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Verizon-Cable: The Foundation of a Fifth National Wireless Competitor (Part 10 of a series)

Are the FCC and DOJ paying attention? They say they want more wireless competition. Well the foundations of an economically-viable fifth national wireless broadband network are staring them in the face in the pending Verizon-Cable spectrum transaction, if only they would get on with approving it.

Critics and skeptics of the transaction have an obsolete and myopic view that competition must develop in the way that Congress first envisioned it seventeen years ago in the 1996 Telecom Act -- before the commercial Internet, residential WiFi, broadband wireless, smart phones or tablet computers ever existed. Critics are blind to the technology innovations, competitive developments and hybrid-business models that now are enabling the cable industry to transform into a potentially disruptive fifth national wireless broadband competitor long term.

FreePress' and Public Knowledge's desperate campaign to: discredit competition policy, twist any competitive development into anti-competitive behavior, and block the Verizon-Cable transaction -- can't overcome the obvious facts that this Verizon-Cable transaction is exceptionally pro-competitive.

Is anyone paying attention? At the Cable Show last week, the five largest cable companies announced Cable WiFi, a network of 50,000 free WiFi hotspots, that comprises the foundation of a fifth national wireless broadband network. With this announcement, Cablevision's SVP, Kristin Dolan said: We believe that WiFi is a superior approach to mobile data, and that cable providers are best positioned to build the highest-capacity national network, offering customers fast and reliable Internet connections when away from their home or business broadband service.”

The Verizon-Cable transaction provides the Cable industry with long-term wholesale access to Verizon's 4G LTE network to supplement Cable's wireless broadband offering where WiFi does not exist. As Comcast's Executive Vice President, David Cohen told CNET about the Verizon-Cable transaction: "There is no secret that our interest is not just in selling spectrum…" "This is a strategic asset to enable us to develop a complete wireless strategy. When our Plan A of building our own network didn't work out, we still planned to leverage this valuable asset to help us strategically. That's what the Verizon deal gives us."

The Cable industry's public commitment to provide its subscribers with "TV Everywhere," on any device anywhere, underscores the importance of adding wireless broadband capability to the Cable business. And NCTA, the Cable Association, just launched a new national branding campaign theme: "Cable. It's more than TV. It's how we connect." This public campaign makes it clear wireless will be an increasingly integral part of how Cable connects its subscribers going forward.

Critics of this transaction are naively and incorrectly assuming that for Cable to compete in wireless broadband, they must mimic the four national wireless providers. Cox learned from its unsuccessful wireless overbuild, and the rest of the cable industry learned vicariously, that an un-differentiated, "me-too," fifth national wireless offering -- "Plan A" -- was not an economically-viable model. However, Cable has figured out a potentially-economically-lucrative "Plan B," an innovative-hybrid wireless-broadband model that frequently can provide faster wireless speeds at dramatically lower infrastructure costs. Cable's new strategy leverages 50,000 WiFi hotspots where cable's residential subscribers most frequently go with supplemental coverage of wholesale (MVNO) wireless broadband access where the Cable-WiFi is not available.

This Verizon-Cable transaction is exceptionally pro-competitive for a variety of reasons. First, it leverages the fact that these cable-WiFi locations may only represent ~10% of the coverage area, but represent ~90% of the time spent on the net -- per Craig Moffet's Bernstein Research. Second, this Cable-WiFi spectrum is free versus the billions it paid for the 700 Mhz spectrum it is selling to Verizon. Third, this hybrid model avoids tying up the much more expensive infrastructure capital costs of cell towers everywhere, by focusing on free WiFi hotspots that already have backhaul, and by adopting a pay-as-they-go MVNO resale model. Fourth, this strategy plays to Cable's strength, enhancing their already strong Cable content and wire line broadband offering with relatively faster wireless media service in most places and a comparable wireless media experience to competitors elsewhere. Fifth, the huge infrastructure cost savings enable Cable to put their foregone investment and operational costs into seamless-device-integration of "TV Everywhere," customer support, and marketing and sales. Finally, the customer retention savings of wireless broadband being included in the Cable bundle further enable Cable to operate profitably overall at a lower-wireless margin than their wireless-only competitors.

In sum, critics of the Verizon-Cable transaction are missing what it is all about. This transaction is the bridge that enables the Cable industry to become a fifth national wireless broadband competitor, and to compete in different ways than was envisioned seventeen years ago. Its success is by no means assured; that's what free market competition is all about. It allows competition and consumers to decide what works and is economically viable -- not government.

Simply, the DOJ and FCC have to decide whether they really want to encourage a fifth national wireless broadband competitor, or do they not really want competition to succeed, because that would mean a bigger regulatory role for the FCC going forward.

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Verizon-Cable Series:

Part 9 Verizon-Cable Opponents Goading the FCC to Overreach its Authority Again

Part 8 AAI's Analysis of Verizon Cable is Industrial Policy Not Antitrust

Part 7 Verizon-Cable Hearing Exposes Weakness of the Opposition

Part 6 T-Mobile to FCC: Give us a Do-over and More Spectrum Too

Part 5 Verizon-Cable Senate Hearing: Competitive Facts vs. FreePress Fiction

Part 4 Verizon-Cable: Opponents Need FCC to Overreach Authority

Part 3 Why the Verizon-Cable Agreement is in the Public Interest

Part 2 Why the Verizon-Cable Agreement Increases Competition

Part 1 Verizon-Cable Spectrum: Is FCC Open to Competition?

Q&A One Pager Debunking Net Neutrality Myths