Comcast and Time Warner Cable are looking to help bankroll a new joint venture between Sprint Nextel and Clearwire to deliver 4G wireless services, according to a report in Wednesday's Wall Street Journal.
According to unnamed sources, the companies are discussing a plan to provide funding for a new wireless company that would be operated by Sprint Nextel and Clearwire. The new company would use network spectrum and assets from both companies to form a nationwide wireless network using WiMax.
Last summer, Sprint and Clearwire announced they'd be working together to build a nationwide network. In November, they terminated their agreement, but each company has said separately that it is talking to the other about ways to work together. For months, rumors have floated around that Sprint would spin off its WiMax network, known as Xohm, and combine it with Clearwire's network.
The Journal said the companies are now trying to raise $3 billion to create the joint venture. Comcast, the nation's largest cable operator, would put in about $1 billion, while Time Warner, the second largest cable operator in the country, is willing to pony up $500 million, the Journal said.
Bright House Networks, a smaller cable operator, is also supposedly in the talks and could contribute around $100 million to $200 million. Intel might be contributing $1 billion, and Google could throw in a couple of hundred million too, the article said.
For years now, the cable companies have been competing vigorously with traditional phone companies AT&T and Verizon Communications for customers. Cable operators have been eating away at phone companies' traditional phone businesses, and phone companies are starting to make inroads in certain markets with their TV services. The two groups have competed for high-speed broadband customers, too.
Wireless is the one place where cable hasn't been able to compete so far, but the cable industry has been trying to plug that hole. In late 2005, Comcast, Time Warner, Cox Communications, and Advance/Newhouse Communications announced a joint venture with Sprint Nextel to offer wireless service as part of their bundle of services.
The cable companies had hoped that they could integrate mobility into their offering to add more value to existing services like telephony, TV, and broadband. The companies started offering their bundled wireless service, called Pivot, early last year in certain markets, but by the end of the year demand was so low they stopped marketing it. Part of the problem is that nearly 80 percent of U.S. residents already subscribe to a cell phone service. And the cable operators weren't given much freedom in pricing or packaging the Pivot service to make it enticing enough for people to switch carriers.
New networks on the horizon
Meanwhile, the wireless industry is gearing up to build the next generation of networks. These so-called 4G networks will allow people to connect a wide array of consumer electronic devices to the Internet, including cell phones, PDAs, music players, gaming devices, digital cameras, and more.
AT&T and Verizon Wireless, which is owned by Verizon Communications and Vodafone, have already said they plan to use technology known as LTE (Long Term Evolution) for their 4G network. LTE has been positioned as an alternative to WiMax, but so far the technology is at least a couple of years behind WiMax in terms of development.
Sprint has placed its bet on WiMax. And the mobile operator, which is in third place in the U.S. behind AT&T and Verizon Wireless, hopes WiMax will give it a running start for the next generation of networks.
The problem is that Sprint's core cell phone business is in shambles. The 2005 merger with Nextel, which uses a completely different network technology than Sprint, is largely to blame. And the company has been bleeding customers for several quarters.>
For months, analysts have criticized Sprint and its management team for focusing too much on WiMax. As a result, Sprint's new CEO, Dan Hesse, has been looking for ways to spin off Xohm, but still retain some benefit to Sprint's shareholders and to the company in general. A deal with Clearwire, a company started by wireless magnate Craig McCaw that is also building a nationwide WiMax network, seems like a perfect marriage.
Of course, the biggest hurdle is finding the money to fund such a joint venture.
This is where the cable companies come in. Cable needs to make a play in 4G wireless. And Sprint and Clearwire need the money. So it makes perfect sense for the two sides to come together.
Comcast and Time Warner signaled their intent to get into the 4G wireless market during the Federal Communications Commission's Advanced Wireless Service auction in the summer of 2006. Bidding under the name SpectrumCo, the Sprint/cable joint venture, which includes Comcast and Time Warner, agreed to pay $2.4 billion for 137 licenses in cities including New York, Boston, Washington, Detroit, and Atlanta.
The cable companies haven't specified what they plan to do with the spectrum, but like the 2.5 GHz spectrum that Sprint and Clearwire are using to build their WiMax networks, the AWS spectrum, which is in the 1.7GHz to 2.1 GHz band, is well suited for wireless broadband services, which will likely include mobile video.
Cox Communications, which is involved in Spectrum Co., has signaled that it might try to build its own wireless network in its region. In the recent FCC 700 MHz auction, the company spent $305 million on 22 spectrum licenses, mainly in its territory in the South and Southwest.
According to the Journal, Comcast and Time Warner would get equity in the new Sprint/Clearwire company in exchange for funding it. They'd also have the option to buy wholesale access to the network so they can offer their own wireless broadband service.
The Journal article said a deal is expected to be finalized by the end of the week--before Sprint and Clearwire head to Las Vegas for the big CTIA tradeshow. So stay tuned.