Signal Boost for Sprint-Cable Venture

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As its joint venture with four cable operators turns nearly one year old, Sprint Nextel Corp. is trying to kick-start its relationship with the entire cable industry, expanding the role of joint venture president John Garcia.

Garcia will now oversee not just the wireless-phone joint venture with Comcast Corp., Time Warner Cable, Advance/Newhouse Communications and Cox Communications Inc., but Sprint's deals to provide backbone network access to voice-over-Internet protocol telephony offerings from other cable companies.

In an interview Friday, Garcia said the moves were made to make Sprint's cable strategy more efficient. In his expanded role, Garcia will report to Sprint CEO Gary Forsee, as well as the cable joint venture's six-member governing council.

He had previously reported only to the governing council, made up of representatives from Sprint, Comcast, Time Warner, Advance/Newhouse and Cox.

“It's more of an administrative move to make better use of resources,” Garcia said. “It's an effort by Sprint to consolidate and build a comprehensive cable relationship strategy.”

Sprint has had a long relationship providing the backbone network for several cable operators' VoIP calling services — including Time Warner, Mediacom Communications Corp. and Insight Communications Corp.

“All of the companies are interested in generating additional revenues and reducing costs,” Garcia said. “A huge opportunity that will get more focus and energy will be the opportunity for Sprint and the cable companies to coordinate more around backhaul and access.”

The cable joint venture, first announced in November 2005, is a separate entity from Sprint Nextel. With the new structure, the partners will have a closer relationship with the telephone giant, Garcia said.

“We were talking to somebody who was an intermediary for Sprint and they would go talk to Sprint,” Garcia said. Now, he has a direct line to Forsee and other top Sprint executives.

HOUSED AT SPRINT

The restructuring will mean that employees — both from the cable companies and Sprint — will be housed at Sprint headquarters in Overland Park, Kan., and Reston, Va., working on the JV full-time.

In the past, these cable initiatives were “scattered about within Sprint,” Garcia said.

“As they started getting more important in the relationship with the cable industry, more focused and with Gary [Forsee] taking on the [chief operating officer] position as well, he was wanting to bring a comprehensive cable strategy and bring all of these things into focus.”

Forsee assumed COO duties in August, after the abrupt resignation of former COO Len Lauer.

Lauer apparently took the fall for Sprint's poor second quarter operating results — it missed revenue and cash flow targets and fell far short of subscriber growth estimates. Sprint stock fell 12% ($2.58) to $17.75 after the announcement. It closed at $17.87 per share on Oct. 5.

Garcia said that his role within the cable JV will not be diminished, despite his added responsibilities.

“I am still president of the joint venture and my responsibilities there have not changed at all,” Garcia said. “I still have accountability back into the governing council. Nothing there has changed other than we moved the staff inside of Sprint for fewer handoff, more efficiencies and access to more resources.”

Officials at Time Warner and Advance/Newhouse referred all questions to Sprint JV spokeswoman Melinda Tiemeyer. Officials at Comcast and Cox declined comment.

Privately, the cable operators involved said changes in Garcia's role will have no effect on the venture. Each one said that plans to roll out a wireless product in seven markets are on track for the second half of the year.

So far only Comcast and Time Warner Cable have revealed where those launches would be. Comcast plans to start in Portland, Ore. and the Boston area; Time Warner in Austin, Tex. and Raleigh, N.C.

Tiemeyer declined to disclose just what products would ultimately be launched. Previously disclosed were the consortium's intentions to integrate voice-mail and e-mail messages into one mailbox; and to deliver some live television and on-demand video. In addition, customers of the service would see the same cable guide that is on their home TV sets on their wireless handset, as well as the home page of their cable operator's high-speed Internet service.

“We're focusing on the fundamentals, things that hopefully will be valuable to customers,” Tiemeyer said.

One idea being kicked around is offering free calls between customer's wireless handset and a home phone — something that should be attractive to parents.

UNCERTAINTY REMAINS

But while Sprint and the cable companies insist that the partnership is chugging along, many analysts believe the joint venture has been plagued by delays and uncertainty.

When the arrangement was first announced in November 2005, many of the operators involved said that customers could begin seeing new wireless products or applications by mid-2006. Later than date was pushed back to the second half of this year.

Add that delay to the conspicuous absence of any mention of the cable partners in Sprint's August announcement of its WiMax high-speed wireless strategy; and, Sprint's meager 5% minority interest in SpectrumCo, the consortium led by the four cable operators that recently bid $2.37 billion for spectrum in major markets such as New York City, Los Angeles and Chicago in the recent Federal Communications Commission Advanced Wireless Services (AWS) auctions.

“The individual companies still seem to have conflicting long-term goals,” said Pali Research media analyst Richard Greenfield. “From our standpoint, the key things that have been confusing in our minds are: Why did the cable group not get included in the Sprint Wi-Max announcement and why the amount of equity attributed in the AWS auction to Sprint was only a 5% non-voting stake in the JV? Those two signs give me a sense that this is likely progressing slower than expected.”

Some analysts are even more harsh.

“This happens all of the time,” said Jefferies & Co. cable analyst Robert Routh. “None of these things ever work. You just go back to history and it repeats itself.”

Routh points to the Sprint Telecommunications Venture partnership (later renamed Sprint Spectrum L.P.), a 1994 venture between Sprint, Tele-Communications Inc., Comcast and Cox. While that venture too had high hopes — each cable company was going to offer a landline phone service over Sprint's network, bundled with Sprint PCS wireless service – it unraveled when the cable operators balked at committing more money to the venture. The partnership officially dissolved in 1998, when Sprint offered the cable partners Sprint PCS tracking stock in exchange for their interests in the partnership.

Last week SpectrumCo made its initial down payment for the 137 licenses it secured in the FCC wireless auctions. According to a press release, Comcast paid $1.29 billion, Time Warner paid $632.2 million and Cox paid $248.3 million.

But the group provided little detail about its plans for the spectrum.

“While no plans have as yet been finalized, including no specific plans to build out the networks at this time, in coming months, the members of SpectrumCo will fully evaluate all options including possible testing in limited markets,” the group said in a statement.

UBS Securities cable debt and equity analyst Aryeh Bourkoff said that while he doesn't believe that the Sprint partnership is on the skids just yet, cable operators could position themselves to restructure the joint venture in the future.

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