The Telecom Scam: 5 Behemoths That Strangle Innovation and Ensure You Pay Too Much for Bad Service
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With much fanfare, in January 2001 TW merged with American Online (AOL) in a $164 billion deal. Within a year AOL-TW’s stock price plunged and the much-hyped “synergies” that was the merger’s rationale turned out to be a mirage. The company wrote off $99 billion in losses. Only bankers and corporate management benefited from the get-rich-quick scheme.
The AOL-TW merger exemplified the financial scams at the heart of the tech bubble. Under increasing financial problems resulting from its shotgun marriage with AOL, TW moved in March 2009 to shed its cable operations, creating the self-standing company, Time Warner Cable (TWC).
In 2010, TWC had revenues of $17.9 billion and ranked 131st on Fortune 500 list. It has 14.6 million subscribers.
Like the telcos and other cable companies, TWC is promoting what are called “bundles” of services that can include voice (local and long-distance), Internet access (as an ISP) and digital TV, including HD video, recording and video-on-demand [VOD].
Earlier this year, TWC had a dustup with three of its major content providers, Discovery, Fox and Viacom, over distribution rights for streaming video to the iPad. Unable to resolve their differences, TWC has taken the issue to federal court. It claims that it has the right to distribute licensed programming to its subscribers no matter whether they are watching a show on their home TV or computer or a mobile device. Its argument is simple: it “owns” the subscriber.
This issue points to the deeper challenge facing the cable industry’s “TV Everywhere” strategy, one shared by Comcast and other cable operators. The cable operators are trying to lockup content through exclusive deals (e.g., with TimeWarner subsidiaries like Turner) so that other distribution providers cannot offer them to their mobile subscribers. This could be a hot issue in 2012.
Wild Card: Can the Communications Trust Be Broken Up?
For the last two decades, as the nation’s telecommunications system has been upended by an explosion of new digital technologies and capabilities, those with the deepest pockets and most strategic positions have triumphed. Most importantly, the Internet has remade communications, and sadly, strengthened the hold of the communications trust. Old dogs like Apple have found new life; new dogs like Google, Amazon and Facebook have fueled enormous growth.
The challenge for the coming decade is whether any new, wildcard player can overcome the corrosive effect the telecom trust is having on the nation’s communications system. The chances for a breakup, let alone a shakeup, of the communications trust look pretty grim.
Is Google the next Microsoft or Ma Bell?
While a classic “garage shop” startup like Apple, some believe that Google is increasingly coming to look like the Dark Force out of a Star Wars movie. For all the high-tech mumbo jumbo relating to its corporate mission -- “Don’t be evil” -- the company does not embrace Star Trek’s legendary motto, “Do no evil.” And Google’s new evil is what seems to worry an increasing number of people.
Founded in 1998, Google’s 2010 revenue was $29.3 billion; more impressive, its market cap is approximately $170 billion. It ranked 102nd on the Fortune 500 list.
Google’s enormous wealth is derived from its breakthrough search technology and how it revolutionized the advertising business. Its patented, underlying technology, PageRank, transformed Internet search and turned its company name, like FedEx, from a noun to a verb. And its search inquiry is “free” to users.
Its search capabilities transformed advertising. It changed the industry’s accounting paradigm: “click-throughs” replaced “page views.” Ad services account for approximately 95 percent of its revenues. So powerful is its ad business that the company makes more from advertising than all the nation’s newspapers combined.