Wednesday, March 08, 2006

The AT&T and Bell South - Failure of de-regulation heralds end of the public Internet

Watching AT&T and Bell South come back together is a little like watching Terminator 2, the once exploded body of the early ‘80s monolith slipping back together stronger and faster and more intimidating than ever. What does it mean, and how could it impact the progress of deregulation around the globe.

The US led the way in deregulation by breaking up AT&T and for a while it looked like BT would go the same way, luckily (sic) for BT OfTel was created (some suggested at the time this was in a bid to build some competition into the market, without damaging the BT floatation.)

Now the US is leading the reverse cycle and Europe is not far behind with a bumper few years for M&A already under way, EasyNet/BSkyB, CW/Energis, BT/PIPEX etc. etc.

Deregulation brought innovation, and hundreds of new companies into the national telecoms market; it is safe to say that without deregulation the Public Internet would never have taken off. There would have been no financial imperative, consumers would know no better and besides for business there was always x.25.

Now the experiment is over, IP has won and Big Telco is moving to leverage its control of the pipes and with them the Internet.

From reading Power of the Pipe, you’ll know we believe it is inevitable that the companies who own the fibre and copper will be the winners in the long game. For the national players in Telco and Media, like AT&T, BT, NewsCorp and Time Warner, their long-term growth relies on being able to close the network and own the triple play, delivering their own high value content to the consumer.

The merger of AT&T and Bell South is the auger of a consolidation that will progress country by country. Those companies that have invested in national copper and fibre over many years will snap up those who have invested in regional copper and fibre, closing the networks and charging for access to external sites like eBay, Amazon and even your email in the same way fixed line phone companies charge for calls to mobiles.

In USA for example AT&T CEO Ed Whitacre has been a vociferous opponent of of network neutrality, arguing that AT&T should be allowed to set up tiered services for bandwidth-eating companies. There, legislators are hoping to pass provisions that would prevent or limit carriers from treating different services differently, elsewhere in the world it isn’t even on the government agenda.

Will it happen? Yes, unless the regulators get the national governments to stop it. Can they stop it? No, not unless they are able to beat the interest groups who are already spending hundreds of millions to lobby congress.

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