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March 10, 2006

Wireless Telephony, Cable, and the AT&T - BellSouth Merger

One impact on the on the cable companies of the AT&T (T) - BellSouth (BLS) merger that I did mention in my previous post was wireless telephony.

As has been widely discussed, one of the driving forces behind the T-BLS merger is the consolidation of Cingular wireless with T and the rebranding of the service to AT&T. This is supposed to provide lots of cost synergies and possibly a boost to recently lagging subscriber growth at Cingular.

Right now, both the RBOCs and the cable companies have triple play bundles. However, the bundles differ. RBOCs offer wireline telephony, high speed data, and wireless telephony. Cable offers multichannel TV, high speed data, and wireline telephony via VOIP. RBOCs are headed into multichannel TV via fiber overbuilds and internet based technology but presently their TV offer is limited to joint ventures with the satellite players. Only Cablevision presently offers a wireless service via a reselling agreement with Sprint....

So while cable is missing wireless, RBOCs are missing TV. Both are deeply penetrated products with most American households receiving both services. Cable has talked for years about offering the quadruple play bundle that includes wireless. A decade ago there was an aborted deal with Sprint. For years after that cable decided it could do without wireless but that all changed in the past year culminating in a new JV with Sprint Nextel. Most of the major cable companies are either in the initial deal or have an opt-in. Each will self-brand but by entering a deal with Sprint en masse the technological challenges will be lessened as standardization can be attained from day one.

The cable JV is supposed to launch around mid-2006. However, recent press reports indicate this could slip until the 2H06. Most analysts have adopted a wait and see approach and are not assuming much, if anything, for wireless in their cable models. However, there are a couple of analysts that are quite bullish on the deal. The bullishness comes from the technology that Sprint and the cable companies claim they will deploy. Services to be offered will include control of your TV and your home network via your wireless phone and the ability for your wireless phone to function as a landline phone in and around your residence but act as a wireless phone when you are mobile. That would mean one number-one phone, something that presumably could be quite attractive to consumers.

I am not sure how the Sprint-cable JV will play out. However, as with my commentary yesterday, I see little impact in the next couple of years from the T-BLS merger on cable's business plan or operating results. In the case of wireless, RBOCs are the incumbent. Cable has the potential to gain share but it probably won’t be all that profitable unless it sucks in more high speed customers and keeps TV customers from considering RBOC alternatives – in other words churn goes down.

One thing the RBOCs won't have to fear is a heavily discounted wireless product from cable. Cable has not shown much willingness to discount any of its products so far. Unless the RBOC TV rollout proceeds much faster than I expect, I doubt wireless discounting will occur in the initial years of cable's quadruple play offering.

Posted by Steve Birenberg at March 10, 2006 11:38 AM in Comcast/Cable TV