AT&T’s Pipes Are Calling – WSJ

An AT&T store in San Rafael, Calif., May 17th.


Photo:

Justin Sullivan / Getty Images

AT&T

unloads its Warner Media property, but why did Time Warner buy it in the first place? For the same reason, Time Warner (Cable) bought AOL and Verizon bought Yahoo and

Vivendi

Universal bought. Call it marginal envy.

Since the birth of the commercial Internet in the 1990s, major network operators have complained that while they carry all the traffic, someone else always seems to be reaping the benefits. As you read this, AT & T’s market cap ($ 210 billion) is just slightly less than

Netflix‘s

($ 221 billion). And don’t even mention the market caps (or margins) of the web giants – you could stroke a telecommunications manager.

Richard Parsons, the Time Warner CEO who helped negotiate the AOL deal, liked to say that his cable company couldn’t afford to be a “dumb whistle.” To this day, the network operators – wireless, fiber, cable – fear to be stupid because the others seem to make all the money. You are not wrong with that. The mistake is to think that because you own the pipes, you can improve your pipe business by owning the contents too.

A look at Postmerger AT&T illustrates the problem. AT&T buys Time Warner and now owns Game of Thrones and everything else. It can differentiate itself from its competitors by delivering content to its cellular and landline subscribers – but that undermines the margins of the entertainment business. And for the consumer, it’s a marginal benefit. You’re likely paying for Netflix, too, and

T-Mobile

subsidizes Netflix subscriptions for its customers (without having to own Netflix). So do you want a “free” HBO Max subscription to AT&T or a Netflix subscription to T-Mobile or Disney + to Verizon? Choose your poison.

AT&T has not improved its position by owning Time Warner. It has simply exported its eroding margins from the network business to the entertainment business.

The irony with all of this is that the public and official Washington have treated the carriers as villains of the internet world, even when the streamers, web giants and social networks stop for lunch. From the point of view of network owners, the whole controversy about network neutrality looks almost surreal. If internet service providers had the power to control what people see on the internet, they would certainly make more money than they do. But somehow 10-digit capitalization companies are playing the victim as carriers spend trillions on keeping the stupid pipes going.

The thing about pipes is, they’re not stupid. They are brilliant – at being pipes. Perhaps network operators like AT&T need to get better than trying to own what comes down the pipes.

To take

Amazon

—One of the biggest beneficiaries of the network operators’ pipes. Amazon built up tons of computing capacity to handle peak loads on its website and a massive logistics operation to handle orders even at peak times. And then it turned all that excess capacity into one deal – or rather two. Amazon Web Services monetizes the additional computing power of Amazon and Amazon Marketplace enables other merchants to use the Amazon website.

The carriers could do the same with all of the unused capacity on their networks. It couldn’t be worse than overpaying content companies over and over again, only to dump them a few years later.

Mr. Ganley is the Chairman and CEO of Rivada Networks.

Main Street: Unlike Hollywood, at least the communists could make good films. Pictures: Everett Collection / AMPAS via Getty Images Composite: Mark Kelly

Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Published in the print edition of June 3, 2021.

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