Who wants some spectrum?

As T-Mobile tries to convince antitrust regulators that a benefit of its combination with Sprint is disruption of the home broadband market, the largest cable operators have already quietly moved into wireless telecom.  In 2017, Comcast began selling its Xfinity Mobile service as a Mobile Virtual Network Operator (MVNO) that licenses spectrum from Verizon.  In 2018, Charter, the second largest cable operator launched its Spectrum Mobile also as a MVNO using Verizon’s network. 

This week, it was rumored that both firms held discussions with DOJ officials about the possibility of buying from T-Mobile/Sprint the pre-paid wireless service, Boost, and/or divested spectrum.  Such an acquisition by either firm would make sure four viable competitors remained in the pre-paid segment and alleviate a good bit of the antitrust concern with the proposed merger.  While Comcast announced on Friday that it was not interested in such a deal, Charter has yet to comment.  I imagine that regulators and politicians (e.g. Elizabeth Warren) would be WAY MORE in favor of expanded scale by a Comcast or Charter in this space than the entry of the BIG TECH giant, Amazon (the other suitor).  

More Speculation about Media Industry Consolidation

Talk and more talk has led to speculation on how the entertainment industry will further consolidate to result in fewer market participants creating and distributing content viewed on big and small screens alike.  The latest chatter is centered on the potential sale of Lions Gate’s Starz assets (purchased just 2 years ago) to CBS, and then the potential combination of Lions Gate’s remaining assets with MGM.  If CBS also purchases Viacom, its video library and scale expand significantly.  It begs the question…is MGM right for Lions Gate?  Might Lions Gate “do better” in the long run with Sony/Columbia or even NBC/Universal if either company had the means and interest to make a deal? I think so….but that is just more speculation!

Major Studio		Market Share
	2019 YTD	2018	2017	2016	2015	2014	Avg. 2014-2018
Disney (Buena Vista)	34.2	26.0	21.8	26.3	19.8	14.9	21.8
20th Century Fox	4.7	10.3	12.9	13.3	11.3	17.9	13.1
Time Warner (WB/New Line)	15.7	16.3	18.4	16.7	16.8	18.8	17.4
NBC/Universal	14.2	14.9	13.8	12.4	21.3	10.3	14.5
Sony/Columbia	6.0	11.3	9.8	8.3	8.9	12.0	10.1
Lionsgate	6.5	3.3	8.0	5.8	5.9	6.8	6.0
Viacom (Paramount)	5.2	6.4	4.8	7.7	5.9	9.7	6.9
% of Box Office	86.5	88.5	89.5	90.5	89.9	90.4	89.8

https://www.boxofficemojo.com/studio/?view=majorstudio&view2=yearly&yr=2019&p=.htm

Disney's Master Plan for Streaming

Prior to Disney’s March 2019 purchase of many of Fox’s U.S. assets, Hulu was jointly owned by Disney (30%), Comcast (30%), Fox (30%), and AT&T (10%).  Today, Disney is the majority owner with operational control of Hulu.  As early as 2024, it may control 100% of the streaming service.  How so?  It started with the Fox acquisition and continued with AT&T agreeing to sell its interest back to Hulu.  Then, a few weeks ago, Comcast agreed sell its stake in Hulu as early as five years from now.  

What does this mean?  It means that Disney is going full steam ahead into streaming.  CEO Bob Iger said that the company is now able to "completely integrate Hulu into its streaming plans in a way that makes the service even more compelling and a greater value for consumers."  This three-prong attack – Hulu with more adult programming and 27 million U.S. subscribers, Disney+ with more family-programming, and ESPN+ with sports programming -- provides a tremendous opportunity for Disney to reach consumers using individual offerings and/or a discounted bundle.  Going it alone seems to be in vogue of late among content owners.  There will be winners and losers.  Disney’s streaming strategy is positioning it to be one of the winners!

The Seesaw of the T-Mobile/Sprint Deal

“Two of the FCC’s top priorities are closing the digital divide in rural America and advancing United States leadership in 5G, the next generation of wireless connectivity.  The commitments made today by T-Mobile and Sprint would substantially advance each of these critical objectives.” A. Pai, FCC Chairman, May 20, 2019.

On Monday, May 20^th, Chairman Ajit Pai, announced that, within the next few weeks, he would present a draft Order for consideration by his fellow commissioners which would approve the T-Mobile/Sprint merger with structural and behavioral conditions attached.  Using the public interest lens for regulatory approval, it is expected that the other Republicans on the FCC, Michael O’Rielly and Brendan Carr, would join Pai in approving the merger.  The terms of the approval include:

·       deploying a 5G network that would cover 97% (85% rural) of the nation’s population within three years, and 99% (90% rural) within six years 

·       guaranteeing  that 90% of Americans would have access to mobile broadband service at speeds of at least 100 Mbps, and 99% would have access to speeds of at least 50 Mbps

·       promising that the network would cover at least two-thirds of the nation’s rural population with high-speed, mid-band 5G

·       divesting Boost Mobile to address competition concerns in the prepaid wireless market, and

·       agreeing to pay penalties if commitments are not met.

On Tuesday, a day later, it was reported by Bloomberg that the Department of Justice staff, using the antitrust lens, was going to recommend to their boss, Makan Delrahim, that the deal should not be approved.  From anonymous sources, it was reported that the staff was concerned with the impact that one fewer competitor would have on prices in an already highly concentrated market.

On Friday, three days later, it was reported by the New York Post that Pai consulted with Delrahim prior to his public statements on Monday.  A conversation between the regulators possibly suggests that Delrahim might be in favor of approving the deal and overriding the recommendation of his staff.  

At the end of the day, can regulators convince the public that as long as the right remedies are attached to the deal there will be a net gain to consumer welfare (faster 5G deployment (innovation) > likelihood of higher prices from fewer competitors in the market)?  Let’s see what next week brings!

https://www.fcc.gov/document/chairman-pai-statement-t-mobilesprint-transaction