Telcos Decry "Utility-Style" Regulation

As the number of communications companies dwindles, the major telcos are hard-pressed to deny the obvious consolidation in the traditional wired and wireless transmission businesses.  And deals keep coming which threaten to trim the ranks of communications competitors even further -- AT&T's failed bid to buy T-Mobile and Verizon's deal to buy AWS spectrum from a consortium of cable companies (and then run a joint venture with the cablecos) are the most recent examples.

In hopes of shifting the debate, and warding off nasty measures by antitrust officials and the FCC, AT&T and Verizon are pushing a new model of communications competition, which argues that broadband service is merely one part of a new Internet "ecosystem."

Speaking at a US Telecom webinar today, economist and professor Jeffrey Eisenach warned against applying "public utility-style" regulation to broadband.  Unlike the old days, phone companies aren't the end-game when it comes to communications, he argued, saying that the new broadband world is multisided and filled with value "circles" where "communications is just a complement among complements."

The iPhone is a classic example, according to Eisenach.  "In the real world, Apple is the customer-facing firm.  In that context, the carrier becomes secondary," he said.  Comparing Apple's stock price with that of AT&T since the introduction of the iPhone, Eisenach said that "Apple has waked away with the lion's share of the profits."

In this buzzing ecosystem, carriers are a commodity and not the key segment of the the edge-core value chain model that the FCC has adopted when assessing broadband competition, Eisenach argued.  Antitrust oversight is needed but the "1934 regulatory agency" model embodied by the FCC's recent net neutrality and data roaming orders no longer applies.

Whatever the merits of this new mode of thinking (which predictably downplays the power of communications pipeline providers while injecting some fresh ideas into the debate), it's clear from Eisenach's talk that the telcos are threatened by Apple.  "By creating a differentiated product, Apple…really can dictate the terms of trade," he said at one point.

Is the fear that Apple will ditch AT&T and Verizon and start its own mobile communications company?  Whitey Bluestein has this piece today in GigaOm saying that's exactly what will happen.


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