Broadband continues to be the most fascinating segment of the telecom
business. Although Asia-Pacific continues to lead in broadband, the West is not
far behind where it is still driving mega mergers–one of the few sectors to do
so. The last month saw AT&T Broadband–being spun off from AT&T–and
Comcast merger coming close to reality. This has been the subject of a lot of
speculation for the last one year, and there is a good enough reason for this.
It would create one of the leading broadband communications, media, and
entertainment companies in the world. The marriage will create the largest cable
TV provider, with some 40 percent of the US cable customers i.e. over 22 million
subscribers–almost twice the size of its nearest competitor AOL Time Warner.
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Broadband: the Only Way
It’s another story that AOL and Time Warner still continue to struggle to
keep their $100-billion (which is believed to have already lost about $40
billion in market value) marriage together. AOL has issued a gloomy forecast for
the Internet business but puts its faith in revival through broadband using
premium content–cashing in on Time Warner properties from Madonna to Tony
Soparno, from CNN to HBO’s online comedy. AOL Time Warner honchos have just
concluded that the only real choice for the company is to plunge headlong into
broadband.
Just two years ago, when AT&T was on a buying spree, it spent $97 billion
to acquire two cable competitors, TCI and MediaOne, in order to put AT&T
squarely in the broadband business, which going by cost per subscriber was
estimated to be double their market value. The current market value of the asset
is estimated to be $62 billion.
The buzzword then was ‘synergy’. AT&T–facing declining margins in
its core long-distance business–could bundle phone, Internet, wireless and
broadband services. As long-distance telephone and wireless services have
increasingly become commodities with low profit margins, cable continues to
enjoy immense market power and profits. AT&T Comcast is likely to dwarf
everyone else, giving it an alarming control over pricing and content. The
merger between the two cable empires, Comcast and AT&T, will create a media
behemoth which threatens to undermine competition and diversity in both the
cable TV programming space and the emerging interactive broadband marketplace.
The merger would give new entity about a quarter of the pay-access marketplace.
Regulators and federal courts have eased up on rules that once prevented
broadcast companies from owning more than 30 percent of the nation’s cable or
subscription TV markets.
Everyone believes that this merger seems least likely to run up against the
regulatory issues and probably has the greatest potential for real growth for
the new entity. However, it is going to put pressure on other cable operators to
consolidate to get much bigger to survive.
The Fate of Competition
In the US too, cable rates have been rising since 1996 (at triple the rate
of inflation). For decades, the US cable industry has canvassed that the real
competition is around the corner. But instead cable companies have been merging
with each other, which many believe help preserve monopoly practices and raise
prices. This is a trend telecom regulators are facing when significant market
powers are being recreated. One would find it difficult to see the benefits
arriving soon out of someone’s sanguine view of ‘inter-modal competition’.
For instance, cable modems competing with DSLs for Internet/broadband, as these
markets still remain highly segmented and have a tendency to enjoy monopoly
profits.
Ramdin Chacha’s Plight
Six years ago, Ramdin Chacha was introduced to his buzzerbattoo–his first
cellphone– by an enterprising salesman as a cordless phone. Today, Chacha owns
four cellphones–one with free incoming calls, one with free outgoing, one with
limited roaming, and one with unlimited roaming; he found it quite perplexing to
take one and not the other. However, owing to the crashing rates, his bills for
the four total less than the one six years ago.
Although he feels grateful to all those who made this happen, he wonders why
he has to live with the monopoly of a single cable operator, and if all this
talk of convergence and competition hasn’t reached the right ears. When will
he be able to enjoy the benefits of broadband like others elsewhere in the world
and bridge the digital divide?