The National Journal’s Drew Clark has this item about congressional reaction to the AT&T-BellSouth merger. Even as antitrust experts reach a consensus that there’s not much of a scholarly or legal basis for challenging the merger, congressional leaders are nonetheless vowing to take a serious look at the deal’s potential for harming competition.
Hearings are being planned on both the House and Senate sides, with Senate Commerce Committee Co-Chairman Dan Inouye (D-HI) talking the toughest. Inouye said
Coming only 125 days after the FCC’s approval of the SBC-AT&T merger, AT&T’s proposal to purchase BellSouth would remove yet another potential competitor from the communications marketplace and calls into question whether the future of communications policy will be marked by strategies to promote vigorous competition or by further efforts to facilitate new mergers.
While these hearings will probably not result in any difficulties for the merger, they could delay the ultimate passage of any Telecom Act rewrite legislation. And, as Drew points out, the merger gives some new life to the idea of including network neutrality provisions in telecom reform legsilation.
Posted by Cynthia Brumfield at 10:42 PM | Print | Comments (2)
While reading Ken Belson’s piece in the New York Times, I was struck by one fundamental element of the tiered access/net neutrality debate—the issue of dominant market players vs. startups and small innovators and, more specifically, the financial barriers to entry created by tiered-access schemes that charge independent service providers fees for getting into the broadband “fast-lane.”
As Belson notes, and most would agree, broadband customers will ultimately pay for the cost of upgrading broadband networks. In a “tiered access” model, web-based service providers pay for “fast lane” access, then pass on that cost to their customers. And, of course, customers pay directly if network owners charge them for access to higher speed services, which is pretty much the way things work today.
So, if broadband customers end up paying the bill in either case, the main difference, as far as I can tell, is that “tiered access” schemes favored by some network owners will raise barriers to entry for new players that don’t have the customer and capital base of Internet giants like Google, Yahoo, Ebay, Amazon, Apple, News Corp., etc.
That brings the issue down to a pretty simple but important economic (and, ultimately, also political and social) policy question. Do we want the Internet to retain the low barriers to entry that have helped startups enter the market and offer new services, some of which may be the next Google, Yahoo or eBay? Or do we want the Internet to become burdened by increased barriers to entry that strongly favor large, established and well-capitalized companies?
I greatly admire today’s web giants, but I’d hate to see the door slam shut on whole new generations of potential future giants (or for that matter, companies that start small and remain small) that can’t afford the broadband Internet’s new price of admission, but would otherwise be able to deliver high quality service at data rates for which I’ve already paid as a user. In that world, we as Internet users no longer get to choose the service we use with the data rate we pay for. That choice would be made in large part by how steep the price of admission is set for service providers.
This raises the question of whether our economy and society will be stronger and healthier with policies that open markets to new players and new competition or with policies that favor corporate giants that have already captured dominant market shares and aggregated large pools of capital? I think the history of the Internet has so far shown the former to be the wiser choice, especially with regard to innovation.
And, since customers will ultimately pay the cost of network upgrades, I’ve yet to hear a convincing argument as to market efficiencies gained or other benefits of access-tiering schemes that offset the economic costs of increased entry barriers. Admittedly, there are potential benefits for those with market power, since they’d probably increase that market power further. But looking at it from the perspective of an Internet user and citizen, I don’t see that as a benefit.
Posted by Mitch Shapiro at 8:00 PM | Print | Comments (0)
A Dow Jones story by Ellen Sheng highlights some potential competitive implications of the AT&T/BellSouth deal, including impacts on the two DBS providers:
DirecTV recently extended a five-year partnership with BellSouth but either party can bow out if there is a change in control. [Oppenheimer & Co. analyst Tom] Eagan sees a likelihood that AT&T will kill that partnership with DirecTV, favoring EchoStar instead. AT&T currently already has an existing partnership with EchoStar and will likely want to work with just one satellite partner, rather than two.
DirecTV could see possible downside to its subscriber-growth targets, said [UBS analyst Aryeh] Bourkoff, who estimated that as many as 50% of DirecTV’s subscriber additions over the next three years could come from partnerships with carriers. EchoStar, on the other hand, would be able to offer bundled services to more homes.Posted by Mitch Shapiro at 5:13 PM | Print | Comments (0)
The ink isn’t even dry on the AT&T-BellSouth merger and already the cable industry is drawing swords in an attempt to use the mega-combination as ammunition against the phone industry’s effort to relax video franchising requirements. In a letter sent to House and Senate leaders, National Cable & Telecommunications Association CEO Kyle McSlarrow slammed AT&T for its push to get rid of cable-like franchise obligations.
McSlarrow suggests that it is the pinnacle of hypocrisy for AT&T, which he contends has a market cap bigger than the entire cable industry, to be asking for favors.
My point here is not to question the merger, which will be handled appropriately by the relevant federal agencies and Congressional committees. Rather, it is to suggest how extraordinary it is for an industry, in which one company alone – at&t – has a market capitalization greater than that of the entire cable industry, not only to ask for special favors from Congress but in fact demand free license to enter the video market while maintaining all current regulation on a much smaller cable industry.
Aside from illustrating how really, really big a combined AT&T-BellSouth will be, the letter seems to have no other point aside from complaining about the phone industry’s (so far) successful efforts to gain some relief from the franchising burdens that cable operators must meet.
Update: The point of NCTA’s letter just occurred to me: the cable industry wants to hit early and hit hard with the magnitude of the merger in order to slow down Telecom Act legislation, which cable operators don’t really want. By creating a diversion about the merger, they could run down the congressional clock while simultaneously creating a headache for what will become a fearful competitor.
Posted by Cynthia Brumfield at 4:34 PM | Print | Comments (0)An article last month in Multichannel News quoted Ivan Seidenberg’s comments on the network neutrality issue from a perspective that caught my attention. His comments came to mind again today, amidst the brouhaha over the latest telecom megamerger.
Speaking at the BusinessWeek Media Summit, Seidenberg pointed to backbone costs as a key driver for charging web-based service providers like Google fees for access to higher speed tiers, which some have begun referring to as “access tiering.” This perspective seems all the more significant given that Verizon and SBC recently acquired two of the largest providers of backbone facilities.
“If you buy your DSL [digital subscriber line] from FiOS, you’ll never have any problem with the bandwidth from your house to the first point in the network,” Seidenberg said. “But the issue is that the backbone needs to be built. Who is going to build it?” Seidenberg added that the options are either that the Internet-applications companies like Google foot the bill, or that it falls on Verizon with no regard to how the company will recoup that cost.
“I think where we are now is one big ruse to shifting costs and hiding behind the notion that a company like Verizon will block traffic…What we have to be careful about is not to be trapped into this public-policy debate and forget the fact that there are commercial sets of agreements that need to be established where customers will pay for access and the market has to figure out how to pay for the growth and the building of the backbone.”
“I don’t think anybody wants us to put all of the cost of the backbone network from New York to San Francisco in the DSL rates,” Seidenberg added. “I think everybody that participates in the broadband world needs to participate. It doesn’t mean that there will be a direct charge. What we need to do is let reasonable people sit down and talk about it.”
Seidenberg’s comments suggest that backbone costs could become a more central focus of Bell arguments in favor of “access tiering.” They may also speak to some of the reasons why Google appears to be putting together its own backbone network. And, depending on how things go in the net neutrality debate, the AT&T/BellSouth deal may help move “access network development” a few spots higher on the long list of priorities under development at the Googleplex.
Posted by Mitch Shapiro at 2:55 PM | Print | Comments (0)
NBC-Universal hopes to use iVillage as a hub for distributing online its non-news TV content, and plans to use its production capabilities to generate original content for the Internet community company. Those were the key take-aways from the media call held today to discuss NBC-U’s $600 million acquisition of iVillage (replay here.)
“They know how to create sustained communities. We know how to create great content. Together we should give advertisers a unique opportunity to connect with their targeted audiences,” Bob Wright, Vice Chairman and Executive Officer, General Electric (parent company of NBC-Universal) said.
“NBC will turbo-charge this product,” Beth Comstock, President, NBC Universal Digital Media and Market Development said, noting that not only will iVillage become an outlet for NBC-U video content, but NBC-U will use its TV properties to drive traffic to iVillage. “We think iVillage matches well with our digital strategy and our strategy is all about creating engaging content and matching it with compelling destinations.”
There’s no question that NBC-U’s interest in iVillage is driven by its desire to create an Internet-based video outlet. “We see some fantastic opportunities to marry the iVillage content with our TV content,” Comstock said.
“From a television perspective we will be able to go back and forth online and on-air with network and cable,” Jeff Zucker, CEO, NBC Universal Television Group, said. Both Zucker and Comstock underscored the plan to create new and original content for iVillage.
“We will be looking for a great deal of original content. It’s an acknowledgement that both the consumer and the advertiser is looking for a new experience,” Zucker said. “There is content that we will be able to repurpose from existing programming and we have production capabilities to produce content around existing themes…It wouldn’t be hard for us to crank up the video production to get programming there,”Comstock said.
Although it looks like NBC-U is following in the footsteps of News Corp. by pushing ahead into the online community realm, in fact News Corp.’s recently acquired social networking and Web 2.0 properties, such as MySpace, are not really outlets for the company’s television product — at least not yet.
Posted by Cynthia Brumfield at 2:51 PM | Print | Comments (0)AT&T and BellSouth held an investor call this morning to spell out more details surrounding their major merger. (Replay and slides are here.) It’s clear that AT&T is confident in the cost-savings and strategic positioning that will flow from the deal.
“I’m very confident our integration will go smoothly and our merger will be a big success starting day one,” AT&T CEO Ed Whitacre said. “The merger we’ve announced today is a very logical next step.”
The following are some of the key points raised during the call:
—The new combined company, which will bring together three existing companies and brands – AT&T, BellSouth and Cingular – will carry the AT&T name. The unified branding, in fact, is one of the big benefits the companies say will result from the merger.
—The purchase price represents a 17.9% premium to BellSouth stock holders. With debt carried by BellSouth thrown in, the actual cost of the purchase is $89.4 billion.
—AT&T’s board has approved a 400 million share, $10 billion stock buy-back program that will take place over the next 22 months. The $10 billion will be used to pay the premium paid to BellSouth’s stock holders in the all-stock transaction.
—More than 90% of the synergies comes from operational and capital cost savings, with 50% of operational savings come from reduced headcount. AT&T plans a nearly 10,000 incremental force reduction from 2007 to 2009 - job cuts that are above and beyond what the two companies were planning anyway.
—AT&T doesn’t anticipate any regulatory hurdles on the federal or state level, although it does expect five state reviews, as well other reviews related to long distance. With no expected government objections, the companies expect the transaction to close in 12 months.
—Given that BellSouth has been on a parallel track to build out fiber-to-the-curb technology, AT&T thinks it would be relatively easy to expand its Project Lightspeed video-over-VDSL initiative to BellSouth’s territories.
Posted by Cynthia Brumfield at 9:49 AM | Print | Comments (0)
Deal-making is in the air and even weekends aren’t off-limits for major corporate announcements, as AT&T-BellSouth proved yesterday. Today, right off the bat NBC Universal taxed the already tired media with another big media-related acquisition (although admittedly not on the scale of yesterday’s big deal): the GE-owned network and entertainment giant is buying iVillage for $600 million.
NBC-U is paying $8.50 in cash per common share of iVillage, the women’s destination site. The deal is slated to close by Q2 06 and is simply one of a string of similar deals by traditional TV companies to forge new distribution channels on the Internet. NBC said in a statement that it expects iVillage, which has posted organic growth of 30% over the past year, to boost its digital revenues to $200 million in 2006.
While NBC plans to leverage the online outlet for expanded delivery of non-video content (Beth Comstock, President, NBC Universal Digital Media and Market Development said that GE even plans to leverage iVillage for GE’s Healthcare division), clearly iVillage will be a key NBC-U outlet for video content.
“This acquisition allows us to marry our on-air branded content with compelling new interactive functionality,” added Jeff Zucker, Chief Executive Officer, NBC Universal Television Group. “From the ‘Today Show’ to ‘Project Runway’ to ‘The Biggest Loser’ to all the health & medical and lifestyles segments we do every day on every one of our owned and operated television stations, we will now be able to create a deeper, richer experience around our content for consumers across all emerging platforms.”
NBC-U appears to be following in the footsteps of News Corp., which last year went on an Internet portal buying spree and indeed is still purchasing online properties.
The two companies will hold a conference call at 10 pm. More later.
Posted by Cynthia Brumfield at 8:13 AM | Print | Comments (0)
Blogs We Read
