Sprint Nextel and its well-known cable partners may have taken a significant step forward in marrying wireless and in-home communications with their new joint venture, but experts say that much uncertainty remains when it comes to realizing the companies latest vision for the digital future.
On Wednesday, Sprint announced a deal with Comcast Corp., Time Warner Cable, Cox Communications Inc. and Advance/Newhouse Communications Inc. through which the firms established a new effort to integrate the wireless carriers services with the cable players capabilities.
The as-of-yet-unnamed effort includes a $100 million contribution for research and development from Sprint and an additional $100 million in seed funding from the four cable operators.
The companies also said they may open the effort up to additional cable providers.
Through the venture, the partners maintain they will soon be able to begin offering a so-called “quadruple play” bundle of consumer services in the United States that includes wireless calling, land-line phone service, high-speed Internet access and cable television.
But beyond the existing cross-marketing opportunities, the firms are betting on their shared ability to launch a new generation of emerging services, including delivery of video content to mobile devices and unified messaging capabilities, to create new revenue streams down the road.
“We believe that the joint venture were creating will unlock the full potential of wireless and cable by providing new and innovative services that can combine the best of our companies capabilities. Its what customers expect and have been demanding,” Gary Forsee, chief executive of Sprint, said on a conference call.
“We will work together to explore how next-generation technologies can be used to create new services.”
The companies said that some time in 2006 they will begin offering the quadruple play, as well as new wireless entertainment and messaging tools, and co-branded devices that integrate cable and wireless services.
However, executives said the real value of the arrangement will arrive in the future with newly developed consumer services that tap into their respective networks.
Those services could allow people to program their home entertainment systems from their mobile phones, create a single mailbox for all of their voice and e-mail accounts, or move seamlessly between different calling platforms such as wireless and VOIP (voice over IP).
The aggressive move by Sprint to partner with the cable industry comes as both camps face the threat of increased competition from companies such as SBC Communications Inc. and Verizon Communications Inc. that have access to many of the same communications and entertainment capabilities in-house, and through their respective alliances with Cingular Wireless and Verizon Wireless.
Another set of potential competitors resides in the satellite communications market.
For instance, Verizon is currently pushing to install its FiOS fiber optic network nationwide, through which it will offer broadband, TV and phone services.
While the company has yet to announce a deal to bundle those services with calling plans from Verizon Wireless, which is now owned and operated independently, many industry watchers believe that such an effort is already in the works.
Some Potential Wireless Applications
Brian Roberts, chief executive of Comcast, said the Sprint deal will help push cable operators current services into the wireless format both inside and outside of U.S. homes.
To illustrate such opportunities, the companies showed off a mobile phone application through which Sprint users will be able to watch the cable providers content on their handhelds, check voice and e-mail messages, and surf the Web.
“This venture is a strategic, creative and economic way to converge cables great products with Sprints technology,” Roberts said.
“The cable industry provides consumers with the best in-home communications experience, but we also know there will be a tremendous competitive advantage over [rivals] if we can create a way to integrate wireless and broadband products into one simple offering.”
One of the more innovative applications suggested by the new partners could be the capability for consumers to someday control an in-home device such as a DVR (digital video recorder) from a mobile phone, giving people the opportunity to record shows remotely, or even download saved programs from a cable operators set-top box onto a wireless device.
The companies said they would also work to utilize Sprints 2.5 GHz broadband radio spectrum to provide high-speed data services, including new entertainment and communications applications.
Industry watchers lauded the benefits of the new partnership, saying the deal made it possible for Sprint and the cable operators to save the billions of dollars they would have spent trying to build out their own capabilities.
Experts observed that it will likely be new applications, and not the promise of cheaper pricing via bundling of services, that will drive consumer uptake of the integrated products.
“If the partners can deliver next year as they say, it will definitely shake up the market,” said Bruce McGregor, analyst for Washington-based researchers Current Analysis Inc.
“The biggest advantage will be found in what sort of applications they can offer that overlap wireless with video and broadband connections in the home, and help further tie wireless into the digital living room.”
McGregor said consumers are increasingly looking for more convenient ways to manage all of their various communications and entertainment devices, which he said could prove fruitful ground for the new partners to investigate.
Despite his reservations over what people may be willing to pay for such new services, the analyst said the venture should give the involved companies a head start over SBC, Verizon and other companies.
What Do Consumers Want
Other market watchers said the biggest challenge for Sprint and its partners will be in figuring out just which kinds of applications it can get consumers to adopt, and pay for, first.
Charles Golvin, analyst with Forrester Research Inc. in Cambridge, Mass., said that beyond such typical hurdles as pulling together integrated billing systems and centralized customer service to support the emerging applications, the effort of creating feasible pricing models for the new products wont be an easy task.
Golvin said the partners message of joining forces to create new high-end services, versus gaining pricing leverage through increased economies of scale, is an important element of the arrangement.
“The fact that theyre not going for low cost is interesting: Thats the only message consumers hear from wireless right now, not the idea of making your communications life simpler and your entertainment life richer,” Golvin said.
“That shift points to the potential for innovation and change, but the question is demand. There is no demand today for these features, but no one marketing them yet either, so it will take time to get that all straightened out.”
Another key factor for adoption will be ease of use, the analyst said, adding that he believes that consumers will only embrace integrated wireless and digital home applications that seamlessly pull together the companies services, and not struggle with unfriendly tools just for the sake of using them.
One of the specific usability issues that experts are highlighting as potential obstacles for Sprint and its partners is the companies ability to create digital programming guides that help consumers find and access the many different types of content they could offer—from programs stored on a set-top DVR to streaming music or mobile messaging applications.
Analysts pointed out that it took years for the cable companies to create content programming guides that consumers find easy to use, and said that adding many other layers of content to the picture will require a lot of footwork by the operators.
Market watchers said that another challenge the partners will face will be in changing consumers perceptions, specifically by educating people about new services and convincing customers to buy into the bundled packages.
Joe Laszlo, analyst with New York-based Jupiter Research of Jupitermedia Corp., said only 12 percent of the U.S. broadband customers recently surveyed by his firm were interested in the proposed quad-play packages.
“The remaining outstanding question with this is how much end users want to buy wireless from cable or broadband providers, and vice versa; the evidence is still mixed if you talk about quad play,” Laszlo said.
“Theres also this idea that people will shift priorities when shopping, and start looking more at multimedia and communications applications as a differentiator. These days people look at pricing and coverage first when shopping for wireless, cable or broadband, and it will take some effort to persuade consumers that theres now so much more to the equation than they might have considered before.”
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