What a difference a year doesn’t make
What a difference a year doesn’t make
The calendar has Headlines thinking back not just at 2011, but to our beginnings. Benton launched this service in 1996 as a way to keep people informed about the pressing communications policy debates of the day. We were watching implementation of the landmark Telecommunications Act of 1996 and figured other people would like to know about it, too.
Not so much on purpose, but aligned with the foundation’s priorities, we covered lots of issues surrounding broadcasting “back in the day.” We certainly had an eye on telecommunications and universal service reform – and that wacky Internet thing – but we found more stories on broadcasting than any other issue.
In recent years, especially since editor Kevin Taglang’s return in 2004, we’ve focused more on broadband – extending its reach to all Americans, seeking policies that make it more affordable, and encouraging people to make effective use of it to improve their lives and community. As you probably know, we've tracked implementation of the National Broadband Plan.
2011 has been different, however. 2011, from Headlines’ perceptive, has really been the year of wireless. So we devote this week’s round-up – our last of 2011 – to the state of the wireless industry.
Stacey Higginbotham – one of our favorite writers – wrote a nice piece on wireless that got us thinking about all this. She noted -- What a difference a year doesn’t make: “Between the collapse of AT&T’s proposed $39 billion merger with T-Mobile and the death throes of a proposed wholesale 4G network created by a satellite company and now-broke hedge fund, the wireless industry has generated a lot of stories but no real change in the past year. We still have the same top four providers, and Clearwire is still struggling. The hoped-for entrance of LightSquared as a wholesale LTE-provider hasn’t materialized, and while Dish says it plans to enter the market, that news is balanced out by Cox’s deciding to leave it.”
AT&T’s proposed acquisition of T-Mobile, announced in March, did probably grab the most headlines this year. We knew the review of the transaction would be a big deal and created a central spot to collect all the stories, all the filings, all the events surrounding the debate. [Editor’s note: Benton voiced opposition to the deal shortly after it was announced] We think back now to Public Knowledge Legal Director Harold Feld saying that this review was bigger than just AT&T/T-Mobile, but about the future of antitrust enforcement and the soul of antitrust enforcement.” So the top story for us this year is AT&T’s decision to end the bid to acquire T-Mobile after the both the Department of Justice and the Federal Communications Commission opposed the deal.
But on the same day we reported AT&T’s decision, we reported on Verizon’s application to buy 122 wireless spectrum licenses from Comcast, Time Warner Cable, and Bright House (and don’t forget a similar deal with Cox will be reviewed in 2012, too). This deal – valued at $3.6 billion – isn’t getting as many headlines, but the transaction could have an even greater impact on the competitiveness of the wireless industry -- and the pay TV industry. Even though the cable companies never used the spectrum in question to serve customers, the companies also announced that they have entered into several agreements, providing for the sale of various products and services. Through these agreements, the cable companies, on the one hand, and Verizon Wireless, on the other, will become agents to sell one another's products and, over time, the cable companies will have the option of selling Verizon Wireless’ service on a wholesale basis. Additionally, the cable companies and Verizon Wireless have formed an innovation technology joint venture for the development of technology to better integrate wireline and wireless products and services. That would allow, for example, a consumer to walk into a Comcast store and get a Verizon Wireless plan tacked on to his television, Internet and landline phone service.
Industry analysts, from the announcement of this deal, have noted there’s huge implications for competition as potential competitors now become friends selling each other’s products. An interesting piece by Tim Farrar -- President of Telecom, Media and Finance Associates – says we’re headed now towards a new model in wireless, pitting Verizon and cable TV on one side against AT&T and satellite TV on the other.
Verizon’s purchase of SpectrumCo was the first indicator of this new model, with the cable companies being granted wholesale access to Verizon’s LTE network in four years’ time so they can offer their own wireless services. Now, after the collapse of the proposed AT&T/T-Mobile merger, all eyes are focused on AT&T’s potential purchase of DISH Network, which could enable the buildout of an LTE Advanced network across 52MHz of spectrum.
The ripple effect from this transition range from what happens to DirecTV and Cablevision if they are left on their own once the other cable companies and DISH choose sides, to whether Sprint’s Network Vision plan can compete with second rate spectrum and limited scale against retail-focused providers with access to AT&T or Verizon’s far superior 4G network infrastructure.
In this new environment, Farrar writes, the FCC and DoJ will have to emphasize retail competition instead of the facilities-based competition that has been the focus of FCC policy ever since the 1996 Telecommunications Act. The only way to do that will be through making the initial wholesale commitments ventured by Verizon and AT&T into a much broader framework for supplying wholesale LTE network access to other wireless providers.
But, obviously, we’re moving into an election year. Would imposing wholesale access commitments on the telecom industry be viewed as “European-style” socialism? Would commitments for large scale wireless deployment be enough of a win for President Barack Obama?
Farrar isn’t the only industry watcher thinking about the transforming wireless landscape. Fortune’s Scott Woolley asks if AT&T and Verizon as an inevitable duopoly. AT&T and Verizon are indeed an intimidating pair. They have 101 million and 108 million wireless customers, respectively. That huge scale results in much fatter profits than the rest of the industry. Together the two companies now generate close to 85% of the U.S. wireless industry's total cash flow. While those huge profits appear tempting for new competitors, the hurdle for any effective challenger is replicating the two companies' scale. At the end of September, Verizon owned spectrum the company valued at $73.2 billion, which will climb to $77 billion if the Justice Department agrees to let them buy more airwaves from the cable companies.
What sort of competitor can make an investment to compete with that? Even if a company found $50 billion to spend on airwaves at today's prices, they'd still have to billions more to build the actual physical network of towers around the country. So perhaps its no surprise that in the past year the viable candidates for the title of "duopoly killer" have all but disappeared.
But The Verge’s Joshua Topolsky, writing in the Washington Post, sees a possible brighter future. He thinks that instead of battling over coverage areas, perhaps carriers should start thinking about ways they could work together to serve their customers better. He thinks carriers incompatable networks result in less coverage, fewer device choices, longer contracts and likely higher rates for service — a scenario that is bad for consumers. “A sophisticated wireless network in this country is imperative for businesses, schools and, yes, regular human beings,” Topolsky writes. He thinks carriers working together is the solution, but, if not – an “exceedingly simple fix: Government regulations (and the required herding) to get all of our carriers on the same page. A mandate from the people (remember, that’s who our government is supposed to work for) that we start making the decisions that are right for our citizens, not just for the bottom line of a few companies that happen to be in control of an increasingly precious resource.”
No doubt, Headlines will have its eyes on developments in wireless in 2012. We’ve set up a page to collect all the info on the Verizon deal as we did for AT&T/T-Mobile.
See you in January.