In Business Model, Internet Access, Mobile

Eventually, the U.S. connectivity business, at least the part selling services to consumers, is going to be dominated by a small set of suppliers, perhaps two with telco roots and two with cable TV roots. Most likely believe that AT&T and Verizon have reached a natural limit in terms of their U.S. operations, and would not be allowed to get much bigger by acquisitions of rival firms serving the consumer market.

Comcast and Charter Communications, on the other hand, should be able to grow vertically (acquiring mobile assets) without overwhelming regulatory opposition, though those firms likely would face tough to impossible barriers expanding horizontally (acquiring more fixed network accounts by acquisition).

At least some of us have long believed the “best” set of merger outcomes would be for Sprint and T-Mobile US to be merged with (pick one combination) Comcast and Charter Communications, allowing four suppliers to sustain themselves in a market where “mobile only” seems unsustainable in the consumer market.

Now there are indications that is what T-Mobile US might be thinking, assuming its merger with Sprint is approved. Many now believe a “mobile-only” company cannot sustain itself at the top of the market, and that an integrated approach with ownership of both mobile and fixed network assets is required.

The long-term sustainability argument has been that integrated service providers serving the U.S. consumer market would have to own both fixed and mobile network assets.

The proposed T-Mobile US merger with Sprint, creating a big mobile-only company. That has therefore seemed the first of at least two mergers. Create a big mobile-only entity, then merge again with Comcast or Charter, Charter the more-likely candidate.

The long-term sustainable structure for the U.S. consumer connectivity business has seemed to be four firms, including assets clustered around AT&T, Verizon, Comcast and Charter Communications, each with both mobile and fixed network facilities ownership.

Such cable-mobile combinations have a rather lengthy history, with Cox Communications and Cablevision Systems Corp. having tried a go-it-alone regional approach, with several of the biggest U.S. cable firms having partnered with Sprint decades ago for spectrum purchases and other possible uses of that spectrum.

Cablevision Systems, in fact, was considering a non-mobile wireless service about 20 years ago, essentially modeled on Japan’s Handy-phone Handyphone wireless service, supporting voice communications at pedestrian speeds, but not full mobility at high speed.

Cablevision’s thinking was that its hybrid fiber coax network would allow it to build such a system without the cost of acquiring licensed spectrum and building a full mobile network. That same sort of approach is used by Comcast to support its voice on Wi-Fi network using hotspots with public as well as private access.

Such strategic scenarios also illustrate why the entry of Dish Network into the mobile market also is the first of at least two transactions. Dish has to replace its declining satellite video business with another big key driver, which it hopes will be mobility.

But that only creates yet another mobile-only company, and that is unsustainable in the U.S. market, some would argue. So the eventual path will be a combination of Dish assets with another entity, especially if, eventually, every leading internet service provider owns its own mobile and fixed networks, save one.

If the Sprint merger with T-Mobile US is approved, we might well see that as only the first of two big transactions. The second will merge the mobile-only assets of new T-Mobile with the fixed assets of a cable company.

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