Award Winning Blog

Wednesday, May 21, 2014

The Costs and Benefits of Bundled Information, Communications and Entertainment (“ICE”) Services

            Companies such as Comcast and AT&T use the benefits of bundling as one of the rationales supporting their proposed megamergers.  Have you considered the alleged benefits and offset them with applicable costs?  Didn’t think so.

            It seems that consumers like the bundling concept, perhaps because they perceive savings, or even freebies when they surely do not exist.  Consider the bundling of wireless handsets with service.  Ask most consumers and they blithely report how they got a “free” handset.  Not exactly.

            They get to use a handset on an installment sales basis: during their compulsory two year service commitment, with hefty early termination penalties, consumers not only reimburse carriers for the “free” handset, but pay well beyond the actual cost of the device.  The bundled handset plus service rate substantially exceeds the carrying cost of the handset and the cost of providing the wireless service.  Each and every wireless carrier mandated bundling until TMobile offered a cheaper “bring you own handset” plan after it could not enjoy the fat and happy life of selling out to AT&T.

            The triple play and quadruple play offered now and in the future combines desirable and less desirable services just as cable television program tiering blends desired networks and channels you might never watch. The triple play bundles voice, Internet access and video.  Packaging voice regularly triggers a double payment if you have both wireless and wireline service. With wireless packages now offering “free and unlimited” voice and text, you do not need a cable or wireline telephone option, but that gets bundled in with the video and data that you want.

            Bundling may save you money, but you really should price out the individual and desired service elements and compare their total cost with that of a bundled option.  At the very least claims of technological convergence, corporate synergies and efficiencies are overstated.  Most ventures would rather you not subscribe only to “naked” broadband and cobble together the voice (VoIP), video (IPTV) and data services you want.

Monday, May 19, 2014

Incumbents Closing Ranks and the Urge to Merge

            Another day, another $50+ billion dollar merger announcement.

            AT&T must have billions of dollars burning a hole in its figurative pockets.  Perhaps stung by its inability to buy wireless carrier market share, the company has shifted strategy from horizontal to vertical integration.  AT&T should have an easier time securing approval from the FCC and the Department of Justice with an acquisition that combines two types of content distributors as opposed to two types of ventures operating in identical markets.

            So what does AT&T get for its 50+ billion acquisition? It secures marketing access to 20+ million additional customers, who make sizeable recurring monthly payments.  AT&T also has the privilege of selling rather than reselling direct broadcast satellite video content which presumably already competes with the company’s U-Verse wired bundle.

            AT&T also get the privilege of buying into a technology that has significant, and arguably increasing risks.  First on average one out of every three satellite launches fail to place the bird in proper orbit. A single DBS satellite costs more than $100 million, but in this age of scale and deep pockets that looks like chump change.  Once activated satellites last for about 10 years and the risk for collisions with space junk increases.

            I marvel at satellite technology, but have to report that geostationary orbiting satellites 22,300 miles above the earth, suffer comparative disadvantages (e.g., signal delay) when providing data services as compared to terrestrial options.  Also DBS video market share has started to decline, because increasingly nomadic and impatient consumers expect video access anytime, anywhere, via any device and in any presentation format.  The cable/satellite model of “appointment television” has begun to lose its control over access.  See my discussion of “cord nevers”:

            AT&T gets to pitch a bundle of video, data and voice services via networks it owns and operates.  AT&T appears to consider this strategy an insurance policy of sorts against market forces that may penalize ventures that cannot bundle all desired services.  The company also may think that joining forces with another incumbent, offering an existing, but increasingly risky technology, somehow achieves greater market resiliency for both ventures.

            The acquisition comes across as the opposite of “if it you can’t beat ’em join ’em.”  AT&T is not acquiring a maverick, start up with leading edge technology and a new business plan—just the opposite.  If you can’t beat ‘em, join ranks and hope that your combination—like others out there—will continue to lock content access to incumbent technologies. 

             Interested in watching NFL football on your smartphone, or tablet using cutting edge IPTV/OTT technology?  You’re going to have to ask AT&T for permission.