tv The Communicators Craig Moffett CSPAN April 30, 2018 3:02pm-3:33pm EDT
the "washington post" best-selling this. >> from time to time on "the communicators" we like to bring craig moffett to the table. he's a telecom analyst and we want to discuss state of the telecom industry in united states. if we could start there, how would you describe the state of the state of the telecom world today? >> guest: first of all thank you for having me back. i think the state of the state
in telecom right now, and a traditional telecom more than the cable side for a minute, is actually reasonably stable, and in some ways it's an industry that has gone through particularly on the wireless side it's gone through a very tough time since about 2014 of a series of price wars. now looking a bit more stable than it has. wireline telecom is of course beset with all kinds of challenges, the challenges are not getting any easier. on the cable side of the business, there is tremendous change with traditional video disappearing rather quickly and traditional broadband coming to what i would characterize as sort of a time of natural maturity where broadband penetration is now rather high and growth is decelerating. different segments of the telecom market each other own story. >> host: what's been the
effect of the cord cutting we have been reading about? >> guest: on the cable side of the business, cord cutting is clearly affecting the satellite companies the most. satellite operators, directv and dish network don't have any broadband business to fall back on and so as the customers leave they're simply leaving and taking the revenues with them. so that segment of the market is in real duress. the cable operators are weathering the storm relatively better in the sense that as customers, cutting the cord is really not an appropriate moniker at the end of the day they are disconnecting their video relationship but keeping their keeping their broadband relationship, and in some ways deepening the broadband relationship. typically, they get a discount for taken broadband and peter together but that means that
when there disconnecting the video part, the bread -- broadband price rises a bit. cable operators are actually getting subscriptions. they are just losing video subscription. gaining subscribers the losing the subscriptions. >> host: does that mean americans are watching less video, less television? >> guest: no, not at all. it's just that americans are getting their video from a lot of different sources now. some of them traditional. there's been this rise of the virtual mvpd, the virtual multi channel operator what people call virtual cable operators, people like sling tv or directv now or hulu, youtube tv. those kinds of companies are in some ways direct replacement for the traditional linear model. there's some interesting maps about whether they are, in fact, getting quite as much traction as, that is, they're gaining
as many subscribers as the traditional players are losing subscribers. but then there's all of this new innovation and video coming from alternative sources, some of from little startups, the filo tvs, but netflix and and models like that and then also a lot of user generated content and a lot of niche content by smaller producers, that of doing more niche production, typically at a lower cost but the amount of time that consumers are spending with video is actually rising, not falling. >> host: let's bring kim hart into this conversation. she's the managing editor of axios, a longtime telecom reporter and spent some time at the fcc as well. >> nice to see you. i want to jump right into what of the biggest stories that all telecom providers, specifically cable providers are watching with the at&t-time warner trial
against the doj which is starting to to wrap up in the next week or so. do you have any predictions of the outcome of the case and what that means for at&t, win or lose? >> guest: well, and for a lot more than at&t. let me start with what i think is the general wall street consensus, and that is as the case has progressed, the expectation that at&t will win has progressively risen. if it started at something like 60-40 and there's no perfect way to measure any of this, then my guess is that the broad consensus is something like 80/20, that at&t will win in that case. my own view is this a bit more skeptical than that. i certainly wouldn't say it's likely at&t will is but i would say i'm closer to agnostic.
the judges asked a lot of questions that have shown to be quite skeptical of the empirical part of trying to quantify the consumer damages that would arise or allegedly would arise from vertical integration. but i'm not sure that i equate that with the concept of whether or not vertical integration would yield higher prices. you can quibble with the precise quantification and still agree that the general theory argued probably best by carl shapiro in that case, that prices could, in fact, rise. it's still a legitimate argument. to me it's a relatively simple proposition, which is the equilibrium price that arises from a negotiation is a function of the asymmetry and costs during a blackout. that is, take programming off the air and the distributor in
the case loses subscribers and the programmer loses affiliate fees and advertising. if in vertical integration the programmer gets back some of the losses from the distributor by virtue of gaining subscribers to in this case, directv, you may quibble with how many they would get and you may quibble with exactly what the economics are, but the argument that therefore one the net cost to at&t, is reasonably easy to understand and agree with. and so i guess that's a relatively long and complicated answer, but my suspicion is that is probably not quite as hard for the doj to prove its case as some people would suggest. so i'm a little closer to 50-50, and look for at&t i think if
they get it, it's an interesting transformation. they have become much more of a media company. i think the bigger implications are actually for everybody else, for comcast, fox, verizon, disney. this case will be transformative for the industry, regardless of which way judge leon decides. >> and at&t has positioned this deal as a big way for it to better compete with some of the are getting into and i've getting into and i've already gotten into the media content distribution business in their own right, google and facebook of the world. they've talked about how having this additional data and consumer information can help them in the digital advertising world. how big it is that pot and his or enough of that i to go rent when you're looking at all of these different players and all
of these online content providers and traditional telco are getting into this place in addition to the net flick in the virtual mvpds you just talked about, you see more consult -- consolidation happening as a necessity as more people tried to buy for this infinite amount of dollars? >> guest: it's a great question, and i think that's in some ways what is going to decide this case is at&t has argued that you need to have tremendous scale in order to be competitive with these, particularly the four big digital horsemen. it's worth remembering though those are very different business models from each other. whether it's google or facebook, for example, business models have very little to do with each other. what they do have in common, and i think what a central to randall stephenson argument that he made last week on the stand is that you are competing with business models that are inclined to give video away for
free, or at least from the perspective of the consumer it's free. the consumer is in effect the product through advertising. and so while i don't think it's realistic to think that at&t's ambition is to go although in that direction, randall stephenson is talking about the future where he believes it's necessary to at least partially subsidize the cost of video content by getting other players or advertisers to pick up the tab. in theory that's a plenty big enough market to support lots and lots of players. the concept though of whether better targeted advertising actually leads to more advertising dollars or, in fact, less advertising dollars, academically at least is a very
interesting question. almost everyone believes that advertising that is better targeted, that has more data behind it, should sell for higher, or advertisers will pay more for it. that's the concept that at&t is talking about. history says the opposite tends to happen, that the better targeted advertising is, the cheaper it is. in part because the same technologies that allow better targeting also tend to allow arbitrage. that is, to take targeting that same customer and find them in a cheaper place and, therefore, actually pay less for advertising rather than more. that would be one of the real controversies and challenges, that the whole digital world faces over the next decade is, will better targeted advertising lead to more advertising revenue or less advertising revenue? my suspicion is that it will lead to less. >> so picking up on something you just said about the different business models and particularly the big online platform companies and that the consumer is the product in many
of those cases, that's been the topic of conversation especially in a post-cambridge analytical world after mark zuckerberg testified a couple weeks ago on the hill. there's a lot more talk about increased scrutiny over privacy practices, possible of regular action from hell or maybe even taking it up a notch to some of the agencies that do at some jurisdiction. what did you think the risk is for the entire ecosystem, but particularly for the telecom providers who are certainly not immune to this as they move into more of a content delivery and digital system? >> guest: it's interesting. if you went back to the last six months of the obama administration, the wheeler fcc, the risk was the isps and the telecom carriers were going to be subject to a much stricter
regulatory regime than are the edge providers like facebook and google. that is, simplistically they were going to be subject to an opt in requirement, while google and facebook would be subject to an opt out requirement. that asymmetry would be very, very challenging. interestingly, there was always some suspicion that it was facebook and google and companies like that that were behind pushing for that asymmetry in regulation. once title ii was rolled back, the privacy rules rollback first when republicans took congress in november of 2016, but then subsequently when title ii was rolled back to title i some of the urgency of that issue disappeared and i think we are now back to something like a more level playing field where at this point the federal trade commission has jurisdiction again and it's likely everyone will be treated the same way.
so the risk to the telecom operators is relatively small. if there's a risk now, and that >> because they don't have very large businesses at stake in advertising out to begin with. the risk to the edge providers now is actually quite a bit larger than it is to the telecom providers in that there is a real chance that the next step in this process could be that everyone is subject to an opt-in requirement, and for the telecoms to say that's not terribly different from where they are today, but for the edge providers like google and facebook that would be a very profound change. >> right, right. you also mention net neutrality which was often wrapped up in the privacy debate during the time we look at the ftc here obviously that issue never dies. it continues and where did it
with a cra vote possibly in the next few weeks. but given this new environment and given that this is largest in this kind of a tech versus telecom kind of battle for a decade, and now you're seeing, tech has a lot of bigger fish to fried and a lot of ways and are not agitating to get attention and to give policymakers to pay attention to it. does that really diminish how much the kind of matters anymore? >> guest: i think that's a great way to put it. i think you're right, but in some ways it's less the other things on the plate and they are less able to agitate for it. it's that one of the reasons this debate generated so much heat and arguably less light, but so much heat was because it was viewed as the good guys versus the bad guys.
google and facebook with the good guys, and verizon and at&t and comcast were the bad guys. right now they are all bad guys. there are no white hats in the room anymore, and so a lot of the emotional or moral energy, if you will, behind net neutrality has been drained away. in some ways the debate, now i may be speaking as a sort of more like a beltway insider and am probably closer to this issue than most people are, so i'm probably overestimating how much people have thought about it. but it seems to me that the issue has to some extent been exposed to what it always was, which is a commercial dispute between two sets of companies. one set of companies who were buyers of transport in public transport to be free, and one said to her sellers of transport would like to have transport have charge. all of this rhetoric and emotional energy around
principles of neutrality and blocking and the first amendment and that sort of thing were trappings to try to argue what were essentially commercial arguments, and without all of the morality play, if you will, about those arguments, people are just less inclined to care that much about something that is essentially commercial dispute. >> host: just to pick up on what kim hart was talking about, do you foresee congressional action in this arena? and if so, is congress mad enough that they might even go toward the european model? >> guest: i'm sorry, i meant -- you may have been talking about privacy. >> host: i am talking a little more general, yes, i am. >> guest: first the net neutrality, no, i don't unfortunate see much room for congressional action and i think
that's rather dispiriting. there is an awful lot of common ground ideologically from all parties, everyone would agree to no blocking. everyone would agree that legal sites should be accessible by everyone. there is some debate only really around whether paid prioritization, or what type of language is appropriate for paid prioritization. how tightly does paid prioritization need to be constrained? in the grand scheme of things that's a pretty narrow source of disagreement. there's plenty of room for bipartisan congressional action. unfortunately the democrats seem to prefer to have this issue as an issue that will motivate their base, and so it is arguably more convenient to have a problem than it is to have a solution. the republicans don't want to cooperate with the democrats in
any way and hand the democrats what would look like a win, and so you are back to partisan politics on both sides undermining what should be a relatively easy proposition. you get it in certain states where the states are partisan enough that they can all agree, but that doesn't help anyone. so now we got this patchwork of some state with net neutrality, and it's a very unfortunate circumstance and i wish i could say i see a clear path out. i don't. on privacy, i still think we're a little further away, but we are probably one crisis away from the real motivation to act. in this case that's probably less because of partisan politics and more because it's just, it's still very difficult to say what the right solution should be. i think people conceptually agree that customers should own their own data, but when you get
down to, does that mean a customer should have a portable social graph and you really try to operationalize about? that's very tough and i think that's probably well beyond what you can expect congress to be able to come to agreement on. if there's another crisis, all bets are off anything it's easy to imagine the would be one eventually, right now i don't think we are there yet. >> picking up on what peter mentioned, which is european regulation in this area, obviously the eu's gdpr the general data protection regulation goes into effect and a couple of weeks. some are predicting that will become the new high water mark for privacy practices across the board since so many providers and companies will have to comply with it anyway since they do such a large operation and a lot of viewers in europe. do you think that it's actually going to be the case, or do you think they will find ways to apply different rules to americans where there aren't such stringent rules? and do you think policymakers in
the u.s. are watching to learn some lessons or you just don't see that happening on stateside? >> guest: no. they will certainly pay attention and see what happens. i think one of the interesting questions is whether the law of unintended consequences will work here and that in effect because the cost of compliance will be quite high, that it may in some ways, quite unintentionally, create a much bigger moat around the companies that are already there, , google and facebook, and increasingly forced advertiser to concentrate their advertising dollars on discoveries that they can be quite sure our complaint which again are likely to be google and facebook and the largest companies. and so while that regulation is clearly well-intentioned, i think there is growing sense
that this is a complicated area to weigh into and that begin the law of unintended consequences actually apply here. my suspicion is people who wait and see what happens, but i do think it will have an immediate impact on privacy in the united states and that companies will have a tendency to adopt something closer to a global standard instead of trying to vulcanize each country into completely different standards. >> moving to something that is a bit more bipartisan, at least for now, on the 5g front since we're all in this global race and the u.s. is kind of neck and neck with companies, or countries, sorry, like china and south korea, and all of the major carriers have put out trials and a really or at least publicly saying that putting a lot of effort into this and really neat miller mid-band spectrum and so on.
curious who you think is best positioned to win the race on the carrier side and what you think the fcc needs to be focused on to help the u.s. in that competitiveness. >> guest: well, i think all of the carriers have somewhat different perspectives on 5g. verizon is probably the most vocal about 5g, but particularly in talking about fixed wireless broadband which is just one piece of 5g. t-mobile i think may actually be the first with what they call 5g. at&t is thinking about 5g from a primarily mobility perspective and so you all of these different perspectives and different timelines. i zoom out a little bit, and 5g is really three separate things right now. it's a set of ram protocols, a radio access network protocols and that's what it is, a set of technologies. it is also set of frequencies in
that people are conflating 5g with millimeter wave frequencies because that's initially were a lot of the activity is going to be is in millimeter wave equities. it's also in a set of use cases, internet of things and driverless cars and what have you. the last two really are not 5g. they are sort of tangential to 5g. so let's put those aside for a second. you will see 5g equipment from everyone. i'm somewhat skeptical about the millimeterwave deployment to 5g, including for verizon's fixed wireless broadband. and i'm very skeptical about the use cases for 5g, driverless cars, for example. it's unlikely that from a safety perspective that cars would be dependent on a connection to wireless network so it's hard to see the carriers in remediating the driverless car market.
so i guess if you come back to just the equipment side of the market and the deployment, you will see 5g being deployed, for example, by t-mobile in 600 megahertz spectrum in reasonably narrow blocks. they will call it 5g but is that really 5g? i'm not sure. you will see verizon doing fixed wireless broadband in millimeterwave in the spectrum that it acquired through straight path. is that really 5g? again, while i suppose it is but is not quite what people had in mind. and the nomenclature is getting in the way i think. i personally don't even see a real race between china and the u.s., for example, in 5g making
in any sense as a concept. but i think everybody's going to have to slow down a little bit. real 5g is probably still a bit further out, whether it's here or whether it's in south korea or whether it's in china, and people currently think. >> and going back to something that we start out in the conversation talking about with over-the-top video and streaming services and all of the different models that we are seeing for disturbing this content that's driving the cord cutters, what kinds of models are you most bullish about since that is a really crowded space and everyone seems to want to be providing their own service like this? >> guest: well, not the distribution side of the business. unfortunately the distribution side looks to be quite unattractive. whether it's directv now from at&t or whether its sling tv, those kinds of ott distribution services look to be essentially profitless.
the media companies are feeding their content into those today with, and it's a pretty good success story in the sense that a customer gained through one of those virtual mvpds is pretty close to offsetting a loss to traditional the question whether that will sustain and whether there's some loss there. let me zoom back though to a bigger picture observation, which is i think what's happening is the customer ownership of, in video, historically was tied to the distributors and by that i mean the physical distributors like owners of the pipe, comcast owned its customers. directv owned its customers. you increasingly see the content
aggregation and navigation function shift from those distributors back upstream to being tied to the studios, and customer ownership is moving with that aggregation and navigation function. that's actually a pretty profound shift in the sense that you are now seeing studios producing for direct to consumer models in a captive way. and so it's funny, we are fighting in the at&t-time warner case over whether or not there is the risk that at&t will keep turner content exclusive at a time when netflix's entire model is exclusive content and it's just that they produce it themselves and they sell it themselves. hbo's entire model inside of turner is produce their own content and sell direct to consumers. granted through some alternative sellers, but they're essentially handling the packaging and
customer ownership function. disney has said they want to do the same thing. comcast is look at the same thing in buying sky overseas. so the whole world is moving to this concept of self-contained or closed systems with captive studio production all the way through customer ownership. not necessarily all the way through physical pipes. that's a different question but all the way through customer ownership, and that is a radically different model than what we've seen it at least ine u.s. market in the past nvidia. it's funny we are fighting over this in the at&t-time warner case when, in fact, the world is moving in that direction with our without at&t and time warner. >> host: for julie, we're out of time. craig moffett please come back in a few months and update us again. cofounder and senior research analyst at moffett nathanson research. kim hart is the managing editor of axios. this is "the communicators."
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