Sprint Nextel Corp. took a significant step in fulfilling chief executive Gary Forsee’s plans to expand the carrier’s reach into other media distribution channels, and at the same time may have altered the balance of the wireless industry.
Following months of speculation, Sprint Nextel said it reached agreements with four cable companies to provide wireless services using Sprint Nextel’s nationwide wireless network. Comcast Corp., Time Warner Cable, Cox Communications and Advance/Newhouse Communications, which serve a combined 41 million customers, will use Sprint Nextel’s network to sell bundled services. Sprint Nextel serves more than 45 million total customers on its wireless networks.
Following Sprint Corp.’s acquisition of Nextel Communications Inc. in August, CEO Forsee said the carrier planned on differentiating itself with multimedia services.
“We are not going to be considered a telecom carrier,” Forsee said. “We are going to be considered a company that knows what media services are about.”
The joint venture, which is mutually exclusive for three years and has a 20-year term, calls for a combined financial investment of $200 million split evenly between Sprint Nextel and the four cable companies. Sprint Nextel said the financial resources would be used to fund the development of converged services, for national marketing initiatives and back-office integration.
The cable companies said they plan to begin offering wireless services next year to their customers as part of a quadruple-play that combines video, wireless voice and data, high-speed Internet and cable phone service. Sprint Nextel began trialing wireless services with several cable companies in select markets earlier this year.
The wireless service will take advantage of Sprint Nextel’s recently launched CDMA2000 1x EV-DO network with the cable companies planning to develop co-branded gadgets integrating cable and wireless services in a single device. The device is expected to allow customers to seamlessly access their e-mail, home and mobile voicemail, program a Digital Video Recorder and access photo programs.
Sprint Nextel also noted the device could include Voice over Internet Protocol technology that would allow it to switch between the carrier’s wide area network and a customer’s in-home local area wireless network seamlessly. The device and services are expected to be sold through Sprint Nextel’s 1,600 retail outlets, cable retail outlets and other third-party distributors, including RadioShack Corp. locations.
The cable companies will be responsible for billing customers and for customer service in their territories, though pricing for the integrated offerings will be a joint decision between the local cable provider and Sprint Nextel. Sprint Nextel also will pay a commission to the cable companies for wireless customers signed up through the bundled offering and will receive a commission from the cable companies for cable customers signed up through Sprint Nextel locations.
Sprint Nextel noted the deal differs from its mobile virtual network operator partnerships in that the companies participating in the venture will retain full economic benefits of the acquired customers. Sprint Nextel said it will count customers added through the venture as direct customer additions instead of wholesale net additions like it does with its MVNO partnerships. The cable companies are not expected to include wireless net additions on their books.
Longer term, the companies said they plan to work together to develop next-generation services using Sprint Nextel’s substantial 2.5 GHz spectrum holdings to further integrate wireline and wireless services. Sprint Nextel is in the process or has completed several technology trials using its 2.5 GHz spectrum. Those trials include UMTS TDD, Flash-OFDM and several variations on WiMAX.
Analysts noted the deal appears to benefit all parties involved.
“For both Sprint and cable, this looks like a strategic partnership to offer a more compelling product, increase distribution and reduce churn rather than just one company providing access to the other,” noted Bear Stearns & Co. Inc. analyst Phil Cusick.
Sprint Nextel will have access to the more than 41 million cable customers that could be swayed by a bundled offering as well as providing existing Sprint Nextel customers with a bundle that could help the carrier’s retention efforts. Sprint Nextel reported 2.1 percent customer churn during the third quarter, which was substantially higher than the 1.3 percent posted by rival Verizon Wireless.
Others noted the venture allows Sprint Nextel to leverage the data content libraries of the cable partners and offer a more robust wireless experience.
“While the partnership has merit in the potential to advance the communications product of the individual operator, the real creativity of the deal can be demonstrated over time as the parties collaborate on new wireless technologies, with the cable operators acting as aggregators of content,” noted UBS Warburg in a report.
The deal also is expected to bolster the cable companies and Sprint Nextel in their battles against Verizon Communications Inc. and SBC Communications Inc., which are rolling out their own quadruple service play. Both regional Bells have begun to roll out TV services to go along with their robust wireline, wireless and digital subscriber line offerings.
The cable companies have lacked a compelling wireless component to compete against Verizon Communications’ Verizon Wireless subsidiary and SBC’s 60-percent ownership of Cingular Wireless L.L.C., while Sprint Nextel was absent strong wireline and TV elements. UBS said other cable providers could look to join the venture.
Beyond helping the companies involved in the venture, UBS also pointed out that the partnership relieves the potential threat of cable companies acquiring their own spectrum and building out competing wireless networks. A number of analysts have predicted the possibility of cable providers pooling their vast financial resources and either bidding in a spectrum auction or acquiring a wireless operator. R
