Monday, May 7, 2018

If Facebook Wants to Operate a Global Satellite Internet Access Network, What Does That Tell You about Sprint T-Mobile US Strategy?

An application by Pointview Tech (said to be a subsidiary of Facebook) to test low earth orbit satellites provides some perspective on the wisdom and long-term viability of the proposed Sprint merger with T-Mobile US.

The experimental license sought by Pointview Tech suggests Facebook is contemplating a potential role as a supplier of global internet access.

In other words, the move potentially points to interest on the part of Facebook in launching its own constellation of low earth orbit satellites to provide global internet access, in competition with other proposed LEO constellations planned by SpaceX and OneWeb, Boeing and others.

More significantly, such interest points to where the connectivity and apps, content and platform businesses are going. Simply put, the value of stand-alone connectivity, apps-only or platform-only (possibly device-only) business models is questionable, going forward, for tier-one providers in any segment of the internet ecosystem.

Arguments can be made about the impact--positive or negative-- of a successful Sprint merger on competitive dynamics in the U.S. mobile market.

Some might argue that is ultimately not the point, as the stand-alone mobile market, or the broader access market, is unsustainable as a stand-alone business at the tier-one level.

If one believes the future lies in vertical integration (think of Facebook as both app, platform, content and access provider, on a global basis), then even the Sprint tie-up with T-Mobile US is ultimately a waystation on the road elsewhere.

In one sense, that is the problem with regulating when markets are convulsing.

The likely context for any antitrust or diminished competition review is likely to hinge on dynamics within the mobile market, for which there is logic. Both those firms are “mobile access only” companies.

But they operate in a market that most observers would say is moving towards vertical integration. So Google and Facebook become internet service providers, Apple becomes a chip supplier and services provider, Comcast becomes a content developer, while AT&T wants to do the same.

One might argue a Sprint merger with T-Mobile US is the first of a series of future mergers that also would have to be undertaken. But some of us might argue the better move is vertical integration by each firm, now rather than later, with firms positioned elsewhere in the value chain.

Perhaps such partners can not today be found, of course. But some might argue either asset, paired with Comcast, immediately creates a firm with assets in fixed and mobile connectivity; content and apps. That is not to say Comcast would want to do so, right now.

But you get the point. Stand-alone mobile operations, no matter how big, are not the future. At the very least, in the connectivity business, mobile plus fixed is viewed as the better model. And most would agree the future model moves toward firms with multiple roles in the ecosystem.

the market itself is changing, as access services and content and app providers actually are starting to merge vertically. The Comcast acquisition of NBCUniversal was the primordial step. AT&T’s acquisition of Time Warner would be another illustration.

Hypothetically, other entities (tier-one app providers, device or platform providers) might eventually assume major roles in the access business as well. So, eventually, how we define “the relevant market” could be quite different.

Business strategy is the big question. If, as even supporters might argue, the market is changing in ways that favor vertical integration of access and other assets (content, platform, device), a big horizontal merger is no more than an interim step.

The next consolidation would have to have the new entity merging with one or more firms in the app, platform or device areas. And a bigger mobile asset would have fewer potential partners.

Some would argue the better outcome (from a strategy and competition standpoint) would be mergers by Sprint and T-Mobile US separately with “up the stack” partners that would position each firm for the future market (beyond simple mobile connectivity).

In other words, either asset, paired with a tier-one app, platform or device supplier would make more long-term sense. Sprint combined with T-Mobile US would be a bigger supplier of mobile access, but with no fixed network assets, no content assets, no platform capabilities or app assets that create a firm positioned to compete in the coming market.

That is a judgment call, but is the logical conclusion if one argues that a “mobile-only” connectivity position is not sustainable; that a “connectivity only” strategy likewise is unsustainable and that new revenue sources elsewhere than connectivity must be found.

Both Sprint and T-Mobile US need to merge, in other words.  Just not with each other.

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