Mixed Signals for MVPDs Seen in Wireless Consolidation
AT&T’s deal to buy T-Mobile could have mixed implications for the TV and video industry, industry officials said. Some said the $39 billion deal will have no real effect on the cable industry and is unlikely to provoke a change in cable operators’ wireless plans. Others saw danger for smaller content owners and entities that will have to rely on increasingly larger distributors to reach consumers. In the context of the TV spectrum reallocation battle (see separate report in this issue), it’s unlikely the deal will be much of a distraction for the wireless industry, a broadcast executive said. “I won’t say it’s a bad thing that they're occupied on other matters as well. It certainly causes them to work overtime to hold their positions together.” Carriers are capable of handling more than one policy item at a time, the executive said: Suggesting otherwise would “be like saying someone’s battle plan excludes the possibility of more than one battle front."
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Adding spectrum through the deal means AT&T and T-Mobile will have more capacity to send online video to their wireless subscribers, meaning the combined company will compete somewhat more against multichannel video programming distributors, said MVPD lawyers. But the additional spectrum may not make the combined company much more of a threat to MVPDs than the wireless industry already is, they said. A merged AT&T and T-Mobile still will face bandwidth constraints, said a lawyer with cable-operator clients. The companies likely will try to get the FCC to approve the deal by touting the transaction as a way to increase their video offerings, the lawyer predicted.
"AT&T’s acquisition of T-Mobile, if consented to by regulators, will certainly provide additional spectrum resources for AT&T to enhance the ability of its mobile subscribers to access video,” said lawyer Paul Feldman of Fletcher Heald, who has telco-TV clients: “It’s still not clear, though, whether any mobile video services can be a real competitor to fixed MVPD services. The issues are bigger than spectrum, and include screen size, program licensing and consumer lifestyle and expectations.” To the extent that carriers say there’s an urgent need to free up more radio waves for mobile broadband use, “it appears that AT&T has found a remedy, at least for itself,” he said.
The deal reduces the likelihood AT&T will buy DirecTV or Dish Network, Credit Suisse analysts wrote investors. They had previously speculated that AT&T may be interested in buying Dish and its large spectrum holdings (CD Feb 11 p19). The T-Mobile deal could lessen some of the spectrum pressures, eliminating the immediate need for new spectrum sources, the analysts said. A DBS buy could still be of interest for AT&T, “but not for awhile,” said Credit Suisse. Dish shares fell 2.7 percent on Monday, and DirecTV was little changed.
The deal isn’t bad news for cable operators and probably won’t change their wireless plans, said Bruce Leichtman, president of Leichtman Research Group. A wireless 3G or 4G broadband offering isn’t much of a threat to cable’s DOCSIS broadband business, he said. As for their wireless ambitions, “Does it slow down plans that can’t be slowed down much more? No, not necessarily,” he said. “Does it speed up plans that are just staying at the station, with the exception of Cox? I don’t think so.” All evidence suggests there is no real benefit to cable operators building out their own wireless networks, said Laura Martin, an analyst with Needham & Co.
The proposed merger highlights the increasing importance of scale in the new media world, Martin said. “The people who are the largest clearly see the benefits of their scale and so they're getting bigger,” she said. Martin pointed out that Comcast’s takeover of NBC Universal, if it bought out General Electric’s minority stake, would increase its market capitalization by about the same percentage as AT&T’s agreement to buy T-Mobile would increase its own market cap. “What does that mean for the tiny?” Martin asked. “They have to be bought, or they're going to be squashed. The gatekeepers are increasing their chokehold.” The deal is bad news for content owners and advertisers seeking mobile audiences and distribution on wireless networks, she said. It could put pressure on Netflix to sell to a larger entity, she said. “If it’s strategic to be large, you must be huge, and Netflix isn’t either,” Martin said. “There are no advantages to being small.”