Out of thin air

Sprint’s wireless broadband dream could smooth the way for the Time Warner-Comcast merger

March 25, 2014
March 25, 2014

Regulatory pressure on the Comcast-Time Warner Cable merger is heating up, but a third competitor’s plan to steal their customers could be the key to a winning combination.

Comcast has to make the case that its Time Warner acquisition doesn’t violate US anti-trust rules. Now that a coalition of US state prosecutors will be reviewing the deal on top of two federal agencies, the situation is even more complicated. Sure, Comcast has an experienced team of lobbyists and lawyers, but on the other hand, everyone hates them.

The crux of the issue is how much a last-mile monopoly matters: Comcast and Time Warner don’t currently compete against each other in local markets, but combined they would control about 37% of the national broadband internet market. That customer base will give it a big advantage when negotiating with content providers and fighting it out with the other broadband companies like Verizon.

The big challenge when it comes to competing with fixed-line broadband providers are the fixed lines themselves. Cable companies have long-standing relationships with localities. Once, they involved actual monopolies, but today municipalities simply charge for access to the physical infrastructure—utility poles or underground cable pipes—needed to build out fiber-optic networks. That’s why ideas like “unbundling the local loop” and other forms of open access are often proposed as ways to reduce cable company power—and cited as a key factor behind for lower fixed-wire broadband prices in other wealthy nations.

But what if all those wires into your home didn’t matter anymore? Then the cable stranglehold wouldn’t matter. That’s exactly what Sprint’s new Japanese owner might have in mind: Help cord-cutters cut the cord once and for all, by providing their home internet access over wireless spectrum. Sprint doesn’t have Verizon’s fiber optic network, but it does own massive amounts of spectrum, and there are already companies, like Globalstar, developing proprietary wi-fi networks using free spectrum.

If Sprint really did make good on its plan to sell high-speed wireless broadband—which would be a costly proposition, but Sprint’s parent, Softbank, has deep pockets—it would be a major shift: Suddenly, cable companies relying on broadband services to save them from cord-cutters might find themselves facing a much tougher business challenge than they anticipated. That same challenge would give regulators a lot more leeway to allow cable company mergers: It’s the kind of technological change that has some commentators unmoved by fears of the Time Warner-Comcast link-up.

Of course, Sprint is floating this wireless plan as part of its own regulatory ju-jitsu, trying to convince US regulators that an attempt to combine with T-Mobile isn’t a threat to wireless competition, because the firm will also compete with the cable companies. Nevertheless, if US officials buy into the idea, it might let not one but two mergers bloom.

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