Cable-Sprint wireless effort stumbles

U.S. cable companies have never had an easy time breaking into the lucrative business of selling wireless calling. In the early 1990s, Comcast (CMCSA) and other cable partners invested in a business that would eventually become Sprint, only to pull out later in the decade when the going got tough. In 2002, Cablevision (CVC) scrapped plans to begin its own wireless network in New York.

A more recent, more ambitious effort to sell mobile-phone services to customers is showing signs of strain, leaving analysts and some company executives concerned this project, too, won't get far off the ground. A failure to make headway in wireless would leave cable companies vulnerable to gains by such telecom-service providers as AT&T (T) and Verizon Communications (VZ), which are weaving television services into a product lineup that already includes phone, Internet access, and mobile calling.

In 2005, Comcast, Time Warner Cable (TWC), Cox (COX), and Advance/Newhouse Communications banded together with Sprint Nextel (S) to bundle wireless service alongside TV, high-speed Internet access, and phone service (see BusinessWeek.com, 11/3/05, 'Sprint Nextel's Watershed Deal')

Pitfalls for Pivot

But recent signals, many from Sprint, indicate all is not well with the service, known as Pivot, leaving some questioning the telecom company's commitment to its cable partners. During an Aug. 8 earnings conference call, Sprint Chief Executive Gary Forsee conceded that it took longer than expected to get Pivot off the ground. Companies have yet to release subscriber numbers for Pivot, which in some markets has been available for about half a year. But Alan Breznick, an analyst with consultancy Heavy Reading, estimates Pivot has picked up a meager 10,000 to 20,000 customers. By contrast, Virgin Mobile USA, which, like Pivot, relies on Sprint's network, snapped up 350,000 users in its first six months. By then, Virgin's service was available nationwide; Pivot is currently sold in 20 markets.

Other Pivot pitfalls: In June, Sprint replaced longtime joint-venture president John Garcia with Keith Cowan, Sprint's president of strategic planning and corporate initiatives. Without any public announcement, Sprint abruptly withdrew from SpectrumCo, the entity that in late 2006 snapped up $2.37 billion worth of licenses to wireless airwaves. The acquisition had spurred speculation that together, Sprint and cable companies were planning their own standalone wireless network (see BusinessWeek.com, 8/10/06, 'Get Your Fix at Auction 66'). The remaining companies have 'no imminent plans' for the spectrum, says Mike Roudi, vice-president for wireless at Time Warner Cable.

Sprint executives contacted by BusinessWeek say they remain committed to Pivot, and on Aug. 16 Sprint Chief Financial Officer Paul Saleh said the company expects to see meaningful growth in the number of Pivot subscribers in the next 18 months. Indeed, one Sprint outlet in Portland, Ore., prominently features a Pivot kiosk, complete with a touch-screen display and brochures.

Moving at Varying Speeds

Still, the company is struggling with its own woes, including falling sales and subscriber losses. Rather than concentrating efforts on leading the cable industry down the wireless path, Sprint appears to be focusing on blazing its own trail into the world of WiMax, a technology that enables high-speed Internet access over large swaths of land. On Aug. 16, Sprint said that through 2010 it intends to spend as much as $5 billion on the creation of a WiMax network that by that year will generate $2 billion to $2.5 billion in annual sales.

 

'This is certainly a 180-degree change in their strategic posture [with cable],' says Mike Paxton, an analyst with consultancy In-Stat.

For their part, cable companies are moving at varying speeds to get Pivot in front of customers. 'The reality is, I don't think any one of us would say this [rollout] is going slowly,' says Roudi of Time Warner Cable, which has made Pivot available in 40% of its markets. 'This is a fairly new product, and it's new to cable guys,' he says, explaining why it's taking time to ramp up. 'It's about long-term strategy. When wireless and wireline converge"”[and when people start accessing TV channels and the Web wirelessly]"”we want to be there.' Yet Comcast, the nation's largest cable provider, offers Pivot only in New England and in the Portland (Ore.) area. Advance/Newhouse is still further behind.

This is no time for cable providers to tap the brakes on wireless plans. Across the country, more consumers are watching video, surfing the Web, and making calls over wireless broadband connections. Unless cable companies hustle, they risk losing business to the telecom companies aggressively marching on cable turf.

Verizon and AT&T already offer TV in many markets. On Aug. 16, telco Embarq (EQ) announced it will test its own TV service. Meantime, a host of new wireless high-speed Internet service providers are hoping to eat into cable's Web-access business. Clearwire (CLWR), which sells wireless Web access and phone services, could soon go nationwide. Globally, nearly one in three mobile subscribers will use a mobile broadband connection by 2012, according to consultancy JupiterResearch.

Then there's the phalanx of mobile-TV companies taking aim at cable's TV business. Qualcomm's (QCOM) MediaFlo mobile-TV network is capable of eventually serving video wirelessly onto all sorts of consumer-electronics devices, including set-top boxes and TV sets. And mobile-TV usage is rising fast: Consultancy Telephia estimates that mobile-TV revenues totaled $146 million in the first quarter, approaching the $168 million generated by mobile video games. Cable companies have to be in all these businesses to thrive.

But without full support from Sprint, that task becomes all the more difficult.

Kharif is a writer for BusinessWeek.com in Portland, Ore.

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