Verizon’s AOL Buy Is an Expensive Gambit at Trying to Be More Than a Dumb Pipe

Is the wireless business really so competitive that Verizon needs to become a video provider, too? In short, the answer may well be yes. Given the high fixed costs of running a wireless network, carriers around the globe are looking for ways to avoid being just a “dumb pipe.” With a hyper-aggressive T-Mobile and a reinvigorated Sprint, both AT&T and Verizon are seeing pressure on the core business of delivering bits and bytes to mobile devices.

The US market is largely saturated with smartphones at this point, and while customers are adding additional devices, such as tablets, those aren’t game-changers and also tend to be less profitable than the phone business. Meanwhile, both AT&T and Verizon lost core smartphone customers amid the intense push, especially from T-Mobile. What AT&T and Verizon do have is a scale that Sprint and T-Mobile lack. That allows them to get into businesses its smaller rivals can’t afford. If it plays its cards right, it can offer a bigger collection of services than either Sprint or T-Mobile and, in doing so, make it much tougher to compete.