May 19, 2009

Making Room for Wireless

By Michael Grebb

It’s no secret that the cable industry has plenty on its plate right now. The HD capacity crunch, basic sub losses, an advertising slump, the conundrum over whether to meter broadband usage, the online video “threat.” A lot of situations and problems to work through. But despite all of this, the industry might be wise to put wireless back on the front burner. While the subject was the hot topic for a while, eating up industry panels and conference calls, it has lately become an afterthought. Pivot fizzled, and the industry switched turned to Clearwire (now just “Clear”), with an eye toward leveraging the existing WiFi phenom with its technological cousin WiMAX. All the better to partner with Sprint, which has no competing “wired” business and a floundering wireless one. Sprint has nothing to lose. It’s a conveniently desperate and non-threatening partner for the cable industry. But will Sprint be around in 3 years? It’s a reasonable question, considering its inability to make the remotest dent in Verizon and AT&T’s dominant positions in the wireless market.

The larger question is whether cable’s heart is really in wireless. Yes, the industry has plenty of other immediate issues. But wireless connectivity is the future. Heck, it’s pretty much the present. And matching wireline broadband speeds in the wireless realm is the next big thing. Verizon and AT&T are both laying plans to deploy LTE (long term evolution) technology within the next 3 years. Just this week, Pyramid Research released a report predicting that LTE users will number a whopping 136mln globally by 2014. Many of those will be outside the U.S., but the global embrace of LTE technology by the likes of NTT DoCoMo and other big players means that equipment prices will benefit from supplier competition and economies of scale. Compare LTE to WiMAX, which also has global backers but in the U.S. is primarily embraced by Sprint and its cable partners (along with boosters like Intel), and it’s possible that cable’s long-term fate could be as the benefactor of a niche technology. That can be a tough road. And according to IMS Research, WiMAX’s time-to-market advantage over LTE will likely fail to overcome LTE’s eventual market dominance. Does cable want to go it alone with WiMAX? Will it eventually face higher equipment costs because of lower volume and fewer suppliers vs. LTE? All valid questions that the industry should be asking right now.

Cable operators have wrangled over wireless for years, and in some ways the industry’s indecision turned out to be a Godsend. That’s because the demand for wireless capacity has evolved more quickly than anyone first predicted (thank the iPhone). Had cable operators started deploying 3G wireless networks 5 years ago, they’d probably be stuck with antiquated technology and looking at costly rebuilds in the middle of an economic slump. That’s fine for Verizon and AT&T, which have money to burn, but such a scenario would likely have created serious hardships for cable. Still, this is a different time. Consumers are in a different place with wireless. And while LTE’s 3-year horizon may seem comforting, who knows what consumers will be doing with online and mobile video by then? It’s completely unpredictable. Those companies that act first will likely gain the insight and market knowledge necessary to better serve smartphone-happy customers in the future—and ultimately beat their competitors at that vital game. That’s the WiMAX time-to-market advantage. Cable should use it to maximum effect. But cable execs need to think about whether cable’s WiMAX commitment represents a sustainable long-term future. It’s a tough balance, but the best and brightest in cable need to step up and figure it out. Before it’s too late.