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The November 7, 2005 Issue Provided by System Dynamics Inc.
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Raising the Bar: Sprint and Cable Ops Make A Big Deal

Way back in the early 2000s, every service provider was after the triple play. But Internet time moves fast, and once again the bar has been raised. After months of speculation as to what would come out of the cable companies' quest to add wireless services to their bundle, the other shoe dropped. On November 2nd, Sprint Nextel, Comcast, Time Warner Cable, Cox Communications and Advance/Newhouse Communications announced they will form a joint venture "that will accelerate the convergence of video entertainment, wireline and wireless data and communications products and services to the approximately 41 million customers currently served by four of the country's largest cable companies as well as to Sprint's nearly 46 million wireless subscribers."

This is the next salvo in the intense competition between telephone companies like Verizon and SBC and cable operators like those in this JV. With cable operators all actively offering telephone service, the race is on to see how well the telcos will deliver video services and how fast and cohesively cable operators can mesh wireless services into the fabric of their business and their offerings. The customer is the one who should benefit and who will vote with their dollars on who wins.

The venture has high aspirations. The goal is not simply to "staple wireless onto the triple play" but instead to create truly converged services. The initial $200 million funding for the JV (half from Sprint and half from the cable companies) will be used to specify next generation wireless phones, provide the integrated cable and wireless services that run on them, and the back office functions that support them.

"Customers using the converged services will be able to seamlessly interface between email, home and mobile voicemail, Digital Video Recorders (DVRs) and photo programs" letting customers do things such as remotely programming their home DVRs from their mobile phone, having a single voice mailbox for both home and away, accessing unique video content and having email on their mobiles that uses their cable high-speed Internet account.

During the media introduction and demo, Time Warner Chairman Glenn Britt pointed out that cable is fundamentally a local business. Britt expects other cable companies will likely join this cooperative venture and eventually create a national quilt that covers the US with converged services.

Sprint Comcast concept ad --> Click for larger pictureHowever, this does not mean one umbrella organization will create and price services across all the companies. The JV will create a platform and a common look and feel across the wireless components of the service, but each cable company has its own specific services, prices and relationship with Sprint (in addition to the combined relationship). "In each market, the price of the integrated offering will be agreed to by Sprint and the cable company serving that market. Each cable company will be responsible for billing customers and for customer service in its territory for the converged offering."

Given the difficult history of the cable companies in creating @Home as a centralized, separate organization that was in the center of delivering high speed cable data services, we read the statements as saying "we've learned our lessons and aren't repeating our mistakes."

What Sprint Nextel gets out of the deal is access to the extensive network of last-mile facilities. According to Sprint President and CEO, Gary Forsee, "Our cable partners will look to us for long distance and voice over IP and we will look to them first for local access services." Sprint will keep the wireless revenue while cable operators will receive the revenue from the voice, video and data services they offer to customers.

While the JV is a vote of support for Sprint's current Power Vision EV-DO platform, the announcement made clear that the five companies have agreed to work together to explore potential next generation wireless technology business plans, potentially using Sprint's 2.5 GHz spectrum. WiMAX could play a big role. Sprint is a principal member of the WiMAX Forum and is on its board. Sprint has announced various joint efforts involving WiMAX with Intel, Motorola and Samsung and has been publicly supportive of WiMAX, in statements like the following by VP Oliver Valente: "...WiMAX is complementary to Sprint’s high-speed communications portfolio, and we are looking at WiMAX solutions for a number of future applications.”

But WiMAX is hardly a slam dunk. Last year, Nextel conducted a trial with Flarion. Before the merger, it announced an upcoming trial with IPWireless and Sprint Nextel just joined the UMTS TDD Alliance which backs the IPWireless technology.

Whatever Sprint Nextel does will have a large impact on the US broadband wireless industry. Sprint undoubtedly has lots of vendors holding their breath until decisions are made as to what technology will be deployed to take advantage of their 2.5 GHZ spectrum.

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Post script: Just as we were going to press, we read a Wall Street Journal article indicating that Yahoo is planning to introduce a cellphone sold through a partnership with SBC Communications. The report indicates that the phone will take a step toward linking mobile music, photos and email with consumers' existing online accounts, address books and preferences. It will operate over the Cingular Wireless Network, which is co-owned by SBC and BellSouth.

Everyone is working to integrate services on the mobile phone: the "third screen".

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