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Reuters blog archive

from Felix Salmon:

You won’t have broadband competition without regulation

Tyler Cowen isn’t worried about the cable companies’ broadband monopoly. His argument, in a nutshell: if you can’t afford broadband, that’s not the end of the world: you can always go to the public library, or order DVDs by mail from Netflix. And if the cable companies’ broadband price is very high, then that just increases the amount of money that alternative broadband providers can potentially make in this “extremely dynamic market sector”. Indeed, he says, if regulators were to force cable companies to decrease their prices, then that would only serve to decrease the amount of money that a competitor could make, and thereby lengthen the amount of time it will take “to reach a more competitive equilibrium”.

The first big thing that Cowen misses here is television. Cowen knows that there’s more to broadband than watching movies on Netflix, but what he doesn’t really grok is that there’s more to Netflix than watching movies on Netflix. Netflix has moved away from the movies model (which was a constraint of the DVDs-by-mail model) to a TV model. And that makes sense, because Americans really love their TV. They love it so much that cable-TV penetration is still substantially higher than broadband penetration. As a result, any new broadband company will not be competing against the standalone cost of broadband from the cable operators: instead, they will be competing against the marginal extra cost of broadband from the cable company, for people who already have — and won’t give up — their cable TV.

If you’re a cable-TV subscriber, the cost of upgrading to a double-play package of cable TV and broadband is actually very low; what’s more, there’s a certain amount of convenience involved in just dealing with one company for both services. The result is the barriers to entry, in the broadband market, are incredibly high. Cowen talks about pCells and Google Fiber, but really they prove my point: pCells are untested technology which would surely cost a mind-boggling amount of money to roll out nationally, while it's taking even the mighty Google a huge amount of time and money to bring its own broadband service to a relatively small number of mid-size cities.

What’s more, all of that effort is redundant and duplicative: we already have perfectly adequate pipes running into our homes, capable of delivering enough broadband for nearly everybody’s purposes. Creating a massive parallel national network of new pipes (or pCells, or whatever) is, frankly, a waste of money. The economics of wholesale bandwidth are little-understood, but they’re also incredibly effective, and have created a system whereby the amount of bandwidth in the US is more than enough to meet the needs of all its inhabitants. What’s more, as demand increases, the supply of bandwidth quite naturally increases to meet it. What we don’t need is anybody spending hundreds of billions of dollars to build out a brand-new nationwide broadband network.

from Breakingviews:

Vivendi’s SFR is top target for French cable king

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By Quentin Webb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

France’s cable king promised investors a slew of deals when he floated Altice, his investment vehicle. The biggest and best would be Vivendi’s mobile operator SFR.

from Felix Salmon:

Monopolizing bandwidth

Paul Krugman makes a simple but powerful point about Comcast's acquisition of Time Warner Cable:

One puzzle about recent U.S. experience has been the disconnect between profits and investment. Profits are at a record high as a share of G.D.P., yet corporations aren’t reinvesting their returns in their businesses. Instead, they’re buying back shares, or accumulating huge piles of cash. This is exactly what you’d expect to see if a lot of those record profits represent monopoly rents.

from Breakingviews:

Standalone Vodafone starts to look healthier

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By Quentin Webb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The standalone Vodafone is starting to look healthier. The mobile telecom operator will become dramatically smaller after it quits the United States and returns $84 billion to its shareholders. Elsewhere, its sales have been falling faster and faster. Now it looks like the worst is past and Vodafone hopes to ride a boom in mobile data. Yet for investors, the top question is what part the group will play in future M&A.

from Breakingviews:

Lenovo’s M&A spree challenges investors’ faith

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By Ethan Bilby and Peter Thal Larsen
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

Lenovo prides itself on being a modern multinational, but its approach to divulging information remains frustratingly old-school. The Chinese group is buying Google’s Motorola phone business just a week after picking up IBM’s low-end server unit. Adding the two loss-making divisions to its portfolio will cost up to $5.2 billion in cash and stock. Though there’s some strategic logic, shareholders have little way of working out whether the deals stack up.

from Breakingviews:

Apple numbers show scale of China challenge

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By Ethan Bilby

The author is a Reuters Breakingviews columnist.  The opinions expressed are his own.

Apple may be a dominant player in flogging smartphones in most of the world, but it’s still an also-ran in China. Disappointing global sales increase the pressure on the iPhone maker to gain ground in the People’s Republic. Though its deal with China Mobile should provide a boost, lower-cost rivals will limit its market share gains.

from Breakingviews:

Samsung woes strengthen case for cash handout

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By Peter Thal Larsen

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Samsung may just have strengthened the case for handing more of its cash to investors. The South Korean electronics giant’s fourth-quarter operating profit came in lower than expected after it paid employees a one-off bonus. Though a strengthening home currency and competition from arch-rival Apple remain a concern, Samsung can afford to show shareholders some generosity too.

from Felix Salmon:

T-Mobile’s self-defeating resurgence

It's a standard part of flying, these days: the minute you touch down, you pull out your phone and get back up to speed with the world -- especially if you've been on a long flight without wifi. And then there's the standard exception: when you're flying internationally, you don't. Not unless you're very rich, or very reckless, or someone else is paying your phone bill.

Which is what made my arrival in Auckland this morning so special: I touched down after a long flight, pulled out my phone, cycled through Twitter and email and Foursquare, and didn't stress at all about being charged $20.48 per megabyte (or whatever) in a world where I have no idea how many megabytes are involved in any of those activities.

from Breakingviews:

Microsoft lucky to avoid Nokia’s India tax bill

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By Andy Mukherjee

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Microsoft is lucky to dodge Nokia’s tax bill in India. On Dec. 12, the Delhi High Court allowed the Finnish group to transfer its Chennai factory to the U.S. software giant as part of its planned $7.4 billion sale of its mobile handset business. While the overall deal wasn’t in doubt, Microsoft avoids Nokia’s hard-to-assess tax liability. If only Vodafone had been so fortunate.

from Breakingviews:

BlackBerry’s liquid infusion won’t douse cash burn

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By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

BlackBerry’s liquid infusion won’t douse its cash burn. The troubled company is selling $1 billion of convertible debt after attempts to find a buyer flopped. Even big supporter Fairfax Financial has backed away from taking full control. The extra money and a new boss buy BlackBerry a bit more time. But its prospects are bleak.

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