ESPN, the sports-programming unit of
, said Thursday that it is killing its not-so-popular wireless venture. Instead of trying to dominate the sports-fan niche by selling phones, service plans and programming, ESPN says it will go back to licensing content.
Through wholesale arrangements with Sprint, outfits like Mobile ESPN,
sell wireless phones and service under their own brands. Eventually, cable companies including
plan to do the same. Companies that use these wholesale arrangements are known in the industry as mobile-virtual-network operators, or MVNOs.
The wholesale channel was expected to be a rich revenue stream, giving Sprint a chance to squeeze more sales out of its network without conflicting with its main wireless business.
But wholesale has been suffering and Sprint's so-called core business hasn't exactly demonstrated pillar-like support.
As Sprint's second-quarter earnings report showed, areas that should be gaining strength are actually weakening. The merger integration with Nextel has been a
disaster so far as Sprint has alienated some of Nextel's loyal, big-spending customers, say analysts.
After posting a sales shortfall and slower-than-expected subscriber growth last month, Sprint cut its full-year sales target.
Sprint stock has now fallen 37% from its April high, a plunge that accelerated after last month's warning call.
Mobile ESPN's defection is only the latest bit of bad news for Sprint's already declining wireless-wholesale business. Last quarter, wholesale revenue dropped 9% from year-ago levels. Wholesale now represents a mere 2% of Sprint's total wireless sales. That's down from 6% last year.
Part of the reason for the weak wholesale trend is that Sprint acquired some of its affiliates. Sprint also says that it cut its wholesale rates for Virgin Mobile -- another sign that the MVNO experiment isn't going well.
But Sprint says it is early yet. "This is still a relatively young area. It needs several quarters to get momentum," says a Sprint representative.
"We continue to be very supportive of the MVNO strategy," the rep said, pointing to Qwest's continued use of the model and the success of Nextel's Boost unit, a teen-oriented prepaid offering.
Sprint is also pinning high hopes on a group of large cable companies including Comcast and Cox, where wireless will be resold as part of a quadruple play offering.
For now, investors seem to be taking Sprint one disappointment at a time.
"I definitely had different expectations in 2005 than I have now," says one money manager, referring to Sprint's dimming MVNO opportunity.
Sprint shares fell 7 cents to $16.75 Thursday.