Cable companies have emerged as key suppliers of telecommunications services to small and midsize businesses. However, one area where they have not been able to match telcos is cellular services. That may change, as Cox Communications is poised to gamble $1 billion on its ability to become a trailblazer in this market.
A long time ago in a galaxy far, far away, there were clear dividing lines among data, voice, and video communications services. With the movement of all three to IP transmission has come a blurring of those traditional demarcations, such that Verizon now views Comcast as a main competitor along with its traditional foe, AT&T.
Yet one area where the cable companies' influence has been virtually nonexistent has been cellular communications. To date, they have made just one high profile-foray into the market: In November 2005, Comcast, Cox Communications, and Time Warner Cable announced a joint venture with Sprint Nextel. The idea was that the cable companies would act as an Mobile Virtual Network Operator (MVNO) for Sprint. The cable companies would not have their own licensed wireless networks or mobile telephone infrastructure. Instead, they would simply provide new customers whose wireless services would be delivered on Sprint's network.
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This joint development project died for a variety of reasons. The MVNO option sounded good in theory at the time, but it did not work well in practice. MVNOs were often not able to offer their customers low enough rates to make their wireless services attractive. Also, Sprint encountered a number of business problems, so it became distracted and did little to promote the joint venture. In the spring of 2008, after the cable companies had put more than $100 million into the venture with few tangible benefits, they decided it was time to pull the plug.
Since then, the cable companies have remained largely on the sidelines in the cellular market. In fact, Cox's competitors have moved in a different direction. Comcast and Time Warner Cable are reselling high-speed WiMax data services provided by Clearwire. Perhaps they will eventually add voice features to those offerings.
On the other hand, Cox is concerned about the chances for long-term survival without offering a cellular option. Consequently, the company is ponying up $1 billion to get its service off the ground. The third-largest U.S. cable operator spent $550 million on wireless-spectrum licenses in Federal Communications Commission auctions and is putting the infrastructure in place to offer cellular service in more than a dozen states. Cox plans to control every aspect of the service, from billing and customer support to handsets and features.
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However, the cable company faces some challenges in building a viable business. The wireless market is now at a mature stage and growing more slowly than the U.S. broadband and video sectors. Cox may find it difficult to roll out something other than a me-too wireless offering, which won't differentiate it from the rest of the suppliers. Verizon and AT&T have their sights set on reaching the 100 million customer mark, a number they might attain in the next couple of years. Some would say the market is already saturated and rather than more competitors, fewer are needed.
Cellular services have been a black hole for cable providers. Cox is making a significant gamble in building its own network. If successful, the company may find an appreciative customer base among small and midsize businesses. Their needs have been underserved by wireless service providers whose focus has been largely on consumers. If not, its venture will be just one more entry in a long list of bad decisions made by cable companies trying to add wireless services to their portfolios.
See more columns by Paul Korzeniowski.
Paul Korzeniowski is a Sudbury, Mass.-based freelance writer who has been writing about networking issues for two decades. His work has appeared in Business 2.0, Entrepreneur, Investor's Business Daily, Newsweek, and InformationWeek.
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