Who Needs a Network?

Underneath the debate over who owns the customer lies another question: Who owns the network? More importantly, does it even matter?

Judging by Sprint PCS' April sale of part of its New England network to an affiliate, building a brand and building a network aren't necessarily adjuncts. Under the deal, Independent Wireless One (IWO) gets Sprint PCS' sites, switches and other infrastructure serving 1.7 million POPs in seven Northeast markets, including Manchester, NH, western Massachusetts and IWO's home, Albany, NY. IWO now can help expand Sprint PCS' coverage and brand into rural areas, and the Sprint PCS brand and infrastructure give IWO added clout with investors.

"It was clear that in order to expand the coverage to destination locations and smaller population centers, we needed to provide a base of operations," said Tom Mateer, Sprint PCS vice president, affiliations. "Albany-Schenectady-Syracuse (was) an up and running market. It made sense to package that as a deal so that they bought the market from us at a fair price. Then they could raise additional financing (to) build out the entire market."

Northern New England lacks large cities, where service traditionally is launched before extending into less populated areas. But for PCS providers with nationwide hopes, more coverage, particularly in rural areas, helps them compete with cellular providers.

Vendors also are seeding the market to speed build-outs. Nortel Networks will spend $224 million to build and operate a network for Star One for one year before transferring operations to the German provider. The partnership lets Star One offer service quickly and establish itself as a player.

Although Sprint PCS is finalizing two more infrastructure sales, Mateer said the IWO deal isn't a sign of the times. Nevertheless, expect providers and even vendors to sell off more infrastructure, including network-operations centers (NOCs), to focus on core competencies. In March, for example, Wireless Facilities (WFI) bought Ericsson's Dallas NOC and took over providing service to the wireless, wireline and Internet providers using it.

"What we've seen over the years is that high-quality networks are a given anymore," said Scott Fox, WFI president, network-management group, and former BellSouth Cellular CTO. "Even incumbents are beginning to question where their core competencies are and where their focus needs to be."

One example is the trend toward selling towers.

"The towers were seen by incumbents as a barrier to entry," Fox said. "Then they realized: 'We can generate revenue by this asset. We're not going to keep the competitors from getting into our market. Moving them off of our books removes the depreciation, frees up capital and allows us to focus on differentiating our services in the eyes of the customer.' The same applies as you move further into the network."

One driver is 3G. The U.K's UMTS auctions suggest that licenses will be expensive, so reselling could be common as winning bidders look for added sources of revenue and users. Depending on the arrangement, a company could build its brand while spending little on infrastructure. U.K. consumers already perceive Virgin Mobile as a provider even though it doesn't own a network and simply resells.

"Sprint Long Distance has had resellers since its inception," Mateer said. "In most businesses, to the extent that you have excess capacity or you have a focus on your business that doesn't allow you to get specific market segments, the resale business does a great job of supplementing the core efforts."