Mobile

Sprint-Nextel Deal Could Raise Price For Cable Ventures

12/19/2004 7:00 PM Eastern

Sprint Corp.’s proposed $35 billion acquisition of Nextel Communications Inc. might not have a big impact on any possible wireless deals with MSOs — but it could mean that any joint ventures would be more costly for cable operators.

The Sprint-Nextel deal will create the third-largest wireless carrier in the nation, behind Cingular Wireless and Verizon Wireless. With added muscle, a combined Sprint-Nextel could prove to drive a hard bargain with cable operators intent on adding a wireless component to their bundle of voice, video and data products.

Cable operators have been vocal in their desire for a wireless product, but one that would be different than just reselling cellular telephone service. Both Comcast Corp. and Time Warner Cable have expressed interest in a wireless product that would allow a voice-over-Internet protocol phone to do double duty as a wireless handset outside of the home.

Both Sprint and Nextel have said publicly that they’d be willing to hammer out a deal to provide such a service.

Sprint also has deals to provide the VoIP backbone for two cable companies, Time Warner Cable and Mediacom Communications Corp. In a press conference announcing the Nextel deal, the CEOs of both companies said those relationships would remain intact. And they reiterated their interest in providing some type of wireless service to the cable industry.

THEY EYE CABLE

“The cable companies clearly are looking for some sort of wireless play,” Nextel CEO Tim Donahue said, according to a transcript of the conference call. “And I think this company is extremely well-positioned, because of the network, because of our capacity and because of our ability to understand partnering, and I think we do that better than anyone. I think we’re going to be remarkably successful in attracting partners and driving top-line revenue.”

Cable operators created an informal consortium earlier this year to investigate forming a joint partnership with one of the top three wireless carriers — Sprint, Nextel and Deutsche Telekom AG-owned T-Mobile — or even acquiring a carrier.

While the Sprint-Nextel deal would put to rest the possibility of acquiring one of those companies, it doesn’t rule out a joint venture between the combined company and the cable consortium.

Sanford Bernstein & Co. cable analyst Craig Moffett said the Sprint-Nextel deal could lessen cable’s leverage in negotiating a wireless joint venture.

“They [cable] may have to pay a little bit more for it,” Moffett said. “But it’s probably a more competitive offering added to the bundle.”

Perhaps more dangerous to cable is the specter of a competing bid for either Sprint or Nextel by Verizon.

Verizon, the No. 2 cellular-service provider, has also been a top threat to cable, with its aggressive pricing of digital subscriber line service and plans to build out its fiber network to offer video. It is unlikely that a combination of Verizon and either Sprint or Nextel would be open to a joint venture with cable operators.

But that scenario seems unlikely at least for now. As part of their agreement, Sprint and Nextel have included a $1 billion breakup fee if either pulls out of the deal, which should be a sufficient deterrent.

If the Sprint-Nextel deal goes through, it is likely to take at least a year for regulatory approvals. And it is also unlikely that either company would be negotiating separate deals with MSOs before the merger is completed. However, that may play right into most MSO’s hands.

ON 2006 AGENDA

Cable operators were not expected to be seriously looking to add a wireless component to their voice offerings until the bulk of the VoIP rollout is completed toward the end of 2005.

“The likelihood of a wireless venture really hinges on whether customers demand wireless in the bundle,” Moffett said. “The Sprint-Nextel merger has one big pro — a deal with Sprint-Nextel would allow a more competitive offering down the road than either could offer on their own — and one big con — the cable industry’s negotiating leverage would be diminished if they had to negotiate with the two companies as one. But the question that remains is if this is something that customers really have an appetite for.”

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