Cable Operators Prepare for New Mobile Push with Verizon Wireless

In back-to-back actions, the Department of Justice and the FCC approved the sale of 122 advanced wireless services (AWS) licenses from SpectrumCo, a joint venture of Comcast, Time Warner Cable and Bright House Networks, to Verizon Wireless for about $3.6 billion, as well as the separate sale of 30 AWS licenses from Cox Communications to Verizon Wireless for another $300 million. The two government agencies also approved the related agreements that will let the four big cable companies bundle Verizon Wireless services with their own video, data and voice offerings with impunity. In addition, the agencies OK'd a research and development deal between Verizon Wireless and its cable partners to develop innovative technologies that integrate wireline and wireless services and products. Finally, the agencies gave their blessing to the four cable operators becoming wholesale resellers of Verizon Wireless’s services with six months notice.

Anticipating the government approvals, Comcast and Time Warner Cable have already started selling Verizon Wireless services in many markets around the country. Comcast, which launched mobile bundles with Verizon Wireless in the Seattle area in January, has since expanded to Atlanta, Detroit, Denver, Minneapolis, south Florida, San Francisco, Portland, Ore., Albuquerque and Santa Fe in New Mexico and more than a dozen other metro regions across the country. “I think that the [joint venture] is going very well,” Steve Burke, executive vice president of Comcast, said on the company’s latest earnings call last month. “We launched in about 21 markets, 263 stores. It has been a terrific partnership."

Similarly, Time Warner Cable has already teamed up with Verizon Wireless to introduce mobile-cable bundles in the cable operator’s Ohio, North Carolina, Kansas, Nebraska, Wisconsin and other markets. Neither Cox nor Bright House has announced any mobile service launches with Verizon Wireless, but they're expected to be announced shortly.

While the four major cable operators are enthused about their partnership prospects with Verizon Wireless, the industry’s history with mobile services has not been overwhelming. Over the past five years, cable operators have tried to team up with both Sprint Nextel and Clearwire to market wireless broadband services to consumers in their franchise areas, only to scuttle both partnerships shortly thereafter. Most recently, for example, Comcast, Time Warner Cable and Bright House ended their wholesale deal with Clearwire late last year after investing heavily in the company and its WiMAX service.

Similarly, cable operators have run into problems trying to launch their own wireless broadband services. Most notably, Cox introduced a 3G service over Sprint’s network and tried to develop its own Long Term Evolution (LTE) network using the AWS and 700 MHz spectrum it had bought at auction for about $550 million. But, after launching 3G services over the Sprint network in about a dozen markets and testing the LTE service in two others, Cox jettisoned both mobile initiatives last November because it said it couldn’t achieve great enough scale to compete and couldn’t gain access to such “iconic wireless devices” as Apple’s popular iPhone.

Despite these costly failures, cable executives insist that things will be different this time around. They argue that they've learned a great deal from the earlier partnerships with Sprint and Clearwire, particularly about integrating billing, customer service and other back-office systems. They also contend that the new mobile partnership will be more successful because of Verizon Wireless’s strong retail presence in many of their markets. “We're learning,” Neil Smit, CEO of Comcast Cable, told analysts. “We're working together.”

Some analysts believe that things should go better for cable operators this time as well. In fact, at least one analyst thinks that cable operators could possibly grab a large share of the mobile voice market if they play their cards right.

In a memo to clients last month, Craig Moffett, analyst for Bernstein Research, argued that the proposed mobile virtual network operator (MVNO) relationship between the four cable operators and Verizon could lead to the cablers launching a hybrid low-cost Wi-Fi-first wireless service sometime in the future. Such a service, he said, would offload wireless traffic in customer homes to their broadband networks via Wi-Fi and offload wireless traffic in certain outdoor and commercial locations to cable’s growing Wi-Fi networks. “The MVNO arrangement with Verizon is potentially the missing piece in what is potentially a highly disruptive wireless offering,” Moffett wrote. “Paired with an MVNO agreement, a Wi-Fi-first network could be a game changer.”