Global Insight Perspective | |
Significance | Cox is to build a wireless network, but there is no confirmation yet of earlier reports that it will be a CDMA network. |
Implications | Discussion instead focused on the advanced converged services that will be created; an earlier interview has noted that an IMS architecture will facilitate these services. |
Outlook | Cox faces a difficult market where growth has suddenly dropped and penetration is likely to plateau over the next few years as it builds out the network. Attractive services may help to take customers, but it faces effective competition from the experienced incumbents. |
The president of the third largest cable company in the United States—Cox Communications, with 5.4 million subscribers in the first quarter—has shed some light on the cable company's wireless plans. This follows the acquisition of 700 MHz spectrum earlier in 2008 where the company spent more than US$304 million acquiring 22 licences for long-range and highly penetrative spectrum (see United States: 4 December 2007: 700 MHz Auction Participants Line Up and United States: 21 March 2008: AT&T, Verizon Dominate 700 MHz Auction). Reports in Information Week and PC Magazine, covering the Progress and Freedom Foundation's annual technology summit, note that Cox intends to spend a total of around US$500 million on wireless spectrum. The differential indicates that the company, which operates in parts of the states of Arizona, Arkansas, California, Connecticut, Florida, Georgia, Idaho, Kansas, Louisiana, Nebraska, Nevada, Ohio, Oklahoma, Rhode Island, and Virginia, may be on the watch for further spectrum acquisitions. It is not clear, however, how the spectrum acquired in the AWS (Advanced Wireless Services) auction in 2006, for which Cox contributed some US$248 million to the SpectrumCo Consortium, has been apportioned—Sprint is the only member to have publicly withdrawn and the US$500-million figure may include some of this spectrum (see United States: 3 August 2007: Sprint Withdraws From SpectrumCo, United States: 19 September 2006: FCC AWS Auction Ends at US$13.9 bil., and United States: 6 October 2006: SpectrumCo Consortium Releases Details on Component Companies' Shares in AWS Auction).
Although unconfirmed by the privately held company, reports earlier in 2008 indicated that Cox intends to build out a CDMA network using an IP multimedia subsystem (IMS) architecture, reportedly tapping Huawei for the deployment. Although CDMA has had some popularity in the United States, it is an interesting choice of technology at this stage in a market where GSM-based networks increasingly have the advantages of scale production and international roaming (see Australia: 28 April 2008: Telstra Shuts Down CDMA Network and Brazil: 14 April 2008: Vivo Discontinues Purchase of CDMA Handsets). This would likely develop to become a Long-Term Evolution (LTE) network as other CDMA carriers have noted this is their preferred upgrade path (see United States: 30 November 2007: Verizon Wireless Confirms Move to LTE).
The Sprint Experience
Cox was also one of the companies that initially worked with Sprint to build a quad-play service portfolio, leveraging its cable network and re-selling Sprint services with additional "convergence" features under the Pivot programme (see United States: 27 March 2007: SpectrumCo Companies Launch Convergence Services). Although this was an important step on the road to the current WiMAX network agreement between Sprint and several cable companies, highlighting issues in provisioning services across the partners, it largely failed to deliver on the promise of advanced converged services and was abandoned following the above noted issues and, ominously for Cox, poor demand—that may, however, have been exacerbated by the problems already noted (see United States: 24 April 2008: Pivot Finished as Cable Companies Part from Sprint Joint Venture, United States: 8 November 2007: Time Warner Cable Sees Weak Demand for Pivot Mobile, and United States: 7 November 2007: Sprint Stops Pivot Plans).
Outlook and Implications
Some elements of the wireless strategy were revealed with Esser stating that it will "focus on providing simple calling plans, integrating all our services into one device with a consistent cross-platform interface; and making our content and applications mobile". PC Magazine also notes that Cox is exploring services including home solutions such as security applications, home healthcare, care monitoring, and energy management. This likely draws on some of the experience of Cox's participation in the Pivot programme, which aimed to develop converged, cross-platform services.
In March 2008, Cable Digital News noted that Cox is one of the main cable companies using its network to backhaul wireless services and that it will now leverage its existing broadband network to build out its own wireless service. Esser noted that "Wireless is straight from our offensive playbook. It's an important innovation, a logical business evolution, and will maximize the immense power of Cox's greatest asset—the last mile of our robust broadband network." Femtocells could play some part in the carrier's plans—as Comcast intends with the Clearwire WiMAX deployment—which would help to build out coverage, although 700 MHz is notable for having a longer range and effective in-building penetration that should help to make such a requirement redundant.
Although there are potential synergies and some late mover advantages such as mature network technologies and lower infrastructure equipment costs—and Cox may develop attractive services—it faces stiff competition from the incumbent operators that benefit from a long operating legacy, strong brands, and extensive networks. Competitive responses by the facilities-based carriers have largely seen off the potential threat of MVNOs, and the market also appears at the moment to be slowing down, with the top eight facilities-based carriers recording a drop in net additions of 27.2% year-on-year (see United States: 14 August 2008: Alltel Net Adds Still Booming, But Losses Continue on Buyout Costs, United States: 8 August 2008: Subscribers Run from Sprint while T-Mobile Meets Trend as Net Additions Fall in Q2, and United States: 30 June 2008: Virgin Acquires Helio for US$39 mil.). This is likely to be partly due to a weaker economic climate as penetration in the United States remains lower than many other countries at around 90%. Nevertheless, with a high rate of contract users it is also likely that the penetration ceiling in the United States is lower than many other countries where prepay services are more popular.