Broadband continues to be the most fascinating segment of the telecom business. Although Asia-Pacific continues to lead in broadband, the West is not far behind where it is still driving mega mergers—one of the few sectors to do so. The last month saw AT&T Broadband—being spun off from AT&T—and Comcast merger coming close to reality. This has been the subject of a lot of speculation for the last one year, and there is a good enough reason for this. It would create one of the leading broadband communications, media, and entertainment companies in the world. The marriage will create the largest cable TV provider, with some 40 percent of the US cable customers i.e. over 22 million subscribers—almost twice the size of its nearest competitor AOL Time Warner.

Broadband: the Only Way
It’s another story that AOL and Time Warner still continue to struggle to keep their $100-billion (which is believed to have already lost about $40 billion in market value) marriage together. AOL has issued a gloomy forecast for the Internet business but puts its faith in revival through broadband using premium content—cashing in on Time Warner properties from Madonna to Tony Soparno, from CNN to HBO’s online comedy. AOL Time Warner honchos have just concluded that the only real choice for the company is to plunge headlong into broadband.

Just two years ago, when AT&T was on a buying spree, it spent $97 billion to acquire two cable competitors, TCI and MediaOne, in order to put AT&T squarely in the broadband business, which going by cost per subscriber was estimated to be double their market value. The current market value of the asset is estimated to be $62 billion.

The buzzword then was ‘synergy’. AT&T—facing declining margins in its core long-distance business—could bundle phone, Internet, wireless and broadband services. As long-distance telephone and wireless services have increasingly become commodities with low profit margins, cable continues to enjoy immense market power and profits. AT&T Comcast is likely to dwarf everyone else, giving it an alarming control over pricing and content. The merger between the two cable empires, Comcast and AT&T, will create a media behemoth which threatens to undermine competition and diversity in both the cable TV programming space and the emerging interactive broadband marketplace. The merger would give new entity about a quarter of the pay-access marketplace. Regulators and federal courts have eased up on rules that once prevented broadcast companies from owning more than 30 percent of the nation’s cable or subscription TV markets.

Everyone believes that this merger seems least likely to run up against the regulatory issues and probably has the greatest potential for real growth for the new entity. However, it is going to put pressure on other cable operators to consolidate to get much bigger to survive.

The Fate of Competition
In the US too, cable rates have been rising since 1996 (at triple the rate of inflation). For decades, the US cable industry has canvassed that the real competition is around the corner. But instead cable companies have been merging with each other, which many believe help preserve monopoly practices and raise prices. This is a trend telecom regulators are facing when significant market powers are being recreated. One would find it difficult to see the benefits arriving soon out of someone’s sanguine view of ‘inter-modal competition’. For instance, cable modems competing with DSLs for Internet/broadband, as these markets still remain highly segmented and have a tendency to enjoy monopoly profits.

Ramdin Chacha’s Plight
Six years ago, Ramdin Chacha was introduced to his buzzerbattoo—his first cellphone— by an enterprising salesman as a cordless phone. Today, Chacha owns four cellphones—one with free incoming calls, one with free outgoing, one with limited roaming, and one with unlimited roaming; he found it quite perplexing to take one and not the other. However, owing to the crashing rates, his bills for the four total less than the one six years ago.

Although he feels grateful to all those who made this happen, he wonders why he has to live with the monopoly of a single cable operator, and if all this talk of convergence and competition hasn’t reached the right ears. When will he be able to enjoy the benefits of broadband like others elsewhere in the world and bridge the digital divide?