Cell phone operator Sprint Nextel reportedly plans to rent more of its wireless network to consumer electronics makers as it tries to gain subscribers to compete more aggressively with rivals AT&T and Verizon Wireless.
The Wall Street Journal reported Tuesday that the company, which is the third largest wireless operator in the U.S., has been talking to gadget makers that plan to use its wireless network to provide wireless Internet connectivity for their devices. The company already offers this kind of service to Amazon.com for its Kindle e-book reader.
GPS device maker Garmin, camera maker Eastman Kodak, and storage device manufacturer SanDisk are already on board, The Journal article said. The way it will work is that Sprint will rent device makers its network and collect the fees from them, instead of from consumers. The fee will likely be based upon how much data is transmitted using the device.
This is the kind of arrangement that Amazon has with Sprint. Amazon pays Sprint based on how many books its Kindle users download. While Sprint doesn't have to worry about the hassle of billing or supporting Kindle users, it also doesn't get to market its service to these customers either.
CEO Dan Hesse The Journal that Sprint isn't allowed to tout its participation in making the Kindle service available. And generally speaking, the company doesn't make as much money from its wholesale customers as from consumers. But Sprint benefits because it doesn't have to bill or provide direct customer support.
It shouldn't come as a big surprise that Amazon doesn't want the Kindle associated with Sprint's brand. The cell phone company has one of the worst reputations in the wireless industry and it has lost millions of subscribers over the past few years as consumers have complained about poor service and sub-par customer care.
In an effort to turn around its image, the company has launched an aggressive advertising campaign and has invested heavily in improving its customer support. But so far, it hasn't helped much. During the fourth quarter of 2008, the company still managed to lose another 1.3 million subscribers.
But even as Sprint loses subscribers, 4 million since 2006 to be precise, it has actually been growing its wholesale business. The Journal said Sprint has increased wholesale subscribers by 27 percent in the past three years.
Most of these subscribers come from other wireless operators known as MVNOs or mobile virtual network operators, which lease capacity from Sprint to offer their own cell phone service. Virgin Mobile USA is the most successful and well known MVNO using Sprint's network.
Even though Virgin Mobile has been successful, most MVNOs using Sprint's network have failed, including Walt Disney Company's ESPN Mobile and Disney Mobile. But I wouldn't necessarily hold Sprint or its wholesale business accountable for the failure of these ventures.
Interestingly, even though Sprint has been criticized by customers for poor network service and customer care, the MVNOs, which use the exact same network as Sprint, have actually gotten high marks when it comes to their actual service. It seems the problems these companies faced had more to do with marketing and differentiating their services in a highly competitive market.
But providing wireless service to device makers could be very different. There could be a huge opportunity to offer Internet connectivity for everything from cameras to portable game devices to gas meters. Verizon Wireless has created its open wireless network to address this market. The carrier has already certified some 35 devices, including a truck monitoring device and a tracking device for prisoners, to be used on the open network.
Verizon is also in talks to offer wireless to several companies making Kindle competitors, the Wall Street Journal reported. And AT&T has also started bundling its service with Netbooks.
As network speeds increase, more devices will likely come with wireless chips embedded in them. Cell phone chipmaker Qualcomm has already been working on devices to address this market.
But the biggest hurdle for Sprint and others addressing this market right now is that the 3G wireless network is still relatively slow compared to true broadband networks. Today's 3G wireless networks only provide on average transmission speeds of about 400 kilobits per second to 700 Kbps.
For many cell phone users, including myself, this is still painfully slow when trying to surf the Internet on my smartphone. Most times I'd still prefer to use a regular Internet connection instead of the one I get with my Apple iPhone 3G. That said, the speeds and connectivity offered over the 3G network using a full-blown laptop is typically much better, likely because laptops are more powerful devices and can use wireless modems with stronger signals.
Faster networks are on the way. AT&T, Verizon Wireless, and Sprint have all said they plan to build 4G wireless networks. So far, Sprint has laid its bet on a technology called WiMax and it is working with a new provider called Clearwire to build a nationwide wireless broadband network using the spectrum. AT&T and Verizon Wireless have bet on a different technology known as Long Term Evolution or LTE. Verizon expects to start building its nationwide 4G wireless network in 2010. And AT&T has plans to upgrade its existing HSPA network to faster speeds.
But until 4G networks are up and running, the wholesale market for consumer devices will likely be relatively small. For one, neither Sprint nor Verizon nor AT&T has enough capacity on its network to handle bandwidth intensive uploads and downloads for devices streaming video. And even small, basic tasks could still overwhelm the networks if the service is becomes hugely popular and is oversold on any one of these networks.