Cable Companies, Sprint Join Forces

TV, telephone services are ready for strategic fight to sign customers By JOHN C. ROPER Copyright 2005 Houston Chronicle

The nation's leading cable TV companies have banded with Sprint-Nextel to offer cell phone service and in doing so upped the ante in their heated competition with the traditional phone companies.

The cable companies -- Time Warner Cable, which serves the Houston area, Comcast, Cox Communications and Advance/Newhouse Communications -- say the deal will allow them to package television, Internet and wireless services to consumers by early 2006.

Doing so will allow them to keep pace with telephone companies like SBC and Verizon, which have Internet, telephone and cellular offerings and plan to sell advanced television services in the near future. SBC, along with BellSouth, owns Cingular Wireless.

"Both the telephone companies and the cable industry are gearing up to go to battle with each other," said Jeff Kagan, an independent telecom analyst based in Atlanta.

Kagan said the move signals the beginning of a major transformation of the industry where the phone and cable companies will be truly competitive in selling multiple services packaged together at discount prices.

The cable companies are already well entrenched into a technology that provides telephone service through the Internet called Voice over Internet Protocol, or VoIP.

The long-expected deal requires the cable companies to invest a combined $100 million in the joint venture, with Sprint pitching in $100 million as well. The investments will be used to converge telecommunications services.

The companies say they will be able to reach 75 million homes.

"Cable is fundamentally a local business and our competitors are much larger in geographic scope," said Glenn Britt, chairman and CEO of Time Warner Cable. "Many of them are national, and our ability to work together with Sprint is really important to enable us to compete."

Services converge

The move goes well beyond simply tying traditional cell phone service to the other offerings of the cable companies.

The plan is to converge the cell phone with the services offered by the cable companies. For example, consumers could use a cell phone to easily program digital video recorders while away from home or even use it to watch television programing.

Gary Forsee, president and CEO of Sprint-Nextel, said doing so will make its cell phones "an indispensable third screen in customer's lives."

Market still a question

Analysts said it was unclear whether most consumers would be ready or even interested in using their cell phones for things other than carrying on conversations.

"At the end of the day, most people still just want to talk on their cell phone," said Julie Ask, who follows the wireless industry for Jupiter Research. "There are very few people who want to download music or do these types of broadband-type activities." Ask said consumers choose their cell phone provider in standard ways.

"The way people make decisions about cell phones is still about cheap minutes, good coverage at home and a free handset," Ask said.

Still, the partnership gives Sprint-Nextel more opportunities to sell its services.

Starting early next year, consumers will be able to go to Sprint retail stores, RadioShack and to outlets operated by the cable companies to sign up for any of the services.

The cable companies, including Time Warner, plan to have all of the services on a single bill if they are purchased along with some of their own services. Bills would remain the same for customers who only subscribe to Sprint-Nextel services.

Too early to talk prices

The companies said it was too early to discuss pricing, other than to say discounts would be offered for bundling services.

Both the phone and cable companies believe consumers will be reluctant to switch companies -- called "churn" -- if they are tied down to multiple services.

"The more products and services you add to the bundle, the lower the churn rate is," said Jim Robbins, president and CEO of Cox Communications, adding that the Sprint-Nextel deal will mean that "more of them are going to stay with us."

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