Breaking Up Is Hard (and not recommended) to Do!

On Friday, Elizabeth Warren penned a plan to break up big tech (Amazon, Facebook, and Google) as a means to promote competition and unleash innovation by smaller firms. Here is what she said.

https://medium.com/@teamwarren/heres-how-we-can-break-up-big-tech-9ad9e0da324c

Unlike the European Commission, U.S. regulators have mostly stayed on the sideline watching some large [tech, media] firms take advantage of (abuse) their dominant market positions.  Consequently, domestic consumers (through privacy breaches and reduced competition) have been harmed to some varying degree.  But, breaking up industry giants is not the answer.  Where do you stop?  What about AT&T/Time Warner?  Comcast/NBCU?

Oversight with consequences (large fines, behavioral changes) is more appropriate.  Unraveling scale and efficiencies, regardless of whether they originated from organic growth or approved M&A, are wasteful.  I think the progressive Democrats are searching for platforms that resonate with voters.  This is not one that will.  Whether they are willing to admit it or not, consumers/voters like their monopolies/oligopolies as long as they are well-behaving. 

Broadband Deployment - Fixed v. Mobile

In February, the FCC Chairman, Ajit Pai, commented on a draft 2019 Broadband Deployment Report (due to be voted on in a few weeks by the Commission). Pai stated that the number of Americans lacking access to a fixed broadband connection meeting the FCC’s benchmark speed of 25 Mbps/3 Mbps dropped from 26.1 million to 19.4 million.  Pai stated that “For the past two years, closing the digital divide has been the FCC’s top priority.  We’ve been tackling this problem by removing barriers to infrastructure investment, promoting competition, and providing efficient, effective support for rural broadband expansion through our Connect America Fund.” However, in recent days, those numbers and claims are being called into question as the self-reported data from some ISPs may have been inflated.

In anticipation of the new data, let’s look back at last year’s numbers.

With the exception of Alaska, every state had greater than 93% access to mobile broadband (5 mbps/1 mbps) service.  42 states had greater than 99% access to mobile broadband service.

In Connecticut, with just 12% of its population living in rural areas, 99% (100%) of the population had access to high speed fixed (mobile) broadband service.  Mississippi, with over 50% of its population living in rural areas, only had 72% (99%) of its population with access to fixed (mobile) broadband service. 

Among the over 3000 counties in the 50 states, 94% had access to high speed mobile service.  That percentage dropped to just 36% when looking at access to fixed broadband service. 

74% of counties had rural populations that exceeded 35 percent.  Among counties with greater than 35% rural, 22% (92%) had access to fixed (mobile) broadband service.

Self-Interest v. Public Interest

The Communication Workers of America (CWA) represents approximately 300K workers in the U.S. telecom and cable TV industries.  Of those workers, approximately half, or 150K, are employees of AT&T, including 45K in its wireless business.  In fact, AT&T Mobility is the only wireless company that is completely unionized.  In 2017, the CWA wholeheartedly supported the vertical tie-up of AT&T and Time Warner.  Chris Shelton, CWA President, stated that “This merger is about maintaining and creating good U.S. jobs and developing new and innovative ways to deliver technology and content.  A merged AT&T-Time Warner would provide much-needed new competition to companies like Google, Facebook and Amazon, where working people don’t have union representation.” 

Yet, in 2018-2019, the CWA is a vocal opponent of the T-Mobile-Sprint deal claiming that there would be nearly 30K job losses.  Most of those job losses would come from the closure of redundant retail and call center locations.  The union is also claiming that with fewer buyers in the labor market (4 to 3 firms), the market power of those who remain would increase.  This could put downward pressure on the price of labor (wages).  However, this depends on how you define the specific labor (resource) market.  Is the market for retail wireless employees?  If so, then, yes, there would be increased employer concentration (an oligopsony) if the merger was approved and that would contribute to lower wages, ceteris paribus.  But, are the skills needed to work in these stores, for example, much different than what is needed to work in a store like Best Buy?  I don’t think so.  As part of a much larger (tight) labor market, many employers are competing for talent.  As a result, wages would likely not fall.

In its protest of the merger, the CWA is directing its comments to the FCC (and not to the antitrust division of the DOJ).  Under the Communications Act of 1934, the FCC has the statutory duty to determine if the license transfers serve “the public interest, convenience, and necessity.”  For me, this means that the Commission should look at the potential impact the merger might have on the deployment of technology in rural communities (for example).  If there are concerns, it has the “obligation” to get commitments/concessions from the combined firm to make sure the public interest is protected.   I don’t think this extends to protecting retail service jobs (union or not).  The CWA, in its support of the AT&T/Time Warner deal and its opposition to this one, exemplifies how special interest groups put their own interests above those of the public.

Thank Your Lucky “Starz”

A few weeks ago, Lionsgate reported earnings for its third quarter that ended 12/31/2018.  While the studio reported stronger than expected earnings, revenues were down 18 percent primarily because of weakness at the box office.  The bright spot in revenue for Lionsgate was Starz, the premium cable channel acquired in 2016.  Starz reported more than 25 million subscribers and strong over-the-top (OTT) growth as it expanded its retail (direct-to-consumer at $8.99/month) and wholesale (through Amazon, Hulu, and YouTube) distribution channels.  According to Parks’ Associates, Starz is the 5^th largest OTT service, behind Netflix, Amazon Prime, Hulu, and HBO Now. Going forward, the concern is if Starz and the other incumbents can hold onto their market positions in an increasingly fragmented industry with new entry (from the likes of Disney and Warner Media) and a churn rate that averages close to 30 percent.