Telcos are hungry for content, and that’s a bit scary

26 October 2016

Comment: Internet providers are clamouring to be more than a dumb pipe in our smart homes, and it’s something that we should keep a close eye on.

U.S. telco AT&T's decision to buy Time Warner is a big deal. A really big deal. Not just because USD$85.4 billion will change hands, but in that it sets a strong precedent for what we can expect from telcos - both overseas and in Australia - in the near future.

The acquisition will create a conglomerate that not only produces content, but distributes it. It will combine AT&T's pay TV and mobile customers with Time Warner's extensive media library. This includes premiere channel HBO and the Warner Bros. film and TV studio, which ostensibly means AT&T will own Game of ThronesWestworld, Batman, Superman and the means to stream this content to the world.

While the deal hasn't gone through yet, it could have both positive and negative ramifications. It could be great for AT&T customers, with cheaper bundling deals on TV and movies. But if left unchecked, it could also mean it is more difficult to access information unless you subscribe to the right provider.

I live in Australia, why should I care about two U.S. companies merging?

The AT&T-Time Warner deal well and truly represents the shape of things to come. Internet access - either through a fixed-line connection or mobile - is fast becoming a commodity. Whether you're connecting through a premium provider like Telstra or a budget provider like TPG, the product is essentially the same.

As the budget players push the price of a connection lower and lower, it becomes harder for the "big three" to justify a premium price without a significant value-add, like popular content.

The pairing of internet access and streaming media is a natural fit, and a popular one for many Aussies with a broadband internet connection. If you are going to use the bulk of your monthly download allowance watching Netflix, it would be nice to have Netflix included in the price of your plan. The AT&T deal takes this relationship a step further and as owner of the content, the fear is that access to the content will be restricted only those who subscribe to AT&T as customers. Sounds like grim, far-off dystopia? Well, you need only look in our own backyard to see how this could play out.

Because the best example of this we've seen is Optus acquiring the rights to the English Premiere League (EPL) this year - much to the displeasure of football-loving Foxtel subscribers. We originally assumed that Optus would offer open access to the EPL, with a cost advantage for its customers, but instead it locked it all down to subscribers only. If you want to watch your favourite teams in 2016, you need to be an Optus customer. If you don't want to change provider, you miss out.

Of course, its telco competitors also offer content bundling, too. Almost every single Telstra customer gets access to data-free Apple Music, AFL Live Pass, NRL Digital Pass, Netball Live, and NBL Live Pass. As a part-owner of Foxtel, Telstra customers have advantages as a Foxtel subscriber too, like data-free movie downloads.

But the major distinction is that all of Tesltra’s content is accessible without being a Telstra customer. You can sign up for Foxtel regardless of whether you have internet at home, or not. You can watch the NRL and AFL on free-to-air TV.

A better model for telcos to utilise (at least from a consumer-first perspective) would be offering data-free or discounted access to their content services as a point of differentiation, while giving others the opportunity to purchase access at a higher price point. For example, you might still consider swapping to Optus to watch the EPL for a cheaper price, but you wouldn't have to.

In fact, this is the sort of corporate behaviour that probably requires regulation and oversight. The telco businesses need to evolve, they don’t want to be dumb pipes for data, and media offerings are attractive verticals for these companies to move towards. But unless we demand that free access to our favourite services is preserved, despite future acquisitions, then we could end up with an Optus account for the football, a Vodafone account for music and a Telstra account for Game of Thrones. And in this internet-first era, Australians often turn to piracy when content is “too hard” to buy.

Keeping the net neutral

Of course, it’s not all about fantasy TV shows and football. To return to the grim and dystopian, free unfettered access to information is what is really at stake when you take the long view. Telcos jumping into the world of content is another step back from the principles of network neutrality - the idea that internet service providers should enable access to all content and services, regardless of the source, without favouring, disadvantaging, or blocking any traffic.

These kinds of deals create an environment where internet providers play kingmaker and decide which content get preferential treatment and which do not. Today it is the EPL, tomorrow it could be Wikipedia.

If AT&T, Telstra, Optus, or Vodafone become content businesses, they end up in direct competition with services such as YouTube, Netflix, and Stan. Existing content businesses rely on telcos; there's no Netflix without an internet connection. If Optus is trying to promote its own media offering, it could very well be tempted to throttle Netflix's access to its network, and then charge it more.

These arrangements are bad because online services should rise and fall on their merits for consumers, not on their ability to make a backroom deal with a telco. While preferential treatment - such as free access or unmetered streaming - can offer customers a short-term benefit, in the long run, they'll almost certainly reduce choice by making it harder for new players to compete against incumbent players either paying for "premium access" or owned by telcos.

If telcos can decide which content businesses win and lose online, and they themselves are becoming content businesses, they're almost certainly going to stack the deck in their favour. 

Vintage tube television wall image from ShutterStock.

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