Mobile

Cable girds for wireless fight

As Bells scramble to build TV services into the ultimate telecom bundle, cable rivals face an equally daunting task.

SAN FRANCISCO--For the first time in years, cable operators are playing catch-up to phone company rivals in the all-important battle of the bundle.

The Bells--SBC Communications, BellSouth, Qwest Communications International and Verizon Communications--are fighting cable for dominance in broadband and fending off new Internet phone services. They're risking billions of dollars on massive network upgrades to provide TV services and challenge cable providers on their home turf.

But in one regard they are unmatched: Cable providers can't yet easily offer mobile services. By contrast, all of the Bells but Qwest are big investors in national cell phone networks. As a result, cable is now girding for a fight over wireless services that it's ill-prepared to fight.

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What's new:
As Bells scramble to build TV services into the ultimate telecom bundle, cable rivals face the equally daunting task of trying to jump into wireless.

Bottom line:
The eagerness of cable companies to embrace the unfamiliar world of cell phone services highlights the growing importance telecom executives attach to bundled services.

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"Wireless is a logical extension of our bundle and has become an emerging competitive threat from the Bells," said Cox Vice President Greg Bicket. "The addition of mobility is a value add--we get it. We're all looking at relationships to include wireless into our bundle; just how we do it is the question now."

Having laid the groundwork for "triple play" bundles of video, data and voice services, cable operators are finally confronting the wireless void. Executives from Cox, Comcast and Cablevision attending a major cable show here say the operators are in various stages of selling cell phone services. Just last week, Time Warner Cable began testing cell phone services in partnership with Sprint.

The eagerness of cable companies to embrace the unfamiliar world of cell phone services highlights the growing importance telecom executives attach to bundled services, given their power to shape consumer spending habits. Bundled services offer the convenience of one-stop shopping and simplicity in billing. Companies can lure new customers with tantalizing, if sometimes temporary, discounts and teaser rates. Bundles also can make it more difficult for consumers to switch services. For example, because few people want to change phone numbers frequently, bundling phone services with video and data can help keep customers locked in to all three.

While bundling is an attractive business model for cable operators and the Bells, its power has made it a target of consumer advocacy groups. In one high-profile bundling dispute that's still unfolding, consumer groups are pressuring Congress to force cable operators to offer a la carte pricing for individual cable programs, rather than plans that require viewers to pay for multiple channels they may not want.

The Bells also face a bundling controversy over a typical industry practice: forcing broadband subscribers to pay for local phone service. Efforts to break apart the broadband phone bundles were set back last week, when the Federal Communications Commission overturned local rules that required BellSouth to provide DSL (Digital Subscriber Line) service independent of local phone service, an offering known in the industry as "naked DSL."

Cable operators were the first to bundle services as a way to keep customers from fleeing to rivals, and the strategy worked. At Cox, for instance, customers who have all three services are apt to change providers half as often as those who subscribe to just one.

"Telephony is a way to protect our high-speed Internet and cable TV franchises," Brian Roberts, president of cable operator Comcast, said this week during a speech at the National Cable and Telecommunications Association's annual meeting here.

But the Bells have an edge of their own in cell phone services. Three of the four Bells own portions of major U.S. cell phone operators, making it easy for them to introduce a wireless element to the bundle. Verizon Communications is part owner of Verizon Wireless, and BellSouth and SBC both own pieces of No. 1 cellular provider Cingular Wireless.

Qwest, the smallest Bell operator, isn't affiliated with any cell phone companies. It has chosen to resell Sprint cell phone service under its own brand to keep pace.

Now the cable operators that must adapt--a move that promises to inject even more rivalry into a fiercely competitive industry. Mobile network operators have been hit by a spasm of consolidation in the last year that's reduced from six to four the number of nationwide cell phone carriers.

Time Warner Cable plans to resell cell phone operator Sprint's service first on a trial basis, then on a regional or national scale. While it will gain entrance to the market quickly, the so-called mobile virtual network operator, or MVNO, approach isn't the best route for cable operators, because they don't have the absolute control over subscribers that they're used to.

Also, because Cingular and Verizon Wireless are owned and operated by three of the four Bells, they're unlikely to cooperate with cable operators. That leaves T-Mobile USA, whose coverage is the sparsest of the top providers, and Sprint, which by default has been backing most of the MVNOs. Just this week, Sprint signed deals with four regional cable companies: Massillon Cable TV of Ohio; Wave Broadband, serving parts of California and Washington; Blue Ridge Communications in Pennsylvania; and Sunflower Cable of Lawrence, Kan.

"Our progress--surpassing 250,000 customers--clearly illustrates the appetite in the market for these services and the unique position Sprint has established," said Sprint Vice President Jim Patterson.

Cable operators' other wireless options are much more expensive. They could spend tens of billions of dollars building out their own nationwide cell phone networks, including costly spectrum leases. That's unlikely, unless cable operators band together to build a cell phone network, said William Markey, president and general partner of consultancy firm RelevantC.

Operators could also wait for new wireless technologies to mature, allowing them to build a cell phone infrastructure on the cheap. For example, in a few years it might be feasible to string together networks of relatively inexpensive Wi-Fi radios, a short-range wireless radio commonly used to dispense broadband in homes, businesses, public areas and retail outlets.

But U.S. penetration of Wi-Fi hot spots, while in the tens of thousands, is still too meager. Cable operators may want to consider using WiMax, an even more powerful wireless cousin of Wi-Fi, but it would mean a massive investment. "I'm not sure the institutional investors will be up for it," Markey said.