Wednesday, October 26, 2016

The Big Media Bogeyman

AT&T’s deal will be a test of Silicon Valley’s strategic silence on Obama regulation.


By Holman W. Jenkins, Jr.
The Wall Street Journal
October 26, 2016

As always in big media deals, this week’s proposed merger of AT&T and Time Warner is eliciting opposition that is ferocious, idiotic and almost contentless. Donald Trump, a touchstone of deep policy thought, was the first to pronounce himself against.

To anyone not immune to the lessons of reality, giant media deals like this week’s have a nearly unbroken record of failing to deliver either the fears of detractors or the hopes of proponents. AOL-Time Warner was a disaster. AT&T’s attempt to sweep up the cable industry in the late 1990s, with deals for TCI and MediaOne, was a disaster. We could go on.

Yes, Comcast-NBC has flourished because both are good businesses, not because of any synergy between them. Their deal today is being strangely cited as a cautionary tale for regulators, but notice that it afforded Comcast zero power to hold back the tides dismantling the cable TV business model. Netflix and its fellow over-the-top TV providers are growing like topsy.

By now, tens of thousands of people in Washington make their living by extracting rents from companies going about their business and trying to adapt to besetting waves of technological and market change. This column has been skeptical about Comcast’s marriage of distribution and content, which the AT&T-Time Warner deal partly resembles, for exactly this reason: because it produces so many political and regulatory anti-synergies.

When cable impresario John Malone kicked off the current round of consolidation three years ago, our exact words were: “Net neutrality . . . has been dying a natural and legal death. Mr. Malone and big cable ought to be leery of adopting a business strategy guaranteed to resurrect it.”

In invoking these furies once more, the AT&T deal does have un-Comcastian virtues. AT&T Wireless has a billing relationship with 90 million Americans—which will be a killer advantage when it takes ownership of one America’s top three premium streaming platforms in HBO Now.

Cable partisans are already firing back preemptively, insisting that wired will always beat wireless in picture quality, latency, speed. Funny, that’s not how they behave. All networks, including cable, rapidly are becoming wireless networks, with the major remaining difference—Wi-Fi vs. licensed spectrum—fading into irrelevance.

Example: My Verizon iPhone recently prompted me to turn on Wi-Fi-assisted calling when the cell signal is weak. Meanwhile, at home, where Comcast is my supplier, I have two dozen devices—phones, tablets, game consoles, Roku, Amazon Fire Stick—connected wirelessly to Comcast’s network. The sole exception, now that I no longer have a desktop PC, is Comcast’s X1 cable box. And—no offense to Comcast—I haven’t noticed any absence of latency when changing channels.

Next year, Comcast will begin offering its own truly mobile wireless service, using Verizon’s network as a backup. Verizon and AT&T, for their part, promise to offer home broadband and TV in competition with cable via the forthcoming 5G wireless standard.

The network, and the whole subject of fixed vs. wireless, will disappear as far as the user is concerned. Connectivity in coming years will be seamless and automatic.

For the companies that build and maintain these networks, the frightening question is whether their brands and ability to get adequately paid will also disappear. Remember when Amazon delivered its original Kindle reader in 2007. Buried in the price of the device and every book was the price of access to Sprint-Nextel’s network to deliver the books.

In the future, it’s not impossible the price of connectivity will largely vanish upstream into the price of the services and devices (mostly disposable) that consumers rent or buy.

Such a future would, of course, violate the ideology of the net neutrality fetishists, since a Netflix subscription, say, would implicitly come with connectivity only to Netflix. Unwisely, Silicon Valley mostly sat out 2014’s epic battle over the Obama administration’s desire to impose antique utility regulation on broadband. Its argument: Who cares? Technology will swamp the regulators with broadband ubiquity anyway, so why pick a fight that would pit the Valley against what it regards as its liberal allies on most issues?

The argument from technological necessity we find hard to rebut, but the Valley’s naïfs may discover they have underestimated the power of bureaucratic perversity and political indifference to things that would actually serve the public good. One way to look at the inevitable torture AT&T is about to undergo at the hands of Washington’s regulators: It will be the first test of the libertarian-optimist theory that technology is more powerful than a bloody-minded bureaucrat.


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