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Riding on Somebody Else's Highway

Riding on Somebody Else's Highway

On any lazy Sunday, I have access to hundreds of channels and VOD on my television, thousands of digital programs from Netflix and Prime Instant Video and countless hours of free, ad-supported and TV Everywhere authenticated programming accessible from numerous in-home devices: smart TVs, companion devices, smartphones and tablets. The options are almost limitless; however, when it comes to broadband Internet access at home, I have only one "choice."

Last week, SoftBank's Masayoshi Son stated his desire to expand his acquisition plans beyond Sprint to focus on T-Mobile. With the combination of Sprint and T-Mobile, Sprint would represent almost 88MM subscribers, a formidable alternative to Verizon's 103MM subscribers and AT&T's 110MM subscribers.

The initial outcome would likely be a more competitive market, i.e., price competition. For wireless providers, access to spectrum (e.g., Sprint's acquisition of Clearwire) and enhancements in wireless technology (e.g., Verizon's demonstration of LTE Multicast for the Super Bowl, Artemis' revolutionary -- but also compatible with existing infrastructure--pCell) create exciting possibilities.

For Sprint, the new entity would not only push down prices, it could disrupt the pay TV ecosystem as Sprint doesn't offer a traditional pay TV service.

Let's look at the realities of a typical consumer today that subscribes to a pay TV service via cable or telco. First, it's likely that that provider is also bundling broadband Internet. Second, it's likely that the consumer has a separate mobile phone subscription with a different provider for both voice and data.

Unfortunately, the current ecosystem isn't conducive to the mobile lifestyle. Consequently, consumers that expect-- nay, demand--access to their content anytime, anywhere and from any device are forced to pay a variety of companies for access to their digital content, including: an in-home broadband Internet provider (likely a pay TV provider), a mobile phone provider, Wi-Fi hotspot providers, hotels, in-flight providers--and the list continues.

And the reality is that for cord-cutters, consumers may be able to eliminate their pay TV subscription, but their broadband Internet is likely only available from a pay TV provider. And this is a similar situation for pay TV satellite subscribers.

I'm a longtime DirecTV subscriber in Los Angeles. To take advantage of DirecTV's "enhanced" services (VOD, in-home streaming, offline and out-of-home DVR access), I need broadband Internet but I have only one option: a competing pay TV provider. In effect, my broadcast is from DirecTV, but most of the digital bits must -- as stated by DirecTV's Michael White -- "ride on somebody else's highway."

Today, in-home broadband provides enough bandwidth and monthly data for most consumers; however, while 4G LTE or similar wireless plans can offer broadband performance, it's the cost that's the primary barrier. If--or rather, when--Sprint or other wireless providers can offer a cost-effective alternative to wired Internet access, consumers, content providers and wireless providers will benefit. Here's how:

  • Consumers will have more choice as broadband providers will be forced to truly unbundle pay TV offerings. Consumers will no longer have to think of in-home vs. cellular data plans. Consumers don't have to change phone numbers or providers when they move, and they won’t have to change broadband Internet providers either.
  • Content providers will have new platforms for content distribution. Today, Comcast reaches ~22MM subscribers but potentially ~30MM subscribers after the acquisition of TWC. The LEGO Movie opened in ~3,775 theaters (likely < 10,000 screens). Wireless providers have access to tens of millions of subscribers and can measure not just the behavior of households watching a unidirectional screen but can measure the real-time engagement of individual subscribers: content, advertising, device, location and usage.
  • Wireless providers will be able to provide additional value to a mobile audience and enable the digital lifestyle that is now just not commonplace but status quo.

As wireless providers take advantage of their technical and distribution capabilities, they will become formidable content providers themselves. Verizon's $1B acquisition of NFL digital rights is just the beginning. Not only will OTT offerings (e.g., Sony, WWE, etc.) be less dependent on pay TV subscriber relationships (Dish and Disney), OTT offerings will hopefully be less dependent on pay TV Internet relationships (Netflix and Comcast).

Ten years ago, in-home Wi-Fi was still the "ugly stepbrother" to the trusty RJ45 and watching video on my mobile phone was limited to watching three-minute clips from V CAST in the back of a taxi stuck in midtown traffic.

It's not wishful thinking -- instead, it's the evolution of technology that will allow consumers to cut the (Internet) cord and be truly mobile.