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MEDIA CURRENT: THE SHELL GAME
On December 2, 2011, Verizon Wireless announced a $3.6 billion deal with Cablevision, Time Warner Cable and Bright House Networks, three leading cable multi-system operators (MSOs). The deal involves Verizon’s purchase of the cable companies’ interest in SpectrumCo, a holding company controlling 122 high-quality wireless licenses. In addition, it called for a reciprocal marketing-and-sales agreement.
If approved by the Federal Communications Commission (FCC), it would make Verizon the nation’s largest holder of wireless spectrum reaching 250 million Americans. The deal will essentially end cable’s efforts to offer wireless services. Sadly, it will likely lead to further telecom industry consolidation, increased fees and result in poorer services.
Verizon Wireless is the brand name for a joint venture formally named the Cellco Partnership; Verizon controls 55 percent and the British-based Vodafone controls 45 percent. Verizon’s 2010 revenues were $107 billion, of which $41.2 billion was from wireless services.
Like AT&T, Verizon was created by mergers of a group of former “Baby Bells” following the break-up of Ma Bell in 1984. In 1997, Bell Atlantic (which covered the territory from New Jersey to Virginia) merged with the New York Bell operating company NYNEX (that covered Maine through New York).
Verizon Wireless originally grew out of the separate wireless divisions of the companies that it merged with or acquired to create Verizon. These companies include Bell Atlantic Mobile, NYNEX Mobile, PrimeCo and GTE Mobile. In 1999, AirTouch merged with Vodafone and, later that year, Vodafone entered into a joint venture with Bell Atlantic, creating Verizon Wireless. In January 2009, Verizon Wireless acquired Alltel Wireless as part of a deal valued at $28.1 billion.
Verizon’s latest announced deal comes four years after a cable-industry front company acquired the highly coveted advance-spectrum licenses through a FCC auction. According to a Wall Street Journal estimate, Verizon’s ostensible cable competitors walked away with a 50 percent profit over the initial acquisition cost.
In addition, the deal involved a cross-sales program in which the cable companies have the option to sell Verizon Wireless service and Verizon can promote the services of its cable partners. They also established a joint venture “for the development of technology to better integrate wireline and wireless products and services.”
The announcement came shortly after AT&T withdrew its offer to acquire T-Mobile. The decision was a response to the blistering criticism of the deal raised by the Department of Justice and FCC following the unauthorized release of a revealing memo from AT&T’s lawyers, Arnold & Porter. The memo undercut many of AT&T’s espoused claims as to the merger’s benefits and revealed how its real goals were to reduce competition and keep T-Mobile out of Sprint’s hands.
The agreement comes at a time when the nation’s telecom duopoly, Verizon and AT&T, are shifting their core businesses from wireline companies to wireless operations. Traditionally, the good-old telephone network was regulated to ensure service and pricing; the wireless market is an unregulated wild west with few standards, little rate regulation or even less accountability.
The duopoly’s much-hyped upgrades to “advanced” broadband services, Verizon’s FiOS and AT&T’s U-Verse, are ostensibly intended to compete with cable in terms of standard and high definition TV services, video-on-demand (VOD) programming, music services and Internet access. For both companies, these initiatives are really cream-skimming efforts targeted to high-end locales. As of Spring 2011, Verizon claimed a paltry 3.7 million subscribers and AT&T reported only 3.4 million subscribers. (Cable’s broadband coaxial wires pass 125 million households.)
Verizon’s deal with its new cable partners like AT&T’s failed effort to acquire T-Mobile are unstated acknowledgements that the telecom duopoly is ceding the high-speed wired broadband market to cable. According to the U.S. National Telecommunications & Information Administration (NTIA), in 2010 nearly 7 out of 10 U.S. households (68%) used broadband Internet. Of these, cable connectivity accounted for one third (32%) while telco’s inferior “broadband” Digital Subscriber Line (DSL) accounted for one quarter (23%).
The long-term consequences of the telco duopoly’s push to wireless, and especially “broadband” wireless, is discussed in detail in a recent New York Times piece by Susan Crawford, a professor at the Cardoza Law School. Anyone concerned with the future of the Internet and broadband services, especially movies, should read her article.
As Crawford notes: “Even if a smartphone had the technical potential to compete with wired, users would be hampered by the monthly data caps put in place by AT&T and Verizon. For example, well before finishing the download of a single two-hour, high-definition move from iTunes over a 4G wireless network, a typical subscriber would hit or her monthly cap and start incurring $10 per gigabyte in overage charges.”
The FCC is currently planning to end what is known as the public switched telephone network (PSTN). The PSTN is the traditional phone service that serves mostly-rural users, those who don’t have broadband or may not have wireless connectivity either; ending PSTN will end 911 and other services. Killing PSTN has been high on AT&T’s agenda for years.
These developments will have a major, and I fear detrimental, impact on the indie filmmaking community. Those seeking alternative, Internet Video distribution options and targeting younger potential viewers using smartphones and tablets (and who’ve cut their cable TV connection), will likely find it a tougher and more expensive road to hoe.
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David Rosen is a writer and business-development consultant. He is author of the indie classic, Off-Hollywood: The Making & Marketing of Independent Films (Grove), originally commissioned by the Sundance Institute and the Independent Feature Project. He can be reached at drosennyc@verizon.net. For more information, check out www.DavidRosenWrites.com and www.DavidRosenConsultants.com.
