The next broadband battle: AT&T/Dish and Verizon/Cable

The business model for standalone wholesale wireless network operators, such as LightSquared or what Clearwire hoped to be, is broken. But in the coming year, a new and ultimately more successful model is poised to emerge, one that will transform the entire communications landscape as we know it, and pit Verizon (s VZ) and cable TV on one side against AT&T (s ATT) and satellite TV on the other.
Back in September, I wrote an article for GigaOM pointing out that it was “increasingly difficult to see a sustainable place in the market for dedicated wholesale players like Clearwire and LightSquared.” Since then, Clearwire has threatened to default on its interest payments in order to secure further commitments from Sprint, and LightSquared is reportedly close to running out of cash. These guys don’t look like winners.

The new model

However, it appears that a new and much more sustainable model of wholesale access is now poised to emerge, solving the problem that LightSquared claimed to address — namely that rolling out multiple high capacity LTE networks on a national scale is simply unaffordable. Verizon’s purchase of SpectrumCo was the first indicator of this new model, with the cable companies being granted wholesale access to Verizon’s LTE network in four years time so they can offer their own wireless services.

Now, after the collapse of the proposed AT&T/T-Mobile merger, all eyes are focused on AT&T’s potential purchase of DISH Network, which could enable the buildout of an LTE Advanced network across 52MHz of spectrum. Such a deal would also have to address the way forward for T-Mobile, which admittedly does not have a clear route to LTE. Thus it seems very likely that T-Mobile would be granted wholesale access to this new 4G network to complement its 3G roaming agreement with AT&T.

Of course, while worries about monopolies will be ever-present, we can expect both Verizon and AT&T to commit to a very extensive and rapid LTE network buildout, bringing 4G wireless to 97 percent or 98 percet of the population in line with the objective set out by President Obama in his State of the Union address last February.

The role of government regulations in this new era

In this new environment, the FCC and DoJ will have to emphasize retail competition instead of the facilities-based competition that has been the focus of FCC policy ever since the 1996 Telecommunications Act. The only way to do that will be through making the initial wholesale commitments ventured by Verizon and (I assume) AT&T into a much broader framework for supplying wholesale LTE network access to other wireless providers. It’s therefore unsurprising that the DoJ is reportedly now mounting a probe into the Verizon-SpectrumCo acquisition. However, the FCC needs both the AT&T/DISH and Verizon/SpectrumCo deals to proceed in parallel, in order to impose a uniform set of rules on both companies. As a result, the FCC is likely to approve DISH’s waiver requests to permit terrestrial-only use of its recently acquired 40MHz of satellite spectrum in the very near future, perhaps even as soon as this Friday.

The ripple effects of such a transformational change to the telecom landscape are almost too numerous to mention. They range from what happens to DirecTV and Cablevision if they are left on their own once the other cable companies and DISH choose sides, to whether Sprint’s Network Vision plan can compete with second rate spectrum and limited scale against retail-focused providers with access to AT&T or Verizon’s far superior 4G network infrastructure.

However, even more important in the near term will be the reaction of Congress (which thinks it decides how the telecommunications landscape should be structured) in a polarized election year environment. Commitments on the part of AT&T and Verizon to large scale wireless deployment would in themselves be a clear win for President Obama, but imposing wholesale access commitments on the telecom industry will undoubtedly be viewed by many as akin to “European-style” socialism. Thus, the actions of the FCC and DoJ with respect to these deals could very well become a hot button issue in the November 2012 election.

Tim Farrar is President of Telecom, Media and Finance Associates, a consulting and research firm in Menlo Park, CA, which specializes in technical and financial analysis across the satellite and telecom sectors.