Verizon sent another clear signal this morning to regulators and the financial markets. We are transitioning from a broadband company to a media company. Suppose Verizon takes it another step and also declares that they, say five years from now, will get out of the broadband access to the internet business and settle for being a channel solely for their own branded content or content that they get a license to retransmit solely on their servers? Such a move would get them from under the Federal Communications Commission’s Title II/net neutrality rules while opening the door to smaller internet service providers to fill the broadband access to the internet market vacuum.
First, the news. Today, The Wall Street Journal reported that Verizon Communications Inc., agreed to buy AOL, Inc., for $4.4 billion. The purchase will be made with cash on hand and the issuance of commercial paper and make Verizon a player in the digital media content market. According to The Journal:
“The acquisition would give Verizon, which has set its sights on entering the crowded online video marketplace, access to advanced technology AOL has developed for selling ads and delivering high-quality Web video.”
Verizon goes on to say that its principal interest in the purchase is access to AOL’s ad tech platform probably for use with Verizon’s mobile video service scheduled to launch this summer. The service will offer snippets of video content, live sports, concerts, and on-demand programming.
Verizon and AT&T believe video content will drive demand for their wireless services as consumers, particularly millenials, (who have passed Generation X-ers as America’s largest consumer group), prefer get their content anywhere on the go, unlike their more sendentary Baby Boomer elders.
Verizon can also leverage its relationships with content providers. For example, according to the article:
“Verizon already has relationships with many media providers because of its FiOS TV service, which is available in 5.6 million U.S. households. And it has shown prowess in mobile video already, including through a partnership with the NFL that allows it to stream some games over phones.”
It sounds like Verizon is ready to step up to being what I consider all broadband providers to be: media companies. Regulatory wise, I think Verizon and AT&T could circumvent the FCC’s net neutrality rules by making the declaration that not only are they media companies, but they are no longer in the business of providing access to the 67,000 interconnected networks known as the internet. Verizon instead should declare that it provides IP-access solely to its website of original and licensed content. If you want to see “Game of Thrones”, you’ll use a broadband access provider that connects you with HBO’s website.
A broadband internet access service, according to Section 8.2(A) of the FCC’s net neutrality rules is “a mass retail service by wire or radio that provides capability to transmit data to and receive data from all or substantially all Internet endpoints, including any capabilities that are incidental to and enable the operation of the communication service, but excluding dial-up Internet access service. This term also encompasses any service that the Commission finds to be providing a functional equivalent of the service described in the previous sentence, or that is used to evade the protections set forth in this Part.”
If Verizon describes in its service agreement that access to its particular content found on its website does not include access to the other endpoints found on the remaining 67,000 networks, should that take them out of the FCC’s net neutrality stranglehold? I would hope so. Yes, the FCC and the grassroots groups will still utter in their last gasps that even if this new media model held that Verizon’s subscribers would still need consumer protections, but in my opinion those protections would come under contract law and a better equipped Federal Trade Commission since Verizon and any other broadband provider opting for a new media model would fall in the category of edge provider.
Let’s shake it up a little, Verizon. This is the right step toward bringing well needed disruption into the media market.