Lowenstein's View: Memo to FCC, DOJ - If Comcast, then Sprint?

Mark Lowenstein

Regulators blocked the AT&T/T-Mobile acquisition and have signaled their distaste for a possible Sprint takeover of T-Mobile. Yet, it appears that Comcast's proposed acquisition of Time Warner Cable has a reasonable chance of being approved. Why is that?

It is an interesting exercise to compare the level of competition and innovation in the wireless and fixed broadband industries. In wireless, we have four national competitors, plus a handful of remaining facilities-based providers that divide the remaining 10 percent to 15 percent of the pie. We also have a vibrant resale/MVNO market that enables firms such as Tracfone, with some 25 million subscribers (yes, they're that big), and, at the other end of the scale, "uncarrier" type approaches such as Republic Wireless and Scratch Wireless (sorry, John).  With three and soon to be four national LTE networks, the U.S. ranks at or near the top of the global list with respect to mobile broadband availability and capability, despite a population density that looks more like Sweden than Seoul. The U.S. ranks near the top in average mobile data speeds and monthly per-subscriber consumption.

Washington has hindered, rather than fostered, the deployment of national mobile broadband. In many European countries, an industrial policy-like approach ensures that the average mobile operator has about 150 MHz of spectrum to play with. In the U.S., a pondering, highly politicized approach to making more spectrum available, plus the government's insistence on maximizing the Treasury Department's bottom line through an expensive spectrum auction process, have led to artificially high wireless prices and a frenzied private market of spectrum horse trading. Think about it: Messrs. Son and Hesse travel to Washington to argue the case for an acquisition of T-Mobile, in part because Sprint doesn't think it can afford to pay the government enough for the very lifeblood (spectrum) it needs in order to stay in business.

Now, let's look at the broadband business. In terms of competition, only about 25 percent of the U.S. population has a choice of more than one good (which I define as 25 Mbps or better) broadband service. Fifteen percent of the population still can't get broadband service at all. When ranked against other countries, our broadband speeds are middle of the pack, and services are comparatively expensive. The Rube Goldbergian approach to pricing requires consumers to pay about one-third more for broadband if bought on a standalone, rather than a bundled basis. There are no broadband MVNOs or resellers (whereas in Sweden and some other countries there are tons of them). And, geographic luck is the major determinant of whether you have innovative broadband and TV services (Comcast, Verizon), or services that appear stuck in 1995 (Time Warner).

I've never quite understood the government's fixation on the level of wireless "competitiveness." They'll argue that Verizon and AT&T have a usurious 80 percent of the wireless provider's profits. But what about Apple and Samsung in phones, Google in online advertising, Apple in music, and Amazon in e-books? On top of all this, Comcast, with Time Warner,  is poised to have 2x+ the number of broadband subscribers as its nearest competitor, presence in 19 of the 20 largest TV markets, and extensive content leverage, given its ownership of NBC Universal. With the Time Warner deal and anticipated acquisitions of other cable properties, Comcast will have even more leverage in escalating battles over content rights fees and retransmission rates, which will lead to more Time Warner-CBS and DirecTV-Weather Channel-like standoffs.

All that said, I am not necessarily opposed to Comcast buying Time Warner or other cable companies, particularly if one looks at the deal through the prism of what the future landscape looks like, rather than the legacy Cable Act/Telecom Act regulatory view. Comcast's competition is much more Netflix, Google, Apple and Amazon than it is other cable or wireless service providers. DISH is another factor, especially if it can execute on its national broadband-via-wireless strategy. And, given consumers' view that their higher monthly cable bill is all Comcast's fault and nothing to do with escalating rights fees charged by the NFL, Disney (ESPN), or Viacom, cable company profits will tilt more toward the broadband services, rather than the content, part of their business.

Given the above arguments, I believe it would be hypocritical for the government to support the Comcast-Time Warner deal, but stand in the way of Sprint-TMO.  Now, I would rather Sprint and T-Mobile prosper as standalone operators. That level of competition would be fun to be a part of. It would be good for consumers if one believes it is possible for four, national facilities-based providers to be successful, profitable companies over the medium to long term. But there's not much of a precedent for it, in mobile, telecom, or broadband services, anywhere else in the world, especially when the public sector is doing little to foment a more competitive environment.

So, I urge regulators to include the broadband industry, not just the wireless industry, when considering the "level of competition," "innovation," and "what's good for consumers."  If you approve Comcast-Time Warner, you gotta give Sprint-TMO a more serious look.

Mark Lowenstein, a leading industry analyst, consultant, and commentator, is Managing Director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter at @marklowenstein.