DoJ Effort to Block AT&T Purchase of Time Warner is Wrong, Just Wrong

Most observers now agree that the biggest single problem with 5G is the business model. Simply, a new business model must be created; sustainable value and revenues are not a given.

Many believe platforms will drive 5G business models. Others argue with equal logic that new use cases and applications beyond human use of devices will be key. Others emphasize personalized and customized content and services.  

The underlying issue is that 5G is unlikely to create substantial new value--enough to justify the investments--if it winds up being mostly faster 4G,” especially as 4G itself becomes capable of faster speeds and lower latency.

In broad industry context, the enduring problem is that internet access services increasingly are becoming commodity “dumb pipe” (low value, low profit) services, while once-central voice and messaging services continue to diminish as drivers of revenue.

The simple fact is that the industry cannot sustain itself on such business models. For tier-one service providers, a transition to new revenue models obviously is necessary.

That, in essence, is among the reasons some view the U.S. Department of Justice efforts to block the AT&T acquisition of Time Warner so skeptically. Ignore for the moment that the acquisition is strictly vertical, and does not eliminate any competition in the video or access markets.

Ignore for the moment the fact that Comcast already has shown the firm value of such vertical consolidation (or the lack of consumer harm, if that is what you prefer). Basically, Comcast’s acquisition of NBC Universal effectively recast the firm from an “access provider” to a “content producer,” effectively reducing the danger of commodity access trends, declining video and voice services portions of its business.

The danger of the DoJ action is that it prevents firms such as AT&T from transforming their own businesses in ways that make them sustainable, at a time when all the legacy revenue streams are shrinking.

Put simply, reducing the almost-sole reliance on access services is part of the effort to escape firm and industry decline (at a societal level, profitable and healthy communications services are widely believed to be an important underpinning of social and economic health).

As with 5G, firms must create big new apps and services that provide high value, driving revenue sources, simply to justify making the investments in next-generation infrastructure.

AT&T’s effort to acquire Time Warner, and further transform its core business, is the precursor to what firms will have to do in the 5G era as well: transform their core value propositions and business models.