ESPN's New Game: Wireless Provider
By Roger O. Crockett
Smack in the middle of football season, Sprint (FON ) is looking to score a touchdown. The Overland Park (Kan.) telecom outfit announced plans on Dec. 1 to rent its network to cable sports king ESPN. The popular channel expects to launch its own brand of mobile-phone service, ESPN Mobile, in 2005, in a bid to attract fans who want to catch game highlights and other sports data while they're on the go.
It's not the first venture into wireless service by a provider outside the industry, and it certainly won't be the last. Since cellular carriers have more than 50% of Americans on their subscriber lists, the number of new users is slowing dramatically. Growth rates that used to push 30% a year are but a fraction of that these days. With fierce competition among the nation's five major wireless operators, Sprint has been aggressive in using unconventional means to seek growth.
THE THIRD SCREEN.
It already leases its network to Virgin, the London-based entertainment retailer, to regional landline-telecom provider Qwest (Q ), and to long-distance giant AT&T (T ). These sources and other smaller ones give Sprint 2.8 million wholesale customers and more than $400 million in annualized revenue.
ESPN, with its loyal group of sports fanatics, will just add to the stockpile. "We're interested in increasing our scale," says John Garcia, senior vice-president of Sprint Consumer Solutions. "We think opportunities like this expand the usefulness of wireless communication."
Beyond the TV and PC, content providers realize that mobile phones are quickly emerging as the important third screen used by consumers (see BW Online, 12/1/04, "TV Phones Prep for Prime Time"). ESPN, with the first of a series of branded cell-phone services planned by parent Walt Disney (DIS ), knows its followers spend a substantial amount of time away from their living rooms. By selling ESPN handsets, accessories, and applications -- from sports headlines and highlights to ring tones and even live streaming video of games and news -- the sports network expects to capture more time and money from its fans.
The way it works is simple. Sprint incurs the cost of managing the service over its nationwide network, while ESPN brings the marketing muscle and retail stores. That saves Sprint the $350 it costs to get every new subscriber into its network. Even if some of ESPN's new wireless customers are poached from Sprint's existing service, the latter still shares the revenue.
Dubbed mobile virtual network operators, businesses such as Virgin and Shell Oil see the advantages of going wireless. They're leasing network capacity from wireless carriers and distributing service from their retail stores and gas stations. This extends their brand to the palms and pockets of hundreds of millions of consumers.
Targeting the much sought-after youth segment, Virgin Mobile USA passed 1.75 million subscribers last spring, placing it among the top 10 U.S. wireless providers. Shell markets mobile service in Hong Kong, and several virtual operators are in business throughout Europe.
For mobile users, "there's a real thirst for this kind of media," says John Skipper, ESPN's executive vice-president for new media and consumer products. And providers and carriers, hungry for new sources of revenue, are starting to feed the need.
Crockett is deputy bureau chief for BusinessWeek in Chicago
Edited by Beth Belton