By Mark Christenson, President, International / CTO and Tom Leddo, Chief Strategy Officer
AT&T plans to acquire Time Warner for $85.4 billion. It is an amazing announcement that has already generated a lot business and political headlines both in support and in opposition to the deal.
AT&T and those in favor of the deal argue that this is vertical integration and does not eliminate any competitors.
Opposition to the deal of course argues that this will make AT&T too big, too powerful and hurt consumers.
Whether you favor this deal or not is not what this article is about. Whether this deal is allowed or not (remember AT&T’s failed $39 billion takeover of T-Mobile announced in 2011?) is not my intention to discuss. Whether deal this is successful or not (remember the $164 billion merger between AOL and Time Warner in 2000 that quickly resulted in a $99 billion loss in 2002 and a 90% loss in the market capitalization of AOL?) will not be known for some time.
But there is a takeaway from this announcement that is important for all of us who work in the wireless infrastructure industry – this deal is about the marriage of delivery and content, and regardless of how this deal plays out, more densification is needed in wireless networks.
This deal is about the marriage of delivery and content, and regardless of how this deal plays out, more densification is needed in wireless networks.
It’s about the Content
The revenue curve for wireless operators has flattened and ARPU is being pressed down so now operators need to find new ways to grow. In the past that growth came primarily from expanding of the network (specifically by adding coverage through acquisitions or building new sites) and by increasing the speed of the network (faster service drew more subscribers). However, coverage and high speeds have reached some degree of ubiquity. Furthermore, if the United States Department of Justice is going to continue to block future consolidation of wireless operators, then their growth must come from somewhere else.
Additionally, the behavior of wireless consumers is changing. More people are cutting the cord and going exclusively wireless. This includes a change in how people watch their favorite shows. Statistica.com notes that:
“According to Nielsen, over 280 million Americans were watching traditional TV and already over 130 million are watching video content on their phone in 2015. Aside from phones, tablets are also a popular mobile video device, with an estimated 89 million U.S. users watching video content on their tablet devices. These figures are expected to surpass 120 million users in 2019.”
With the traditional method of growth having more-or-less reached capacity, and the changing demands for what and how content is viewed, AT&T is simply seeking to grow their top and bottom lines while simultaneously responding to these new consumer demands. AT&T is seeking to marry Time Warner’s premium content providers like HBO, CNN, Turner Broadcasting and Warner Brothers with their wireless delivery capability.
In short, AT&T shareholders want growth and AT&T consumers want mobile content. But, generally speaking, you can’t get mobile access to the content without continuously improving the network.
Wireless networks, are sometimes referred to as “dumb pipes.” However, this deal helps us suddenly view networks correctly, as a strategic asset that, that if combined with the right content, bring significant additional value to consumers and shareholders alike.
This is important and exciting for each of us as a wireless consumer, because the content we want from one source may soon be readily available in the formats and locations we desire.
But as individuals who makes their living in the wireless infrastructure industry, this announcement is huge. It is an $85 billion bet that video will dominate wireless traffic in the near future. And more video traffic means significantly more capacity is needed. That “content pipe” needs investment and expansion along with the content in order to ensure the content is available to the voracious appetite of consumers.
The unprecedented amounts of traffic that will soon be flowing through wireless networks means that the traditional, macro networks we spent the last 30+ years building must continue to rapidly evolve and be enhanced. The current evolution is the large-scale deployment of small cells, creating densification that will handle the traffic.
However, small cells are different from the macro sites that have been deployed in the last three decades. Apart from the obvious differences of the hardware components and the coverage provided, we need to implement new, scalable and cheaper deployment models. We need new processes to manage the ongoing maintenance and upgrades of what may be 10x the number of small cells when compared to macro sites. We need updated municipal codes, different value propositions for those involved in hosting sites, and different economics for all parties to ensure long-term sustainability. And while it all needs to happen quickly, there is still a lot of uncertainty and a lack of unity when it comes to the details. To quote Jay Brown, CEO of Crown Castle, who spoke at the HetNet Expo this week in Houston “the deployment of small cells is really challenging, but telling you that is like describing the flood to Noah.”
Regardless of what happens in the AT&T/Time Warner deal, mobile video will continue to be the new norm. In other words, wireless networks need to be densified and we have lots of work to do.