A week after AT&T Inc. and Time Warner Inc. struck a deal to merge, the companies filed separate complaints to the U.S. Federal Communications Commission . This is the latest skirmish in the long-running battle over whether and how AT&T and its owners DirecTV and Warner Media will expand their fiber-optic Internet service to more of the U.S.
AT&T Inc. has two pipes—one is for the Internet and the other for the phone. The Federal Communications Commission (FCC) needs to decide which one is better. The company that operates AT&T’s phone network wants the federal government to delay a decision on its proposed $85.4 billion purchase of DirecTV Inc. until the phone network’s pipes are ready to carry high-speed Internet through the same channels.
AT&T store in San Rafael, California, May 17.
Photo: Justin Sullivan/Getty Images AT&T is getting rid of its Warner Media property, but why did Time Warner buy it in the first place? For the same reason that Time Warner (Cable) bought AOL, and Verizon bought Yahoo, and Vivendi bought a universal one. Call it margin envy. Since the advent of the commercial Internet in the 1990s, the big network operators have complained that while they carry all the traffic, someone else always reaps the benefits. As you read this, AT&T’s market capitalization ($210 billion) is only slightly down. Netflix ($221 billion). And don’t even mention the market capitalization (or margin) of the internet giants – you might induce apoplectic shock in a telecom executive. Richard Parsons, the Time Warner CEO who helped negotiate the AOL deal, liked to say that his cable company couldn’t afford to be a dumb pipe. Even today, network operators – wireless, fiber, cable – are afraid to be dumb pipes because the others seem to be making all the money. They’re not wrong about that. The misconception is that if you own tips, you can also improve your business in this area by owning content. A look at AT&T after the merger illustrates this problem. AT&T buys Time Warner and now owns Game of Thrones and everything else. When it differentiates itself from its competitors by offering content to its wireless and wireline subscribers, it pushes the boundaries of the entertainment industry. And for the consumer, this is a marginal benefit. You probably also pay for Netflix and T-Mobile subsidizes Netflix subscriptions for its customers (without, as you note, having to own Netflix). So, do you want a free HBO Max subscription from AT&T, a Netflix subscription from T-Mobile or Disney+ from Verizon? Choose your poison. AT&T did not improve its position by becoming the owner of Time Warner. It simply exported its declining margins from the network business to the entertainment business. Ironically, the public and pundits in Washington treat network operators as the villains of the Internet world, while streamers, web giants and social media eat their lunch. From the point of view of network operators, the neutrality argument seems almost surreal. If ISPs had the ability to control what people see online, they would probably make more money than they do now. But for some reason, companies with 10-figure market capitals play the victim, while network operators spend trillions to operate these stupid lines. The thing about pipes is that they’re not stupid. You’re doing brilliantly as a pipe. Maybe carriers like AT&T need to become better operators instead of trying to pick and choose what comes down the tube. Originating from Amazon -one of the biggest beneficiaries of the network operator’s lines. Amazon has deployed tons of computing power to handle peak loads on its website, as well as a massive logistics operation to fulfill orders even during peak periods. And then they turned all that excess capacity into a business – two businesses, to be exact. Amazon Web Services lets you monetize Amazon’s extra processing power, and Amazon Marketplace lets other retailers use Amazon’s website. Operators can do the same with any unused capacity in their networks. It’s not much worse than constantly overpaying content companies, only to lose them again in a few years. Mr. Ganley is President and CEO of Rivada Networks. Main Street: Unlike Hollywood, where at least the communists knew how to make good movies. Images : Everett Collection/A.M.P.A.S. via Getty Images Composite: Mark Kelly Copyright ©2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8 Appeared in print on 3. June 2021.