforms. In addition, handset vendors like Motorola could win big as the joint venture helps to establish a set of standards for future deployment. Sprint said the venture has the potential to reach approximately 75 million homes currently passed by the cable companies.

But, if Sprint and the cable industry can succeed in executing on their convergence strategy, the biggest winner will be the consumer. In fact, consumers could even see lower prices for new baskets of services. Customers still tend to make decisions on wireless and video decisions independently, explained Mitchelson, and actually gaining customers through this co-marketing initiative without aggressive discounting will be challenging. IT

Robert Liu is the Executive Editor of TMCnet, the news and information portal of Technology Marketing Corporation, and is a frequent contributor to INTERNET TELEPHONY magazine.

Roberts 15-year communications career spans from the print world to television and to the Internet. He has covered business and technology writing for Dow Jones, Bloomberg Business News, CNN, and Jupitermedias internetnews.com. He has served as a producer at CNN, Headline News and A&E Television Networks. You may contact Robert at rliu@tmcnet.com.

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