Following AT&T's Lead, Comcast Makes A $65 Billion Bid For Fox

from the merge-ALL-The-things! dept

Encouraged by AT&T's massive merger victory this week, Comcast has made its own $65 billion acquisition offer for a large chunk of 21st Century Fox. According to the Comcast announcement, the company's all cash $65 billion dollar offer is a notable step up from Disney's own $52.4 billion all-stock package, setting up a showdown between two companies that have had a contentious relationship since Comcast's 2004 failed hostile takeover attempt of Disney.

The deal includes the FX Channel, numerous regional sports networks, and a minority stake in European cable TV giant Sky, which would all be tacked on to the NBC Universal assets Comcast acquired back in 2011. Fox will however retain Fox News, Fox Sports, and Fox broadcasting, which will all remain under the existing Fox brand. In its statement, Comcast rolled out the usual claptrap about how the combination would be lovely for all involved:

"We have long admired what the Murdoch family has built at Twenty-First Century Fox. After our meetings last year, we came away convinced that the 21CF businesses to be sold are highly complementary to ours, and that our company would be the right strategic home for them."

Comcast had previously hinted that it was waiting to see the outcome of AT&T's own merger battle with the DOJ before making its own bid for Fox. Comcast and many analysts believe that the comically broad nature of AT&T's court victory (based on a pinhole narrow reading of the markets by U.S. District Court Judge Richard Leon, who clearly has never heard of things like zero rating or net neutrality), means the precedent set will likely result in a DOJ that's more hesitant to intervene in potentially problematic merger moving forward.

That's especially true of vertical integration mergers, where modern U.S. antitrust law tends to be ill-equipped to handle some of the more complex new media anti-competitive concerns that pop up. Combined with the death of ISP privacy rules and the neutering of net neutrality, we're creating a brave new landscape where there's very little to stop giants like Comcast and AT&T from using their last mile monopolies--combined with massive ownership of content needed to compete with these giants--as anti-competitive bludgeons against consumers and competitors alike.

For example, there's now nothing of note preventing AT&T and Comcast from exempting its own content (like HBO or a regional sports game) from arbitrary and unnecessary usage caps, while penalizing those who use a competitor's service (Netflix, or the next Netflix). Similarly, there's nothing stopping Comcast or Verizon from arbitrarily throttling competitors at interconnection points, driving up the cost for competitors to access their broadband subscribers. There's an ocean of creative ways to hamstring competitors the government is now largely helpless to effectively police, and as the AT&T court win shows, the ISP claim that this isn't a problem because antitrust will save us all clearly isn't a valid argument.

With the FCC making it very clear it's a glorified rubber stamp, that leaves the DOJ as the only real wild card in terms of whether any meaningful conditions get applied to this deal. Granted if you followed the NBC Universal merger, you'll recall that Comcast has a pretty terrible history of ignoring merger conditions when it suits it, and regulators from both parties tend to do little more than grumble when the company tap dances around imposed restrictions (though that was a major reason why Obama-era regulators blocked Comcast's 2014 attempted acquisition of Time Warner Cable (not to be confused with Time Warner)).

Obviously there's still plenty of folks that see zero problems with massive broadband monopolies gobbling up countless media empires while paying millions of dollars to neuter state and federal oversight. And their theory that these kinds of deals are no problem because the market self-regulates (ignoring there is no free market competition in broadband to organically hold them accountable) will soon have a perfect opportunity to put their theories to the test.

Filed Under: antitrust, broadband, competition, content, doj, mergers, streaming
Companies: at&t, comcast, disney, fox, time warner

Three Takes On Microsoft Acquiring Github

from the confused-ideology dept

As you almost certainly know by now, earlier this week Microsoft announced that it was acquiring Github. There's been plenty of hand-wringing about this among some. Microsoft has a pretty long history of bad behavior and so many of the developers who use Github don't have much love or trust of Microsoft, and thus are perhaps reasonably concerned about what will happen. While I'm disappointed that another interesting independent company is being snapped up by a giant, I'm not completely convinced this will be a bad thing in the long run. Microsoft is a fairly different company than it was in the past, and there are reasons to believe it should know enough not to fuck things up. Alternatively, if it does fuck it up, it's really not that hard for a new and innovative company to step into the void (and certainly, others are already jockeying for position to attract disgruntled Github users).

For this post, however, I wanted to point to three different reports in reaction to the news -- because I was fascinated by all three of these takes. More specifically, I found two of them thought-provoking, and one laugh-inducing. And it made me realize just how poorly many non-specialized reporters understand the stuff they're reporting on, while how those who have a really deep and implicit understanding of things provide so much greater insight. Let's start with the laugh-inducing one, before moving on to the thought-provoking. The hilariously bad take is found as an editorial in the Guardian, which has already been corrected once for falsely claiming that Github was open source software, rather than that it hosted open source software (among other things). But the really insane paragraph is this one:

GitHub, by contrast, grew out of the free software movement, which had similar global ambitions to Microsoft. The confused ideology behind it, a mixture of Rousseau with Ayn Rand, held both that humans are naturally good and that selfishness works out for the best. Thus, if only coders would write and give away the code they were interested in, the results would solve everyone else’s problems. This was also astonishingly successful. The internet now depends on free software.

Confused ideology? Mixture of Rousseau with Ayn Rand? What the fuck are they talking about? And then after noting how free software has been phenomenally successful, it then says this:

But the belief that everyone coding would solve anyone’s problems has been shown up as completely ludicrous. If anything, computer literacy has declined over the generations as computers have got easier to use. In the heyday of Microsoft, almost everyone knew some tricks to make a computer do what it should, because almost everyone had to if they wanted to get anything done. But hardly anyone today has the first idea of programming a mobile phone. They just work. That’s progress, but not in the direction some idealists expected. Significant open source software is now produced almost entirely by giant commercial companies. It solves their problems but could be said to multiply ours. Huge cultural and political changes are presented as technological inevitabilities. They are not. The value of GitHub lies not in the open-source software it hosts, which anyone could copy, but in the trust reposed in it by users. It is culture, not code, that’s worth those billions of dollars.

The whole piece seems premised entirely on a near total misunderstanding of the reasons why people use Github, the ethos of free software, and well... just about everything. Of course it's culture that's important... but it's so odd that this editorial goes out of the way to insult a strawman culture it believes permeates Github, while then claiming that it's what's valuable.

So let's move on to the better takes. I'll start with Paul Ford who is, hands down, the absolute best, most thoughtful, insightful and thought-provoking writer about technology issues around. His piece for Bloomberg Businessweek, entitled GitHub is Microsoft's $7.5 Billion Undue Button is truly excellent. It not only does one of the best jobs I've seen in explaining Github for the layman, but does so in the context of explaining why this deal makes sense for Microsoft. Amusingly, I think that Ford is making the same point that the Guardian's editorial was trying to make, but the difference is that Ford actually understands the details, whereas whoever wrote the byline-less Guardian editorial clearly does not.

GitHub represents a big Undo button for Microsoft, too. For many years, Microsoft officially hated open source software. The company was Steve Ballmer turning bright colors, sweating through his shirt, and screaming like a Visigoth. But after many years of ritual humiliation in the realms of search, mapping, and especially mobile, Microsoft apparently accepted that the 1990s were over. In came Chief Executive Officer Satya Nadella, who not only likes poetry and has a kind of Obama-esque air of imperturbable capability, but who also has the luxury of reclining Smaug-like atop the MSFT cash hoard and buying such things as LinkedIn Corp. Microsoft knows it’s burned a lot of villages with its hot, hot breath, which leads to veiled apologies in press releases. “I’m not asking for your trust,” wrote Nat Friedman, the new CEO of GitHub who’s an open source leader and Microsoft developer, on a GitHub-hosted web page when the deal was announced, “but I’m committed to earning it.”

But perhaps most interesting in Ford's piece is that, while it understands why Microsoft is doing what it's doing, it's also a bit wistful of how he'd always kind of hoped that Github would become something more -- something more normal, something that applied to much more of what everyone did. While it doesn't directly say it, it does imply that that dream probably won't happen with Microsoft in control.

I had idle fantasies about what the world of technology would look like if, instead of files, we were all sharing repositories and managing our lives in git: book projects, code projects, side projects, article drafts, everything. It’s just so damned … safe. I come home, work on something, push the changes back to the master repository, and download it when I get to work. If I needed to collaborate with other people, nothing would need to change. I’d just give them access to my repositories (repos, for short). I imagined myself handing git repos to my kids. “These are yours now. Iteratively add features to them, as I taught you.”

For years, I wondered if GitHub would be able to pull that off—take the weirdness of git and normalize it for the masses, help make a post-file world. Ultimately, though, it was a service made by developers to meet the needs of other developers. Can’t fault them for that. They took something very weird and made it more usable.

The final thought provoking piece comes from Ben Thompson at Stratechery, who sees the clear business rationale of Microsoft's decision. Microsoft built its entire business as a platform for developers (who it sometimes treated terribly...). But as we've moved past a desktop world and into a cloud world, Microsoft has much less pull on developers. Github brings it tons and tons of developers.

Go back to Windows: Microsoft had to do very little to convince developers to build on the platform. Indeed, even at the height of Microsoft’s antitrust troubles, developers continued to favor the platform by an overwhelming margin, for an obvious reason: that was where all the users were. In other words, for Windows, developers were cheap.

That is no longer the case today: Windows remains an important platform in the enterprise and for gaming (although Steam, much to Microsoft’s chagrin, takes a good amount of the platform profit there), but the company has no platform presence in mobile, and is in second place in the cloud. Moreover, that second place is largely predicated on shepherding existing corporate customers to cloud computing; it is not clear why any new company — or developer — would choose Microsoft.

This is the context for thinking about the acquisition of GitHub: lacking a platform with sufficient users to attract developers, Microsoft has to “acquire” developers directly through superior tooling and now, with GitHub, a superior cloud offering with a meaningful amount of network effects. The problem is that acquiring developers in this way, without the leverage of users, is extraordinarily expensive; it is very hard to imagine GitHub ever generating the sort of revenue that justifies this purchase price.

Thompson's piece (among many other good insights) suggests why developers might not need to fear Microsoft's ownership, because of all the potential acquirers, Microsoft probably has the least incentive to ruin Github:

This, by the way, is precisely why Microsoft is the best possible acquirer for GitHub, a company that, having raised $350 million in venture capital, was possibly not going to make it as an independent entity. Any company with a platform with a meaningful amount of users would find it very hard to resist the temptation to use GitHub as leverage; on the other side of the spectrum, purely enterprise-focused companies like IBM or Oracle would be tempted to wring every possible bit of profit out of the company.

What Microsoft wants is much fuzzier: it wants to be developers’ friend, in large part because it has no other option. In the long run, particularly as Windows continues to fade, the company will be ever more invested in a world with no gatekeepers, where developer tools and clouds win by being better on the merits, not by being able to leverage users.

My own take is somewhere between all of these. As soon as I heard the rumor, I started thinking back to the famed Steve Ballmer chant of "Developers, Developers, Developers!"

Microsoft has always needed developers, but in the past it got them by being the center of gravity of the tech universe. A huge percentage of developers were drawn to Microsoft because they had to develop for Microsoft's platform. That allowed Microsoft to get away with a bunch of shady practices that certainly created a bunch of trust issues (Facebook might want to take note of this, by the way). Nowadays, in the cloud world, Microsoft doesn't have that kind of leverage. It's still a massive player, but not one that sucks in everything around it. And, it does have new leadership that seems to understand the different world in which Microsoft operates. So it will be interesting to see where it goes.

But, as someone who believes in the value of reinvention and innovation among the tech industry, it's not necessarily great to see successful mid-tier companies just gobbled up by giants. It happens -- and perhaps it clears the field for something fresh and new. Perhaps it even clears the field for that utopic git-driven world that Ford envisions. But, in the present-tense, it's at least a bit deflating to think that a very different, and very powerful, approach to the way people collaborate and code... ends up in Microsoft's universe.

And, as a final note on these three pieces: this is why we should seek out and promote people who actually understand technology and business in understanding what is happening in the technology world. The Guardian piece is laughable, because it appears to be written by someone with such a surface-level understanding of open source or free software that it comes off as utter nonsense. But the pieces by Ford and Thompson actually help add to our understanding of the news, while providing insightful takes on it. The Guardian (and others) should learn from that.

Filed Under: acquisitions, ben thompson, developers, git, mergers, paul ford
Companies: github, microsoft

T-Mobile Hires Ex-FCC Commissioner To Claim Its Competition-Killing Merger Will Be Really Great For...Farmers

from the synergies,-yo dept

As we've discussed, the looming Sprint T-Mobile merger is going to be decidedly ugly for American consumers. Global history has shown repeatedly that when you reduce the number of total competitors from four to three, you proportionally reduce any incentive to truly compete on price. Analysts have also predicted that anywhere between 10,000 and 30,000 retail, management, and administrative employees will lose their jobs as the bigger company inevitably eliminates redundant positions. Of course like any American merger, the two companies' CEOs have spent much of the last week trying to claim the exact opposite.

Still, it's going to be an uphill climb for Sprint and T-Mobile to sell regulators on the deal, even for an administration that seems to take pride in undermining consumers and small businesses. To try and sell it, Sprint and T-Mobile have been trying to make the claim that the only way to ensure we have the fifth-generation (5G) networks of tomorrow is if we sign off on their competition-eroding megamerger:

"It is critically important that America and American companies lead in the 5G era. Early U.S. leadership in 4G fueled a wave of American innovation and entrepreneurship that gave rise to today’s global mobile Internet leaders, creating billions in economic value and job growth. America’s early 4G leadership is credited with creating 1.5 million jobs and adding billions to the U.S. GDP. With 5G, the stakes are even higher – because 5G will be even more transformational."

This plays in handily to the Trump administrations protectionist efforts to ban Chinese companies from the American market in order to "win the 5G race." The problem is that 5G isn't some magic wand. While it will provide us with faster, lower latency and more resilient wireless networks, it's not going to magically cure the fact that American broadband is ranked somewhere around 62nd in speed, and consumers pay some of the highest rates for mobile data in the developed world thanks to a telco monopoly over the fiber lines that feed cellular towers.

Both T-Mobile and Sprint had been making it clear for months that they could deploy 5G easily and independently of each other. Suddenly we're being told that these next-gen networks are only made possible if we sign off on a deal history tells us will be arguably terrible for anybody other than AT&T, Verizon and SprinT-Mobile, who'll all have less motivation to engage in real price competition post merger.

To try and sell this "only merging can deliver next-gen networks" argument, T-Mobile this week hired former FCC Commissioner Robert McDowell to make the same point in an op/ed over at Fortune:

"The T-Mobile-Sprint merger will benefit our country and all Americans. From a farmer in Nebraska using 5G technology to better track crop conditions, to a small business owner in New Hampshire looking to sell products in the global marketplace, to a smart city with autonomous vehicles, all of us will depend on 5G. We can’t afford to lose the global race to develop this remarkable technology."

In the piece's fine print you'll find that McDowell is now a paid T-Mobile advisor, which is a nice shift from outlets that can't be bothered to highlight op/ed author financial ties to industry. Again though, there's nothing "magical" about 5G that helps create smart cities, next-gen agricultural tools, and the automated cars of tomorrow. Those technologies can still thrive on 4G networks, and again, while 5G is going to provide some notable evolutionary improvements, it's not some kind of mystical panacea, and its impacts on our overall economy are being absurdly over-hyped by companies eager to sell networking hardware.

There's numerous problems in the wireless sector that will persist throughout the "5G revolution," none of which get magically eliminated by reducing competition and killing tens of thousands of jobs. The merger doesn't magically fix AT&T and Verizon's backhaul monopoly. It doesn't address the fact that Americans pay more for wireless data that countless other developed nations. And it certainly doesn't solve the problem of regulatory capture, which is why American broadband (fixed or wireless) tends to be such a comical shitshow in the first place.

Filed Under: 5g, competition, farmers, fcc, lobbying, mergers, robert mcdowell
Companies: sprint, t-mobile

The Right Choice For The Wrong Reasons? DOJ Sues To Kill The AT&T Time Warner Merger

from the highly-selective-empathy dept

If you've been paying attention, the Trump admninistration has been engaged in a frontal assault on everything from net neutrality to media consolidation rules, its legacy-industry-cozy policies driving a new wave of mergermania in telecom and media. As such, few thought the administration would block AT&T's $86 billion acquisition of Time Warner. After all, AT&T wasn't acquiring a direct competitor, and the harms caused by vertical integration -- however real -- haven't been a genuine concern in regulatory telecom oversight from either party for years (see Comcast NBC Universal or Sinclair Tribune).

But then rumors began to emerge that the Trump DOJ was contemplating suing to block AT&T's latest megamerger -- unless it was willing to sell either DirecTV (acquired by AT&T last year) or Turner Broadcasting, owner of CNN. Reports indicate that AT&T refused both options and was primed for a court showdown. This week the DOJ announced it would be giving AT&T what it wanted, and is taking AT&T to court to block the deal on antitrust grounds:

"Makan Delrahim, the department’s top antitrust regulator, said the Justice Department opposed the deal because it would create a communications and media behemoth unrivaled in its ability to reach most American homes with wireless and satellite television services and valuable programming such as CNN and HBO, the home to “Game of Thrones."

"This merger would greatly harm American consumers,” Mr. Delrahim, the assistant attorney general for antitrust, said in a statement. “It would mean higher monthly television bills and fewer of the new, emerging innovative options that consumers are beginning to enjoy."

Consumer advocates have long opposed the merger, arguing that AT&T will use its greater size and leverage to amplify what already is a fairly solid legacy of anti-competitive behavior, including making it harder for streaming companies to gain access to the content (especially HBO) they'll need to compete with AT&T's DirecTV Now service. As such, many consumer groups were quick to applaud the lawsuit. Albeit with the caveat that they weren't entirely sure the Trump DOJ was doing this for quite the reasons it claims:

“It’s refreshing to see the Justice Department doing something about this deal. However, we remain very troubled by President Trump’s threats to punish outlets like CNN that have aired critical coverage of the administration. The Justice Department must demonstrate that Trump’s saber-rattling has nothing to do with this suit. It could start by giving the same level of scrutiny to other mega-deals like Sinclair’s proposed merger with Tribune. But the bottom line is that the public would be best served if this merger is scrapped."

Concerns that the Trump administration is (ab)using the DOJ for petty grievances and cronyism aren't unfounded. A Trump administration official in July told the New York Times that it was pondering using the deal as leverage against the network. And Rupert Murdoch has been pushing Trump to block the deal since at least January, worried that it would pose a greater competitive challenge to his own News Corporation empire. AT&T had rejected at least two Murdoch overtures to buy CNN in the last six months, which is why the DOJ may have wanted AT&T to divest Turner Broadcasting.

All told, it's hard to believe that a Trump administration that has an active disdain for consumer protections -- and is going well out of its way to aid the Sinclair Tribune deal -- is suddenly hyperventilating about the vertical integration antitrust ramifications of AT&T Time Warner. AT&T clearly smells something a bit fishy in the water, and is conducting an investigation into whether Trump pressured the DOJ to change its tune. After all, DOJ antitrust boss Makan Delrahim had, until the last few months, said he saw no problems with the deal. AT&T's also investigating Rupert Murdoch's role in the DOJ's sudden, breathless concern for consumer welfare:

"AT&T intends to seek court permission for access to communications between the White House and the Justice Department about the takeover, said the people, who asked not to be named because the deliberations are private...AT&T will also try to get any evidence about whether Rupert Murdoch tried to influence the review, according to one of the people. Murdoch, a Trump confidant, controls 21st Century Fox Inc., the parent of Fox News. The president has praised Fox News’s coverage of his administration."

AT&T's already making it clear that if there is dirty pool at play here, it will help it come out in the wash:

All told, this is poised to be one of the uglier legal showdowns in recent antitrust memory. And it's forcing folks aligned against the deal to ask themselves if the ends justify the means, even if cronyism and a frontal assault on the media -- not consumer welfare -- are fueling the court battle.

Filed Under: antitrust, doj, mergers
Companies: at&t, cnn, time warner

Competition Dodges A Bullet As T-Mobile, Sprint Merger Dies

from the phew dept

In the end it wasn't regulators, but giant international egos that derailed Sprint's latest attempt to acquire T-Mobile. As last week's rumors had suggested, T-Mobile owner Deustche Telecom and Sprint majority owner Softbank couldn't agree on terms of the latest attempted megamerger, formally calling off the deal over the weekend. At issue, apparently, was the fact that T-Mobile wanted greater control over the merged company in the wake of the deal. Company executives wanted to keep T-Mobile's momentum, which has resulted in bigger net subscriber gains per quarter than any other U.S. carrier, intact.

The failure is good news for consumers, employees, and business customers alike. Wall Street had estimated that the deal would have killed between 10,00 and 30,000 jobs -- potentially more positions that Sprint currently even has. Telecom history suggests that the reduction of major competitors from four to three would have also had a profoundly-negative impact on overall competition (go ask a Canadian). As a result users not only likely would have seen higher rates, but the end of the recent resurgence in unlimited data plans -- only made possible by T-Mobile's competitive disruption of the market.

In a joint statement, the two companies pay a little empty lip service to the supposed "consumer benefits" of the deal, before promising to get back to upgrading their networks and competing:

"The prospect of combining with Sprint has been compelling for a variety of reasons, including the potential to create significant benefits for consumers and value for shareholders. However, we have been clear all along that a deal with anyone will have to result in superior long-term value for T-Mobile’s shareholders compared to our outstanding stand-alone performance and track record,” said John Legere, President and CEO of T-Mobile US, Inc. “Going forward, T-Mobile will continue disrupting this industry and bringing our proven Un-carrier strategy to more customers and new categories – ultimately redefining the mobile Internet as we know it. We’ve been out-growing this industry for the last 15 quarters, delivering outstanding value for shareholders, and driving significant change across wireless. We won’t stop now.”

The death of the deal is perhaps extra good news for T-Mobile CEO John Legere. Legere has spent the last few years fashioning himself as a massive consumer ally (except for that whole opposing net neutrality and mocking the EFF thing), dropping F-bombs, and making fun of AT&T and Verizon. Selling consumers on a deal all-but guaranteed to devastate sector jobs and price competition would have required some PR acrobatics that challenge the laws of physics.

The death of the deal is ironic, given that Sprint will not likely have a better chance at getting regulatory approval. Softbank and Sprint spent the better part of the year buttering up the Trump administration, going so far as to let Trump take credit for Softbank job promises he not only had absolutely nothing to do with, but which were announced months before Trump even became President. Given the rubber stamp nature of the current FCC, the chances of regulators doing the right thing and stopping the job and competition-killing deal were far from certain.

Fortunately for consumers, fussy international egos derailed the deal before regulators had a chance to downplay how bad a deal it actually was. Sprint can now turn its focus toward striking deals with other companies like Altice and Charter; deals that won't erode the overall level of competition in the wireless sector.

Filed Under: antitrust, competition, consolidation, fcc, mergers
Companies: deutsche telekom, softbank, sprint, t-mobile

Giant International Egos May Derail The Sprint T-Mobile Merger

from the synergies,-yo dept

We've been discussing how Sprint's plan to merger with T-Mobile would be notably awful for the wireless industry. Not only do Wall Street analysts predict it would kill anywhere from 10,000 to 30,000 jobs (potentially more people than Sprint even currently employs), but it would reduce the number of major competitors in the space from four to three -- dramatically reducing the industry's incentive to compete on price and service. The resulting competitive lull could derail many of the good things a resurgent T-Mobile has encouraged in the sector (like the death of long-term contracts and the return of unlimited data plans).

Given the giant industry rubber stamp that is Trump FCC boss Ajit Pai, many analysts believed the administration would approve the deal anyway. Sprint and its Japanese owner Softbank have spent the better part of the year buttering up the Trump administration in preparation for regulatory approval, going so far as to custom craft some job creation bullshit synergies Donald could easily use to justify approval of the arguably-awful deal.

Unfortunately for Sprint lobbyists, they may never get the chance. This week reports out of Japan indicated that Softbank Chair Masayoshi Son had walked away from the negotiations table after a dispute over who should have the most control over the freshly-merged company:

"SoftBank Group plans to break off negotiations toward a merger between subsidiary Sprint and T-Mobile US amid a failure to come to terms on ownership of the combined entity, dashing the Japanese technology giant's hopes of reshaping the American wireless business. SoftBank is expected to approach T-Mobile owner Deutsche Telekom as early as Tuesday to propose ending the talks. They had reached a broad agreement to integrate T-Mobile and Sprint -- the third- and fourth-largest carriers in the U.S. -- and were ironing out such details as the ownership ratio."

T-Mobile and its owner Deutsche Telekom obviously want to retain control of the brand identity of T-Mobile in the wake of the deal, since the company has been immensely successful thanks to actually listening to customers (mostly). Sprint in contrast has stumbled through the last several years loaded with debt, and hasn't been able to craft a brand identity (or a working network) that truly resonates with consumers. It's not particularly surprising that T-Mobile and cheeky CEO John Legere want more control over the merged company than Sprint and Softbank may be willing to give.

The problem for Sprint at this point is that the only thing holding up the company's stock price for most of this year has been merger rumor and speculation. As such, some Wall Street analysts think Sprint might want need to go private if it's to survive fallout from the deal's collapse, while other analysts say failure to finalize the deal could erode up to $50 billion in theoretical value between the two companies:

"(I)f these management teams fail to get this deal across the goal line, they have failed to do their job,” New Street wrote. “They will be walking away from close to $50 billion in value. Regardless of what either side things their asset is worth on its own, adding $50 billion to that starting value would be a big enough increase in value that they ought to have found a way to get the deal done.”

A scuttled deal would be good news for T-Mobile's Legere, who might find synchronizing his consumer-friendly brand with the competition-killing deal a tall order. That said, it remains entirely possible that Sprint's leaked decision to walk away from the negotiations table is a bluff. Since Sprint needs the deal much more than T-Mobile does -- it's more than possible the two sides will still find a way to get the deal done. Should that occur, we can look forward to a winter filled with entirely bogus "synergy" promises as investors wait to see just how big of a mindless rubber stamp the Trump administration truly is.

Filed Under: competition, mergers
Companies: deutsche telekom, softbank, sprint, t-mobile

AT&T Spent Hundreds Of Billions On Mergers And All It Got Was A Big Pile Of Cord Cutters

from the synergies,-yo dept

Over the last few years AT&T and Verizon have been desperately trying to pivot from stodgy, protectionist old telcos -- to sexy new Millennial media juggernauts. And while this pivot attempt has been notably expensive, the net result has been somewhat underwhelming. Verizon, for example, spent billions to gobble up AOL and Yahoo, but its lack of savvy in the space has so far culminated in a privacy scandal, a major hacking scandal, a quickly shuttered website where reporters couldn't write about controversial subjects, and a fairly shitty Millennial streaming service even Verizon's own media partners have called a "dud."

AT&T's efforts have been notably more expensive, but just as underwhelming. The company first decided to shell out $70 billion for a satellite TV provider (DirecTV) on the eve of the cord cutting revolution. And the company's putting the finishing touches on shelling out another $89 billion for Time Warner in a quest to gain broader media and advertising relevance. That was paired with the launch of a new streaming service, DirecTV Now, which the company hoped would help it beat back the tide of cord cutting.

But things aren't really working out quite like AT&T planned. The company's stock took a beating last week after it acknowledged it would be facing a 390,000 reduction in pay TV subscribers this quarter. AT&T, in an 8K filing with the SEC, tried to partially blame hurricanes for the mass exodus occurring at the company:

"The video net losses were driven by heightened competition in traditional pay TV markets and over-the-top services, hurricanes and our stricter credit standards. The decline of traditional video subscribers negatively impacts our Entertainment Group revenues and margins, resulting in an adjusted consolidated operating income margin that will be essentially flat versus the year-ago third quarter."

Unmentioned is that AT&T also lost 351,000 pay TV subscribers the quarter before, as the company gets hit harder by cord cutting than most pay TV providers. One of the real reasons for these departures? While AT&T was willing to spend hundreds of billions on megamergers, it has spent the better part of the last decade (especially in places where poor people live) neglecting necessary network upgrades. As a result, in countless markets Verizon & AT&T users on last-generation DSL lines are switching to cable providers for faster broadband, and bundling cable TV service that's priced cheaper than broadband alone.

In short AT&T neglected its core business in order to daydream about matching Google or Facebook's ad revenues, but (so far) lacks the core competency to jump the gap from telecom to Silicon Valley-esque Millennial marketing. Both AT&T and Verizon have spent so many years operating as government-pampered protected duopolies, they believed they could pivot on a dime, ignoring that years of regulatory capture left them with only a few key skills: charging too much for too little, lobbying to thwart competition and bullshit.

To its credit, AT&T was at least willing to take a risk and launch DirecTV Now, a streaming alternative. And while the company did manage to add 300,000 streaming customers on the quarter, those users pay a fraction of what traditional cable TV customers do - and AT&T still saw a net loss of 90,000 pay TV users. Still, most other incumbent pay TV providers have responded to the cord cutting threat by raising cable TV rates (ingenious!) or by pretending to keep pace via the launch of streaming alternatives that are intentionally designed to be underwhelming, lest they cannibalize more lucrative legacy customers.

One of the core problems here is that Wall Street isn't satisfied with ISPs simply doing a good job and making a reasonable profit. The relentless, myopic need for quarterly improvements has companies like AT&T and Verizon trying to use megamergers and vertical integration to magically elbow their way into markets it's unclear they lack the competency for. And only after mindlessly cheering these deals do some Wall Street analysts realize some of these arrangements don't even make coherent business sense given the current market climate:

"Though the company partly blamed recent hurricanes for these trends, MoffettNathanson analyst Craig Moffett notes that weather was only the third of four reasons that AT&T listed. “Heightened competition in traditional pay TV markets and over-the-top services” came first. In other words: cord cutting. “It is becoming increasingly clear that the wheels are falling off of satellite TV,” he writes, meaning that Dish Network might announce similar results."

In an ideal world, AT&T would realize its core competencies (building and maintaining wireless and fixed-line networks) should take priority. That $70 billion spent on buying a doomed satellite TV company could have gone a long way in shoring up broadband service that in many regions still doesn't even meet the FCC's base 25 Mbps definition. But in the world we live in that's simply not sexy enough for Wall Street, and the need to grow simply for growth's sake will likely result in AT&T making even more expensive deals of dubious net benefit down the line. Next up: Waffle House?

Filed Under: broadband, cable, competition, cord cutting, dsl, mergers, satellite, tv, video
Companies: at&t, directv

Analysts Predict Sprint, T-Mobile Merger Will Be A Massive Job Killer

from the synergies,-yo dept

For much of the year, Sprint has been trying to butter up the Trump administration to gain approval for a merger with T-Mobile. Sprint's previous attempts at such a merger were blocked by regulators, who correctly noted that reducing wireless competitors from four to three would raise rates and reduce carrier incentive to improve and compete. But with the Trump administration spearheading a new wave of mindless merger mania in the telecom space, Sprint is poised to try again, and is expected to formally announce its latest attempt to acquire T-Mobile in just a matter of weeks.

Of course like any good merger, that will involve countless think tankers, lobbyists, consultants, fauxcademics and other policy voices willfully ignoring M&A history, insisting that the deal will magically spur competition, save puppies, cure cancer, and result in countless thousands of new jobs. But many respected sector analysts are busy noting that the job is expected to be a mammoth job killer. How much of a job killer? One analyst predicts the merged company could result in more net job losses than the total number of employees Sprint currently has:

"Together, the companies reported employing 78,000 in their most recent disclosures. Sprint, based in suburban Kansas City, accounts for 28,000 of those, and T-Mobile for 50,000. Merging the companies, said a report by Jonathan Chaplin of New Street Research, could eliminate “approximately 30,000 American jobs” — which is more than Sprint employs.

Craig Moffett, another major Wall Street analysts, has previously predicted the net job losses could possibly be somewhere closer to around 20,000:

"Last August, (Moffett) put pen to paper and found reason to expect 20,000 job cuts from a merger. Moffett’s report showed most of those would be retail workers. Sprint and T-Mobile each want more retail outlets, but a combined company wouldn’t need as many stores as both have currently. It would make business sense to close stores near each other.

“We conservatively estimate that a total of 3,000 of Sprint and T-Mobile’s branded stores (or branded-equivalent stores) would eventually close,” Moffett’s report said.

Each of those, he said, would mean the loss of five full time jobs, or 15,000 jobs in total. A merger also would threaten “overhead” jobs, the kind concentrated in headquarters such as Sprint’s and T-Mobile’s in the Seattle area.

Of course that will be the precise opposite of the claims you'll start seeing over the next few weeks as the lobbying sales pitch for the megamerger heats up with the help of an often unskeptical media. Ignored will be the fact that the government's decision to block AT&T from acquiring T-Mobile helped foster some real competition in the space, resulting in the return of simpler, unlimited data plans. Also ignored will be the fact that the remaining three companies -- T-Mobile, Verizon and AT&T, will have less incentive than ever to engage in real price competition, potentially resulting in unlimited data being killed off again.

Most of these sales pitches will attempt to paint a picture where Sprint was going to collapse anyway, despite a deep-pocketed owner in Japan's Softbank -- and an improving balance sheet. But there are countless M&A options for the company that don't involve reducing competition in the space, including an acquisition by Charter and Comcast (who want to bundle wireless with cable and broadband service) or French-owned Altice, which has been gobbling up U.S. cable companies and has expressed its own interest in jumping into the wireless space.

Despite the obvious job losses and competition reduction, few expect the Trump administration to block the deal, since approving it will let the President, as is his tendency, proudly convince his loyal base he helped create jobs that technically don't exist. Sprint and its Japanese owner Softbank already paved the road for this bullshit parade earlier this year, when it let Trump falsely claim credit for thousands of Softbank jobs that technically may never arrive, and were announced long before Trump was even elected anyway.

In very 2017 fashion, expect none of this to matter once the merger sales pitch begins in earnest over the next several weeks.

Filed Under: competition, jobs, mergers
Companies: sprint, t-mobile

Wall Street Merger Mania Is Driving Us Toward One Single, Horrible ISP - Probably Named Comcast

from the merge-ALL-the-things dept

Many consumers are still reeling from a Charter, Bright House Networks and Time Warner Cable merger that left users with slower speeds, worse service, and higher prices. Other broadband consumers are still struggling with a bungled Frontier acquisition of Verizon assets that left users with prolonged outages and even worse customer service than the shitshow they already enjoyed. As we've seen for decades, this kind of mindless consolidation traditionally only benefits the companies involved, particularly in a market where real competition is in short supply.

This growth for growth's sake is one of the major reasons Comcast -- and its horrible customer service (which didn't scale with the company's expansion because that would have cost money) -- exists. And Wall Street's relentless thirst for growth at all costs is a major reason these companies can't simply focus on being the best "dumb pipes" possible, instead focusing their attentions on expanding into markets they have little expertise in (see Verizon's ingenious plan to hoover up failed 90s brands and pander to Millennials). When they can't succeed because they're out of their depth, they try to tilt the playing field (killing net neutrality).

There's oodles of history lessons here, and there's every indication we intend to learn nothing from them. With the ink barely dry on Charter's troubled deal, and the Trump administration signaling that no merger is too big or too absurd, Wall Street analysts have been positively giddy this year pondering megamergers in telecom that had previously been unthinkable on anti-competitive or antitrust grounds. That has included heavy pushes for a Sprint acquisition of T-Mobile or a Verizon bid to buy Comcast -- the massive, obvious anti-competitive impact of both deals be damned.

This week, the merger mania du jour apparently involves a plan that would involve Comcast and French-owned Altice working in concert to buy Charter Communications, whose $180 billion asking price has proven too steep for any one company to contemplate alone (Verizon made a $100 billion offer and was rejected). Citigroup has floated the idea that after acquisition, Comcast could integrate the Time Warner Cable customers they were blocked by regulators from acquiring for anti-competitive reasons, leaving us with one giant cable company to rule us all:

"Charter is pretty much an equal rival in size and scope to Comcast at this point, at least with regards to subscriber numbers. Each company has somewhere in the neighborhood of 25 million customers. For the two to merge outright would leave one dominant cable company in the country, with about half of the entire nation’s subscribers — from coast to coast, and in many of the states in between — under a single umbrella."

Granted there's no guarantee such a deal will happen. Wall Street stock jocks often like to float rumors then profit off of the herk and jerk of stock prices caused by the half-truths they themselves create. But should Comcast be able to swing such a deal, we could be looking at a supernova of anti-competitive dysfunction, the likes of which made Comcast's well documented issues seem charming.

Consider that cable's monopoly was already blossoming thanks to the countless telcos which have effectively stopped trying to compete -- in large part because Wall Street thinks spending money to upgrade your networks is a fool's errand. Then ponder the fact that the current FCC is busy gutting any and all meaningful oversight of these companies, allowing them to inevitably engage in all manner of anti-competitive shenanigans, from arbitrary and punitive usage caps, to net neutrality and privacy violations.

This all may sound like hyperbole, but it's a future that's very much under construction. And the folks giddily contemplating the "looming synergies" of such monumental coagulation are building it with absolutely zero concern for the impact on consumers, startups, small businesses or the health of the internet. Telecom sector executives and the folks paid to cheer their every decision have every intention of taking the already dismal Comcast experience, injecting it with steroids, and setting it loose on a market with no organic competitive or regulatory checks and balances. And by the time most notice the negative repercussions, these same folks will already be hyping the next wave of mindless consolidation.

Filed Under: broadband, isp, mergers, wall street
Companies: altice, bright house, charter, comcast, time warner cable