Cox to Enter Wireless Services in 2009

Posted by: Olga Kharif on October 27

Cox Communications will enter wireless services market in the second half of 2009, according to an announcement out today. The news that the cable company will effectively start to compete with AT&T, Verizon Wireless and Sprint Nextel is hardly new: Cable companies including Cox and Comcast have made no secret of their wireless ambitions. Several years ago, they even acquired billions dollars worth of wireless airwaves needed to build a wireless network. What I am surprised by is that Cox is going ahead with these expensive plans.

Cox expects that some of its 6.2 million TV subscribers will want to save time and money and buy a bundle including its wireless service. After all, similar bundles including high-speed Internet access and Web calling have already helped the company eat into telcos’ residential phone and Web access businesses, big time.

That said, I am not so sure that a wireless service offering from a cable company can be as successful. Here’s why: With cable TV, home phone and Web access, a company basically installs a line/modem in your home, and off you go. You don’t need the service provider’s help again until you decide to add more features or to discontinue the service.

But with cell phones, it’s different. People’s cell phones break, and need to be replaced (When was the last time your cable box broke?). People like to stop by their wireless service provider’s stores to buy accessories. They need help figuring out how to make their wireless service work, how to download ringtones and new apps. They want to come into a store and play with a new gadget. Cox may need to open kiosks and stores in shopping malls to make this work. And that could prove to be extremely expensive.

Yes, you may say, but what about companies like Tracfone, which sell prepaid cell phones in grocery stores and electronics shops? Couldn't Cox adopt the same approach? Sure it could. But chances are, Cox wants to offer postpaid wireless service, which requires long-term contracts; it would help the company reduce its subscriber turnover. But consumers simply don't sign two-year contracts for wireless service while shopping for bread.

Cox could start selling this new bundle in stores of partner Sprint, whose network it will initially use while it builds out its own infrastructure. Comcast had tried that in the past, with no great success, though. Comcast's bundle hadn't been popular in the limited number of markets where it was offered, and has been discontinued.

Sprint did a good job marketing the bundle in its stores; so, why did it not take off? I suspect that customers may be afraid to rely on their cable providers, not particularly known for hand holding, for wireless services. Comcast also didn't offer much of a discount for signing up for its bundle. Cox may need to offer major price incentives to change consumers' minds.