In this age
of easily borrowed billions, outdated antitrust policy and largely libertarian
regulatory oversight, the information, communications and entertainment (“ICE”)
marketplace will get even more concentrated.
Despite President Trump’s occasional bluster opposing corporate gigantism,
the Federal Communications Commission rarely sees a merger it cannot conditionally
approve. Pushback from the court of
public opinion may arise, but the parties will have consummated the deal.
Winners
AT&T and Verizon
Maybe the
combined Sprint/TMobile will retain their maverick proclivities despite major
incentives to go along and get along. In
any event, AT&T and Verizon will have significantly less incentives to enhance
the value position of their services.
Can you think of anything these two carriers introduced, rather than
copied?
Yet another big—I mean HUGE—payday
awaits the numerous academics and quasi-academics willing to generate advocacy
documents masquerading as research. I
predict that one or more of these “scholars” will come up with a new economic
and legal “Rule of Three.” They will
creatively generate all sorts of rationales supporting the simple premise that
no market really needs more than three competitors to operate well.
A
concentrated broadband wireless marketplace reduces the prospects for a
robustly competitive and innovative one.
As just about everyone increasingly relies on a single broadband conduit
to the Internet cloud, we should worry about vesting so much access control in three
carriers.
Recently, bipartisan concerns have arisen about the excessive market control by firms such as Google, Facebook and Amazon. No such bipartisanship exists when the ICE marketplace becomes even more concentrated. Positions continue to cleave on a political party fulcrum, even though people on both sides stand to suffer big time.
Fait
accompli? I think yes for the wireless
marketplace and let’s add Sinclair’s broadcast market grab. AT&T’s merger with Time Warner poses some
questions, primarily because of the President’s visible hatred of CNN. Nevertheless, the results-driven FCC will
find a way to rationalize how consumers benefit.
All that
remains is a prospective assessment of the winners and losers.
Winners
The Usual Suspects
It does not take a brilliant
buy-side Wall Street analyst to predict that Sprint, TMobile, involved
financiers and lawyers and shareholders win.
A concentrated market makes it easier for the Big Three to eschew
competition, innovation and enhanced value propositions for subscribers.
Combining
the two mavericks in the mix removes a clear motivation to compete
aggressively. Why not take the path of
least resistance and allow the AT&T and Verizon to set a price and feature
umbrella? Why upset the apple cart and
spend sleepless afternoons innovating and competing?
Consider
this commercial aviation thought exercise.
Southwest offers passengers the opportunity to check a bag for
free. The other major carriers have not matched
this offer. If Southwest merged with any
other carrier with even a few percentage points of market share, do you think
the free checked bag feature would remain?
More
broadly, how’s the concentration of the commercial aviation market working for
you?
AT&T and Verizon
Merger advocates typically
resort to the bogus bromide that a financially stronger competitor enhances the
public interest by ensuring that the company will survive and offer a
compelling alternative to the major incumbents.
The FCC regularly embraces this rationale as occurred when it permitted the
two satellite services Sirius and XM to merge.
BTW, both carriers got a significant bump in stock price on new of the prospective merger.
Sponsored Researchers
Gosh, it
just so happens that the Sprint-TMobile merger will result in three national wireless
competitors, so no harm, no foul.
Perhaps
some markets can operate competitively with three or even two ventures. Commercial aviation manufacturing has a
market comprised of two robust competitors: Boeing and Airbus. But does the number three have some magical
features applicable to all industries?
Losers
Anyone Reliant on a
Robustly Competitive Internet Ecosystem
Recently, bipartisan concerns have arisen about the excessive market control by firms such as Google, Facebook and Amazon. No such bipartisanship exists when the ICE marketplace becomes even more concentrated. Positions continue to cleave on a political party fulcrum, even though people on both sides stand to suffer big time.
Consumers
capture limited surplus when a few players control access to an essential and
irreplaceable conduit. Increasingly,
consumers will rely on a wireless conduit instead of a wired one. Already sponsored researchers and the
Republican FCC Commissioners preach the gospel of functional equivalence
between the two transmission technologies.
Despite such assume competitiveness, incumbents like AT&T and
Verizon have abandoned fiber optic and hybrid copper/fiber optic
expansion. Most Digital Subscriber Lines
cannot handle two or more simultaneous video streams. Even Goggle has abandoned major expansions of
its fiber initiatives.
You should not
buy the party line that wired options can fully offset any collusion in the
wireless market. Why does wireless
congestion exist, so much so, that carriers need to throttle subscribers of
so-called unlimited service?
Perhaps the
aforementioned Rule of Three will claim that increases in profits and Average Revenue
per User constitutes a win/win for carrier and subscriber. Referring back to the commercial aviation in
the U.S., domination by 3 or 4 carriers seems only to stimulate innovation in
Business Class seat comfort with a race to unbundle and reduce the value position
of Economy Class.
Another
day, another instance where consumers get screwed.
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