Verizon’s spectrum deal with cable is the end of broadband competition
The spectrum deal Verizon signed with Comcast, Time Warner Cable and Bright House Networks Friday, in which the nation’s largest wireless operator would buy the unused airwaves from the nation’s top cable providers, signals the moment that the consumer benefits of the convergence of voice, video and data hit the wall. It’s a deal that’s great for Verizon, an acknowledgment of reality for the cable folks and a bummer for AT&T and consumers.
Under the terms of the deal, Verizon will acquire AWS spectrum that Comcast, Time Warner Cable and Bright House Networks had purchased during the AWS auctions under the SpectrumCo name in 2006. Verizon is paying a $1.2 billion premium for the airwaves and will get 20 MHz in cities across the continental U.S., giving it up to 60 MHz for its Long Term Evolution (LTE) network in certain markets. And for mobile players, having a lot of spectrum is essential to meeting demand.
But as part of the deal, Verizon and the cable companies have signed undisclosed “agreements” that indicate how the two companies will combine their products and create partnerships around bundling wireless, voice, data and television. Verizon didn’t explain much, but Kevin Fitchard, my colleague writes:
The most obvious result of that deal would be to allow the cable operators to become MVNOs on Verizon’s network, but it may also hold the possibility of Verizon becoming a kind of cable virtual operator or agent outside of its traditional wireline territory, selling home broadband, TV and phone services out of its stores.
In a blog post today Neil Smit, President of Comcast Cable wrote that Comcast will wait four years before it can provide a mobile offering with itself acting as mobile virtual network operator. He said Time Warner Cable and Bright House had similar agreements. However, the tenor of those agreements is essential in determining how this deal will affect the U.S.’ broadband competition in both wireless and wireline.
The hope of a new wireless player shrinks
Verizon and the cable guys are hanging up their gloves.
Consumer groups are leery that this deal will benefit their constituents, with Mark Cooper — research director of the Consumer Federation of America — saying in an interview, “This is the end of the world!
“Verizon was supposed to be our competitor for Comcast in the wireline space and SpectrumCo was supposed to be a competitor to Verizon and AT&T in the wireless, and now that’s all gone,” he said. Indeed, it’s looking unlikely that the cable guys will continue to act as any sort of competition, especially given that Cnet is reporting they will halt their agreement to resell WiMax with Clearwire. This leaves the wireless world pretty much stuck with AT&T, Verizon, Sprint and T-Mobile, with smaller dollops of competition provided by Leap Wireless and MetroPCS. The two smaller carriers may even get a tiny boost if the FCC requires Verizon to sell off any spectrum assets as part of approving the deal.
Despite the potential of a small spectrum divestiture, Cooper notes that in the last 10 years, AT&T and Verizon have managed to buy 75 percent of the spectrum that was put on auction, and about 90 percent of the spectrum auctioned in the last decade is in the hands of the Big Four carriers. Given that spectrum is one of the barriers to entry for anyone planning a wireless network, and that getting the stuff approved for a mobile broadband network is daunting and expensive, it’s pretty clear U.S. policy hasn’t helped spread that wealth.
Where there’s wireline there’s hope. Or there was.
Yet aside from the wireless implications, the deal has a huge potential impact on wireless broadband competition. Verizon had hinted it might resell its FiOS TV service over-the-top to folks outside the FiOS service area. Since TV can be a collection of bits delivered over the Internet, the traditional cable packages could become obsolete if the content companies and channels could figure out ways to license their content in new ways.
TV will be affected too.
Given that Verizon has both a broadband and a pay TV business, it had one of the best chances to push such a radical change in the pay TV business model. But now that it has some mysterious “agreements” with the cable guys, it’s unlikely that Verizon would try to infringe on their content businesses with its own over-the-top offering. That’s a bummer for consumers who might prefer a Verizon package over one from their local cable provider, but it’s also indicative of Verizon ceding the wireline market to cable companies.
As Verizon has rolled out its fiber-to-the-home (FTTH) offerings, it has sold off many elements of its older DSL businesses, and is now positioning its LTE wireless service as a competitor to DSL. This is bad news for Frontier, CenturyLink and AT&T’s markets that don’t have U-verse, but it won’t bother cable providers, which have or are in the midst of upgrading their networks to faster DOCSIS 3.0 systems that can deliver 100 Mbps service.
Cable companies are already taking over at the nation’s primary broadband providers as people dump DSL lines in droves. The problem is that for many consumers a choice between DSL, LTE or cable isn’t really much of a choice at all. Cable networks upgraded to DOCSIS 3 can be much faster than DSL or LTE, and it’s hard to imagine a consumer seeing the options as equal. The best hope for a better competitor to cable is FTTH (not even AT&T’s fiber-to-the-node technology that U-verse offers), and it’s possible that Verizon no longer has much reason to roll out fiber further so it doesn’t upset its new partners. This is why both AT&T and consumers are on the losing end of this agreement.
Susan Crawford, an influential policy wonk and a professor at Cardozo Law School in New York City agrees. She emailed me the following:
“This is the crystalline moment when the division of the marketplace becomes completely clear, even to people who haven’t been paying attention. VZ and ATT get wireless; cable gets wires; consumers are stuck. Wireless, like wired high-speed access already wholly dominated by the cable companies, is a natural monopoly service at this point, with incredibly high barriers to entry – so high that even current players, like T-Mo, are having trouble making it. Clearwire has nowhere to go at this point. So we have the worst of all worlds: no competition, and no regulatory oversight.”
Wait what if Wi-Fi can save us?
The potential counterweight to this anticompetitive world is Wi-Fi. The hope that Wi-Fi remains a growing power that’s not controlled entirely by one party was mentioned as a possibility by several people I spoke with. If the cable companies follow Cablevision’s strategy of deploying Wi-Fi networks in addition to their wireline networks, it offers the chance for a newcomers such as Republic Wireless to offer mobile-esque data plans that rely mostly on Wi-Fi hotspots for connectivity.
This is a pretty small hedge against the growing monopoly and duopoly in U.S. broadband, but I suppose it’s something to hold onto as the convergence of voice, data and television continues to play out and the existing players try to hold onto as much of the profits as they can. Maybe it was crazy to think consumers could get away with paying for a broadband connection for $45 a month, as opposed to paying around $170 for Internet, cable and voice. It might be technically possible, but the ISPs aren’t going to pass up on those profits unless competition forces them to. This latest deal may end up ensuring that competition continues to evade the U.S.
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Now, will the FCC step in and make a decision that’s in the best interests of consumers, as they claim to do with the AT&T-Mobile deal, or does Verizon have bigger lobby budgets/bigger job offers for FCC members?
What makes this even worse are laws in several states that prevent municipalities from building their own fiber networks. So the cable companies collude with the two major DSL/FTTH service providers to not compete with each other over broadband, wireless, and TV, and they block towns from building their own networks, which are just as important as roads in terms of helping the local economy.
I don’t know how anybody can call this “the market” at work, because it’s not a market, it’s a politically protected monopoly. It will be very bad for the competitiveness of the U.S., as we will end up with a third world communications network. The service providers (and I use the word “service” loosely) won’t care, because they will be profitable. And when the economy stagnates, they will blame others.
Good job on pointing out the connection to the broadband business, Stacey, I haven’t seen it covered from that angle in the general business press.
You already are in a third world position as Asia, Europe, and even Canada are head and shoulders beyond anything that the U.S. and the UK have.
As usual, Stacey Higginbotham — so as to further the political agenda of advertiser Google — pretends that the United States’ 3000-4000 WISPs and independent ISPs do not exist and falsely declares broadband competition not to exist. Thus arguing for the stifling, job-killing regulation that Google wants.
Yeah, there are 3-4000 of those companies, but two hold 60-70% of the market. This has nothing to do with Google, but every post of yours is an attack on Google.
Competition doesn’t kill jobs, but monopolies do. Which one do you work for/own stock in?
“KenG,” are you simply ignorant or also connected with Google? Fact: WISPs serve approximately 3 million accounts (this in a country of about 100 million households) and are growing quickly. As for Google: perhaps I would not mention it so much in these comments were GoogleOm not simply a mouthpiece for this malevolent corporation.
BG, So WISPs serve 3% of the households in the nation, and you think that’s competition?
How is GigaOM a mouthpiece for Google? How is Google malevolent?
No matter what the topic, GoogleOm slants its articles toward the viewpoints and interests of Google. The article above is a great example. False claims that there is no competition in the broadband market were the basis of Google’s lobbying for so-called “network neutrality” regulations, which — as written by Google in secretive meetings with FCC staff — are in fact anything but neutral. They’re designed to shift revenues from ISPs to Google while protecting Google’s multiple Internet monopolies. The fact is that there is aggressive and growing broadband competition, and there would be more already had Google competition-killing regulations not been set up to discourage investment. GigaOm is part of Google’s propaganda and lobbying machine. If it lost its revenue from Google, it’d have to shutter its site.
Brett, you keep saying “the fact is”, but I don’t see those facts anywhere. I especially don’t see “agressive and growing broadband competition” in the U.S., for if that were the case, average broadband speeds here wouldn’t rank below 15 ro 30 industrialized and developing nations. Verizon wouldn’t have halted expansion of FiOS if there was competition. There would be affordable FTTH, at least in urban areas, if not the suburbs, in the U.S.. Both Verizon and ATT are shifting their broadband service focus to LTE, which is absurd, as it is a shared medium with far less bandwidth than fiber or even copper. It is a huge step backwards, but a more profitable one for the two largest carriers.
The cable companies have been worried about competition for their TV service from ATT and Verizon, and this deal signals that the two phone companies will stop competing with them in that market. If Verizon will be re-selling cable TV services, it will not increase the competition in that industry.
Network neutrality regulations would not shift revenue from ISPs to Google, unless you believe that prohibiting extortion by service providers in the form of demanding payment for not slowing down internet access is shifting revenue. Or maybe you can provide an example of how Google wants to shift revenue from ISPs?
KenG, sounds like you DO work for Google. Broadband costs more in the US than in some other countries because we are geographically larger and INFRASTRUCTURE COSTS MONEY. Also love the way you parrot the Google party line by labeling ISPs as “extortionists,” when in fact it is Google which is criminal; it bills advertisers for fraudulent clicks and engages in (and profits from) massive copyright infringement.
Brett, I don’t work for Google or own stock in them or sell anything to them. I just use their free products, that they are able to provide by selling ads that I ignore.
There are cities here in the U.S., that are just as densely populated as those in other countries where broadband is cheaper, so that argument is false. so stop repeating it.
The extortion I’m talking about is when service providers want to charge web site operators extra for letting their content pass through to subscribers without being slowed down. The service providers are always arguing that the website owners are getting a free ride, but that’s not true – people and companies pay for internet access. The service providers get paid on both ends of the internet connection, as websites must pay for their bandwidth just as web surfers have to pay for it. The ISPs are just mad because somebody is making more money using the internet than they are. That is like car manufacturers demanding a share of oil revenue, because the fuel industry makes more money from people using cars than the car industry does.
As far as click fraud goes, it’s just not proven. If advertisers (who generally just want eyeballs) aren’t happy with the charges, they are free to advertise on Bing or other search engines.
There is nothing whatsoever wrong with two-sided markets for bandwidth. Newspapers have always operated on a two-sided model in which both advertisers and subscribers are charged. Content providers burden the network — especially when they fail to compress content efficiently — and should pay their share.
It’s a shame so many communities only allowed a single cable provider, though wiring up the last mile has always been so expensive, that even where over-building was allowed, only a few places got to experience cable competition.
This is why we need to recognize that the problem is the mismatch between a telecommunications industry that frames competition in terms of services and the Internet which is about creating value outside the network. The Internet requires a funding model (infrastructure) that doesn’t require carriers to treat their customers as their competitors.
More at http://rmf.vc/Plight and other writings.
The wireless market was always so regulated (bandwidth, geography etc.) that what were seeing is a natural progression.