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Cable Plays Clearwire Card

Jeff Baumgartner
LR Cable News Analysis
Jeff Baumgartner
5/7/2008
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It's official: The cable industry is getting into the WiMax biz in a big way.

As expected, three major U.S. cable operators that serve more than 39.4 million subscribers combined -- Comcast Corp. (Nasdaq: CMCSA, CMCSK), Time Warner Cable Inc. (NYSE: TWC), and Bright House Networks – are pumping millions into a new WiMax-powered "mobile broadband company" formed by Sprint Corp. (NYSE: S) and Clearwire LLC (Nasdaq: CLWR). The WiMax venture will be called Clearwire, though Sprint, which is contributing its Xohm holdings, will hold a 51 percent stake. (See Sprint, Clearwire Create $14.5B WiMax Giant and WiMax Wednesday?)

According to the terms announced this morning, Comcast is kicking in $1.05 billion, Time Warner Cable is putting up $550 million, and Bright House is chipping in $100 million. They, along with other "strategic" partners such as Google (Nasdaq: GOOG) and Intel Capital , will own 22 percent of the venture through investments totaling $3.2 billion. The valuation of the new WiMax entity is nearly $14.55 billion. The boards of all parties involved have approved the deal, which is expected to close sometime in the fourth quarter of 2008.

Comcast, Time Warner Cable, and Bright House have also forged 4G and 3G wholesale agreements that will enable them to offer coming mobile WiMax services from the new Clearwire entity and to bundle and resell existing, third-generation voice and data services from Sprint.

In a note issued this morning, Sanford C. Bernstein & Co. Inc. analyst Craig Moffett surmised that the wholesale nature of the model suggest that the individual companies "would serve as retailers, and would retain ownership of customer relationships while purchasing network services from the wholesale entity."

While that would seemingly give cable more control of the situation, the public MSOs involved in the deal attempted to calm earlier investor fears that a new wireless/mobility strategy would put MSOs on the cusp of a huge capital outlay.

"This transaction is attractive to us strategically and financially, and puts in place very attractive wholesale relationships for access to Sprint's existing 3G and Clearwire's 4G networks, giving us complete flexibility to introduce wireless mobility in terms of product innovation and deployment," said Comcast chairman and CEO Brian Roberts, in a statement.

Time Warner Cable president and CEO Glenn Britt called the deal "a financially prudent way for us to add mobility to our offerings when our customers demand it."

Hesse: Easier to manage than 'Pivot'
Cable's long-rumored and now official move into WiMax comes just two weeks after Comcast, Time Warner Cable, Bright House, and Cox Communications Inc. severed ties to "Pivot," the wireless voice reseller arrangement with Sprint, citing operational and other inter-company complexities that made the service difficult to scale as a national wireless offering. (See MSOs Pivoting Away From Sprint JV.)

Responding to an analyst question during this morning's conference call, Sprint president and CEO Dan Hesse stressed that the new MVNO structure will be easier to manage than the earlier Pivot reseller arrangement. Additionally, from a technical point of view, it's believed that WiMax can coexist well alongside cable's hardwired, Docsis-based networks, as both are IP-centric technologies. Also, much of WiMax's MAC (Media Access Control) heritage can be traced to Docsis. (See Why Not WiMax?)

Although it took longer than expected for the big WiMax deal to come together, some of the original cable Pivot partners have been dropping hints lately that wireless remained firmly on their longer-term agendas.

First, Comcast confirmed that it had hired former Telefónica O2 Europe chief technology officer Dave Williams to the new post of senior vice president of wireless technology strategy. (See Comcast's New Wireless SVP . Soon after, Britt of Time Warner Cable acknowledged during a quarterly earnings call that his company hasn't witnessed any huge demand for a quad-play, but stressed that what's "more interesting to me is the notion of broadband wireless... and how that might relate to wireline networks." (See Britt: Wireless Broadband 'Interesting' .)

Then there's Cox, the only Pivot cable partner that did not join the new Clearwire venture. Cox, which won valuable spectrum in the recent 700 MHz auction, is expected to build out a wireless network of its own. (See The Great Cable Spectrum Speculation.) Though little is known about the exact timing of that effort and what the wireless service mix will be, Cox reportedly has already signed on Huawei Technologies Co. Ltd. to supply gear for the coming build out. Cable insiders say Cox is expected to move aggressively with wireless, but that it won't be ready to offer services in select markets until sometime next year.

— Jeff Baumgartner, Site Editor, Cable Digital News

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