US cable groups still wondering about wireless

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Comcast and Time Warner, the big US cable operators, have got into the habit at quarterly results presentations of telling investors about the importance of offering their video, internet and phone customers a fourth service – wireless access.

Indeed, discussions between the cable companies and wireless operators about some kind of a partnership have been going on for more than a year.

As the cable giants prepare for another round of results, starting with Comcast on Thursday and followed by Time Warner next week, the wireless question is likely to be raised again.

But although talks continue between a consortium formed by Comcast, Time Warner and Cox Communications – a privately held cable group – and Sprint Nextel, the third-largest US wireless carrier, continue, it is still unclear whether a deal is imminent.

“There has been ongoing speculation regarding the outcome of the pursuit of a wireless strategy by the cable consortium,” says Aryeh Bourkoff, analyst at UBS.

On Monday, Multichannel News, a specialist cable industry publication, said a deal was imminent between the cable groups and Sprint, in which Sprint wireless services would be resold by the cable groups.

People familiar with the discussions say that, although talks are ongoing, a deal may not be announced any time soon. Indeed, the cable groups continue to talk to Sprint on an individual basis too.

One of the issues is that it is not clear what the economic advantages would be of a deal in which the cable groups effectively lease space from Sprint and rebrand it as a Comcast or a Time Warner phone.

“Bundles of communications services typically require a discount in order to appeal to consumers,” says Craig Moffett, analyst at Sanford Bernstein.

“Since there are few, if any, opportunities for cost savings associated with the joint provision of cable and wireless services, the economic basis for a discounted offer is tenuous at best.”

While Comcast, Time Warner and Sprint declined to comment on the discussions, Sprint has the network capacity and motivation to provide wholesale or ‘own label’ services to the cable companies, either individually or as a consortium.

Sprint already has partnerships with a number of mobile virtual network operators including Virgin Mobile USA, which has built a highly successful business targeting the youth market in the US using Sprint’s network.

The offering of bundled services is, however, also about retaining customers.

Technological advances are making it easier for companies to offer a range of communications services. The biggest source of profits and growth for cable companies in recent years has been the provision of high-speed internet access, and they are hoping the provision of digital phone access will prove similarly profitable.

At the same time, telecommunications companies such as Verizon and SBC Communications are heavily discounting their prices for internet access and are moving ahead with video services. These companies already have wireless affiliates, giving them a potential advantage once their video offerings are up and running.

In addition, satellite tv providers such as DirecTV are looking at ways to offer internet and telephony services to their customers through wireless technologies.

Mr Moffett says a reselling deal between Comcast, Time Warner and Cox and Sprint, which has already been running trials with Time Warner, would allow the companies to offer wireless services to those customers that wanted it.

“It would give a wireless option at low incremental investment,” he says, adding that material benefits to the cable operators and Sprint will hinge on how distribution is approached.

Investors are hoping that cable company executives will be giving more away when asked about wireless strategies in the coming days.

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