Net Neutrality Friday

This has been an extremely busy week in the regulatory issues in for the Internet and Telecom.  I am going to start with the smaller of the two largest pieces of news and then move to the smaller.  There is enough to talk about for a few weeks here and we will have lots of ground to cover.

The small news is that Google Fiber has pulled back on its expansion plans and is laying off around 9% of its staff.  This makes a lot of sense to me, as I always thought that this was an experiment.  People call it a science experiment, but I call it a business experiment.  Google makes so much money that they look for ways to deploy their capital effectively.  This leads them to try lots of things.  When I was at Red Condor, we competed against a company named Postini.  Postini became part of Google and is the spam filter for Gmail.  After spam filtering became an extreme commodity, Google stopped selling Postini as a separate product.  You can only get Postini if you use Google Docs.  I used to use a login landing portal called iGoogle and Google sent me an email and turned it off a year later.

Why does Google do this?  They are all about advertising dollars.  They are willing to invest and play to figure out to see if a technology or method will eventually get them those dollars.  Youtube is an example of this.  At one point, Google was losing $150M per month on Youtube.  Things are now very much different and Youtube is a great money maker for Google.  But if the investment does not pan out, Google exits.  I suspect that Google will look for a buyer for Google Fiber over time.  One of the overbuilders might be interested, it is too sporadic of a network for an incumbent to purchase.  The better option, to sell to incumbents, would be to sell one property at a time.  The incumbent for that territory can choose to use that construction instead of doing its own.  More to come on this in the future.

The larger news is that AT&T is buying Time Warner for $85B.  The deal is 1/2 stock and 1/2 cash.  I think that is interesting as I am sure that came from Time Warner.  The idea would be to provide a huge benefit now, with upside that Time Warner is not sure of.  If they thought AT&T was a growth stock, it would be an all-stock deal.  More importantly for us, this is a move similar to Comcast's purchase of NBC-Universal.  There will be plenty of uproar over it, but I think the deal will go through.  All AT&T will have to do is point at Comcast and nobody (okay Trump has called for it) has asked for Comcast to be broken up.  Comcast has a lot more broadband subscribers and so it will be hard to say that the combination will impact consumers more than Comcast did.  There is a lot here as well to discuss whether this is a good idea to why it is happening to what we should expect next to how Google, Verizon, and other companies might react.

Have a great weekend!

Jim Sackman

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