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Sprint Spin-off Embarq to Offer Wireless Bundle through MVNO Alliance
[June 02, 2006]

Sprint Spin-off Embarq to Offer Wireless Bundle through MVNO Alliance

TMCnet Executive Editor

Embarq (News - Alert), the incumbent local exchange carrier (ILEC) recently spun-off from Sprint (News - Alert) Nextel that considers itself a “brand new, 107-year-old company,” will offer wireless bundled service plans through a Mobile Virtual Network Operator (MVNO) relationship with its former parent company.


An announcement will be made early next week at the annual GlobalComm (News - Alert) trade show, which kicks off June 4-8, in Chicago . Company officials declined to comment this week on the specifics including price. However, Embarq CEO Dan Hesse has hinted at the upcoming announcement in a series of press interviews. In addition, the company’s SEC filing related to the spin-off provided extensive details of the MVNO agreement.


According to the S-1 filing, the company will provide CDMA-based wireless voice and data services in most of its local service territories to consumers and small business customers through a non-exclusive, seven-year wholesale MVNO arrangement with Sprint Nextel. The wireless bundle helps to complement the company’s product suite, which also includes long distance, DSL-based fixed-line broadband service and video services via a partnership with Echostar.


“We believe Embarq’s profile resembles characteristics of both a regional Bell operating company and a rural local exchange carrier with approximately 50/50 mix of its access lines between urban and rural markets,” Jonathan Atkin, analyst at RBC Capital Markets, wrote recently in a research report.


Embarq's coverage


Embarq become a separate, publicly traded company on May 18, when Sprint Nextel completed its previously disclosed plans to spin off its local phone business following the completion of the Sprint’s acquisition of Nextel. But despite being the New Kid on the Block, Embarq is actually the fifth-largest (based on access lines) local communications company in the U.S., serving about 4.5 percent of U.S. households with approximately 7.4 million consumer and business access lines.


But while the company gets its product portfolio in order, other analysts believe the biggest hurdle for Embarq executives is likely to be successfully transitioning to a new corporate culture that is essential for survival in the highly competitive marketplace.


“It looks like the company is well positioned for the new wave of competition we will see over the next few years,” said Jeff Kagan, industry analyst. “The only question is whether the employees are ready. This is not a company that has competed for business in the past so they have to think and act differently going forward. The senior executive team sure gets it, but that new focus has to be translated down throughout the organization.”


According to Hesse , the wireless service will allow customers that are served by Embarq’s ILEC lines to share voicemail boxes – another example of the convergence that is expected to play a major role at GlobalComm.


The initial seven-year term gives Embarq the right to resell the wireless bundled services in areas covered by affiliate networks that are not owned or controlled by Sprint Nextel but, the company said, there is no guarantee that those rights will extend beyond 2006. The agreement will expand to cover territories where the company is building and operating CLEC operations, but it will not automatically extend to new local service territories acquired through acquisition, merger or similar transactions.


Like with most MVNO relationships, the wireless service will be branded as “Embarq” using its trademarks and logos, essentially competing with Sprint Nextel in the consumer and SMB market. Small business customers for purposes of the MVNO relationship are defined as businesses with less than 80 lines of wireless services . However, the company will still offer Sprint Nextel-branded wireless services to certain medium and large business customers through a sales agency agreement with Sprint Nextel. By bundling in wireless services , Embarq officials are hoping to stem the losses of access lines as customers turn away from ILECs to alternative carriers like cable operators and VoIP service providers.


“By offering a bundled package of products and services , we have improved our long distance and high-speed Internet services penetration, resulting in increased revenue and lower customer churn, which have helped to offset revenue decreases driven by continuing declines in access lines and product substitution,” the company said in its SEC filing. Since it introduced high-speed Internet access service in 1999, Embarq has signed up more than 638,000, which represents a penetration of about 8.6 percent of its access lines coverage.


Following the initial seven-year term, the MVNO agreement may be renewed for successive one-year periods until one party gives notice to the other party of its intent not to renew the agreement. Each company will have the right to terminate the agreement upon a material breach of the agreement by the other party, if the breach is not cured within a certain period of time. Sprint Nextel also will have the right to terminate the agreement if Embarq fail to meet subscriber targets within the first two years of the agreement, or if Embarq transfers more than 50 percent of its subscribers to another carrier. Sprint Nextel will have the right to terminate the MVNO agreement upon a change of control at Embarq. There are certain restrictions that will prevent Embarq from transferring its base of wireless customers to another carrier.




Robert Liu is Executive Editor at TMCnet. Previously, he was Executive Editor at Jupitermedia and has also written for CNN, A&E, Dow Jones and Bloomberg. For more articles, please visit Robert Liu's columnist page.

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