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Reader Forum: It's all about video

Just a few months ago, AT&T announced that it was purchasing T-Mobile USA for $39 billion. The No. 2 wireless operator will again become the No. 1 operator by buying the No. 4. Dish recently completed its purchase of Blockbuster. It has been a long, slow spiral downward for the much-maligned video retailer that once dominated the national movie rental market. $228 million dollars cash was the winning bid Dish made to the bankruptcy court. They took possession in April of 2011.

So what do these two deals have in common? After all, not only are they in separate spaces of the communications sector, but the Blockbuster deal is less than 1% of the value of the T-Mobile purchase. Video is at the center of both transactions.

Blockbuster began in 1985 in Dallas. Wayne Huizenga bought the company in 1987 and through the acquisition of several rivals, including Major Video, as well as construction of new stores (at one point averaging more than 40 new locations a month) exploded the company’s market penetration. In 1994, Viacom purchased the company for $8.4 billion. By 1999, the company boasted a store within a 10-minute drive from nearly every major neighborhood in the country. Blockbuster was king with a stock price that hit $30 in 2002.

But as technology changed, the public changed how they watched movies. The new DVD format was gaining steam and the studios were heavily pushing sales over rentals. The unexpected success of television shows released on DVD also had an impact as it was simply more convenient to purchase the full set to watch 20 hours worth of programming. The nail in the coffin came courtesy of Netflix. It seemed that a 10-minute drive was just too much trouble. As cable companies introduced more Video On Demand options, the pressure magnified. Blockbusterʼs brick-and-mortar business model was doomed.

T-Mobile USA began as VoiceStream, a subsidiary spinoff from parent Western Wireless in 1999. The company expanded its footprint and subscriber base through acquisitions of Omnipoint and Aerial Communications in 2000. In 2001, German powerhouse, Deutsche Telekom (DT) purchased both VoiceStream and southeast regional operator PowerTel, then rebranded their new U.S. operations with the T-Mobile global mark. Expansion continued through the eventual buyout of the last company operating under the SunCom brand — the other two, Telecorp and Tritel initially merged and were then gobbled up by AT&T Wireless — which brings up T-Mobileʼs struggles.

The cost to DT of acquiring VoiceStream, PowerTel and SunCom totaled roughly $61 billion. Add another $4.2 billion for the tab it ran up during the 2006 AWS auctions and a picture starts to take shape. As aggressive as DT had been toward building out a national network, its competitors were more so. Verizon has bought many smaller operators, including super-regional Alltel, while AT&T Wireless was bought by Cingular only to have its name reincarnated by rebranding as AT&T again. A $39 billion sale price looks like a 40% discount even before accounting for inflation.

The headlong rush toward video anytime, anywhere is behind both of these deals. The public acceptance, particularly among the under 30 crowd, of consuming content on their smartphones and tablets, is causing a seismic shift, destroying business plans and creating new ones.

Dish recognized that beaming a signal with more than 260 channels is no longer enough to satisfy its customers. To compete with Comcastʼs XFINITY Mobile service, for example, Dish launched TV Everywhere. As long as there is a speedy Internet connection, both of these features allow the subscriber to watch an enormous catalog of content as a direct download to their smartphone or tablet device at no additional charge. This requires an enormous amount of broadband connectivity, from home and backbone connections, to mobile, and somebody has to pay for it.

Dish knows this is just going to get worse. While delivering a little video is now easy for most anyone, delivering a lot of video requires expertise, an impressive infrastructure and a lot of bandwidth. That is exactly why Dish purchased Blockbuster.

The bandwidth that Dish (and Netflix, Comcast, Google TV, Hulu) needs to deliver its new services is not entirely within its control. To ensure that the customer has a positive experience, there must be enough spectrum to transmit all the data necessary to play the content smoothly on the mobile device. If hundreds of mobile subscribers in the same square mile of real estate are all trying to watch a different movie, the strain on the network is enormous. In fact, this is when people just give up and start cussing their network of choice.

AT&Tʼs purchase of T-Mobile is how they are dealing with this onslaught of demand for video. New York City has a population density of more than 26,000 people per square mile. How does an operator serve them? T-Mobile will add more than 30 million subscribers to the AT&T fold if the deal is approved. Claiming the No. 1 spot again will be a feather in their cap but T-Mobileʼs bandwidth is worth a whole lot more.

There is a lot of opposition to this purchase by operators that are experiencing what they feel is a vacuum. With the largest service providers sucking up so much of the available spectrum, how are they going to compete and grow their businesses? Yet AT&T is simply responding to the demands of their customers. The regulators at the FCC certainly have their work cut out for them since smaller operators want to provide these services too, while the largest operators must continue to deal with the enormous demands that their millions of customers place on their networks.

Finding additional spectrum has become a priority and the FCC chairman, Julius Genachowski, is speaking about this issue at every opportunity. But this problem is going to continue and needs to be a priority since this crisis of bandwidth is likely to extend into the next several administrations. Without additional spectrum, the growth of these services will be stunted and consumer choices will be sacrificed.

For years, the term “convergence” has been associated with the communications industry – and this has been brought to the forefront of conversation because of the demand for video. As this trend continues, players in the industry must be able to implement successful business plans and anticipate the problems that may arise in order to remain competitive. Tools, such as interactive mapping, can provide the intelligence to meet this need. Visualizing information on the mobile and network ecosystem can allow service providers and other wireless players to view a snapshot of what is happening in the industry and determine the threats and opportunities that exist.

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