Newly allied with Sprint Nextel, four cable operators add wireless to their Internet, video and VoIP services.
On Wednesday, Comcast, Time Warner, Cox Communications and Advance/Newhouse Communications announced that they are forming a joint venture with Sprint Nextel to offer customers wireless telephone service.
Initially, the $200 million joint venture will operate like any other reseller arrangement. The cable providers will resell a co-branded Sprint Nextel wireless service to their customers, which could open new opportunities to market to customers they haven't previously reached. The cable companies will get access to Sprint Nextel's 46 million wireless subscribers, and Sprint Nextel will get access to the 75 million homes that the four cable companies have already passed.
Cable companies also believe that packaging wireless service with existing services such as high-speed Internet access, voice over Internet Protocol (VoIP) and television will make them more attractive to consumers compared to their telephone competitors. Many cable companies, like Time Warner Cable and Cablevision, have done well in their push to sell customers a package of services. In the last year, Time Warner has seen an especially huge increase in the number of VoIP customers it serves.
But experts say the really exciting part of the deal is what is expected to happen down the road, when the cable companies and Sprint integrate their services in ways in which wireline and wireless phone companies have not yet done.
"The problem with bundles is that you have to pay customers to take them by giving them a discount," said Craig Moffett, an equities analyst at Sanford C. Bernstein. "But if there is an opportunity to create unique products that aren't available on their own, there is potential for something interesting."
Some of the new product ideas that Sprint Nextel and the cable companies have talked about include a converged wireline-wireless voice mailbox, access to unique video content and the ability to remotely control digital video recorders, or DVRs. The details of these services haven't yet been worked out. But with services like mobile video, it's easy to see how cable companies such as Time Warner Cable and Comcast, which own some of their own content, could use Sprint Nextel's wireless network as a new sales channel.
At least one analyst wonders if the partnership between the cable companies and Sprint Nextel could actually help accelerate the nascent mobile TV market. In September, only 2.14 million people watched video on their phones, compared to 15.6 million people who downloaded ring tones, according to M:Metrics, a research firm that measures the mobile market. With 181 million wireless subscribers in the United States, mobile TV still has a lot of room for growth.
"It will be very interesting to see if a deal like this will be able to push usage and demand for video services on the phone," said Jim Penhune, an analyst at Strategy Analytics. "If you can get mobile into the bundle, maybe the cell phone will really become the third screen."
Cingular Wireless, which is owned by BellSouth Communications and SBC Communications, has dabbled in bundling services from its two parent companies. It has also tried integrating products from its parents with its own wireless service.
A few years ago, it introduced a cradle for Cingular cell phones that enabled customers who placed their cell phone in the cradle at home to accept cell calls on their landline phone. The idea was that people could reduce the number of cell minutes they used at home by having their cell phones ring on their wireline phones. The product never got much traction in the market. But a Cingular spokesman said the company hasn't given upon working with its parent company to develop integrated products. In fact, it is currently testing a dual-mode cellular-to-Wi-Fi service that is designed for business customers.
"We are looking at a number of ways in which we can work with our parent companies," said Clay Owen, a spokesman for Cingular. "We already do some marketing and distribution with them, which has been a big benefit to us. We think that the latest announcement from Sprint Nextel and the cable companies is an attempt by our competitors to catch up to where we are already headed."
By contrast, Verizon Wireless, co-owned by Verizon Communications and European wireless carrier Vodafone, has been reluctant to bundle or jointly develop services that span the wireline and wireless businesses.
"We do some bundling with other Verizon services," said Jeffrey Nelson, a spokesman for Verizon Wireless. "But it's not core to our business. We do it where make sense, and it's not heavily promoted. There are some benefits to bundling, but it's not something we are focused on right now."
As for the new integrated services that the cable companies and Sprint Nextel promise, Nelson said he isn't convinced that there is a market for them.
"It's an interesting idea," he said. "But there's no evidence that there is strong demand for those kinds of services. Given the minimal investment that they put into the relationship, it doesn't seem like any kind of serious offer will be ready any time soon."
The cable companies' entrance into the wireless market is another sign that the battle to win consumers' dollars on communications services and entertainment is heating up. For the past couple years, cable operators and telephone companies have collided more and more as they have encroached on each other's businesses.
First, the phone companies got more aggressive in rolling out their broadband DSL service to combat the cable companies' cable modem service, and they have gained market share mainly by competing on price. Then the cable companies fought back by introducing VoIP, whose Internet-based calling system competes directly with the phone companies' traditional telephony business. The cable companies, too, have seen success in winning new voice customers.
The phone companies, namely Verizon and SBC, have answered this challenge by spending billions of dollars to build new networks that will support television service, cable's traditional market. Now cable and telephone companies will go head-to-head in wireless, which, until now, has been dominated by the traditional telephone companies.
As the battle has intensified, so has the emphasis on the service bundle. The hope is that if customers buy more than one service, they will be less likely to cancel any one service in that bundle. The benefit for customers is simplified billing, an overall discount or better value on the total package of services they are buying. And in the future, the bundle will likely mean more integrated services.
Ultimately, cable operators and phone companies will likely offer very similar service packages.
"Each set of companies is going into the other's market," Penhune said. "The question is, who can get there faster? When you get down to it, it's a lot easier to launch a VoIP service to compete against the phone companies than to build a new network to compete against the cable companies on video."