Yesterday, Judge Leon ruled that AT&T can acquire Time Warner. In this column, I’d like to discuss the broad implications of the deal, and more specifically what it means for the telecom and mobile landscape.
First off, congratulations to AT&T. They stuck to their guns and didn’t agree to any of the initial — and unreasonable — DOJ terms to sell off piece parts of Time Warner to get the deal through. Hopefully, AT&T will be more successful with Time Warner than was AOL which, ironically now sits in the hands of arch-rival Verizon’ unfortunately named Oath.
Some of the benefits of the deal will be felt apparent to consumers within a few months. Expect some additional bennies and content bundles for AT&T wireless subscribers. HBO for free, a la T-Mobile Netflix? In the more medium term, marrying the huge Time Warner ad inventory with the insights on AT&T-DTV’s customers will create value. It will be a longer term project to build a more effective ad targeting platform, pulling together the content, ad inventory, and customer data in an effective – and responsible – manner.
AT&T will have to tread carefully. With the tech industry reeling from myriad episodes of inappropriate exposure/use of customer data, the $200 billion AT&T-Time Warner behemoth, which will still be under greater regulatory scrutiny than its Silicon Valley brethren, will have to be both careful and transparent with regard to how that customer data is leveraged. It will also have to abide by the near promises it made during the trial to not discriminate in the provision of Time Warner content to DTV rivals. That said, the TV and rights fees landscape is in turmoil and under pressure, so needles will have to be threaded here.
Against this backdrop, and with uncanny timing, net neutrality was officially repealed this week, smoothing the way for all of the above to be implemented.
The clarity of the ruling and its lack of conditions will help to unleash a wave of M&A activity in the media and content landscape. Most immediately, the bid for 21st Century Fox assets will heat up, with Comcast entering the fray.
I believe this will also ease the path for the T-Mobile/Sprint deal. Just as the TV market has changed hugely with OTT, streaming, and the impact of Netflix, Amazon, Apple, YouTube and so on, so too has the telecom business. Landline is all but dead, broadband is a near monopoly in 50% of the country, and demand for wireless data (driven by video) and the capex to support it remains near insatiable. It is hard to imagine T-Mobile and Sprint competing successfully, independently, and profitably with AT&T and Verizon, long-term. Especially with DISH’s spectrum, Comcast/Charter MVNOs, and possible entry of some Internet/Web giant into the space, as part of the mix.
I think T-Mobile and Sprint can successfully make the argument that the industry landscape has changed significantly since a deal was first broached a few years ago. The biggest benefit of 5G is capacity – in the form of spectrum breadth and depth, and cell site density. T-Mobile and Sprint will be able to do more together than they would do independently (1+1=3, as it were).
5G will be another beneficiary of this evolving telecom/media landscape. Verizon, AT&T, T-Mobile (Layer 3), and Comcast all have important content and video assets, which in addition to driving traffic growth, will also unleash innovation in apps, games, and so on that will form some of the business cases for 5G, such as in AR and VR. This thinking was on display last week at the AT&T Shape conference, which was held in Los Angeles at – wait for it – the Time Warner Studios lot (see my column on that here).
I also think that Verizon, Comcast, and AT&T getting more deeply into content and media will incent some of the major internet players, namely Google, Facebook, Amazon, Apple, and Netflix to be more masters of their own domain with regard to telecom and mobile. At the very least, it will drive the development of edge networking (and hence small cells/data centers) and 5G. One could also envision a deal for DISH’s spectrum, their participation in future spectrum auctions, leveraging Wi-Fi/unlicensed/3.5 GHz spectrum, or some level of MVNO relationship — or some hybrid of all of the above.
The telecom landscape will look less homogeneous going forward. Mobile-centric AT&T looks more like broadband-centric Comcast than it does Verizon. Verizon, with its leadership in 5G, emphasis on 5G FWA, and appointment of former Ericsson CEO Hans Vestberg as its next CEO, has taken a turn toward re-emphasizing the network. It is still in the early stages of truly leveraging its Oath asset, though if it is going to be a serious player in media/content/advertising, there’s more dealing to be done. T-Mobile and Sprint together look the most like a wireless pure play, though I could certainly see how Sprint’s 2.5 GHz spectrum could be leveraged as a potential competitor to broadband in some markets. And as part of the likely M&A acceleration in the telecom/media arena likely over the next year, one can’t imagine how DISH’s spectrum can lie fallow for much longer.
