The mobile TV wars

Olga Kharif
30 Jul 2007
00:00

The mobile TV shakeout has begun: Modeo, a subsidiary of cellular tower operator Crown Castle International (CCI), has shut down its one broadcast network in the New York City area, leaving the emerging business of delivering live TV programs to just a handful of players.

For months, Modeo had stubbornly clung to life as it searched for a carrier willing to share its network development costs and subscribe to its service. Having already lost out on a potential customer in Verizon Wireless, which signed on last year with a rival venture backed by Qualcomm, Modeo suffered a second major blow in early 2007 when AT&T (T) also decided to go with MediaFlo. Verizon (VZ) now offers MediaFlo's eight-channel service on cell phones in 32 markets, and AT&T plans to go live in the fall. 'It's full steam ahead for us,' says Gina Lombardi, president of MediaFlo USA.

Selling Spectrum

Other carriers, including Sprint Nextel (S), have reaffirmed their ties to MobiTV, a pioneer in this new market. MobiTV streams video channels over a carrier's cellular network instead of a separate, dedicated network of wireless towers like those planned by Modeo and being built by MediaFlo.

Modeo insisted there was still a business to be built in delivering TV to laptops, iPods, and other mobile devices. But with three of the nation's four national cell carriers divided between MediaFlo and MobiTV, there was truly little market opportunity left for Modeo.

So on July 23, Crown Castle announced that it had reached a deal with the investment firms Telecom Ventures and Columbia Capital to lease Modeo's spectrum licenses to use certain portions of the airwaves in markets around the country. The venture capital firms will pay $13 million a year for six years, after which they'll have the option of renewing the lease or buying the spectrum for $130 million.

For Crown Castle, which originally paid $13 million for the licenses, 'it was a very profitable outcome,' says Jay Brown, Crown Castle's treasurer. The company won't say, however, how much it invested in developing Modeo, building the New York network, or running that trial.

Subscribers Needed

Even with Modeo out of the way, it's not clear how easily the remaining competitors will recoup their investments in this unproven market. Though many have scoffed at the notion of squinting at videos on a tiny screen, cell-phone users are showing an appetite for mobile TV just as consumers have come to love watching scratchy amateur videos from Google's (GOOG) YouTube on their computers. By the end of March, the number of U.S. mobile subscribers watching video on their phones had more than doubled, to 8.4 million people, compared with 12 months earlier, according to the research firm Telephia. Still, that number represents just 3.5% of all U.S. wireless users, and the vast majority of them are downloading short prerecorded clips rather than watching live TV channels like MediaFlo's.

One key question is how much consumers will be willing to spend on mobile TV. While some users may spend $4 or $5 a month to download video clips to their cell phones, the more robust mobile TV services with live channels are typically priced at $10 to $20 a month.

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