Tuesday, July 29, 2014

Sprint Nextel Sues Cable TV Giants - Analyst Blog

Sprint Nextel Corporation ( S ) recently alleged major players in the cable TV market including Time Warner Cable Inc. ( TWC ), Comcast Corp. ( CMCSA ), Cable One Inc. and Cox Communications Inc. of infringing 12 patent rights regarding phone calls made over the internet, known as voice over internet protocol or VoIP.

The third largest wireless communications company in the US, Sprint Nextel, claimed that these stalwarts did not seek permission from the company for using its patented VoIP technology and thus filed a law suit against them.

Earlier in 2005, Sprint charged Vonage and Voiceglo Communications on similar grounds. Vonage finally lost the case and had to pay $69.5 million to Sprint for violating their VoIP patent rights. Moreover, Sprint induced the company to ink a deal worth $80 million to use their VoIP technology. Again in 2008, Sprint filed a lawsuit against four smaller firms alleging violation of VoIP patents.

The recent roll out of docsis 3.0 by most of the cable TV operators, providing speed of nearly 50 mbps resulted in more data usage by the subscribers. It is also gaining popularity among the business class people. Concurrently, the use of VoIP technology is also accelerating rapidly and we believe that every now and then such infringements will tend to occur.

We believe that the iPhones and LTE upgrades along with attractive product and service offerings and prepaid brands will boost Sprint's wireless growth prospects. Further, the company continues to benefit from the Network Vision plan, which is ahead of its original schedule. However, funding issues pose significant risks to Sprint. Lower margins in wireless and wireline, heavy subsidies, higher spending and aggravated competitive threats also add to our concerns.

We, thus, maintain our long-term Neutral recommendation for Sprint. Currently, it has a Zacks#3 Rank, implying a short-term "Hold" rating on the stock.


 
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