Cable's Wireless Foray

Whitey Bluestein is a San Francisco-based consultant (www.whiteybluestein.com) with clients in the MVNO, mobile entertainment, mobile TV, fixed-mobile convergence and CRM/loyalty sectors. Bluestein, a former MCI and Visage Mobile executive, will contribute regular commentary to Telephony in 2006. He talked to Telephony about the recent partnership between Sprint and four cable companies (Comcast, Time Warner, Cox and Advance/Newhouse) and what it means for the wireless industry.

When the Sprint/Nextel merger was announced last year, Nextel CEO Tim Donahue predicted, “The merged company will be remarkably successful attracting partners.” Most deals don't live up to the hype, but this one clearly does.

The 20-year deal between Sprint and the cable operators is the best solution for all involved. The cable companies get wireless before the regional phone companies get video. They get their “quadruple play” (video, broadband, cable-based VoIP phone service and wireless) and the accompanying benefits of bundling — lower acquisition cost and lower churn for their core services.

For the cable companies, this is better than going the mobile virtual network operator route. Clearly the cable companies possess a key element to being a successful MVNO: a large subscriber base to which they send a bill each month. But the best MVNOs are those that have developed both customer affinity and a differentiated product, targeting specific needs or areas of interest. ESPN, Virgin, Disney, Amp'd and all the ethnic-oriented MVNOs are much more about affinity, community and targeted products. That focus on a niche or affinity group is what the cable companies are lacking.

The cable companies now have a mobile platform that they can use to begin testing new wireless products so they can determine how to integrate wireless with their core offerings. Most important, they don't take on the cost and risk of entering and building a new business from the ground up, opting instead to sell Sprint's wireless voice and data services.

For its part, Sprint has really hit the distribution trifecta. It now has the top cable companies with access to 41 million homes distributing its wireless services; it just renewed its distribution partnership with RadioShack, the leading wireless retailer by far; and it has the lion's share of MVNO business, with Virgin, ESPN, Qwest, Disney and Helio, among others, currently or soon putting profitable minutes on its network. Nobody else has such an array of top-tier distribution channels.

The deal allows someone else with significant consumer marketing heft to sell its product, but has reduced the probability of the cable operators undercutting the wireless sector on price and reducing their overall profitability.

The cable operators still have a lot of work to do to get their wireless capabilities and features up and running, and they'll need to integrate billing. A lot has to be done on the back end to get to market. They are going to have to install infrastructure, but not as extensive as what an MVNO would require.

They've described some very exciting products — controlling your personal video recorder with your cell phone, for example, and videoclips and TV programs to your mobile. Watching television on a cell phone is proving to be enormously compelling for breaking news, sports, talk shows and soaps. Without these differentiated features, this is just a pure bundling play and they will have to discount the package. When customers are offered a bundle, they want to know what the benefit is to them, aside from ease-of-use. If all the cable companies can muster is the bundle, savings will have to be in the 10% to 20% range for the bundled product to reach the tipping point.

Sprint has been more open and aggressive than any other carrier in harnessing new distribution channels and partnering, but no doubt when the cable companies first came to Sprint, it presented a fundamental issue that any carrier would carefully consider, namely whether or not to enable a competitor. With this deal, Sprint turned a potential competitor into a new channel partner. Now, if the cable companies can execute, it could just fuel enough subscriber growth to help Sprint catch up with Cingular and Verizon.

The overall Sprint channel strategy — with the top cable companies, leading retailers and the largest MVNOs all harnessed for growth — is extremely smart, and will be much more profitable than going it alone or growing it organically. Tim Donahue's bold prediction last year may not have been hype at all.