Microsoft and Facebook Stump for AT&T/T-Mobile Merger

Tech giants Microsoft, Facebook, Research In Motion and several venture capitalist firms penned their support for the proposed AT&T/T-Mobile merger in a letter filed to the FCC on Tuesday, stating the increased capacity potential possible through the merger could spur innovation in the wireless marketplace.

While certain other organizations have expressed vehement opposition to the deal, stating concerns over the creation of a duopoly, companies like Microsoft and Facebook stated in the letter they hope the merger can increase network capacity.

The letter appears to be in response to service complications, perhaps due to the app-heavy iPhones and iPads that AT&T carries, that have left the wireless provider struggling to keep up with global broadband standards.

“AT&T’s acquisition of T-Mobile represents a near-term means of addressing the rising consumer demand. For example, the merged company will be able to leverage a larger network of cell sites allowing greater reuse of spectrum and increasing the wireless broadband capacity of the network,” the document states.

Yahoo, Oracle and Qualcomm also signed the letter, as did powerful venture capitalist firms Sequoia, Kleiner Perkins Caufield & Byers and Matrix Partners.

Facebook and Microsoft declined to provide further comment.

Future of Integration

Integration and overlapping infrastructures probably future steps in the wireless network industry.

“The traditional telecom operator model is outdated. I think we are increasingly moving into a system where there will be one or two networking companies. The bottom line is that telco business is becoming more and more a commodity business, and something in their business models will have to give in,” Aapo Markkanen, senior analyst in consumer mobility at ABI Research, told the E-Commerce Times.

Companies like RIM and Microsoft, then, may be making the right decision in jumping on board with a merger, hoping it will alleviate AT&T of some of its capacity issues.

“In the future, we’re likely to have one or two mobile networks that are run by joint ventures made of today’s operators. Services to end-users will be delivered by service providers that lease capacity from those joint ventures,” said Markkanen.

Helping or Hurting Innovation?

Not all mobile providers are in agreement. Sprint, the third largest American wireless carrier, believes the proposed deal would create a dangerous duopoly between the nation’s two largest telecom companies. In a 377-page document filed to the FCC in May, Sprint petitioned to deny the merger. The company claims the vertical integration between the leaders in wireless carriers would “harm competition and consumers.”

The document claims that post-merger, the combined AT&T/T-Mobile would cover about 82 million paid subscribers, giving them 88 percent of the profits from the wireless industry.

The support shown by Microsoft, Facebook and other wireless providers Tuesday did not sway Sprint’s opinion.

“Yesterday’s letters do not change the facts: AT&T’s bid to take over T-Mobile is bad for innovation, investment and competition. Most importantly, AT&T’s takeover of T-Mobile is bad for consumers — that’s why tens of thousands of consumers have contacted the FCC asking to block this transaction. At Sprint, we are proud to stand with consumers in this fight for our country’s wireless future,” Vonya McCann, senior vice president of government affairs for Sprint, told the E-Commerce Times.

Others say that while concerns over killing competition in the wireless marketplace are understandable, increasing capacity for the largest network provider is essential, rather than detrimental, for innovation.

“All these tech companies and their scientists have a vision that this is a dynamic marketplace and their capacity in the wireless network could be fragmented without this merger, which could create a bottleneck for innovation of new services,” ABI’s Markkanen said.

Telecom unions such as the Communications Workers of America (CWA) tend to agree that a deal increasing capacity would benefit the industry.

“These major tech companies, like Microsoft and others, are focused on the need for more spectrum and broadband buildout because that’s what makes future innovation possible and available to people. The devices people use now, like iPads and iPhones, need high-speed broadband. These companies obviously see major constraints on their ability to deploy new products, services and processes. And they know that’s the future,” Candice Johnson, communications director for the CWA, told the E-Commerce Times.

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E-commerce Times Channels

Walmart Announces Merchandise Hub for Netflix

Walmart and Netflix are teaming up to sell merchandise pegged to the streaming media provider’s content.

“Through this new partnership, Walmart will not only offer products that bring the imagination of Netflix creators into reality, but Walmart customers and Netflix superfans will also find a new, exciting entertainment destination,” Walmart Executive Vice President Jeff Evans wrote in a news release Monday.

“The Netflix Hub brings together some of its most popular shows in its first digital storefront with a national retailer,” he added.

Merchandise will be tied to such shows as “Stranger Things,” “Nailed It!,” “CoComelon” and “Ada Twist, Scientist.”

Among the items offered when the Hub opens this fall are the Ada Twist Cuddle Plush ($10.97), “Squid Game” t-shirts, the “Stranger Things” Bluetooth cassette player ($64.88) and the Witcher Netflix Transformed Geralt Dark Horse Collectible Statue ($59.88).

Evans also noted the Hub will also offer a feature called Netflix Fan Select. It offers fans of Netflix shows an opportunity to vote for merchandise they’d like to see from the service’s stable of favorites.

Competing With Amazon

The new partnership will have benefits for both Walmart and Netflix.

Walmart wants to compete with Amazon, and part of that competition includes streaming services, maintained Ross Rubin, the principal analyst with Reticle Research, a consumer technology advisory firm in New York City.

“A partnership with Netflix could be used for further collaboration. Walmart might start offering select content from Netflix, for example,” he told the E-Commerce Times.

“There’s a lot of ways it could work without Walmart offering the full-blown Netflix service,” he added.

Zain Akbari, the equity analyst for Walmart at Morningstar, an investment research company in Chicago, noted that the partnership allows the retailer to capitalize on media-linked commerce without making the kind of investment Amazon made to do it.

Although Walmart sold its Vudu streaming service in 2020, its interest in interactive and shoppable media remains, he explained.

“From its standpoint a deal like this allows Walmart to focus on what it does best while leaving the content side of the equation to an established leading player,” Akbari told the E-Commerce Times. “Ultimately, it’s another avenue by which Walmart can expand its building e-commerce footprint.”

Good Business Move

“Allying itself with one of the two streaming market leaders — Netflix and YouTube both capture about six percent of total TV time — makes good business sense for Walmart,” added Charles King, the principal analyst at Pund-IT, a technology advisory firm in Hayward, Calif.

“The new storefront should please the company’s existing clients and attract new customers, and also provide a point of competitive differentiation from Amazon,” he told the E-Commerce Times.

Having exclusivity on products from Netflix’s hit shows is another benefit of its new partnership.

“Squid Game is a perfect example,” noted Michael Inouye, a principal analyst atABI Research.

“You can imagine what the opportunity would look like if this partnership was already in place and Walmart was the only place for official Squid Game Halloween costumes,” he told the E-Commerce Times.

He added that there is a lot of value but also a lot of cost in original programming, but to date, no one has done as well as Netflix with it.

“This allows Walmart to generate some of the same benefits to their core operations of an in-house streaming service without having to make those investments in original content,” he said.

Bricks and Mortar Prize

Netflix, too, benefits from the new arrangement.

“Walmart’s massive size and geographic reach make it a great partner for Netflix to reach shoppers,” King observed. “The new store should help drive sales during the upcoming holiday shopping season.”

“Netflix has tried for a while to monetize its content other ways. Selling merchandise is one of them,” added Morningstar Netflix equity analyst Neil Macker.

“Netflix is not an e-commerce company,” he continued. “It’s a streaming company. It has a different business model than a pure e-commerce company. By working with Walmart, they can get help with building a site, fulfillment, shipping and things like that.”

Netflix is also looking to diversify beyond subscriptions for its streaming service.

“It’s already announced its movement into games,” Rubin noted. “This is a way to take a page from Disney’s playbook.”

“Disney is very skilled at driving merchandise from characters in its franchises,” he continued. “Walmart offers a strong retail presence from which Netflix could potentially build that and realize more revenue from its original content and franchises.”

Netflix may also be looking beyond online involvement with Walmart.

“If Netflix could get into Walmart’s brick and mortar stores, that would be the bigger prize for Netflix,” he said. “To have a section of the stores promoting its properties would be a big win for Netflix.”

Crucial Channel

Inouye believes that in time, Walmart will become a crucial distribution channel for Netflix.

“Since many of Netflix’s shows are launched all at once — although there are a growing number that launch on a timed schedule — it can be extra challenging for Netflix to keep excitement up around a TV series when the next launch may be more than a year away,” he explained.

“Having merchandise and content to keep fans invested and engaged in this popular IP is massive for Netflix,” he said.

Creating original content can be a hit or miss proposition, he noted. Selling merchandise can help offset the cost of the misses.

Like Disney, Netflix would like to leverage its IP well beyond the video content itself, he maintained.

“Netflix is still in its early days here,” he said, “but it is starting to expand into new territories and opportunities and the Walmart deal could become a key piece to that strategy.”

“This is particularly critical in those markets, like North America, where future subscription growth is limited,” Inouye added.

“In these more mature markets revenue growth has to come from price increases or these alternate channels,” he continued. “The latter allows them to keep engagement higher, bring additional revenue, while ideally slowing the rate of subscription price hikes, which helps maintain — and slowly grow — the installed base.”

“Other content companies have looked to marketing and selling merchandise to bring additional revenue by capitalizing on hot IP — Rovio for example has done this with its “Angry Birds” IP — but with Netflix, this could be on another scale,” he concluded.

John P. Mello Jr.

John P. Mello Jr. has been an ECT News Network reporter since 2003. His areas of focus include cybersecurity, IT issues, privacy, e-commerce, social media, artificial intelligence, big data and consumer electronics. He has written and edited for numerous publications, including the Boston Business Journal, the Boston Phoenix, Megapixel.Net and Government Security News. Email John.

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