Got a Cable Network?

Ever since the mobile virtual network operator business model first appeared in the U.S. three years ago, the wireless industry has waited for the first cable company to sign up. It seems like the perfect business model for any multiple system operator — a way for a cable provider to add the final play to its bundle of voice, data and video services without the pains of becoming a network operator.

An MSO could simply buy wholesale minutes off wireless operators, brand the service under its own name, integrate the service into its own billing system and draw revenue into its coffers. And with wireless operators ever more willing to share the premium features of their networks, the MSOs could take the first steps to integrating their wireless plans with their cable plant-based voice and data offerings.

But three years later, not a single MSO has made a public move toward embracing the MVNO model. The MVNO may be tailor-made for the MSOs, but so far they haven't seen any need for a suit. However, there are some indications that the MVNOs may be on the verge of changing their minds. Last month, a Wall Street Journal story citing unnamed sources said that the largest MSOs were entering into a joint venture that would launch a nationwide wireless network, either through the purchase of network assets or — more likely — an MVNO agreement with a Tier 1 carrier.

The cable operators have remained silent about any such partnership, and a spokesman for the National Cable Telecommunications Association said that it is not involved in any such plans nor have its members communicated any such plans to the association.

Regardless of whether the news reports are accurate, wireless industry executives believe that the recent buzz surrounding the cable industry's wireless plans isn't just talk. The MSOs may be finally ready to act, said Mike Smith, director of business development for Sprint's cable solutions group.

“All of the major cable companies, and even many of the second and third cable providers more progressive in their thinking, are actively assessing the wireless situation,” Smith said. “They're just thinking about the right way to get into the market. It would not be surprising to see some trials among cable operators in the first half of next year and commercial launches by the end of 2005.”

Of all the wireless carriers, Sprint perhaps has been the most aggressive in pursuing MVNO and cable company business. The carrier is by far the most successful wholesale provider to the MVNOs that have launched in the U.S., counting Virgin Mobile, Qwest Communications and, most recently, AT&T on its roster of wholesale customers. In fact, in the third quarter, half of the more than 900,000 subscribers Sprint added came from its MVNO and resale partners.

But Sprint has also been paying particular attention to the cable market. When it ended its traditional division between its wireline and wireless groups in favor of an organizational structure delineating business from consumer, Sprint also set up a business unit focused directly on cable companies. So far, the cable solutions group's publicly announced wins have been for IP services and voice transport, but those contracts will give Sprint a natural advantage when the cable companies start picking their wireless partners, Smith said.

While some of the MSOs may be looking toward merely establishing a wireless presence in order to combat threats from the RBOCs' own bundling of wireless, many of the cable providers will be looking for more integrated solutions, Smith said. That spells convergence. With VoIP powering most the cable companies' new voice rollouts and Sprint's IP services feeding them in the core, integrating wireless data — and eventually voice — into the mix isn't that far off, Smith said. How aggressively the MSOs pursue a fully converged network service, however, still remains to be seen.

“It depends on how fast the cable companies want to pound the dagger into the hearts of the RBOCs,”Smith said.

Smith said the MSOs most likely will first sign distribution deals with Sprint and other carriers as a way of getting into the market quickly, much like the RBOCs signed distribution deals with the digital broadcast satellite providers to get immediate access to video content while they build out their fiber networks. But it won't be long before the cable companies start leveraging their own brands and offering wireless on a single bill.

Eventually dual-mode handsets will gain wide acceptance, allowing customers to offload cellular voice and data traffic onto home LANs and hot spots. The final step will be true wireline/wireless convergence in which home and cellular services merge under a single number. Sprint is also developing applications tying wireless more closely to traditional cable services, such as programming a personal video recorder remotely from a handset or sending picture mail directly to the TV screen.

While other wireless operators have adopted the MVNO wholesale model, Sprint may have an innate advantage in garnering cable business, apart from its aggressive wholesale offerings. Sprint's larger competitors, Cingular Wireless and Verizon Wireless, are both owned by RBOCs, the MSO's arch competitors.

While Cingular has been aggressive this year in the wholesale market, its most significant MVNO deal has been with CenturyTel, an ILEC with local networks that don't overlap with either SBC Communications' or BellSouth's territories. It's unlikely a cable operator would want to buy Verizon's or Cingular's service while competing for residential customers in the same market. Nor is it clear that Verizon and Cingular would sell to them, said Patrick Zerbib, vice president of Adventis' wireless practice.

“Sprint is really in a unique position,” Zerbib said. “They have made public their intention to embrace the wholesale model and open up their networks. That should be attractive to cable companies because they have to consider that any agreement with a wireless carrier could be a conflict of interest.”

The other wireless operators could also share in any future cable deals. Nextel has been fairly aggressive with its own MVNO, Boost Mobile, in the last year, and T-Mobile has actually signed the first deal between an MSO and wireless carrier, albeit not for voice services but for roaming over its nationwide hot spot network. But while future deals seem likely, Zerbib cautioned that they are not inevitable.

“The reason why the cable companies have hesitated so far is because they are evaluating the value of that bundle,” Zerbib said. “They've already reduced churn. They're wondering if wireless is necessary. It's not definite that one more service or one more ‘play’ would reduce churn any more.”

While the wireless operators have not announced any service deals with the MSOs, Sprint has started making headway with smaller providers. Sunflower Broadband, a small cable operator in Lawrence, Kan., just a short distance from Sprint's headquarters in Overland Park, Kan., has begun reselling Sprint wireless service, packaging voice minutes with premium cable.

Joe Ryan, Sunflower director of sales support, agrees with Zerbib's assessment that wireless may not add much to the bundle today, but he said it will be imperative to their efforts in the future when wireline and wireless convergence becomes a reality. If the cable companies are the only operators left selling a landline separate from cellular, they'll find their healthy churn numbers in serious jeopardy, he said.

“Today wireless isn't critical to us — it's just a convenience for our customers,” Ryan said. “But I truly believe the future integration of the cell phone and the landline makes it an imperative that we establish a relationship with a wireless carrier to protect our landlines. I don't know if the major cable operators are negotiating with wireless carriers now, but if they're not, they should.”

SPRINT CABLE DEALS

While Sprint has only announced one contract with a small cable provider for wireless service, it is making inroads into the industry with wireline deals.

DECEMBER 2003 — Time Warner Cable signs deal with Sprint for VoIP services in 17 markets and long-distance transport nationwide

MARCH — Sunflower Broadband signs distribution agreement with Sprint to bundle Sprint PCS service with cable and broadband

AUGUST — USA Companies contracts with Sprint for full VoIP services portfolio

AUGUST — Mediacom signs VoIP deal with Sprint for the provisioning, switching and termination of VoIP traffic.

Source: Sprint