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High hopes for big merger

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The Sprint Nextel Merger went through last week with a key decision by the FCC that is likely to create a major "third" broadband route into the home and perhaps finally achieve the FCC's desire to see genuine competition in the provision of US broadband lines.

That key decision was the way the FCC not only allowed the combined company to keep its 2.5GHz spectrum, but laid down conditions that should see broadband services based on it be within reach of at least 30 million US homes before the end of the decade. The two argued that their respective 2.5GHz spectrum was "fundamental" to the merger, and that it will be used to bring a third triple play to the US home, competing directly with both the RBOC telephony wiring and the cable operator's co-ax, probably using WiMAX technology.

This is one of the first times that the FCC has imposed genuine rollout limits on its spectrum, a practice that is common in other parts of the world. As a result of not previously issuing these types of mandates, much US spectrum is purchased by the RBOCs only to remain idle, more defensive purchasing, than the genuine offer of services.

The DoJ said an investigation of the $70bn merger transaction, which was announced at the end of 2004, found that the deal did not give the companies market power in areas in which they already competed and that consumers would continue to have a wide range of choices following the combination of the companies.

According to the FCC statement, the combined operator is under obligation to "fulfill its voluntary commitment to meet certain milestones for offering service in 2.5GHz band, unless circumstances beyond its control prevent the merged entity from reaching those milestones". Specifically, Sprint Nextel is required to offer services using this spectrum to reach at least 15m Americans within four years, and an additional 15m potential subscribers within six years.

The company will be free to use the service to offer fixed as well as mobile broadband wireless, and can use the spectrum to augment its US third placed cellular efforts as well as open up new routes to compete on Voice over IP telephony. There is a possibility that by rolling out a service alongside Clearwire as a partner, rather than it being a competitor, Sprint-Nextel could have enough bandwidth to deliver triple play – TV, voice, internet – to most of the US, as well as use the remaining bandwidth to offer enterprise services, and backhaul and video delivery for its cellular offerings.

Sprint in particular has been way ahead in the US in terms of offering Mobile TV through its Sprint PCS cellular service.

If the focus of the merger genuinely accelerates the rollout of US broadband services, it could catch the RBOCs napping. Right now they have their hands full beating off the triple play threat from the cable operators, and while SBC, Verizon and Bellsouth all have spare, unused spectrum in 2.3 GHz, and could use it to promote their own wireless broadband agendas, it is unlikely that this will be a top priority until they actually begin losing customers to Sprint-Nextel.

Sprint CEO Gary Forsee believes a higher capacity network is required to deliver really attractive media services. Tim Donahue, CEO of Nextel, said in a post-merger interview this week: "We will be able to build a new high capacity, high quality broadband network that can carry any content that any consumer wants to have."

Both CEOs stressed that the $71bn merger was not just about gaining scale by merging their cellular customer bases, but about transforming the nature of the companies to make them into broad-based, multiservice operators with a role in the broadband, mobile triple play market that all the large operators are chasing.

The FCC has already announced plans to open up the 3.6GHz band under a light licensing scheme to stimulate rural broadband, which still may be pushed mostly to start ups, rather than fall into the hands of the RBOCs. But that 3.6GHz spectrum will be shared, so the 2.5GHz and 2.3GHz bands are the most likely to lead to a country wide broadband wireless service in licensed spectrum.

Copyright © 2005, Faultline

Faultline is published by Rethink Research, a London-based publishing and consulting firm. This weekly newsletter is an assessment of the impact of the week's events in the world of digital media. Faultline is where media meets technology. Subscription details here.

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