The phone companies came up with a "cable slayer" when they went into the market with fiber-to-the-home. Suddenly they could deliver ultra-fast broadband and 500 channel TV. They have high def to boot. Cable lost all of its edge and so far the fiber products are selling well.
One critical advantage for big phone operators like Verizon (NYSE: VZ) and AT&T (NYSE:T) is that they can "bundle in" wireless phone service and give the consumer one-stop shopping for all of his communications and entertainment needs.
The new programs from the telephone companies have helped push shares on Comcast (CMCSA) and Time Warner Cable (TWC) down by about 30% over the last year. But, it appears that cable may now have a way to fight back.
One of the most promising technologies introduced in the last five years is WiMax. It is a sort of WiFi which can work over many miles and it has the potential of blanketing most of the US with a broadband signal. It is an expensive proposition. The management at Sprint (NYSE: S) says that building out the infrastructure will cost about $5 billion. Sprint planned to do this. So did WiMax start-up Clearwire (NASDAQ: CLWR). But, Sprint’s core business fell apart and the money went away.
Intel (NASDAQ: INTC) and Motorola (NYSE: MOT) have already put hundreds of millions of dollars into WiMax. They see it as a way to sell chips for new devices and handsets. So far, they don’t have much to show for the capital they have thrown into the WiMax pot.
It has now occurred to cable companies that they can use WiMax as a flanking maneuver against the cable guys. Comcast, Time Warner Cable, and others are considering putting over $1.5 billion into the Sprint and Clearwire initiatives. Intel would probably be good for a few hundreds million more. All of the money would get the WiMax dream closer to a reality.
WiMax is the only technology around now that could devil the big cellular companies. It is the only way cable can put together consumer packages which include portable broadband. Comcast has lost $30 billion of its market cap. Some shareholders want the management sacked.
WiMax only has one disadvantage but is probably hurts the telephone companies more than cable. More competition, in this case for wireless services, drives price cutting. That compresses margins. Wall St is already concerned about a cellular service price war. WiMax gives them another reason to worry.
Douglas A. McIntyre
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