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Telling a media company to not buy content is like telling a car company to not buy tires

Earlier today The Wall Street Journal reported that AT&T may close on a deal to buy Time Warner. Time Warner (not to be confused with Time Warner Cable) is a content play with popular properties HBO, CNN, and Warner Bros. in its inventory. AT&T has seen the light flowing from convergence and is rapidly becoming a media company, an exciting move away from being just a broadband access provider.

The boo birds are out, providing the usual “this is bad juju” arguments against a merger should merger talks go just beyond speculation over the weekend. Michael Copps, former member of the Federal Communications Commission, reportedly refers to talks of merger as an action that would result in monopoly power, a power that is “incompatible with democracy.”

Last time I checked, democracy was simply about the masses having the ability to enter a ballot box and choose the lesser of two political evils.  Mr. Copps is conflating a supposed monopoly on content with freedom of expression. If there is a merger, freedom of expression and democracy would not be harmed. To use such arguments is like saying that a car company shouldn’t be allowed to buy a certain tire for its SUVs and refrain from marketing its SUVs as using such tires. AT&T is a media company and should be able to establish an inventory or library of content that reflects its brand. I would argue that it would be undemocratic to stop it from choosing the content that best expresses what type of media company AT&T wants to be,

Besides, there is no monopoly harm here. AT&T won’t get the most out of its content if it does not make it available to as many outlets as possible. Also, the merger doesn’t stop any other content producer or media company from producing and distributing their own branded content.

Content is near infinitesimal in its creation and distribution. This makes the argument of favoritism toward one’s own content ridiculous. What the favoritism argument really indicates that protesters don’t have the talent to compete on quality of content and could do us all a favor by sitting down and taking a chill.

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Trump, walls, trade in telecom services, and NAFTA

Posted July 21st, 2016 in AT&T, Donald Trump, Election 2016, NAFTA and tagged , , by Alton Drew

According to the World Trade Organization, global trade in telecommunications services accounts for $1.5 trillion in revenues.  Trade in telecommunications services includes entrance of new telecommunications companies, foreign direct investment, and the cross-border transmission of telecommunications services.  Donald Trump would like to build a wall around some of that trade, specifically the trade between Mexico and the United States promoted in the North American Free Trade Agreement (NAFTA or Agreement). I don’t think that is a good idea simply because it reduces the availability of additional choice of telecommunications providers and restricts the flow via foreign direct investment of additional capital that a fledgling telecom may need. Calling for a tearing up of NAFTA also shows Mr. Trump’s ignorance when it comes to global capital markets.

Take for example the Mexico-based telecom America Movil SAB de CV. America Movil is a beast, controlling 70% of Mexico’s wireless and internet access market, according to Morningstar strategist Michael Hodel. This market dominance is a red flag to Mexican regulators who have promulgated rules designed to reign in America Movil. Rules changes have provided United States-based AT&T an opening to enter the Mexican market, but it is expected that AT&T will have a tough go at profitability as it seeks to navigate the Mexican market.

NAFTA provides AT&T some help. Chapter 13 of NAFTA addresses access to public telecommunications transport networks by persons, broadcast station operators, cable system operators, or operators of private networks. Under Article 1302, AT&T is able to purchase, lease, and attach equipment to Mexico’s public telecommunications transport networks. AT&T can also interconnect its private networks to Mexico’s public telecommunications transport networks either from in the United States or from within Mexico. NAFTA, combined with changes in Mexican law, can be good for American telecommunications firms.

While NAFTA does not speak directly to listing of shares of corresponding stock exchanges, America Movil lists its American Depository Receipts on the New York Stock Exchange. ADRs are negotiable certificates issued by a U.S. bank representing a specified number of shares in a foreign stock traded on a U.S. exchange. If access to Mexican markets by American firms were curtailed as a result of tearing up NAFTA, the only beneficiaries north of the Rio Grande would be holders of ADRs or other securities issued by Mexican-based firms because their revenues would be left unchallenged.

If Mr. Trump is concerned about increases on return to American capital or increases in American jobs as he claims, tearing up NAFTA would be the wrong approach.

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AT&T makes another media play

Posted May 16th, 2016 in AT&T, media and tagged , , by Alton Drew

AT&T today announced that it will acquire Quickplay Media Inc., as part of its plan to support streaming of DirecTV content over any device. AT&T already has an existing relationship with Quickplay. The company provides the platform for AT&T U-verse TV. Subject to a pre-merger review, the acquisition is expected to close in mid 2016.

The acquisition provides another example of convergence 2.0 as legacy companies such as AT&T and Verizon take their infrastructure to a media level.

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The FCC should pay attention to the overall economy

Posted January 21st, 2016 in AT&T, Broadband, capital, economy, Verizon, Wall Street and tagged , , , , by Alton Drew

Yesterday at the World Economic Forum in Davos, Switzerland, AT&T chief executive officer Randall Stephenson shared with The Wall Street Journal his opinion on economic growth. Mr. Stephenson shared that he is not optimistic about growth in the economy. Expected growth of two percent is unacceptable, according to Mr. Stephenson. Tax policy changes are needed but there is no expectation that there will be any fiscal action this year.  Without fiscal action there is the potential of more downside than upside.

Mr. Stephenson added that lower oil prices were expected to lead to increased consumer spending but that has not panned out because consumers have been price conscious about mobile services. Discounts as  little as ten dollars could prompt a consumer to change mobile carriers.

There has been little if any evidence that the Federal Communications Commission is taking into account the state of the economy and its impact on consumer demand for broadband services. In comments before the Brookings Institution, FCC chairman Tom Wheeler argued that the success of broadband services leads to increases in demand for broadband which increases the incentive for competitive broadband.

Mr. Wheeler might not buy AT&T’s argument that lack of national economic growth is constraining carriers like AT&T. Mr. Wheeler believes that 75% of AT&T’s network will be controlled software by 2020. The replacement of hard physical switching systems by software is expected to reduce Verizon’s real estate costs by 80%, according to Mr. Wheeler. Powering a few computers can save up to 60% of energy costs versus endless hard switches, according to Mr. Wheeler. As the cost of delivering broadband goes down, says Mr. Wheeler, the opportunities for innovation increase. “This means we’re not going to let imaginary concerns about investment incentives and utility regulation cause us to let up on policies to encourage fast, fair, and open broadband.”

If the concerns are imaginary then maybe equity analysts are sleep deprived. We shared in a 28 December 2015 post that analysts believed that the wireless industry participated in a competitive market. The large wireless service companies are subject to pricing squeezes brought on by smaller entrants, analysts found, and extremely high prices for spectrum were further compounding pricing squeezes.

The reality of market concerns are further highlighted when one considers how much the information sector impacts gross domestic product. According to the U.S. Bureau of Economic Analysis, the information services portion of the economy has been playing an increasing role over the last three years. Information represented 9.3% of gross domestic product in 2013. By 2014 this percentage increased to 9.5%. At the end of the third quarter in 2015 the percentage has climbed to 9.6%.

Given Wall Street’s assessment of wireless markets and the impact information services plays on the overall economy, the FCC should look beyond the switch to software-based communications infrastructure when ascertaining the competitiveness.

 

Will the FCC be naughty or nice when it comes to sponsored data

The Federal Communications Commission wants to determine if broadband access providers such as T-Mobile, AT&T, and Comcast, are complying with the Commission’s net neutrality rules. A report in Reuters stated the following:

“As you may be aware, concerns have been expressed about these programs, for example, some have argued that sponsored data unfairly advantages incumbent content providers,” the letter to AT&T said. “We want to ensure that we have all the facts to understand how these services relate to the commission’s goal of maintaining a free and open Internet while incentivizing innovation and investment from all sources.”

FCC Chairman Tom Wheeler hasn’t posted any official statements on the Commission’s request for a January 15, 2016 meeting with AT&T, Comcast, or T-Mobile. Nor are there any docketed items addressing the matter of sponsored programs or other initiatives that allow consumers to use streaming or other data services while avoiding the application of this usage toward their data plans.

The Commission’s net neutrality rules do not speak specifically to a “1-800-number” approach to providing broadband access. The section of the rule that comes closest to addressing the concerns that sponsored data unfairly advantages incumbent broadband access providers is section 47 CFR 8.11.  This section reads:

“Any person engaged in the provision of broadband Internet access service, insofar as such person is so engaged, shall not unreasonably interfere with or unreasonably disadvantage end users’ ability to select, access, and use broadband Internet access service or the lawful Internet content, applications, services, or devices of their choice, or edge providers’ ability to make lawful content, applications, services, or devices available to end users. Reasonable network management shall not be considered a violation of this rule.”

A broadband access provider interfering with an end-user’s ability to select or access a competitor’s broadband access service or lawful content is not at issue here. Edge providers are arguing that they won’t be able to get their content in front of consumer eyeballs if larger content providers can leverage their content by offering it at a discount when they decide not to apply the data used against a data plan cap.

We can’t say whether there is a definitive political risk to the telecommunications sector since the Commission has yet to take any formal action. The “sit down” with broadband access providers is not for another three weeks and speculation at this point would be built on shaky ground.