The “quadruple-play” advantage the Regional Bell Operating Companies thought they had on their cable competitors appeared to evaporate last week with the announcement of an alliance between cellphone company Sprint Nextel and four cable companies.
The addition of Sprint’s wireless services to the video, voice and data products from Comcast, Time Warner Cable, Cox Communications and Advance/Newhouse Communications (which manages Bright House Networks) means that the offerings from cable and the RBOCs will match up head-to-head, leaving the Bells with little, if any, competitive edge over their multiple system operator rivals, analysts said.
The move by the four MSOs could actually tilt the advantage in favor of cable, according to some Wall Street analysts. That’s because all three major RBOCs-Verizon Communications, SBC Communications and BellSouth-are still several months away from being able to offer the so-called quadruple play on a widespread basis.
“This highly anticipated announcement should help to further extend cable’s time-to-market advantage versus the Bells,” said UBS Securities analyst Aryeh Bourkoff. What’s more, he said, “It mitigates the ability of Verizon, SBC and BellSouth, which offer their own wireless services, to use wireless as a differentiator.”
And it does so even before the RBOCs are ready for prime time. Though Verizon has a trial of its new video service taking place in Keller, Texas, the company is still months away from officially rolling out the service. SBC has said it doesn’t plan to begin pushing its video service in earnest until sometime next year. BellSouth is moving even more slowly, keeping quiet its specific plans to offer a video service over fiber-based telephone lines.
“The quadruple-play offering by cable may initially have more features and functionality than current market expectations, until Verizon and SBC broadly market their FiOS and LightSpeed initiatives, respectively,” Merrill Lynch analyst Jessica Reif Cohen said in a research note.
For their part, officials of SBC and Verizon downplayed the significance of the Sprint deal.
An SBC spokeswoman said her company has been bundling wireless with its existing voice and data products for three years, which gives SBC “a distinct advantage” over cable competitors.
A Verizon spokesman said it is unclear just what impact the alliance will have on that company’s business.
Though the Sprint deal clearly adds a fourth component to cable’s product bundle, officials for the four MSOs stress that the pact goes well beyond simply adding cellphone service to video, voice and data. They say the partnership sets the stage for Sprint and the cable operators to begin exploring ways to make cable content portable.
“This is not just a wholesale-reseller arrangement,” said Comcast Chairman Brian Roberts. “In my opinion, the power of this news is the coming together of many U.S. cable companies and making a national platform to drive innovation.”
The pact comes less than a month after The Walt Disney Co. announced that it was making available a number of popular television series-including ABC’s “Desperate Housewives” and “Lost”-available for download on Apple Computer’s iTunes Music Store a day after an episode airs on the network. Apple reported Oct. 31 that it had sold 1 million downloads since the video became available Oct. 12.
Mr. Roberts said in an interview that following the Disney-Apple deal, “The dam is broken” for all kinds of deals that enable video content to be played on portable devices.
“In the last few weeks there have been some landmark announcements in this space,” said Daniel Tibbets, a partner at dMdPartners, which works with media and production companies to develop content for cellphones. “Next was Apple announcing 1 million downloads in 19 days. This [the Sprint deal] is the third and absolutely the final big announcement that this is real.”
The specifics of the Sprint-cable deal involve Sprint contributing $100 million and the four cable operators kicking in another $100 million combined to form a joint venture that will develop technology. The alliance will last 20 years, with Sprint holding the exclusive cellular rights to the service for the first three years.
What the New Service Will Offer Consumers
What forms of video will be available through the new service from Sprint, Comcast, Time Warner Cable, Cox Communications and Advance/Newhouse Communications remains unclear.
“This space has become very exciting, so more marketing muscle behind it is great,” one cable network executive said. “There are rights issues to work out, we need to have the ability to measure audience and sell advertising, and the jury is still out as to what demo will want this. But we are beginning to figure out what people want.”
Cable executives acknowledge they have yet to negotiate deals with content owners that would allow content to be aired over cellphones. However, Time Warner Cable CEO Glenn Britt said in an interview that he is confident the multiple system operators and programmers will reach an agreement to bring content to cellphones.
For their part, content owners are already embracing ways to deliver content to cellphones.
NBC, for example, announced a deal with Sprint last week in which it is offering video clips of “The Tonight Show With Jay Leno” to the cellular provider’s customers. NBC also offers news clips to cellphone users. Court TV is likewise offering video clips for viewing over cellphones, as are ESPN and The Weather Channel.
The services Sprint and the four MSOs envision providing per the deal unveiled last week will give users the ability to:
The companies said the first set of services should be available sometime in the first half of 2006. Pricing for the services hasn’t yet been set, though most of it will be up to the various MSOs to decide.