The carrier industry has entered an equivalent period of contraction and consolidation.
This week the FCC passed new rules on net neutrality, which were essentially designed to limit the ability of internet service providers (ISP) to either slow down or boost the speeds of websites. While many experts praised the ruling, not everyone was thrilled by the outcome.
On this week’s Structure Show podcast, Mark Cuban — the billionaire businessman who made his name in tech and now owns the Dallas Mavericks and is featured on the television show Shark Tank — came on to opine on net neutrality and why he thinks the new rules are bad for the internet and bad for competition. What follows are a couple takeaways on why Cuban believes net neutrality will do more harm than good.
[soundcloud url=”https://api.soundcloud.com/tracks/193100656″ params=”color=ff5500&auto_play=false&hide_related=false&show_comments=true&show_user=true&show_reposts=false” width=”100%” height=”166″ iframe=”true” /]
1. The internet is working fine the way it is
“Look, I’ve had my same position on net neutrality for more than ten years and that is I think what is happening on the net works. I mean, I was involved in the internet right when it started. We started Audionet, which turned into Broadcast.com back in 1995 and for the past 20 years things have worked. And now the net neutrality folks seem to be getting some momentum creating the perception that the big ISPs that got us to this point have now become bad citizens and they are going to ruin the internet unless they’re regulated. And from my perspective, I like the way technology goes and I like the competition and I like the way things are going. I think introducing regulations via the FCC is a huge mistake and I said so.”
2. Government bureaucracy is worse than ISP dominance
“Comcast has always had that power, right? It’s not like [company]AT&T[/company] and [company]Comcast[/company] had just recently become super big companies and they’ve changed their actions. I mean, one of the tenets of net neutrality is that no website, no legal website, should ever be discriminated against. Name me one that has been.”
3. Don’t worry about broadband providers. Worry about Google and Apple
“If you’re going to talk about concerns, what’s the fastest growing access methodology for the internet? It’s mobile, right? And who controls access to mobile? [company]Google[/company] and [company]Apple[/company]. So the far greater risk, and I still don’t think it requires legislation, but the far greater risk is OK…if Apple decides that Comcast’s app is not right, Comcast is not going to be able to reach most of their market to get access through an app to their own broadband, which is crazy when you think about it but it’s a possibility.”
4. Net neutrality laws could end up like patent laws
“For all the years that we’ve been in the tech industry since we’ve been about 8 or 9 years old, the majority of tech companies did not get involved in DC. They did not get involved in regulation. This is all a recent phenomenon. And now, everybody’s got a lobbyist, everybody’s involved, everybody’s got their opinion and I think it backfired on us, just like patent laws backfired on us. Look what happened with patents. That’s what happens when…legislation gets involved with technology. And so I just think that if you’re looking for pain points that the broadband ISPs aren’t it.”
5. Remember Janet Jackson’s infamous wardrobe malfunction? That’s the FCC for you
“What if there’s some decision that just shocks everybody … It’s happened time and time again where FCC regulations get tested, the decision goes against the FCC and they fight it for years. Just like the wardrobe malfunction from the Super Bowl in 2004, they spent money for 8 years. The FCC that you want to be the department of the internet is the company that spent taxpayer money trying to cover, debating, arguing the penalty of showing Janet Jackson’s nipple … Now those people who want to protect decency in the United States and the content that’s delivered over the internet is the purview of the FCC, where else would you go?”
Pardon me while I catch my breath after all the celebratory dancing I’ve been doing in the wake of the FCC’s historic vote to reclassify broadband under Title II of the Communications Act in order to preserve true network neutrality. We’ve explained what this means for the average consumer here, and why the whole thing was so improbable in this story. But really, today is like the end of a romantic comedy that actually started out all semi-tragic like a Wes Anderson movie and then became something light and fluffy starring Drew Barrymore and restored your faith in humanity.
So yes, I’m thrilled and having written probably a million words on the topic in the last eight years, I could do a victory lap a mile long, but I’d rather share some of the awesome stuff that other people on the web are writing. Because this time, in addition to the 4 million people who commented before the FCC, many thoughtful legal scholars, rarely heard from tech leaders and others have added their voices to the discussion on the FCC’s historic vote today.
So outside of Verizon’s 1930s-era Morse code commenting on the news, or the industry’s whining (which we’ll see parroted in every article), I’ll focus on some very thoughtful points that we should be thinking about as these rules are finally shared and then inevitably head to court.
Let’s start with Stanford legal scholar Barbara van Schewick, who had written an excellent analysis about the upcoming rules. (You should seriously go read it.) She is optimistic about the chances that the FCC will prevail in court once one of the ISPs or affiliated organizations such as the National Telecommunications and Cable Association decides to sue. From her blog:
[blockquote person=”” attribution=””]The good news is that the FCC’s rules will likely be upheld in court. The agency’s decision to reclassify Internet service as a common carrier under Title II of the Communications Act puts the rules on a solid legal foundation. By coupling reclassification with forbearance, the FCC has adopted a light regulatory touch that preserves Internet service providers’ incentives to invest.
And while Tim Wu, the man who coined the term network neutrality, is hardly an unheard voice in the debate, he hits on an important point that event the Wall Street Journal seems to have missed in its reporting on this issue; that investors seem to feel like this ruling is fine for the broadband providers whose stocks went up or remains pretty much the same. Wu wrote in the New Yorker this afternoon:
[blockquote person=”” attribution=””]Yet the moment that Tom Wheeler announced his plans for strong net-neutrality rules, on February 4th, broadband stocks jumped, and they have stayed buoyant. This has confused experts. Craig Moffett, whom I consider to be the smartest telecom analyst around, was forced to blame the market. “I think it just shows you that the market doesn’t really understand these issues,” he said.
The theory of the wisdom of crowds suggests that the markets have noticed something: the broadband industry hates net neutrality, but its existence has always had a huge and unnoticed upside. Selling broadband is a great business: Moffet has pointed out that the margins are north of ninety-seven per cent. Stated simply, a strong net-neutrality rule locks in the status quo for the most profitable part of the cable industry’s business.[/blockquote]
As for the effects of these rules on new business models, including things like zero-rating of applications and other services that ISPs might want to implement that might generate questions for carriers or consumers about their “neutrality,” Fierce Wireless’ Phil Goldstein explains a little bit more about the process that carriers and consumers can go through to get an FCC opinion under the General Conduct Rule.
[blockquote person=”” attribution=””]FCC officials made clear that carriers will not need approval from the agency to launch new business models and service offerings like sponsored data or zero-rated data. But the officials said carriers may ask for the FCC’s opinion on whether the plans meet the future conduct standard. Wheeler and other FCC officials also described some of the criteria they will use in determining the standard, which will include an offering’s effect on competition, innovation, consumer protections and user control. The full list of criteria will not be known until the FCC publishes the rules.
And lest you think that all ISPs oppose this, there are those that welcome the news, even if there are concerns about certain aspects of the regulations, especially as they relate to utility pole access and other minutiae we may not understand fully for quite some time. Still, Dane Jasper, CEO of regional ISP Sonic, wrote on his company’s blog:
[blockquote person=”” attribution=””]It is important to draw the distinction between regulation of the Internet, and regulation of carriers. The FCC’s order will disallow carriers from discriminating against sources of traffic that their customers choose to access via the Internet. This is common carriage at its core, and as a carrier, I am supportive of being regulated as a common carrier by the FCC.
Finally, if you’re wondering how far the FCC could have gone, beyond the dreaded rate regulation that the cable industry so feared, Jon Brodkin over at Ars Technica brings it up. The agency could have demanded that the ISPs unbundle their services (something that would have never happened given our country’s regard for private investment). That would have been far more disruptive than the FCC’s actions on municipal broadband today or its vote to regulate broadband as a transport service under Title II. From his story:
[blockquote person=”” attribution=””]The FCC could have tried to use Title II to require last-mile unbundling, in which Internet providers would have to sell wholesale access to their networks. This would allow new competitors to enter local markets without having to build their own infrastructure. But the FCC decided not to impose unbundling. As such, the vote does little to boost Internet service competition in cities or towns. But it’s an attempt to prevent incumbent ISPs from using their market dominance to harm online providers, including those who offer services that compete against the broadband providers’ voice and video services.
[soundcloud url=”https://api.soundcloud.com/tracks/193100656″ params=”color=ff5500&auto_play=false&hide_related=false&show_comments=true&show_user=true&show_reposts=false” width=”100%” height=”166″ iframe=”true” /]
As someone who takes her cues on net neutrality from Gigaom’s resident expert Stacey Higginbotham or, failing that, John Oliver, this is hard to admit: Mark Cuban may have a point on why the proposed net neutrality regulations may be a cure that’s worse than the disease.
If adopted, he maintained, these regs will open the door to more confusion, more litigation and more overall turmoil, none of which will serve consumers well. Before you throw your device at the wall, just give him a listen. Cuban, the serial entrepreneur who started out as a VAR before founding Broadcast.com which sold to [company]Yahoo[/company] in a $5.7 billion stock deal in 1999. He is now owner of the Dallas Mavericks, co-star of Shark Tank and CEO of of AXS TV and interestingly a star of new AT&T commercials. The hyphens just keep coming.
Here’s his gist on net neutrality. He doesn’t think the big bad ISPs have behaved all that badly, or all that differently, than they ever have, so why all the hubbub now?
“It’s not like [company]AT&T[/company] and [company]Comcast[/company] have recently become super big companies and changed their actions… One of the tenets of net neutrality is that no legal website should be discriminated against. Well, name me one that has been.” He also pretty much dismisses [company]Netflix[/company] claims that it in fact faced such discrimination.
He sees competition ramping up in both in wired and wireless access — if these markets are so foreclosed why is Google doing broadband? Why is “AT&T going out of its traditional TV markets where they have U-verse to compete with Comcast and Google? That’s one layer. On the other layer you have mobile, with [company]Cablevision[/company] going into Manhattan where [company]Verizon[/company] and AT&T have broadband wireless and putting together an unwired wifi network for $30 a month’
His point is that there is competition, although it may not be the competition we would all like to see.
Cuban is clearly worried about one, well two mega players and neither one is a big ISP. “I would rather see national competition for [company]Google[/company] than no competition for Google. If you put a lid on Time Warner and Comcast and Google just keeps adding more and more markets, who’s going to compete with them?”
Google and [company]Apple[/company] constitute a huge countervailing force for all the ISPs because of their mobile might. “The fastest growing access for Internet is mobile. Who controls access to mobile? Google and Apple. The far greater risk is if Apple decides that the Comcast app is not right, Comcast won’t be able to reach most of its market to give access to its own broadband. Kind of crazy but it’s a possibility.” For the record, he isn’t recommending regulation to stop that either.
His point isn’t that Comcast or Time Warmer or insert-your-least-favorite cable provider here) are so great — he admits they are not — it’s just that the FCC its regulations are ill equipped to deal with fast-changing technologies. The public would be better served to let the cable companies duke it out with each other and, perhaps more to the point, with far scarier competitors including Google and Apple.
He starts about 10 minutes in. But here is the kill shot: Do you really want the same organization (the FCC) that took 8 years to deal with Janet Jackson’s Wardrobe Malfunction at Super Bowl XXXVIII to be the gating factor in the internet? Ummmm, maybe not.
Listen to the whole thing to find out how you, too, can get in touch with Cuban, such a shy and reserved guy, to ask your own questions on net neutrality; whether the NBA is seeing diminishing returns on data analytics; and why the heck the Celtics let the Mavs steal Rajon Rondo. Whatever.
In our intro section, Jonathan Vanian and I discuss all (or a bunch anyway) of this week’s Kubernetes news — where Mirantis was latest into the pool, working with Google to bring the cluster management framework to OpenStack clouds, joining HP and a raft of other tech vendors endorsing the open-source framework. Interestingly, Spotify blazed its own trail, Helios as opposed to Kubernetes for its own workloads.
Oh and we wonder what is up, exactly, with HP’s cloud now that Marten Mickos has stepped back from his leadership job — after just six months.
Hosts: Barb Darrow, Derrick Harris and Jonathan Vanian
Google has a tip for those who want more high-speed internet options: tell your town to get rid of its fax machine, touch up its maps and streamline the permitting process.
“If you make it easy, we will come. If you make it hard, enjoy your Time Warner Cable,” Milo Medin, VP of Access Services at Google Fiber told a Washington D.C. audience on Tuesday.
Medin cited byzantine permission processes (including a fetish for faxes) and an inability to provide accurate information about infrastructure as prime reasons that hurt some cities’ chances to attract new broadband services.
Currently, Google Fiber is available in Austin, Kansas City and Provo, Utah, while the company is in the process of building out its gigabit-to-the home service in the southern cities Charlotte, Atlanta, and Nashville, and in towns in the Raleigh-Durham area.
It’s unclear though if bumbling bureaucracies are all that’s holding back Google, which has talked a big game about its Fiber networks, but has been slow to roll them out.
Medin, who was speaking on a panel about network deployment, added that some markets in the U.S. are simply uneconomic for internet providers to enter, and that local telephone companies are reluctant to grant access to key telephone pole infrastructure.
He also noted that some owners of multi-unit buildings, where economics of scale are easily available, won’t allow entities like Google Fiber access in the first place.
The upshot for the foreseeable future is a patchwork of different broadband speeds across the country as competitors flock to easy-access markets, while leaving many millions of others (including me in Brooklyn) stuck with monopoly service.
According to Cogent CEO Dave Schaeffer, who also spoke on the panel, this situation will require a future wave of policy inducements to produce more broadband offerings.
Google still cagey on FCC net neutrality rules
The panel’s moderator, Ryan Knutson of the Wall Street Journal, tried to pin down Medin on Google’s position on imminent Title II rules, which will reclassify broadband providers as common carriers. But Medin, who ceded his role leading Google Fiber last year, wouldn’t bite.
Medin instead offered platitudes about the virtues of the open internet, without addressing a curious contradiction at the heart of Google’s policy position: the company has been using its trade associations, including Comptel and the Internet Association, to put a big thumb on the scale in favor of Title II rules, yet still won’t support them directly.
Some speculate that Google’s Fiber ambitions are playing a role in this hedge, though others close to the company have dismissed this theory. In late December, Google did tell the FCC in an official filing that, in the event the agency does impose Title II, it should do so in a way that would require incumbents to give access to their utility poles.
Another member of the panel, Michael Weidman, appeared lukewarm about the Title II proposal and warned of agency overreach.
“I can see a two page summary turning into 300 pages of regulation,” said Weidman, CEO of LS Networks, which provides broadband services to towns in the Pacific Northwest.
The panel was part of an event titled the Comptel Competition and Innovation Summit. It was one more piece of a furious burst of political jockeying ahead of the two key FCC votes, set for Thursday, about the Title II rules and on a plan to give cities more freedom to build broadband.
This story was clarified at 4:10pm on Wednesday to note Google Fiber is coming to towns in the Raleigh Durham area, not “Raleigh Durham”
“I am absolutely Republican, and absolutely pro-business,” stated State Senator Janice Bowling of Tennessee’s 16th District. “Yet if we don’t get high-speed internet into small towns and rural communities, there will be no businesses in those areas.”
Getting high-speed internet access into more communities is influenced often by the politics of broadband. Could those politics be shifting for public networks?
Conservative legislatures were primarily responsible for state laws restricting public-owned broadband networks. Senator Bowling’s recent comments on Gigabit Nation, though, indicate attitudes among conservative legislators representing rural and small communities may be evolving to create a greater bipartisan drive for change. “We don’t argue with incumbents’ profit motives, we just can’t continue to be held hostage to their profit margins.”
Early in the 2014 session of the Tennessee legislature, Senator Bowling was a primary voice among a mostly Republican group of legislators who worked hard to overturn this state’s severe restrictions on public broadband networks. The effort fell just short of success. In 2015, the senator will fight the battle again, but this time with a huge backdrop of political support from many sides of the political spectrum.
Wilson, North Carolina, and Chattanooga, Tennessee petitioned the FCC with bipartisan local support to have the FCC overturn these respective states’ restriction on public broadband. In Colorado, some of the most conservative and one of the most liberal communities voted in the last election to nullify their state’s restriction and get their rights back to pursue public broadband. Conservative legislators are increasingly under pressure from residents and local businesses demanding public solutions when the private sector fails to meet communities’ needs.
FCC redefines broadband speed, adds heat to public network opponents
Last week the FCC voted to increase the speeds that define broadband up to 25 Mbps download and 3 Mbps upload. This is a big deal in the political battles that determine if communities can build their own networks because the new speeds give communities a hammer to go after these laws.
State legislators have used the FCC definition of broadband speeds to define or enforce their anti-public broadband laws. In South Carolina, for example, Orangeburg County Administrator Bill Clark stated:
The law uses definitions that make it appear public-owned networks can only be built for unserved areas, but then define ‘served’ as areas with 768K [from the FCC’s original definition of broadband] symmetrical speeds that reach 25 percent of an area. By this definition, all of South Carolina is covered.
In North Carolina, cities have to prove 50 percent of constituents aren’t getting broadband already, so someone has to go home by home to show that each is getting less than 1.5 megs down and the FCC’s former minimum speed of 256K up.
Even in states without these laws, the FCC’s new definition gives cities and towns political leverage because it’s cities, rather than the private sector, that are showing the greatest potential to meet or exceed FCC guidelines. There are 40 publicly owned citywide gigabit networks in the U.S. Except for Google, the private sector has no gig cities. Over 140 communities have citywide public high-speed networks while carriers have lobbied state legislatures nationwide to pass bills to free them of obligations to provide any service in a lot of areas. Many city officials will feel great pressure to meet the new guidelines if private providers won’t step up, and could be compelled to play the public broadband card as success stories increase.
The FCC decision is increasing the general awareness of the relationship between increased speeds and economic development, particularly among state legislators. Senator Bowling remarked, “I applaud the FCC for increasing the speed for broadband, but my legislation last year asked for 100 Mbps symmetrical so you won’t constrict yourself. When you buy a turkey, you have to get some bones in there, so you may as well get as much meat as you can on those bones. You want the high capacity on your network.” This is what impacts the economy.
Communities in Tennessee and elsewhere have viewed high-speed networks as essential to keeping their towns from struggling or dying out, even years before the FCC increased the speed. Senator Bowling’s hometown of Tullahoma built a public-owned fiber network in 2006. She believes the town has grown twice as fast as surrounding towns with slower Internet speeds. In a 2012 national survey of International Economic Development Council members, between 21 and 28 percent felt at least 25–50 Mbps symmetrical is needed to increase local companies’ growth, home businesses and other economic outcomes.
Fanning the political flames even more is the Community Broadband Act introduced into the U.S. Senate by New Jersey Senator Cory Booker. Besides preventing state legislatures from interfering with cities’ decisions whether or not to pursue public broadband, the bill creates a truly level playing field. Public entities can’t discriminate for private or public sector organizations in permitting, rights of way access, or passing special rules. Public entities won’t be exempt from FCC rules and regulations, including taxation. The private sector invited to play by way of the bill’s “Put your money where your mouth is” clause. (Here’s the text of the bill.)
Six months ago, there was a surging interest in public networks as mostly bipartisan local efforts regularly added cities to the list of those actively pursuing these networks. But the anchor holding back the national drive for more broadband in more places was the collection of states with anti-public network laws and the additional states such as Kansas and Georgia living under the threat of new laws. After just a month in 2015, however, actions by the FCC, the U.S. Senate and local economic forces are revving up public pressure on state legislators. The FCC’s February 26 meeting, where it is expected to rule on the Wilson and Chattanooga petitions, could really influence some legislative changes. Residential and local businesses stand to win big if this happens.
Craig Settles is a consultant who helps organizations develop broadband strategies, host of radio talk show Gigabit Nation and a broadband industry analyst. Follow him on Twitter (@cjsettles) or via his blog.
One year ago, Comcast, the largest cable provider in the country announced it would buy Time Warner Cable, the nation’s second largest cable provider, in a deal valued at $45 billion. Not since AT&T tried to scoop up T-Mobile had a communications deal rallied consumers and activists to a cause in such a huge way. At the time, the deal was perceived to be a mistake, but something that would likely pass muster with regulatory agencies. However, a year in, things have changed.
When it was announced, we argued that the deal was about achieving broadband dominance, noting that even if Comcast pledged to reduce its pay TV customers by ditching subscribers in select markets to reduce its overall pay TV market share to below 30 percent, judging the deal by television standards was looking into the past. This deal wasn’t about TV, it was about controlling the only pipe that mattered, which in this case was the coaxial cable that brought broadband into the home.
With that, Comcast already offers on-demand video, voice, home alarm and automation services and even could one day offer mobile if it wants to get aggressive as its cable colleague Cablevision has done. A year ago, regulators and even the mainstream media seemed fixated on the value of television and what this deal would mean for media companies, cable TV customers and the like. But in a year, that too has changed.
Streaming media has become more popular. Live TV viewing was down by 12.7 percent in January this year compared to the year before. HBO plans to launch a stand alone streaming service this year as does Nickelodeon.
As television follows voice over to broadband, more of the industry recognizes that pay TV — where the combined Comcast and Time Warner cable would hold less than 30 percent of the market share after the deal closes — means little. They are taking a closer look at the broadband market where the combined entity would hold about 35 percent of the market. That number is even higher — as high as 55 percent under a new definition of broadband that the FCC approved in January that defines the service as at least 25 Mbps downstream and 3 Mbps upstream.
BTIG Tech and Media Analyst Rich Greenfield has pointed out that because the FCC has shifted its perspective on broadband being of greater importance than television (because TV is increasingly reliant on broadband) and because the post-merger Comcast would have such a dominant position providing the faster speeds necessary to deliver high quality television services over broadband, the deal is unlikely to pass. He wrote on February 4:
[blockquote person=”” attribution=””]With Comcast’s scale both before and especially after the Time Warner Cable transaction, they become “the only way” for a majority of Americans to receive content/programming that requires a robust broadband connection.
Over time, the fear is that Comcast will favor its own IP-delivered video services versus third parties, similar to how it is able to offer Comcast IP-based video services as a “managed” service that does not count against bandwidth caps, while third-party OTT services that look similar count against bandwidth caps (remember this Hastings/Roberts debate from 2012, link). As we see a rapid rise in niche, OTT subscription services and virtual MVPDs, the natural inclination will be for the incumbent video provider to protect their business (think usage based caps that only apply to outsiders, peering/interconnection fees, etc.).[/blockquote]
Since then the FCC has only become more bold in what is indicative of perhaps the most important change that has occurred in the year since the merger was announced. The FCC has stepped up as a force for consumer advocacy when it comes to broadband competition and access. The agency, which has acted as a rubber stamp at worst and as a priggish scold doing little more than wagging a finger at the industry when it steps too far out of line at best, has changed.
That is the change that has thrown the deal into the most doubt. Last week the FCC Chairman Tom Wheeler proposed reclassifying broadband under Title II of the Communications Act in an about face for the agency that has been five years in the making. By classifying cable, DSL, wireless and other broadband services as transport rather than information , Wheeler subjects them to greater FCC authority and allows the agency to place strong network neutrality rules on providers — rules the ISPs were trying to avoid.
And while AT&T and now the National Cable and Telecommunications Association has threatened to sue if the agency passes those new rules, the markets are concerned that this newly brazen FCC has recognized the importance of broadband. And with this recognition that broadband is an essential service that could be better in parts of the U.S., as well as the recognition that the Comcast and Time Warner deal is really about broadband, the markets are concerned that regulators at the FCC and the Department of Justice may stop the deal.
They should. In a year a lot has changed. But here at Gigaom we have seen that change coming for almost a decade. We have argued for faster broadband, more competition, network neutrality and an elimination of broadband data caps. Because we are aware that broadband is platform on which our current innovations spring, and if we hand Comcast control 55 percent of the U.S. broadband market, even with the strong network neutrality rules that the agency has proposed, we are handing the future of half of our nation’s households to a company that has shown a willingness to invest in the future so far as it immediately benefits its bottom line.
Comcast doesn’t believe in disruption from startups. It believes in squashing them using its enormous market power and networks. It understands that it has to continue investing in new products and builds very good ones; its Xfinity home products are well designed and have a nice interface. But it’s not going to push pricing down. It’s not going to disrupt its business models and it’s certainly not going to change the way it treats its customers once it has more power.
A lot has changed in a year, but Comcast hasn’t. Is the federal government finally ready to show that it understands what’s at stake?
Sonic, the regional ISP that is transitioning from a copper-based DSL and telephone company to a fiber-to-the-home provider, has announced plans to expand its fiber construction to Brentwood, a Silicon Valley commuter town that will join Sebastopol, Calif., in getting gigabit networks. Sonic CEO Dan Jasper told me last week that the pilot network in San Francisco is still under construction and he has no sense of the timing on when it will go live, but plans to head to Marin next.
Verizon Communications is fleeing the crufty wireline communications world as fast as it can and has turned once again to Frontier to buy its fiber and telephony assets in Texas, Florida and California in a deal valued at $10.54 billion. It also has signed a deal to lease 11,300 of its company-owned cellular towers to American Tower Corp., which will also purchase approximately 165 Verizon towers, for a total upfront payment of approximately $5 billion.
These deals will help [company]Verizon [/company]continue to invest in wireless spectrum. In last week’s auction, Verizon pledged $10.4 billion, about what it spent in the 2008 700 megahertz auction that netted Big Red the airwaves that it later used for its LTE network. But in addition to financing its spectrum buys, the deal with Frontier gets Verizon out of a significant chunk of the wireline market, leaving it with a footprint only in the densely populated Northeastern region where it had deployed its FioS Fiber to the Home and is trying to get rid of its copper-based network and landline service.
As we explained when Verizon sold its rural network to Frontier back in 2009 for $8.6 billion, Verizon has been trying to get out of the copper landline and circuit-switch voice business for years. Now it may be trying to get further and further away from physical assets entirely.
In the wireline transaction, [company]Frontier[/company] will pay Verizon approximately $10.54 billion (approximately $9.9 billion in cash, plus $600 million in assumed debt) for the business and related assets in these states. Approximately 11,000 Verizon company employees are expected to continue employment with Frontier after the transaction. Frontier and Verizon will provide a smooth transition for these employees.
The operations Frontier will acquire consist of all of Verizon’s local wireline operating territories in California, Florida and Texas. At the end of Q4 2014, these operations served approximately 3.7 million voice connections, 1.2 million FiOS Video customers and 2.2 million high-speed data customers, including approximately 1.6 million FiOS Internet customers.
The transaction includes Verizon’s FiOS internet and video customers, switched and special access lines, as well as its high-speed Internet service and long-distance voice accounts in these three states. Frontier will continue to provide video services in these states after the completion of the transaction.
Verizon will continue to serve about 16.1 million wireline voice customer, 5.1 million FiOS customers, 7 million broadband customers and 4.5 million FiOS video customers after the transaction closes in nine states and Washington D.C. The Frontier transaction should close in the first half of 2016 pending shareholder and regulatory approvals. The tower transaction should close by mid-2015, subject to standard closing conditions.
With rumors of Verizon seeking to sell a significant chunk of its wireline assets and as the government continues its review of Comcast’s attempt to take over Time Warner Cable, which could lead to further consolidation in the broadband market, a new report out from a U.K. research firm has some shocking news for U.S. ISPs. Point Topic, which gathers worldwide data on broadband prices, said that if the U.S. market were truly competitive, its ISPs would lose $2 billion in revenue a month. Currently, U.S. customers spend $5.27 billion a month based on Point Topic’s report.
The report is mostly a thought exercise instead of a reaction to a definitive policy change, but it does make a compelling argument that U.S. consumers pay the price for the current broadband duopoly we have in most markets. It also noted that the U.S. is no longer the largest broadband market — that distinction now belongs to China, which is what the analyst is comparing the U.S. market against.
The report makes the assumption that this competition would come in the form of the government forcing ISPs to open up their networks by making them sell access to their pipes for a regulated price, as well as from competing municipal broadband networks. Open broadband networks exist in other parts of the world such as as in the Netherlands, where Amsterdam’s fiber network is open to any provider, or in the U.K, where the government forced open the networks and set some pricing.
Point Topic acknowledges that no one in the U.S. is discussing forcing open networks at the moment. Even Google, which had talked about opening up its network at the beginning of its fiber journey quickly backed off that positioning as it built out its networks. But competition is coming, even if it isn’t as drastic as the regulatory opening up that came in the U.K., which is what Point Topic used to get its numbers.
[blockquote person=”” attribution=””]If we drop the tariffs to $173.76, $43.14 and $8.63 per month which is equivalent to the UK, then we see a drop of over $2 billion a month in subscription revenue. Whether the industry in the US could bear this is questionable but it seems, at the moment, likely that some version of increased competition will drive prices down in the next five years.
Missing out on subscription revenue makes it difficult for the supplier companies. Decreasing revenues are particularly hard to handle when a sector has adjusted to super-normal profits which certainly seems to be the case in the US.[/blockquote]
The thought exercise ends with a pretty damning conclusion — that the lack of competition and subsequent high price for broadband has hindered adoption above and beyond where it should be compared to other wealthy countries where broadband is cheaper.