Sprint Nextel’s newly minted CEO, Dan Hesse, took the stage last week at CTIA Wireless 2008 in Las Vegas — and did not announce that three cable companies will be funding a joint venture for WiMax wireless broadband service.
The non-news event is worth noting because the week prior, The Wall Street Journal reported that Comcast, Time Warner Cable and Bright House Networks were considering pumping up to $1.7 billion into a joint venture in fast over-the-air communications run by Sprint and Clearwire. The paper also said Hesse was pushing to get the deal signed and sealed so he could have a dazzling deal to unveil at CTIA.
Description: High-speed communications technology, often called “broadband wireless” and sometimes described as providing “mobile DSL” connectivity.
Bandwidth: Up to 15 Mbps expected for mobile network deployments. WiMax systems can deliver up to 40 Mbps per channel for fixed and portable access applications; the shorter-range Wi-Fi technology typically delivers around 10 Mbps but newer specifications allow for more than 200 Mbps.
Range: 3 to 10 kilometers per cell site
Standard: Based on the IEEE 802.16 standard for non-line-of-sight connectivity between a subscriber station and base station
Backers: Sprint, AT&T, Alcatel-Lucent, Cisco Systems, Intel, Nokia, Microsoft, Motorola, Nortel Networks
But Sprint and Clearwire did not announce any deal with cable operators by press time. And the lack of a deal comes as the stakes for cable operators are getting higher. The reason: High-speed wireless services translate to ubiquitous access to the Internet, something cable operators — which serve nearly 30 million high-speed Internet households, by wire — eventually need to provide. That’s particularly true as customers get used to pulling in more Internet video over their pipes.
In the meantime, Comcast, Time Warner Cable, Bright House and Cox Communications are left selling Pivot mobile phone service, through an existing joint venture with Sprint.
But that effort has been deemed a disappointment. None of the parties involved has disclosed the number of subscribers that have signed up for Pivot, and they’ve been trying to figure out how to capitalize on wireless service in a distinctive, profitable fashion.
“We’re working with Sprint and the other cable MSOs to reach a perfect altitude if we can in that venture,” Comcast CEO Brian Roberts said on a conference call with Wall Street analysts in October. “At the same time, you have a definition of wireless and what is [the] strategic implication to a cable company is not perfectly clear. We continue to assess it.”
There’s additional evidence that cable doesn’t know how to tackle the wireless question: The four cable companies in the Pivot JV also bought up 137 Advanced Wireless Spectrum (AWS) licenses for $2.4 billion in 2006. The operators say they haven’t yet decided what to do with the AWS holdings.
With regard to Pivot, cable executives said the service has been tepidly received because there’s not much consumer enthusiasm for a “quad play” service bundle that includes regular cellphone service.
As for Sprint, Hesse found himself in the same position as before the show. He repeated Sprint’s commitment to WiMax, citing the wireless carrier’s plans to roll out commercial broadband wireless service under the Xohm brand.
And, in that venture, he’s even further behind than before. The company, after Hesse’s speech, disclosed that it would not launch Xohm (pronounced “zome”) in April as planned. Rather, the WiMax service will be publicly available at an unspecified date later in 2008.
Sprint currently is running a soft-launch of Xohm mobile Internet service with employees in Chicago, Baltimore and Washington, D.C., in preparation for commercial launch. The company advertises the service as providing download speeds of 2 to 4 Megabits per second and uploads of 1 to 3 Mbps.
ON THE SIDELINES
If they remain on the sidelines, cable companies could lose Internet subscribers to WiMax or other broadband wireless services — the top five cable operators counted 29.5 million high-speed Internet subscribers at the end of 2007, according to Leichtman Research Group.
The WiMax Forum, a consortium of 90 service providers and technology vendors, has described the technology as a “last-mile wireless broadband access as an alternative to cable and DSL.”
And as more TV and movie content continues to be delivered over the Internet, cable could find itself cut out completely.
Comcast already lists “wireless and other emerging mobile technologies that provide for the distribution and viewing of video programming” — in addition to telco and satellite providers — as competing with its core video services in its 10-K annual report for 2007.
With no announcement last week, analysts were left wondering whether cable was still at the negotiating table — or if the operators decided to walk away, after seeing the negative reaction from investors to the trial balloon they floated.
“The lack of an announcement raises questions about whether or not a deal will happen after all, and Hesse’s commentary around Sprint’s ongoing commitment to [its] Xohm WiMax network made no mention of potential partners,” Sanford Bernstein analyst Craig Moffett wrote in a note to investors last week.
Sprint and Clearwire last year believed they could build a nationwide WiMax network on their own, eventually providing coverage in areas serving 300 million people in the United States. The duo in July 2007 announced an agreement in principle to build out a nationwide WiMax network — but called off the deal in November, saying they failed to reach terms.
Now Sprint and Clearwire have rekindled the idea of blanketing the country with WiMax, and apparently are looking to cable operators and beyond for funding.
The companies are trying to raise at least $3 billion, though some analysts say they believe the companies are trying to pool as much as $10 billion from multiple parties, including Comcast, Time Warner Cable, Intel, Google and international telecommunications carriers.
Cox was not among the cable companies rumored to be part of the WiMax JV discussions — and may be considering building its own high-speed wireless data service. The operator won 22 licenses in eight states in the 700-Megahertz spectrum Federal Communications Commission auction concluded last month, bidding a total of $304.6 million.
Cox declined to comment on what it plans to do with the spectrum, citing FCC quiet-period rules.
A partnership with the builder of a WiMax network could be the most cost-effective path for Comcast and others to enter the wireless services business, according to ThinkEquity Partners analyst Eric Kainer.
“We believe that an offering that combines Comcast’s existing and compelling fixed triple-play with a Xohm-based (Clearwire/Sprint) mobile triple-play would be dominant,” Kainer wrote in a March 26 note.
Added Kainer, “The value proposition is identical for all other cable TV companies.”
Bernstein’s Moffett said in a report after the Journal’s story that going in on a WiMax joint venture would allow cable providers to “check the box” for wireless, and at the rumored investment levels the capital commitment would be modest.
But even plunking down that kind of cash would cut into the free cash flow that investors are expecting to see this year, Moffett pointed out.
And both companies have told Wall Street their areas of focus for the next year will be growing residential voice, “wideband” DOCSIS 3.0 and commercial services.
Then there’s this question: Wouldn’t a mobile broadband offering simply cannibalize existing DOCSIS services?
Not necessarily. The speeds touted for WiMax are less than 4 Mbps, whereas Comcast is now offering a 50-Mbps service in Minneapolis/St. Paul.
Ultimately, though, cable operators may have no choice but to risk eating into their own cable-modem business in the long run.
In a few years, “mobile devices will become a much more important part of the service picture,” said ABI Research analyst Phil Solis. “If cable operators don’t have a mobile broadband solution as part of their complete offerings … other service providers with the mobile piece will start taking customers.”