Cable Titans Discuss Offering
Cellular Services, Intensifying
Foray Into Telecom's Turf

Cable companies are beginning to eat into the bread-and-butter of the telecommunications giants by offering home phone service. Now, they want a piece of the phone industry's few high-growth offerings: wireless.

The nation's biggest cable providers are discussing the formation of a joint venture to offer cellphone service, according to people familiar with the talks. The members of the informal consortium include Comcast Corp., Time Warner Inc.'s cable division, Cox Communications Inc., Charter Communications Inc. and Advance/Newhouse Communications Inc.

Such an alliance would further intensify the already heated competition between cable operators and telephone companies, who are using new technologies to invade each other's turf.

Both sides in the war between telephone and cable operators lack one key offering: telephone companies can't offer video services, and cable companies don't provide cellular services. To combat those deficits, telephone companies have formed partnerships with satellite television providers such as DirecTV Group Inc. and are planning to build fiber-optic networks to bring video to customers.

Although the $50 billion cable industry long has discussed providing cellphone service, discussions about forming a joint venture to carry out those plans have heated up in recent weeks, and the companies are interviewing investment banks to act as potential advisers for a deal.

One option would be an outright purchase of an existing cellular operator. More likely, however, would be to use the cellular network of an established wireless provider, but resell it under a separate brand name. Such an arrangement already is used by several carriers, including Virgin Mobile USA LLC, which has two million cellular customers, using the wireless network of Sprint PCS.

Either way, such a deal would allow cable operators to offer a full bundle of services -- including video, high-speed Internet access, landline telephone and cellular service -- to the country's 74 million cable subscribers. The theory is that customers getting all their services from one provider -- on a single bill, at a discount -- are less likely to defect from any one of those services. The success of this approach still is uncertain: a mere 1% of consumers use a single provider to get local telephone, long distance, Internet access and cellphone service, according to a recent survey by J.D. Power & Associates.

The most compelling reason for cable to move into wireless is that so much of communications and the Internet is going mobile.

Striking a deal with a cellular provider would enable cable companies to offer one more option to customers: wireless data. Carriers such as Verizon Wireless and Sprint Corp. are rolling out so-called 3G, or third-generation, offerings that eventually will allow wireless Internet access over cellphone networks, at speeds comparable to wired broadband connections. That would allow cable companies to offer broadband virtually anywhere, instead of relying on their cable connection.

Cable companies also envision offering a wide range of new cellphone applications by integrating the service with other broadband offerings. For example, they believe cellphones in the future will be able to beam photos and e-mail messages directly to televisions. Also, some cable companies are hoping to combine cellphones and landline services so that the same phone -- and phone number -- could be used both in and out of the home. Comcast, which sold its cellphone company to SBC Communications Inc. in 1999, would not be interested in returning to the wireless business if all it could offer was voice, people familiar with the matter say.

Sprint, the nation's third largest cellphone operator after Cingular Wireless and Verizon Wireless, is the most obvious partner for the cable companies if they want to resell wireless. Sprint already has such wireless wholesale arrangements with AT&T Corp. and Qwest Communications InternationalInc., allowing those companies to sell cellular service under their brand names but over Sprint's wireless network.

Sprint has made no secret of its interest in striking similar deals with cable operators. Indeed, in the past year, Sprint has helped Time Warner Cable, Charter and Mediacom Communications Corp. to offer traditional phone service. Sprint has one cellular marketing deal with a tiny cable operator called Sunflower Broadband.

Sprint also is interested in eventually striking agreements with cable operators that would allow its cellphones to make calls over the Internet, via the technology known as Wi-Fi, when in the range of a high-speed cable modem connection.

"We're in discussions with most of the cable companies to provide a variety of services, including things like voice over [Internet protocol] and wireless service," said Sprint spokesman Scott Stoffel.

While the big cable operators offer telephone service under their own brands, it is unclear if they would create a new, national brand to market cellular service.

Cox, which has been perhaps the country's most aggressive cable operator at offering telephone service with 1.2 million telephone customers, recently solicited a proposal from Sprint to offer cellular service using Sprint's wireless network, according to people familiar with those talks.

Some cable operators believe a joint venture would give them advantages over cutting their own separate deals: by buying in bulk, they could get a lower per-minute rate. It also would mean lower costs for setting up billing systems, purchasing handsets and marketing.

There is a considerable risk to such a wholesale deal: if consolidation in the U.S. wireless industry continues, a cellular partner such as Sprint or Nextel Communications Inc. could be purchased by a bigger telephone company such as Verizon Communications Inc., which would clearly put the cable arrangements in jeopardy.

An outright purchase of a national wireless business presents other problems for individual cable operators: Cable companies are local businesses, concentrated in certain cities and states while completely absent from others. Were Comcast, for instance, to buy a wireless business, it would be left with vast parts of the country where it had no cable-TV offering with which to bundle. "You lose the economies of scale," says one person familiar with the matter. A resale agreement, on the other hand, could allow cable companies to offer their customers national wireless coverage without supporting their own national infrastructure.

Such a consortium, however, has its own potential issues. A group of cable companies backed an operation called @Home in 1995, with the mission of bringing high-speed Internet to their own customers. Squabbles among the partners, coupled with a disastrous acquisition, pitched the company into bankruptcy protection and an eventual shutdown.

Cable companies have made other forays into the cellphone business. In 1994, Comcast, Cox and Tele-Communications Inc. joined Sprint in forming Sprint PCS, with the cable companies owning a 60% stake. Sprint agreed to buy out its cable partners in 1998.