Telecom Regulation Redux: Where Do We Go From Here?

By Doug Mohney June 06, 2014

The breakup of the original AT&T monopoly in 1984 and the Telecommunications Act of 1996 were the last two land-shaking events in U.S. telecommunications. Consolidation, technology and the Federal Communications Commission's lack of leadership are conspiring toward a regulation regime that service providers will be most unhappy with.

Three major deals positioned in different market sectors are pushing the tipping point toward a new, and more active, government role in communications services. Let's throw out the "tele" part moving forward because we're moving to an all IP, broadband-driven world.

Comcast's move to merge with Time Warner would consolidate market power within the broadband world. Everyone involved says it isn't a monopolistic move because it's not consolidating competition in markets. Instead, Comcast-Time Warner would give one company broadband control to about 30 million households. It would create an entity that would have market power -- leverage -- as a gatekeeper to subscribers of both Internet and video content.

AT&T thinks it needs to buy DirecTV to fix its problems, giving it enough market share to compete with Comcast-Time Warner (CTW) and work out better pay TV deals for broadband distribution. It also may give it a better shot at competing against CTW in some markets, assuming cable and legacy telco don't pull their usual act of trying to nip customers from each other.

Finally, Sprint has a death wish to purchase T-Mobile U.S. Terms continue to be worked on, according to reports, with a price tag of $32 billion plus a billion-dollar breakup fee to Deutsche Telekom if the merger doesn't go through. Softbank Chief Masayoshi Son is pushing this as a necessary merger to compete against AT&T and Verizon in the mobile space. Pulling together the two companies’ networks is going to be costly, since Sprint is sticking with advanced CDMA technology for the short term while building a totally different high-speed LTE network than the rest of U.S. carriers. T-Mobile has a stock HSPA and more advanced LTE network going on, but there's no sort of commonality on either legacy or 4G networks, unlike AT&T and T-Mobile.

The deal might be worth it if Son can get T-Mobile's warrior spirit (I'm looking at you, John Legere) at the top, along with an axe to write off as much legacy hardware as fast as possible. It would leave the U.S. with three major cellular carriers. A triumvirate of wireless competition might work -- assuming one of the three didn't fumble and ultimately start talking about merging with one of the others.

Add on to that the aging legacy phone system. Verizon has made it clear it wants to get rid of its legacy copper as fast as possible, but it hasn't provided clear direction on what it intends to do in areas where it has not installed copper. AT&T has proven it is interested in deploying more fiber and working with the existing copper plant, but how far it will ultimately go before it adopts Verizon's philosophy of "Copper bad; move to fiber or wireless, period" is also not clear.

When it comes to leadership, the FCC tried to thread the needle with the issue of content providers paying for "fast lanes" on broadband networks. It now has a Silicon Valley revolt on its hands and consumer advocates asking how fast lanes will be squared with "regular" broadband access so competitive services.

The FCC also hasn't provided enough guidance to carriers on how to migrate from copper services into broadband and wireless options. One look at Verizon's wireless push in the wake of Hurricane Sandy shows the company did what it wanted to without regard to the needs of its existing customers. 

All of these factors are leading back to Capitol Hill and Congress passing a new communications bill to regulate a vastly consolidated market and provide firm guidance in areas where the FCC has either failed to tread or fumbled the ball. I'd expect work on a new communications bill to start after 2016 with passage targeted for 2018.

Edited by Rory J. Thompson

Contributing Editor

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