Don’t Play Survivor With Verizon

If corporations were people, here’s a bit of advice:  Don’t enter into a Survivor game if Verizon is a contestant.  Verizon shows an uncanny ability to get what it wants with a minimum of fuss, even if it means cutting out erstwhile partners.

AT&T, on the other hand, is a different story.

Pick an analogy for what AT&T finds itself doing these days as its futile takeover bid for T-Mobile drags on and on.  “War of attrition” is one description. “Trench warfare” might be appropriate.  There are a couple of goodies one could drag back from the 1960s; “waste deep in big muddy” could be equally applicable here.

There won’t be a final public accounting of what AT&T has spent, but good guesses would put it at breaking the $50 million mark.  AT&T will spend that, and have to pay out a couple of billion dollars or so for a break-up fee with T-Mobile's German parent, Deutsche Telekom, and end up with nothing.  Meanwhile, AT&T's cell service ranks at the bottom of customer satisfaction surveys, again.

By contrast, Verizon has shown that if there were a game of Survivor, it, and not AT&T, would walk off with the grand prize.  Not only is Verizon getting what it wants with a minimum of fuss, but it is showing how it can inflict distress on a former ally using a policy it roped that ally into approving.  A contestant always gets special points for a schadenfreude experience.

Just about everyone but AT&T can see that its T-Mobile bid is done.  Its nonsense about needing T-Mobile’s spectrum has been exposed, as has the rest of its ill-fated scheme.  The company is reduced to attacking the Federal Communications Commission (FCC) for trying to protect consumers.  Its top officials admit time and again there is no Plan B, as Chief Financial Officer John Stephens told a UBS conference in New York Dec. 7.  As late as Dec. 9, lawyers for AT&T had the audacity to go into federal court and press for continuation of a long, expensive trial on the basis that “nothing has changed” in recent weeks.  The withdrawal of their FCC application for the takeover didn’t count.  The Justice Department didn’t buy it, and it appears as if the judge was very skeptical as well.

Meanwhile, Verizon’s recent moves show a much different view of the world.  For a mere $3.6 billion, Verizon purchased some spectrum from a consortium of cable companies (Comcast, Time Warner and Brighthouse) while agreeing to a new, closer working relationship with Comcast.

In one fell swoop, Verizon did what AT&T wants to accomplish.  It will take a potential competitor off of the market while getting itself some spectrum in places it can really use it (unlike AT&T).  There had been some speculation that when the AT&T takeover of T-Mobile finally ends, that Comcast or other cable operators would be there to pick up some of the pieces.  Now, unless Comcast and/or others in the cable spectrum consortium try to buy T-Mobile outright with the $1 billion profit they made from sitting on the spectrum and then selling, cable will remove itself as a potential wireless competitor.

The big difference, of course, is that compared to the AT&T fiasco, there will be relatively little fussing over the Verizon deal from the FCC despite the clear anti-competitive implications of the arrangements.  That’s because there is nothing as blindingly obvious as AT&T trying to take out a current competitor.

This merger is more akin to Comcast taking over NBC-Universal.  There are all sorts of opportunities for anti-competitive activities, but antitrust law doesn’t give the government much of a hook on challenging the deal, so they need to fall back on “conditions” that aren’t really much of an obstacle because they are so hard to enforce. Bloomberg has been fighting for six months just to get a channel slot on Comcast systems for its business programming that competes with an NBC channel.  Bloomberg wants to be with the other business channels, rather than be exiled to a far-away neighborhood of unrelated programming.  On some systems, Bloomberg is up in the 100s, while CNBC is at channel 60 or lower.

Yes, this is the type of deal that could lend itself to “conditions” even as the two companies involved swear they will still compete with each other while unofficially dividing up the market between them.  Cable has video programming.  Verizon has wireless.  Sure, they will compete where there is Verizon’s fiber-optic service, FIOS.  But there are lots of places where Verizon isn’t offering it.  Verizon has already cut off a technical trial it was doing with DirecTV, its erstwhile video partner, to concentrate on its new cable BFFs.

The cable consortium originally bid for spectrum with the expectation that cable operators would offer wireless services to go along with video, phone and data, in order to compete with the phone companies.  But why compete when you can simply divide up the market and laugh behind the regulators’ backs?

So score the cable spectrum deal for Verizon.  The other move they made is even more insidious and, yet, delicious, and that’s the dust-up over Verizon’s non-blocking of Google’s Wallet application on Android phones.

Verizon says it’s only trying to work through security concerns about the payment app, and that if approved, Verizon customers will have access to the app at some point.

Google says they aren’t any security concerns.  They say Verizon is stalling until Verizon’s similar payment app, Isis, is ready some time next year.

Thanks to Google’s  Executive Chairman, Eric Schmidt, Google is totally out of luck on this.  It was the summer of 2010, remember, that Google cut that deal with Verizon that screwed Net Neutrality for wireless applications.  Schmidt and Verizon Chmn. Ivan Seidenberg became best buds, writing op-eds together in the Wall Street Journal and Washington Post while setting out the grand bargain eventually adopted by an FCC too meek to realize wireless is the future.

Google is one of those companies that ordinarily would have the will and the means to contest what should be a violation of the principle that customers should have access to any legal application on any device over any network, part of the proposal that Google and Verizon put forward.

But this is what Schmidt agreed to in that proposal:  “Wireless Broadband: Because of the unique technical and operational characteristics of wireless networks, and the competitive and still-developing nature of wireless broadband services, only the transparency principle would apply to wireless broadband at this time.”

Here is what the FCC said in its Dec. 23, 2010 order:  “We conclude it is appropriate to take measured steps at this time to protect the openness of the Internet when accessed through mobile broadband. We apply certain of the open Internet rules, requiring compliance with the transparency rule and a basic no-blocking rule.”

Yes, Google, you did a number on yourself this time.  Congrats.  Verizon wins again.

The only shadow on the horizon for Verizon is this notion of becoming an online video provider.  According to latest reports, it will partner with Redbox, which rents all those movies that show up in their rental machines.  The question is how the streaming will work in areas not served by Verizon’s fast fiber optic service (FIOS).  Are they going to stream over the slower DSL?  Or try to sell it as an independent service like Netflix?  Or go wireless?  The offering should set up an interesting dynamic with their new cable partners.  And, don't forget, those pesky Open Internet rules apply on the wired services.  Those are the rules Verizon is challenging in court, and may just succeed in nullifying.

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