Sprint Spectrum L.P. denies any discord among its member companies, despite revisions to the venture’s original plans to launch cable telephony with its wireless service. But telecommunications analysts are split on what the modification means.
It shouldn’t be surprising that the companies are repositioning 16 months after making their massive alliance as some of the obscure variables become clear, said David Abraham, telecommunications financial adviser of David Abraham & Co. in Westport, Conn. “When they entered this, there were so many unknowns,” Abraham commented, “They didn’t know what licenses they’d win, or how much it would cost or even which technology they would use.”
Sprint Spectrum said its business plan remains the same: to build a nationwide wireless network using personal communications services licenses and to offer local telephone service through cable TV lines. A recent agreement change gives the cable companies more flexibility in upgrading their coaxial, non-telephone systems.
The company announced Friday it changed its name from Sprint Telecommunications Venture to Sprint Spectrum L.P., the brand name used by the successful Washington, D.C., PCS operation, of which Sprint Spectrum owns 49 percent.
Sixty percent of Sprint Spectrum is held collectively by three cable TV companies-30 percent by Tele-Communications Inc., and 15 percent each by Comcast Corp. and Cox Communications Inc. Long-distance telephone giant Sprint Corp. holds 40 percent of the venture.
TCI spokeswoman LaRae Marsik said rumors that changes in the agreement spell discord were untrue. “Our intent and strategy to aggressively be in the local phone business has not changed. There were just changes to the legal structure of the agreement, and it shows the flexibility of the venture to change with the times and market, to be efficient,” Marsik said.
The alliance’s original 1994 agreement required all cable upgrades to be completed by the end of 1997 through a fixed compensation formula between the venture and the cable companies. The new agreement allows each cable company to negotiate upgrades separately with Sprint Corp., on a market-by-market basis. Negotiation matters include payment-per-household passed, time frames and percentage of wireline revenue. Sprint said negotiations are underway now with each cable partner.
That means some markets will be upgraded more quickly, others more slowly, said Sprint Spectrum spokesman Mark Bonavia. Since the new telecommunications law has opened local phone service, Sprint Spectrum said the venture could resell local phone service in some markets until cable upgrades are completed.
Sprint Spectrum expects to roll out its PCS telephony by Christmas-with or without bundled local phone service-in 20 to 25 major metropolitan areas, with the remainder of its system slated for launch in December 1998.
However, recent Sprint Spectrum changes raise questions about the viability of the partnership, said John Ledahl, director of the wireless program at DataQuest Inc. of San Jose, Calif. Ledahl said he was doubtful when the partnership formed whether the cultures of entertainment cable and telephone interexchange could mesh.
“In some markets, the business case may not be there for the cable operators to upgrade. With the telecom act, local competition will be stronger than they anticipated and they may need more time to investigate the value of going into the local loop,” Ledahl said.
While the cable companies need a telephone brand name to launch service, they are equally in need of a switching fabric, something the cable operators were “late to the game” in acquiring, Ledahl said.
“MCI [Communications Corp.] has the marketing wherewithal and brand name they need, and I could see cable players lining up with MCI. If the cable guys don’t get the Sprint name, they can go elsewhere,” Ledahl said.
If that happens, it will probably be in the next 60 to 90 days, said Michael Elling, senior telecom analyst with Prudential Securities Inc.
“But the Sprint venture is worth $6 billion to $8 billion now. They’d [cable companies] be foolish to pass up that opportunity and there will be penalities to pay if they back out. The group is very much tied together now through wireless,” Elling said.
Sprint Spectrum partners paid the U.S. government $2.1 billion in March 1995 for licenses to offer PCS in 29 major trading areas throughout the nation, covering a total of 144 million pops. Total equity contribution for the venture is $4.2 billion by the end of 1997.
A critical part of Sprint-cable negotiations evolve around the revenue stream from future data applications, Elling said. Cable operators reportedly seek the lion’s share of that pie.
Concerning the venture’s cable agreements, the cable companies have always known upgrading cable was going to be expensive, TCI’s Marsik said. “It will cost billions and our cost estimates haven’t changed. But we’ve also seen the value of the (PCS) licenses triple since they were purchased, judging from continuing activity in that area,” Marsik said.
Sprint Spectrum said contracts recently signed with equipment vendors Lucent Technologies Inc. and Northern Telecom Inc. were definitive, although discussions on vendor financing continue.
In other news, Ronald LeMay was appointed to president and chief operating officer of Sprint Corp. Previously, he was chief executive of Sprint Spectrum.
