Cable companies eyeing nationwide wireless network
Posted
Mar 26 2008, 03:10 PM
by
Kim Peterson
Lots of big numbers are being tossed around today in support of WiMax, a wireless technology that can deliver high-speed Internet access over several miles. Clearwire is a leader in developing WiMax, and has been trying to hammer out a partnership with Sprint for months. But working out a deal hasn't been easy, partly because building out WiMax is so expensive and partly because both companies have their own struggles to deal with.
Now, the two biggest U.S. cable companies are stepping in with loads of cash. According to the Wall Street Journal, Comcast and Time Warner are talking about funding a new WiMax company, one that would be run by Sprint and Clearwire. The company would operate a nationwide WiMax network. Comcast is reportedly offering $1 billion and Time Warner is adding $500 million. Bright House Networks, a small cable company, might pony up between $100 million and $200 million.
That kind of investment isn't sitting well with cable shareholders. Comcast shares are down 4% today to $19.71, and Time Warner shares are down 3% to $14.39. Clearwire's stock price jumped 18% today but closed up almost 6% to $14.19, and Sprint shares got a badly-needed 1.5% boost to $6.52.
Tech companies are adding some money to the pot as well. Intel is good for $1 billion or so, according to the Journal, and Google could contribute "hundreds of millions of dollars."
The big picture here is how WiMax helps cable's battle with telecom for consumer services. Both sides are looking to offer landline and cell phone service, video and Internet access. Cable has three of those prongs down pat, but it needs help on the cell phone part. The WiMax venture would give cable companies access to the network, which they can use for their own voice and high-speed Internet and services. And WiMax is well-suited for rural areas that so far have been largely ignored by telecom and cable.
Cable has been down this road before with Sprint. The companies got together to fund Pivot, a cellphone service that never took off with customers. But cable can't afford to give up on wireless, and WiMax is its next big hope.
Shares of AT&T roller-coastered throughout the day and closed down less than 1% to $37.76. Verizon shares fell 2% to $36.14. Verizon was in the headlines today for asking the government to make it easier for people to ditch their cable service. But don't think that telecom is sitting idly by on this, AT&T and Verizon are working on new wireless networks with faster data speeds.
One analyst says that Sprint could end up the big winner here. The cable companies would reduce Sprint's financial obligations, and that would improve the company's free cash flow, said Bernstein Research analyst Craig Moffett, according to Barron's. Intel gets a boost for its next round of wireless processors. But Moffett was skeptical of WiMax itself, saying that there are questions about how well it can work through walls and in other real-world scenarios.
I think this is great news for consumers. We're headed for a day where we have numerous providers to choose from for our phone, television and Internet services. Prices will come down, and available features, such as video-on-demand, will increase. All this means heavy margin pressure for companies locked in an ongoing arms race with each other, however.
Disclosures: I don't own shares of any companies mentioned in this post. And while Microsoft owns this blog, Microsoft does not control, censor or otherwise have any editorial influence over what I write.
