In a revealing presentation, Cox President Patrick Esser told the Progress and Freedom Foundation's annual tech policy summit in Aspen, Colorado that they intend to capture 20% market share for wireless service. Rather than join the Clearwire alliance like their other cable brethren, Cox is going it alone through its recent acquisition of 700 MHz spectrum. As reported by PC Magazine, Esser says he “…won't divulge too many secrets here, but we'll 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.”

Pretty bold comments considering the hyper-competitive marketplace for wireless. Achieving 20% penetration would be very impressive, especially for a company with no wireless experience. But Cox competitors shouldn’t take them lightly. They’ve been quite successful in capturing significant voice business from their telco competitors, and at one point, they had no experience with voice either. The pending move into wireless by the cable industry will be interesting to watch. They failed miserably with Pivot Wireless. But to their credit, they’re marching forward with a wireless act two. When and if they get it going, it will open up a new front in the bundling war between telco and cable. PC Magazine summed it up nicely with this Esser quote, “Frankly, we're in a street fight today for customers in every single aspect of our business – from the Bells and the satellite guys, to the wireless carriers.” Happy hunting.

The triple play has historically been defined as a bundle of voice, video, and broadband. And of late, the cable industry seems to be executing a triple play strategy quite well. For example, Comcast’s triple play strategy execution has helped vault them to the fourth largest phone company in the U.S. (by access line count) – all within three years. How many decades did it take Embarq/Sprint to be the fourth largest traditional phone company? If you look at recent quarterly reports, cable companies seem to be executing the triple play better than their telco competitors. Take a look at each industry’s core product. Comcast lost 132K of its core product (basic video subs) last quarter. AT&T and Verizon’s losses in core product (switched access lines) are now being measured in millions each quarter. Current indications suggest that a triple play bundle of voice, video, and broadband favors cable companies.

But what if the future of triple play really involves wireless? Whenever wireless is injected into a bundle discussion, it’s seems to be as a part of a “quad play” – voice, video, broadband, and wireless. But what if we redefined triple play as wireless, broadband, and video. If the future of wireline voice service lies with IP, then there really is no reason to delineate voice and broadband separately. The two should be combined into “broadband,” since voice will simply be one of many broadband applications (you could conceivably say the same for video, but that’s the subject of another post). In this regard, future triple play strategies may shift to wireless, broadband, and video. If so, than despite the short term troubles of telcos relative to their cable competitors, the long term looks quite bright for the telcos who are fortunate to have wireless assets. Consider that in 2Q08, AT&T’s ($12 billion) and Verizon’s ($12.1 billion) individual revenue from wireless alone dwarfs Comcast’s total revenue of $8.5 billion. So while telcos may be licking their wounds over switched access line losses in the short term, they may well be positioning themselves for long term triple play dominance, with wireless at the center of their strategy.

AT&T released their latest quarterly numbers, revealing the progress of U-Verse and their other business lines. Depending on your point of view, U-Verse is either progressing nicely or is woefully inadequate. AT&T’s PR spin indicates the former, but the real view is only available to AT&T insiders, analysts, and the “flies on the boardroom wall.” If you place U-Verse’s video subscriber additions (170K net adds for 2Q08) in the context of its cable competitors progress in taking voice lines (Comcast has averaged 646K net phone adds the past three quarters), you walk away very underwhelmed. Even if AT&T hits its target of 1 million video subs by the end of the year, it still pales in comparison to the momentum of cable taking voice subscribers. But if you subscribe to the opinion that voice lines are becoming less and less important in today’s world of wireless and broadband, than any video progress for AT&T could conceivably be considered “gravy.” That opinion suggests that massive numbers of wireline customers are going to give up traditional voice service anyway, so if I can continue to replace that fleeting revenue with a triple play of broadband, video, and wireless, maybe I’m all the better for the future.

Time will tell whether the billions of dollars of U-Verse investment will ultimately be worth it. The reality for AT&T is they didn’t really have a choice. Their traditional cash cow, local access lines, is dying on the vine because of wireless substitution and IP voice competition. They are executing quite well on their wireless strategy (at least from a quarterly financials point of view), which is the ultimate equalizer for declining access line counts. Consider that in 2Q08, AT&T added 1.3 million net new wireless subscribers and lost 1.5 million switched access lines, and you can begin to accept the “writing is on the wall” cliché. U-Verse will play an ever increasing role in AT&T’s evolving future, ensuring those local access loops still have a reason to exist and still generate a healthy revenue stream. But before they get too ahead of themselves with glorious quarterly reports that toot more horns than a steam locomotive, they would do well to prepare for a more level future competitive playing field. A more intense competitive picture will emerge when and if their cable competitors gain a wireless opportunity of their own. Who ultimately wins in that scenario?

Ahead of their Alltel acquisition regulatory review, Verizon filed a letter with the FCC outlining their wireless spectrum divestiture plans. In hopes of reducing “market dominance” fears, they plan on divesting of 85 markets, including all of North and South Dakota, and rural serving areas in California, Colorado, Idaho, Montana , Minnesota, Kansas, Illinois, Nevada, New Mexico, Utah, Wyoming, Georgia, Virginia, North Carolina, South Carolina, and Ohio. Larger markets in the divested territories include Billings, Great Falls, and Casper. The divested territories may include either Alltel or Rural Cellular territories. Verizon’s acquisition of Rural Cellular is expected to close later this year. Additionally, Verizon committed to maintaining all existing roaming agreements with “regional, small and rural carriers” for the length of those existing agreements. Of course, once those existing agreements expire, those regional, small and rural carriers will need to negotiate a new deal. Judging by most recent roaming agreements between large and small carriers, “negotiate” can be a very relative term.

This potential opening of 85 markets presents opportunities with competitive implications. The usual suspects of AT&T and T-Mobile will surely take a look at acquiring these markets, and so will smaller carriers like MetroPCS and Leap. But perhaps even smaller rural carriers may get an opportunity to gain a foothold in these markets and offer a true competitive option to the large national brands. Smaller carriers, many of whom currently lack wireless assets, probably have much more interest in serving these rural territories. Should public policy mandate that the divested properties be given preferential acquisition treatment to carriers other than the usual suspects? Or maybe a consortium of rural carriers (new or existing) should consider trying to gain these wireless assets. These are questions worth debating.

In the hyper competitive world of wireless, telephone numbers can be ported to competing carriers within hours. Several members of Congress have written the FCC, demanding comparable portability timelines for wireline to wireless number portability. Currently, porting a number from a wireline carrier to a wireless carrier can take up to four business days. To address the issue, Senate Commerce Committee Chairman Daniel Inouye (D-Hawaii) and Vice Chairman Ted Stevens (R-Alaska) introduced the Same Number Act (S.1769) which would “…require the commission to establish number portability performance standards for all voice service providers.”

RCR Wireless is reporting that members of Congress have written the FCC, urging this issue to be addressed by “month’s end.” FCC Chairman seems to be in agreement, at least in principal. He’s quoted in the RCR article as saying, “I think it would be a good thing for the commission to try to address, to harmonize our local number portability [guidelines] so the amount of time of taking a number from carrier to carrier is shortened and consistent from platform to platform.” The issue adds more fuel to an already ugly fire, from a wireline carrier’s point of view (especially those who don’t have wireless assets). Wireline substitution, in favor of wireless, is the revealing reality of the today’s competitive landscape. Making it even easier and more seamless for consumers to cut the cord makes the implications even more intense.

Verizon announced the addition of wireless services to its wholesale product portfolio. The new wholesale wireless options are being made available to Verizon’s community of wireline service resellers, through its wholesale arm, Verizon Partner Solutions (VPS). According to a Verizon press release, “The introduction of Verizon Wholesale Mobility Solutions presents VPS wholesale clients with the opportunity to bundle their full-service Verizon wholesale wireline services with wireless voice, text messaging and mobile broadband services to offer their retail end-users a single source for both fixed and mobile voice and broadband services.” Verizon also announced that Lightyear Network Solutions is the first reseller to sign up for the new wireless portfolio.

Verizon will begin marketing its Flex Double Play Bundle this week which offers wireless service with broadband and/or FiOS TV, and no need for a wireline. The new bundle applies to Verizon’s DSL plans of 3 Mbps or FiOS broadband plans of 20 Mbps. It does not apply to their 7 Mbps DSL or 50 Mbps FiOS plans, or their DirecTV video plans. The bundle provides a discount of between $8 and $20 per month, depending on the services selected. Verizon spokesman Bill Kula tells the Associated Press, “We remain very bullish on the traditional copper-based phone service, but we also recognize that there's a growing segment of society that wants to have wireless as its principal home service.”

AT&T launched a similar bundle without a landline last year. These moves are recognition by larger telecom service providers of wireless substitution. Carriers with wireless and broadband assets are at a competitive advantage, relative to wireless substitution, because they have the option of pursuing customers who want to cut the cord. From a wireline carrier’s point of view, having the ability to serve customers who leave the wireline behind with a wireless product presents a tremendous competitive advantage, especially against competitors who can only offer video and broadband options. We always talk about the triple play in terms of voice, video, and data. We’ll begin to see the context of triple play expand to include wireless, video, and data.

The proverbial cat is out of the bag. Verizon is acquiring Alltel for $5.9 billion, plus the assumption of $22.2 billion in debt, a deal that was first reported by CNBC yesterday. "This is a perfect fit, with Alltel's high-value post-paid customer base, its solid financials, our common network technology, and significant, readily attainable synergies," says Verizon CEO Ivan Seidenberg. Alltel serves more than 13 million customers in markets in 34 states, primarily in more rural markets. Verizon expects the deal to close by the end of the year.

As we noted in an earlier post, this deal creates some interesting competitive implications, all of which can’t be examined this quickly. The deal seems to have come together really fast. There must have been some motivated principals. The Wall Street Journal reports that the previous buyers of Alltel were anxious to sell because their original leveraged buyout terms were becoming increasingly “ugly.” They are basically breaking even on the deal, and avoiding potential losses, because the complex debt transactions of the original buy out are now coming back to haunt them because of the credit crisis in the U.S. economy. The new outcome, if it passes regulatory muster, will create the largest wireless carrier in North America, with 80 million or so subscribers. By our estimation, Verizon, the quintessential traditional wireline telephone company, will now have double the number of wireless subscribers, compared to its wireline access lines (40 million as of their last quarterly report). Perhaps we should start thinking of Verizon as a wireless company with some wireline assets, as opposed to the opposite.

Update-6/5/2008 - As of 10:00a ET, the Wall Street Journal is reporting that Verizon and Alltel have come to terms on a sale, with Verizon offering $5.9 billion and the assumption of $22.2 billion in debt. More to follow soon.

There is a rumor floating around that Verizon is in talks to purchase Alltel Wireless for $27 billion. If the rumor holds true, a Verizon acquisition of Alltel would create the largest U.S. wireless carrier, surpassing the current leader AT&T, with a combined 80 million subscribers. AT&T currently has about 72 million subscribers. Such a move would have interesting competitive implications. For example, it may open the door for other interested carriers, wireline or wireless, to gain or expand wireless assets because anti-trust concerns will certainly force Verizon and Alltel to shed some overlapping or dominant territory. Secondly, it would expand the Verizon footprint and brand into more rural territories and perhaps impact wireless substitution there. Much more information to come on this potential blockbuster deal.

Part of wireless service’s dirty little secret is that only a small portion of a wireless call is actually carried “wirelessly.” The reality is, once that wireless call hits the wireless tower, the majority of the call is transported over good old, dependable wirelines. Pivot Media, parent company of Telecompetitor, hosted a webinar focused on wireless backhaul opportunities yesterday. The webinar is part of the Rural IP Transformation webinar series, produced by Pivot Media and sponsored by Alcatel-Lucent, which focuses on the transformation of local telecom service providers into integrated communications carriers, with IP technology at their core. Several interesting points were covered in yesterday’s webinar:

• wireless backhaul will be about a $16 billion business by 2009
• wireless carriers are confronted with escalating backhaul costs due to an explosion in wireless data traffic
• unlike voice traffic, data traffic is not easily recoverable from an end user revenue perspective – meaning more data traffic equates to more operational expense for wireless carriers, but not necessarily more revenue, making backhaul cost reduction a priority
• wireless backhaul is a mult-billion dollar opportunity for wireline carriers, who can offer transport services to wireless carriers
• the move to Ethernet/IP as a transport method is well underway, and whoever can capitalize on that stands to gain

From a competitive standpoint, I was struck by the opportunity for wireline carriers. All things being equal, wireless substitution is a pain in the side of wireline carriers, so approaching wireless backhaul may be a hard pill to swallow – why facilitate your own demise, some might ask? But the contrarian view says, wireless substitution is a “genie out of the bottle” circumstance – there is no going back. So why not try to at least capitalize on it, and replace some lost revenue caused by wireless substitution with wireless backhaul revenue opportunities. To do so, wireline carriers will have to ensure their transport networks have the requirements and needs of wireless carriers in mind. You can find out what those requirements are by watching an archived version of the webinar.