IXCs Back Cableco in Wholesale Deal

Posted: 2/2004

IXCs Back Cableco in Wholesale Deal
By Josh Long

MCI and Sprint Corp. have entered a
new wholesale venture helping cable operators provide millions of consumers
local and long-distance phone service on the cheap. Some say the move could
support the companies battles with the Bells.

Time Warner Cable, the second biggest cable operator, in
December announced partnerships with Sprint and MCI to provide its customers
Internetbased phone service across the country. MCI, the No. 2 long-distance
phone company, called the Time Warner Cable pact a multiyear, multimillion-
dollar agreement.

Jonathan Crane, chief strategy officer of
MCI, negotiated an agreement to help Time Warner Cable provide its
customers Internet-phone service.

Under the agreements, MCI and Sprint will carry long-distance
traffic, provide enhanced 911 services and terminate IP traffic to the public
switched telephone network.

The pacts are somewhat ironic in that MCI and Sprint have been
locked in a war to preserve their revenue in the consumer phone market. Offering
clarification, MCI spokeswoman Claire Hassett says Time Warner Cable is
marketing only to its own customer base.

Sprint spokesman David Gunasegaram says the Sprint local
telecom division only controls five percent market share in the country,
although the company recently has entered the local phone business outside of
its incumbent territory by leasing the Bell networks.

Gunasegaram says Sprint has not disclosed the financial terms
of the Time Warner agreement, noting doing so would be highly speculative.

Boyd Peterson, vice president of The Yankee Group, says the
wholesale cable agreements represent an opportunity for the long-distance phone
companies to hurt their rivals: the dominant local phone companies. The idea is,
if BellSouth Corp., SBC Communications Inc., Qwest Communications International
Inc. and Verizon Communications Inc. lose more access lines and the associated cash, they will have
fewer resources to compete with the likes of MCI and Sprint in a market all the
biggest phone companies view as a tremendous opportunity: the enterprise space,
Peterson says.

Peterson says he wouldnt be surprised if AT&T Corp.
entered a similar wholesale agreement with a cable company. AT&T is still
the No. 1 long-distance phone company, but its consumer sales have rapidly
declined in recent years.

John Overy, director of business development for Sprint, says
the agreement with Time Warner Cable and future agreements with cable
companies could extend beyond the terms of the Time Warner pact. A lot of
cable companies are interested in finding a wireless partner, Overy says, and
Sprint can bring that fourth leg to the bundle.

Sprint executives say they are in talks with other cable
companies to sign wholesale agreements.

Merrill Lynch analyst Adam Quinton reports the Time Warner
Cable announcement combined with other recent industry announcements to
accelerate the rollout of Internet-based telephony means one thing: price
deflation, good for consumers but not good for the voice telephony providers as
their voice bits get repriced down towards that of data bits.

AT&T Corp.
Merrill Lynch
Sprint Corp.
The Yankee Group
Time Warner Cable

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