Pivot's Demise Leaves Quad-Play Opportunity to Telcos

Just as Comcast and Cox Communications announce that they are abandoning their Pivot wireless phone partnership with Sprint, Compete today released survey findings indicating that most consumers would be interested in buying their wireless service from their existing cable or telco provider. This interest in bundles has increased 55% from July of 2007 to last month, creating a market opportunity for telecom service providers to ramp up their presence in a sector cable competitors appear to be rethinking.

The survey of 2,500 US-based online respondents found that while only 19% of bundle purchases include cell phone service today, 43% of respondents would be either likely or very likely to consider purchasing cell phone service from their telecom provider. Quad-play bundles from AT&T and Qwest Communications generated just under 60% awareness, while consumer awareness around wireline services like the Pivot venture remains low.

Spokespeople for Comcast and Cox told Reuters that after two and a half years of participating in Pivot with Sprint, the $200 million venture offering a single integrated service combing cable TV, Internet access, fixed-line phone and wireless on one bill, was simply not attracting customer interest. Blaming operational complexities, the cablecos said they would switch their wireless customers to similar Sprint plans. Shane Dark, director of telecom and media at Compete, said the plan’s abandonment can mean one of two things: the cable companies plan to go it alone or they are ditching the quad play entirely, focusing instead on their triple-play bundles.

“I think the cable providers did not embrace the opportuntiy to partner with Sprint to provide a wireless solution,” Dark said. “Any type of partnership like that can be difficult if both parties are not vested in trying to make it work and succeed. We are seeing that consumers are interested in a quad play in terms of having all avenues of communication under one umbrella. It is really just going to be a question of who can provide the best seamless experience like that.”

While Comcast and Cox were betting on a strategic alliance with Sprint to provide their wireless offerings, Dark can envision a merger in the future. He said if the cable providers found that the integration and coordination of a strategic partnership were too cumbersome behind the scenes, then the question becomes, “Are the cable providers going to say it’s too costly to do it, or think about plan B, bringing Sprint, a wireless company, in house?”

With Cox and Comcast leaving Pivot, the answer to the question of operational complexity would appear to be yes, it was too difficult. Now the cablecos are likely evaluating whether plan B makes the most sense or if they can sustain their markets with just a triple play, Dark said. Either way, the door is wide open for the telcos to make their move.

“With the cable providers suggesting they wont pursue it, I don’t think it would mean that the wireline providers will stop as well,” Dark said. “They still might move forward with those opportunities; I don’t see why they wouldn’t. That is where they are trying to build out and they’ll have a set of a good four products going forward.”

Out of the survey’s respondents, 56% currently purchase telco services from multiple providers, most likely due to limited bundle options, being locked into current rates and contracts or not having certain services available to their geographic area. Cost savings, whether from a bundle or not, still trumped all other features. Out of the bundle elements, 97% of consumers were most interested in the broadband Internet service component. Interest in bundling the cell phone – often thought as disparate from the home network – lagged across both telcos and cablecos studied.

“On the cable side, the wireless is where they are lacking,” Dark said. “They are continuing to promote and build their digital phone subscriber base over time. You hear more and more about companies like AT&T losing access lines because they are switching over to digital phone. That is where cable providers are winning. For them to create the quad play, they’ve got to bring in a wireless solution and integrate it.”

Having unlimited calls between home and wireless phones was the biggest influence on 62% of respondents’ purchase decisions, whereas TV and DVR features were the least likely to impact consumer decisions. This could change as customers become more familiar with advanced features and as more start adopting the unlimited pricing plans, making free calls between phones less important, Dark said. Carriers like AT&T and Verizon have an opportunity to create calling plans that leverage the wireline to wireless relationship that cable companies do not have.

“I tend to think the wireline telcos, AT&T and Verizon, are further along and in a better position to offer the quad play than the cable providers,” Dark said. “The cable providers are in a need of a wireless provider – someone like Sprint who doesn’t have a vested interest in its competitors like Verizon and AT&T. Trying to integrate a different company into a cable companies portfolio is difficult. The opportunity that Verizon and AT&T have by having the solutions under one umbrella will help them coordinate that to offer it. The question now is, will enough people embrace their fourth area, which is TV? That is where they are spending their money.”

The study concluded that the quad-play winners would be the wireline telcos with preexisting carrier relationships. Yet, considering that high-speed Internet is currently the driving force for bundle interest, cablecos do have the edge if they can offer a differentiated wireless service and beat wireline telcos’ fiber strategies to market. As Sprint’s Pivot illustrates, however, the path won’t be as easy for them. Dark said that the telcos looking to compete in quadplay are wise to continue investing in their TV offerings and, going forward, focus on integrating the experience across all four-bundle components.