Why the Verizon-Cable Agreement Increases Competition

Reports that the Senate Antitrust Subcommittee will hold a hearing on the Verizon Wireless-Cable agreement spotlights an old truism: What one looks for, one sees. What the Government ultimately sees here largely will depend on whether the Government looks backward through an analog competitive lens or looks forward through an Internet competitive convergence lens. In a nutshell, if they look backwards with 1996 cable-telco Silo-Vision lenses, they will see an agreement not predicted in 1996; however if they look forward with 2012 Internet-Vision lenses that see 4G LTE wireless, iPhones/Android, VoIP, DBS, video streaming, Netflix, cable modems, DSL, FIOS, Skype voice/video file-sharing, cloud-computing etc. – they will see an agreement that is not at all surprising or problematic given the competitive context of today and the future.

Simply this is not the competitive truce that critics claim. It is cable choosing to not become a fifth facilities-based 4G LTE national wireless infrastructure, but to become a new and substantial wireless reseller of Verizon wholesale in the cable bundle long term. And it is Verizon choosing to continue doing what it has always done – not building green-field wire-line broadband infrastructure outside of its original geography, but doing something new in reselling cable services in a wireless bundle where it currently cannot offer that type of competitive offering. The competitive imperative of Verizon FIOS and cable competing head-to-head where they currently compete will continue unabated because of the reality of huge fixed/sunk cost facility economics and ongoing DBS competitive pressure.

Silo-Vision is Obsolete

Looking backward ninety-nine years, the AT&T Kingsbury Agreement declared telephone service a monopoly; however the 1996 Telecom Act made telecom competition the new law/policy and now the once highly-profitable long distance business is a dying feature of other communications services and the once local phone monopoly incumbents have lost half of their local phone customers to competitors.

Looking backward almost thirty years, the government declared wireless a duopoly; however twenty years ago Congress embraced free market competition for wireless, (and market auctions as the mechanism to best allocate spectrum to its highest economic use and best reward the taxpayer), which has resulted in the U.S. having the most robustly competitive wireless market in the world save for Hong Kong.

Looking backward twenty years, the 1992 Cable Act effectively declared cable a monopoly; however since then competition — from DBS providers DirecTV and Dish, and from Verizon FIOS/DSL, AT&T UVerse and other telcos — has forced cable to lose ~40% of paid TV share to competitors.

If one looks backward in time through an analog lens one naturally sees less competition the farther one goes back in time. However, if one takes any point in this time period, and looks forward in time through a digital/Internet/convergence lens one sees continuous surprises in the amount, type, origin, speed, intensity, and innovativeness of new and growing communications competition.

Seeing the Metamorphosis of Communications Competition

If one looks backward, one misses the remarkable metamorphosis of communications competition where the old regulated “opoly” caterpillars have been released from their cocoons and grown into broadband communications butterflies. (See “The Metamorphosis of Communications Competition: Driven by Broadband, Internet and Cloud Computing Technologieshere.)

If one looks forward one sees that butterflies from other industries have come from most every direction to compete with the communications butterflies for users’ communications affection and business. Facebook’s historic IPO S-1 boasts that Facebook is at “the forefront of enabling faster, easier and richer communication between people” and has the astounding statistics to back it up; a eight year old company with 845 million users worldwide generating 2.7 billion communications a day! Apple’s legendary iPhone has singlehandedly transformed how users view mobile communications and tilted the competitive/economic balance of power between communications providers and handset manufacturers, in Apple’s favor. Google is building a gigabit broadband network in Kansas City, Google Android is the leading mobile operating system in the world, Google Voice may provide the most comprehensive integrated communications platform in the world, and Google unsuccessfully bid $4b for wireless spectrum. And Microsoft bought Skype’s voice and video conferencing service and has entered into an operating system – handset alliance with Nokia. This is not your father’s communications marketplace.

In sum, to understand the competitive context of the Verizon Wireless-cable agreement one has look forward through a broadband Internet and cloud computing lens to see the incredible and increasing competitive dynamism that exists in the communications market today.

At bottom this agreement does not lessen any existing competition, but increases competition in a different way than originally was anticipated sixteen years ago. This agreement eventually creates substantial new wireless competition via a wireless component of an expanded cable bundle; and elsewhere it creates additional competition from a wireless provider that did not have a cable offering to bundle.

If the review looks at the facts and not what people sixteen years ago thought should have happened, one will see an innovative cross-marketing agreement that only increases the competitive intensity of the communications market.

 

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