News Corp and Clearwire ready to tie the knot?
Quad play marriage could rival Sprint and cable cos
As the four major cablecos involved in a quadruple play joint venture with Sprint get ready to launch initial services, they may face another rival apart from the incumbent telcos, themselves moving towards quad play with a combination of fiber-to-the-home, IPTV, and their cellular arms.
This will come from the satellite broadcast sector - News Corp's DirecTV, with or without rival Echostar. Its most likely partner to deliver the broadband and return play aspects of the network, the glaring hole in satellite's system, is Clearwire, since the other holder of US national broadband wireless spectrum, Sprint, is already spoken for, and the other 3G players are telco-controlled.
A deal between News Corp and Clearwire, long rumoured, looks increasingly probable as the former's chairman, Rupert Murdoch, drops heavy hints of near term broadband wireless activities and initial investments up to $1bn.
News of such a partnership could steal a little thunder from the imminent announcement of Sprint Nextel's choice of supplier for its own broadband wireless build-out in 2.5GHz, the most closely watched award of the year because of its critical importance to the future fortunes of all four main bidders (Motorola, Qualcomm, Samsung and IPWireless).
Of these, Motorola has a lot to lose, since Nextel is its largest customer with the legacy IDEN network, but can also win on more fronts because of its rapidly developing business in integrated quad play equipment, which draws together its handsets, networks and set-top boxes, using multiple protocols if necessary.
This could make Motorola a key supplier to the Cableco-Sprint combination even if it does not get the infrastructure deal, as well as an almost certain vendor to a DirecTV-Clearwire alliance, since it has already taken a stake in the latter and Motorola was one of the earliest majors clearly to state the case for broadband wireless as a quad play platform, and to stake a significant part of its growth strategy on the convergence of various broadband technologies to deliver ubiquitous access and content.
The coming months will be critical in deciding how far the company can cash in on its vision in its native market, with all the key operators behind the US shift to convergence poised to make major partnership decisions.
Motorola has already paid $300m to buy a stake in operator Clearwire and ensure that company's national roll-out is WiMAX-based, and that investment could yield significant dividends should current talks between Clearwire and News Corporation's US satellite TV arm DirecTV bear fruit.
In addition, breath remains bated at Motorola in anticipation of Sprint Nextel's decision about which equipment to use in its hefty swathe of 2.5GHz spectrum, with Motorola WiMAX being one of the options.
Sprint says it is still on track to announce its choice later this summer, with the stakes particularly high for Motorola since it will be losing, over time, its largest single customer, Nextel (for the legacy iDEN network and handsets), and needs to retain a portion of the huge Sprint capex plan.
Even should Motorola fail in the 2.5GHz space, which could be a reason for the company to have fallen back on the Clearwire deal, it still has high hopes from Sprint's expansion, as the cellco's joint venture with four major cable TV providers readies itself to launch its first commercial services this fall.
The four cablecos, Comcast, Time Warner Cable, Cox and Advance Newhouse, will add mobile content and communications to their customer bundles, powered by the Sprint Nextel system, and over time will develop a full quad play, harnessing their extensive content alliances and Sprint's broadband wireless build-out.
In this scenario, Motorola believes it can play a key role on the infrastructure side, the guarantee of the Clearwire contract, since Motorola's investment involved taking over the operator's own equipment arm, NextNet.
This may seem merely a consolation prize should the Sprint deal go elsewhere. But that balance would change if Clearwire does succeed in finalising a long rumored partnership with DirectTV, which would significantly accelerate its build-out plans, giving it an assured tier one customer, and an impatient one.
Rupert Murdoch's satellite TV interests round the world need to acquire the wherewithal to develop their own quad play, adding two-way communications and mobility to their mix, and the quickest route is likely to be a tie-up with the owner of an existing wireless system.
In Europe, News Corp arm Sky is trialing Qualcomm's MediaFLO mobile TV system, among other options, but in the US, MediaFLO is likely to be heavily tied to the telcos, while Sprint is in bed with the cable operators, leaving Clearwire an obvious choice.
DirecTV has filed an application to bid for its own spectrum in the forthcoming AWS auction, but this would be an expensive option and is likely to be a fallback choice should it fail to find an appropriate partner with a network already underway (another, more outside, candidate being mobile satellite company MSV, which has hybrid satellite radio spectrum and a $1bn build out plan).
Sources indicate that talks between DirecTV and Clearwire are now at an advanced stage - and may have been an incentive for Intel and Motorola to make their joint $900m injection earlier this month.
A DirecTV contract, likely to be worth about $2bn over two years, would be a huge financial boost for the nascent WiMAX industry and for Motorola in particular, would guarantee Clearwire's future, and be a significant and needed credibility boost for 802.16 technology.
It would also contribute to Intel's immediate goal of increasing usage of WiMAX client devices, a market in which Motorola will also hope to take a major share - both in mobile phones and set-top boxes.
In a recent interview with film industry newspaper Hollywood Reporter, News Corp CEO Rupert Murdoch said: "If we can pull something off...there is no reason why that shouldn't link in with everything. I would expect to have wireless broadband advanced in at least two or three cities before the end of this year, and then it might take two or three years to build it out across the entire country."
The WiMAX venture would be executed by DirecTV CEO Chase Carey, who has already said he aims to keep the project from using more than $1bn of his $4bn cash mountain.
"There are a lot of moving parts, and when we have the right deal on the table, we'll do it. But in the short term, we will continue to provide our broadband services through the telcos," Carey said recently.
Like the Sprint Cableco venture - and unlike many of the telco plans - there will be real vision behind Murdoch's and Carey's plans, whichever network they end up using.
News Corp's recent purchase of the youth social networking phenomenon MySpace was a clear indicator that the company understands the nature of next generation communication, content and behaviour, and that innovative devices and applications, especially those used outside the home, will be the key to growth. As Murdoch has done in the past, he will harness new technologies and habits - notably increased user control of content - rather than fighting against it.
As well as putting News Corp in a position to shape and exploit these new behaviours and spending patterns, a wireless network would allow it to maximise its multibillion investment in its 34 per cent stake in DirecTV and increase its share of the overall broadband-convergence market.
For this reason, a deal with Clearwire (or another partner) is likely to be led by News Corp rather than just by its satellite arm, giving it the flexibility to use the wireless system for other purposes too (and we should remember that Clearwire is also acquiring spectrum and building networks in Europe and has its eyes on Latin America and China).
It is unclear whether DirecTV is still pursuing an option it discussed earlier this year, of collaborating with the other US satellite TV operator, EchoStar, to build a wireless network or partner with an existing one.
This would provide a combined satellite-based alternative to the other main quad play (voice, data, video/TV and mobility) blocs in the US - the fiber/wireless oriented plans of Verizon and AT&T, and the Sprint/cableco venture.
Given the consolidation of the non-satellite interests, even an eventual merger of DirecTV and EchoStar might be considered, as it would not have been a few years ago from a regulatory point of view.
Copyright © 2006, Faultline
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