OPINION

The Issue Nobody’s Talking About in the AT&T/T-Mobile Debate

The latest news on the AT&T/T-Mobile merger comes from California. State regulators said last Thursday they would launch an investigation into the proposed merger. This is yet another worrisome problem for AT&T to deal with in what is turning out to be a very squeaky deal.

This merger proposal did not start out to be controversial, but that’s what it is rapidly turning into. The wireless industry has been weighing in, and the negatives are piling up. I will discuss the problem and a workable solution.

Then in my Pick of the Week, I want to tell you about IBM using their supercomputer Watson to improve healthcare.

Enemies Lining Up

This is turning into a real uphill battle for AT&T. There are valid concerns being raised — concerns that AT&T has not been able to answer.

Last week, Leap Wireless was one of the latest companies to take a side. It’s against the merger. It says it would leave the U.S. market with just two wireless giants, and that would harm competition. A familiar argument.

Two weeks ago MetroPCS also weighed in. It too is against the merger. It said the deal would overly concentrate spectrum holdings with one company, AT&T.

Sprint was the first company to take an anti-merger position. It’s articulated strong opposition to the merger, saying it would be bad for the competitive market and for Sprint as a company. Sprint says there are many negative implications for pricing, choice and innovation.

One by one, opponents are registering their complaints. It looks like the only one this deal is good for is AT&T as competitors and suppliers weigh in.

The Bucket Approach

Years ago, spectrum sales by the U.S. government sounded like a great idea. Not so much anymore. In the last few years, wireless data usage has exploded thanks to smartphones. In this world, this original solution no longer works.

One solution would be putting the spectrum together in one large bucket, and letting every new phone access it no matter the carrier. That would give every carrier, every phone and every customer identical access and opportunity. If one is full here, then the phone will simply switch to another.

That makes sense once we realize the marketplace is much healthier with multiple strong competitors. That would improve the connection for every customer. That would strengthen competition as well. And isn’t that what we really want?

This may sound outrageous to some, but we cannot continue down this same path. The road will get rockier as wireless data demand increases.

Like with other mergers, this deal with AT&T and T-Mobile is not all good or all bad. Depending on your position, there are good and bad parts to this.

The good part is it will help AT&T Mobility, which has been choking with limited spectrum. It will give them extra capacity. That will make AT&T and their customers and investors happy.

However, everyone else says they will be hurt by this deal. It continues down the broken path. Mergers are OK when there are countless small competitors, but we have been merging for years, and today there are very few and very large competitors.

A Shortage of Spectrum

In deciding to approve or not we have to think of the benefits and the problems to the marketplace, not just for AT&T and T-Mobile.

It is important to be aware of the good and bad things that will happen to the industry, to other competitors, customers and investors. This deal changes everything.

I have to ask this question: Will we be happy with the end result?

AT&T says it is confident that it will win approval, but as more anti-merger activity builds, one has to wonder if it will be blocked, or at least challenged and changed. It is becoming clear it will not be approved as-is.

AT&T hopes they will get what they need — spectrum. That will help them, but what will it mean for the rest of the marketplace? And what does it mean for the future?

While debating this issue, no one is discussing the elephant in the room. Spectrum shortage continues to spread. The problem continues to grow over time.

Who has the crystal ball? The problem is trying to see the future. We cannot tell what the industry will look like just a few years down the road. It changes rapidly and often. This always happens.

What I am saying is that it is impossible to see what the future looks like. What will the industry look like in another five years? We don’t yet know, but we can all agree it will look completely different than it does today.

Unforeseen Consequences

As you can see, the industry changes faster than any regulator can deal with. The clocks they work on run at different speeds. Private industry clocks runs much faster than government regulators’ clocks.

Yet we expect regulators to see into the future and make the best deal for the consumer and the marketplace as well as the competitors and investors. It’s an impossible task.

That is the world we are dealing with. We have seen so many mergers and acquisitions over the last decade. There are fewer and larger competitors today. Each past merger was managed as best we could. Yet the marketplace continued to rapidly change.

The same thing will happen here. We should not expect the regulators will know what the marketplace will look like in a few years. No one does. Much depends on the moves we make today, mergers and the new technology that is introduced.

So what’s the answer? Good question. There are many solutions, but there is no clear answer. However, this spectrum shortage will continue, even if this merger is approved.

Regulators will try to address the problem areas. They will successfully address some, but not others. Then the new problems we cannot even see today will start to appear over the next few years. That always happens.

If this merger is approved, it will change the industry dynamics, and that will usher in another wave of change that we cannot fathom today. Sprint may be acquired by someone else, or visa-versa.

We can expect another wave of smaller mergers trying to fill the number three slot better than Sprint could alone.

What the Industry Needs

AT&T needs the spectrum, not the deal. All the competitors who have voiced their opinions have been against it. Now California, a very influential and powerful player, has also raised concerns.

AT&T is not concerned with the health of the entire marketplace. Nor should they be. That’s our job. It’s up to us to look at the entire industry and guide it in the right direction.

I can’t believe I am saying this. I have been a free market hawk for many years. However, as the number of wireless competitors continue to shrink, we have to be much more careful going forward.

We have a growing capacity problem. So rather than just discussing AT&T’s needs, we also should be talking about the growing industry needs. After all, it’s not all about AT&T. It’s about the entire industry. That means nearly 300 million customers, millions of workers from the entire industry, and investors in this wide assortment of companies.

If we solve the capacity shortage, AT&T’s need for this merger goes away.

This proposed merger is just a short-term bandage, and just for AT&T. What about the rest of the industry that will suffer with the same problems going forward if we keep ignoring the elephant in the room?

What we need is to pull back the camera and come up with a real industry-wide fix. Jeff Kagan's Pick of the Week

In my Pick of the Week, I want to tell you about IBM using its supercomputer Watson to improve healthcare. You remember the IBM Watson don’t you? It became a TV star by winning on “Jeopardy.” Today IBM is using this supercomputer to improve healthcare. That’s right.

Imagine going to your doctor and watching as he or she uses Watson to search databanks, diagnose anything and prescribe the best treatment for you — even with all your existing conditions that make your treatment different and often more difficult than that of your neighbor.

Today doctors say they spend at least five hours a month reading medical journals to stay updated. Watson can reduce or even eliminate that need. Remember when we used to type a page on a typewriter or take hours or days researching something that now takes seconds using search engines? Things change. Things improve.

IBM’s Watson is already digesting medical textbooks and information. It is a big challenge for doctors to stay up to date. This is what the computer was made for.

HealthTech! Healthcare and IBM sound wonderful together, don’t they?

Jeff Kagan is an E-Commerce Times columnist and tech analyst following wireless, telecom, healthcare and technology. He is also an author, speaker and consultant. Email him at [email protected]. Read the first chapters of his new bookLife After Stroke, now available at Amazon.com and Barnes & Noble.

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EXCLUSIVE INTERVIEW

B2B Funding Firms Banking on Embedded Finance

accounting and finance

Embedded finance is on the rise in both the business and consumer payments markets. Analysts project its revenue will reach $1.91 trillion as adoption expands by 2028.

This steady acceptance is opening fintech operations to a wide range of marketplace opportunities. At the same time, it is forcing banks to morph their traditional catbird seat domain in doling out loans and bill paying services to partnerships with a variety of e-commerce platforms. This disruptive transition spans industries catering to both business-to-business and business-to-consumer transactions.

By integrating a financial task or function into a business’s infrastructure, embedded finance streamlines access to financial services such as lending, insurance, or payment processing. It does this without redirecting the customer to third-party destinations.

The embedded finance concept took root years ago with money handling operations such as PayPal and Stripe. Users could conveniently pay bills and deliver money to individuals and companies without individually handling such matters through their banks or postal services.

Banking as a Service

Finance platforms called banking as a service, or BaaS, are becoming an integral part of online transactions for both individual consumers and businesses. A dual industry is developing around the two processes.

These BaaS platforms enable digital banks — and even non-banks — to build various financial services into their online transactions, exclusive of product purchases. They operate with back-end banking functionality; whereas the broader category of embedded finance is more of a front-end access to financial services.

Together, the two are tied to the digital marketplace and the efforts to simplify and streamline financial services for consumers and businesses alike. Though embedded finance and banking as a service appear similar, they differ slightly in that BaaS is needed to deliver embedded finance.

Invoice Factoring

One of the new trends in shaping B2B payment strategies, especially for non-financial companies, is the shift toward invoice funding, or factoring.

This solution is not a loan but a financing strategy where a company sells its invoices at a discount to a factoring company in exchange for a lump sum of cash. The factoring company then owns the invoices and gets paid when it collects from the invoiced customers, typically from 30 to 90 days.

FundThrough is an AI-powered invoice factoring platform with a big presence in the process of embedded finance in B2B payments. The company provides funding for a business based on the size of its outstanding invoices.

Online B2B transactions have three components — suppliers, buyers, and the platforms they use. Each component has its own set of needs that must be met to ensure a smooth payment process for all involved, according to Amanda Parker, chief growth officer at FundThrough.

An essential requirement for buyers is contentment with sellers’ payment methods and how their suppliers provide those services. Where suppliers are concerned, customer remittance intervals and delivery processes tend to vary by industry — and selling to B2B enterprises that have unreasonably long or inconsistent payment cycles can negatively impact the cash flow of suppliers, Parker noted.

Embedded finance, the larger umbrella category, encompasses all the different components of finance in the traditional sense. Embedded finance strategies can be built into whatever workflow that makes sense, explained Parker.

“It can be used right inside the workflow connected to a purchase of an item, a transaction, creation of an invoice, for example,” she told the E-Commerce Times. “It also includes embedded banking, embedded payments, lending insurance, you name it.”

Embedded Finance Unwrapped

The E-Commerce Times further discussed the inner workings of embedded finance with Amanda Parker. Following is that part of our conversation.

What more is involved in the process of embedded finance?

Amanda Parker: It varies and includes a connection to the customer, so you have some kind of connection to the data source.

Amanda Parker, chief growth officer at FundThrough
Amanda Parker, Chief Growth Officer
FundThrough

Let’s take an example from one of our partnerships. We are connecting to the user’s company inside QuickBooks for getting information on what their company is, what it does, as well as a level of identity verification.

We are doing something called KYC, which is “Know Your Customer,” so we are asking the user a series of questions or asking for a series of documents to confirm their identity.

Then we confirm that the transaction they are requesting is legitimate, the relationship that they have with the business on the other side is legitimate, and that their bank account details are legitimate.

So those are kind of the components. It is verification, confirmation, and then sending the funds required through various banks.

How does this process work for other use cases?

Parker: Our bread and butter is lending or invoice finance. In general, embedded finance has tons of other use cases. You have B2C, tax or business-to-consumer contacts, and you have payments insurance. This is the exact same but in a B2B context.

So, for us, the use case might involve suppliers that want to get paid immediately. Now they can do that beside any workflow; whether a transaction, invoice, or purchase is happening.

How does this process benefit consumers or is it more a benefit for businesses?

Parker: We focus on businesses, but for consumers and everybody it is the seamless integration they gain so they do not have to leave their workflow. It is far more convenient and automated.

You are not using six different systems to try to get something done. You can now do everything inside one system. So, if you think about the way that finances have leveraged or changed over time, consumers can essentially buy anything online.

But B2B is a very fragmented system. So now, embedded finance is taking over into B2B to apply that same kind of frictionless experience that consumers have online to a B2B context.

What factors are driving the transition to embedded finance?

Parker: Frictionless experiences at the consumer level have always led the way. Now that is coming through to businesses.

Another key thing is as millennials take over more of the workforce, they typically get frustrated with systems and workflows.

Integrated payments and lending are really unlocking a lot of new business models for software companies. This vastly improves the experience to make it a more consumer-like experience but in a business-to-business context.

How is the adoption of embedded finance progressing?

Parker: We see a growing number of estimates for the global embedded finance opportunity. [Reportedly] embedded finance will reach a $7 trillion value globally in the next 10 years.

PayPal and Stripe were leaders, particularly on the consumer side and e-commerce. Now we are getting on the cusp of explosion on the B2B side of things, which is very exciting. There is over $100 trillion of GMP (guaranteed maximum price) inside B2B. That is just kind of open for the taking.

I think you are going to see a lot more of that as players over the coming years come out and start to want to assist in that movement of those funds.

What is needed to encourage further adoption?

Parker: I would say one of the key things is bank adoption. More banks need to embrace open banking and banking as a service.

Application programming interface (API) architecture is ever evolving and getting better. A number of fintech players have come out to give the banks a run for their money. So, I think we will start to see a ton of innovation in that space in the coming years.

Why are some banks hesitant to come on board?

Parker: Banks really want to hold back that customer and hold that experience. They do not want their customers moving over to another experience. They want to try to service it all themselves.

Banks also have a big concern about security. But we invest in that now to ensure we give customers the best experience. Consumers are connecting their bank accounts to tons of different services. It’s in [everyone’s] best interest to ensure a secure and frictionless experience. That is one of the big areas where we hope to see continuing progress in the coming years.

Jack M. Germain has been an ECT News Network reporter since 2003. His main areas of focus are enterprise IT, Linux and open-source technologies. He is an esteemed reviewer of Linux distros and other open-source software. In addition, Jack extensively covers business technology and privacy issues, as well as developments in e-commerce and consumer electronics. Email Jack.

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