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Tuesday, November 02, 2004 6:27:57 PM
David M. Ewalt, 11.02.04, 4:50 PM ET
NEW YORK - If you build it, they will come... or so Qualcomm hopes. The wireless chip and technology vendor is betting that if it constructs a nationwide network to stream television over cell phones, cellular carriers will sign on and consumers will clamor for the service. But it remains to be seen whether anyone really wants a TV in his pocket.
On Monday, Qualcomm (nasdaq: QCOM - news - people ) said it would begin building a nationwide wireless network specifically designed to deliver high-quality audio and video programming to mobile phones. The endeavor is expected to cost about $800 million over the next four or five years, and begin commercial service in 2006. Eventually, Qualcomm says it intends to spin off the company.
The network, which will be constructed by subsidiary MediaFLO USA, will ultimately broadcast between 50 and 100 channels, including 15 live streaming stations. MediaFLO will negotiate deals with media companies to deliver their content, and will sell the service directly to cellular operators, who will share the network and resell TV service to their mobile customers.
Cellular providers have spent billions upgrading their networks to provide high-speed data services, but still don't have the technology available to offer high-quality live TV. Those services require high-bandwidth, expensive systems and don't deliver as much revenue per bit of data as voice or Internet service. By building their own multimedia network, Qualcomm hopes that the carriers will skip the expense of building up their own infrastructure, and will instead pay for access to MediaFLO's network.
"What Qualcomm is doing is saying, 'We know there's concern about delivering these kinds of services through the cellular network,'" says Pacific Crest Securities analyst James Faucette. "'So we're going to build our own network, and if carriers want to use it, great.'"
Qualcomm would also benefit from increased sales of the mobile chips and technology needed to support the system. "You're going to create reasons for upgrading handsets," says Faucette.
So far, the wireless carriers have only dipped their toes into mobile television. Verizon Wireless--a joint venture of Verizon Communications (nyse: VZ - news - people ) and Vodafone Group (nyse: VOD - news - people ) is looking at the MediaFLO service, according to a spokesman. Sprint (nyse: FON - news - people ) already offers a video service called MobiTV to its customers, offering about 20 channels of low-quality video.
Overseas, the service has gotten a little more traction. In South Korea, about six million mobile phone users--more than 12% of the country's population--subscribe to services that allow them to watch television over their phones, says Steve Hoffenberg, director of electronic media research for Lyra Research. "It has been very successful," he says. "That gives companies more confidence that there really is a market out there."
But in the U.S., that interest just might not be there. A recent Lyra Research study found that 53% of U.S. cell phone users are "not at all" or "not very" interested in watching TV on a cell phone or other portable device.
Hoffenberg says that resistance is due in part to the fact that most American consumers haven't seen the technology work. Besides, he says, what really matters is the 14% of those surveyed who were "very" or "extremely" interested. "What really matters to the Qualcomms of the world isn't how many people aren't interested, it's can they sell it to the people who are?"
Even if the network is a gamble, it's probably a smart one for Qualcomm to take. If the network fails, it could cost investors about 50 cents per share, but Qualcomm is already paying out more than that every year in dividends, and that sum is expected to increase. The company also has more than $2 billion in cash on hand, making a major network investment less of a burden. "$800 million isn't a small chunk of change, but in the overall scheme of everything they've got going on, it's not that big a deal," Faucette says. "It's probably worth the risk."
http://www.forbes.com/technology/2004/11/02/cx_de_1102qcom.html?partner=rss
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