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MSOs Wary About Wireless

Some MSO executives and analysts may see wireless service as the greatest thing for the cable industry since digital set-top boxes. But executives at two leading cable providers – namely, Liberty Global Inc. (Nasdaq: LBTY) and Cablevision Systems Corp. (NYSE: CVC) – are not so sure about that.

Take Mike Fries. As president and CEO of Liberty Global, Fries presides over a huge multinational MSO that has rolled out mobile offerings in several of its largest markets. Operating as a mobile virtual network operator (MVNO), the company now provides wireless service in such diverse countries as Japan, Holland, and Switzerland, beating most North American cable operators to the punch.

Yet Liberty Global doesn't have much to show for its efforts so far. Although the new wireless product may seem appealing to consumers, "the punch line is that it's had little or no impact on our business," Fries told analysts earlier this month.

"In the markets where we offer it, it's a nice add-on, but we're not making a whole lot of money on it," he said. "It's too soon to tell whether it's a killer app. It doesn't appear to be at this stage."

In Liberty Global's third-quarter earnings conference call, Fries ticked off some of the top reasons why wireless might not prove to be such a big deal for cable, all in one sentence: "The mobile business is unbelievably mature and highly competitive, with lots of churn and very little product differentiation."

Fries also argued that it's tough for new wireless entrants to make their mark so late in the game. "We'll never be a major cellular player unless we buy one or one buys us," he acknowledged. Indeed, this is a key reason why market rumors keep floating that Comcast Corp. (Nasdaq: CMCSA, CMCSK) will purchase Sprint Corp. (NYSE: S).

The Liberty Global chief views the emerging fixed/mobile convergence business as a "more interesting" opportunity for cable operators during the next three to five years because of the backhaul market. As cellular providers begin to "struggle mightily with bandwidth constraints and spectrum constraints," he contended, they will have a greater "need to offload traffic" onto other transport networks, like cable's HFC plant.

But he's a bit wary here, too: "There is tremendous uncertainty. Nobody agrees on these things."

Despite such uncertainty, Fries doesn't regret the plunge into wireless. Insisting to analysts that "we are pacing ourselves in a very measured fashion," he argues that it's part of "playing good offense" in markets where Liberty Global faces strong, growing telco competition.

"I personally think it's something we needed to do. It's the right strategic move. It definitely makes us smarter about the product, consumer demand for the product, and how to market and bundle the product."

In North America, Cablevision officials seem to have a similarly conflicted attitude about wireless. Although the MSO is selling Sprint wireless products in its New York market, it's not bundling mobile service with its popular Optimum triple-play packages of landline voice, video, and data.

"We are experiencing some success with it," Cablevision president and CEO Jim Dolan told analysts on his company's recent earnings conference call. "But it is a relatively small idea. It is just helping them sell their products and having them help sell our products with discounts."

Pressed about his company's wireless plans, Dolan pooh-poohed the idea of packaging mobile phone service with Cablevision's triple-play bundles. He made it clear that he doesn't expect wireless to spur bundle sales much, unlike VOIP.

"I find it hard to concede that a wireless add-on to a triple play would cause someone to rip out all of their home services at this point in time," he said. "I don't think it is a significant driver."

Cablevision officials also defended their decision to bail out of the recent advanced wireless spectrum auction, instead of teaming up with four other top MSOs and Sprint in a grand consortium. (See Sprint-Cable Group Weighs New Wireless Options.) Although they're interested in setting up more WiFi hotspots throughout the New York metro area, they said they're still figuring out their whole wireless strategy.

— Alan Breznick, Site Editor, Cable Digital News

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