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Making of a Behemoth

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VoicenData Bureau
New Update

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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Regulators

and federal courts  merger will face regulatory

objectionshave eased up on rules, and therefore chances are few

that the

from

my cell:
Niraj

K Gupta

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.

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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?

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