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Art Brodsky

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No Letup on Big Telecom and Big Media Companies Behaving Badly

Posted: 02/24/2012 9:29 am

It has only been a couple of months back that AT&T gave up on its attempt to take over T-Mobile, in what would have been quite a coup for the second-largest wireless carrier to take over the fourth largest. It took all of the gumption of the Justice Department and the Federal Communications Commission to stop that deal in what should have been an easy call.

And yet, the idea of big companies continuing to control their markets, and control the behavior of consumers, continues to march on as if that other deal hadn't happened. Even now, two major deals are proceeding apace, one in telecom and one in the entertainment world. Each of those has what you might call a sidekick action or two -- not a big blockbuster deal, but just another way or ways that companies and industries in the telecom space and the entertainment world try to impose their will on consumers while government acquiesces. If the Obama administration were as anti-business as the business lobby and their Congressional friends say, much of this might not be happening.

The Making of a Cartel

In one, Verizon and the biggest cable companies have decided that a broadband cartel is more efficient than actual competition. There are two parts to this deal. In one, Verizon is buying $3.6 billion worth of spectrum from the cable companies. At one point, the biggest cable companies, including Comcast, Time Warner Cable and Bright House bought the spectrum thinking they might provide wireless service to compete with the likes of AT&T and Verizon and fill out their product lineup. Cox was later let into the club.

That never happened, and there were some reports that the biggest cable company, Comcast, really didn't look too hard to find away to use it. So in the end they made a $1 billion or so profit by warehousing the spectrum.

The second part of the deal is more opaque -- literally. In addition to Verizon buying spectrum, Verizon Wireless will sell the broadband products of the cable companies -- in theory competing against the products of Verizon the mother ship. This competition may not extend to the few areas in which Verizon offers its fiber optic product, FiOS, which supports a fine video service, but may extend to areas in which Verizon only has a copper-based service which is vastly inferior to cable and to FiOS for watching TV.

However, Verizon and the big cable companies are doing their level best to keep the nasty details of that deal secret. They submitted their information on the cross-selling under an privacy order, and much of the information submitted so that the public can't look at it is blacked out. The FCC hasn't decided whether to make that information public, but it should, so the public can see exactly how two big industries describe collusion.

One of the problematic parts of this arrangement is that Verizon Wireless and Comcast have already started their joint marketing, even without FCC permission. The companies don't think they need permission to do so. Others, including my day-job employer, Public Knowledge, disagree, and want the deal blocked. If the FCC doesn't stop the joint marketing soon, you can bet that Verizon Wireless, Comcast and the rest will simply march on into the FCC and say that, "if you let it go this long, you can't stop it now." Its time for that forceful FCC to reappear.

AT&T's Parade of Insults to Consumers

 AT&T may have botched the takeover and cuts its executives pay, but it is the subscribers who are bearing the brunt of the misbegotten adventure. Claiming that their network is all jammed up from data-hogging smartphones and tablets, AT&T has gone on a binge throttling their customers' usage.

Kevin Fitchard asked the eminently reasonable question the other day: "If 2 GB is excessive, why is AT&T selling 3-GB mobile data plans?" It's almost unbelievable that AT&T couldn't anticipate that early adopters with data-intensive devices like iPhones and iPads wouldn't then use those gadgets to great effect. And yet, the company keeps whining about how its network is getting unmanageable. The key to managing the network, it seems, is simple -- get customers to move to a higher-priced plan and things miraculously clear up.  AT&T's customers are not happy, but who cares?

AT&T says that in order to be eligible for throttling, "you have to use an extraordinary amount of data in a single billing period." Yet that amount seems less than extraordinary when it would cover only a movie or two. The practice, however, seems pointless, according to a new study of data usage. Those with caps used the same as those without, yet one group gets throttled and the others don't.

Public Knowledge has twice asked the FCC to look into throttling and caps on both landline and wireless networks. The silence is deafening.

That's not all AT&T is doing. At a conference call with Wall Street analysts, AT&T CEO Randall Stephenson basically blew off the idea of bringing landline high-speed Internet service to rural areas. He told the analysts that apart from wireless, "now we're looking at rural America and asking, what's the broadband solution? We don't have one right now."

That may be all right for Wall Street, but its not helping rural Main Street one bit. What could help rural areas is for localities to have the ability to build their own networks, but the telecom industry is squashing those efforts through paid-for state legislatures. As prominent industry analyst Craig Settles put it, telco lobbying aims to make their states "broadband backwaters." If the big companies don't want to put in advanced networks, no one else will either.

The Making of Another Cartel

Not to be outdone, the entertainment world is doing its own consolidation with Universal Music Group (UMG), the largest record company, looking to buy the recorded-music division of EMI, a smaller rival, for $1.9 billion. Like the telecom industry, there are very few companies at the top of the record industry -- only four. UMG, owned by Vivendi, is the largest, with a market share of about 32 percent, followed by Sony, Warner Music Group and EMI. Those four take up around 90 percent of the music sales. The UMG/EMI combination would be by far the largest, with a catalog ranging from the Beatles to Justin Bieber and Lady Gaga and would be twice as big as Warners.

Separately, EMI's publishing business will be sold to Sony for $2.2 billion. Looking at Billboard's top 100, it's easy to see that the combination would hold publishing rights for more than 60 percent of the hot hits.

As with AT&T's takeover of T-Mobile, the ranks at the top would thin, from four to three, if UMG succeeds. And as in the AT&T attempt, smaller record companies down the line are protesting that they will get squashed. Warners has made its objections known in the U.S. and in Europe and organizations of independent record labels are also warning about the anti-competitive aspects of the deal because the new combo's share of the market would approach 50 percent.

Universal has argued that it holds very little leverage in a day in which iTunes and Walmart rule the music-buying world, but it's still hard to ignore a company which will have the power of this new colossus. Such a big company could shift the balance of power, even taking on iTunes, industry analysts contend. And the threats to future innovation would be grave, as any new music distributors would have to contend with a future powerhouse that could dictate its own terms. 

'Mere Inconvenience' of Owning DVDs

If it were simply a question of entertainment consolidation, with three big record companies to go along with TV networks that also own movie studios (in some cases also owned by a huge cable company that also has programming) in another rarified atmosphere of exclusivity, that would be bad enough.

But the industry has a history of dumping on every proposed innovation consumers want to make their lives easier. The history of video recording is well known -- how the industry opposed it all the way through the U.S. Supreme Court and then made billions from it. Even now, the industry attempts to squash all in its path.

Public Knowledge asked the U.S. Copyright Office, as part of that organization's triennial evaluation of the Digital Millennium Copyright Act, to allow consumers to transfer DVDs they own to any devices they own. There should be no legal penalty for "space shifting" -- converting a DVD into a format that can be used on a new device which doesn't have a disk drive -- as most new devices don't.

Well, the entertainment industry didn't like that. Consumers have no "space shifting" rights. It's only a "mere inconvenience" that we can't watch a movie we own on any device we own, the big content companies said. If you want to watch a movie on something else, then buy it in another format. Again and again, if necessary. After all, the industry has provided any number of other products you can buy if you want to watch a movie you already own.  The industry never lets up. Even its home Oscar 'party' invite is a propaganda piece.

Each of the items on the list here by itself might not be worth much, depending on who's looking and who's keeping score. Taken together, they present a dispiriting picture of an arrogance that the industry continually demonstrates.

It's unfortunate that an attitude of economic superiority prevails, and that it is rarely challenged as part of a continuing national discussion by politicians. We hear some pop up occasionally, as when Verizon wanted to impose the $2 fee for paying your bill, or when SOPA and PIPA hit the public radar or when AT&T wants to take over T-Mobile.

Those were the exceptions. On general principle, the advantages companies try to take every day are not part of the political discourse although they should well be. Members of Congress should speak up. Regulatory agencies whose duty it is to protect the public should speak up and no White House, Democratic or Republican, should allow this to go unnoticed.

 

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