Verizon/AOL: Bypassing Title II with New Internal Infrastructure?

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“The FCC’s chairman “said that he doesn’t see a role for the FCC in reviewing Verizon’s…recent proposed acquisition of AOL….’ I don’t think AOL has any [FCC-issued] licenses, so it would not trigger anything in that regard…,’” according to Telecommunications Reports. We at fibeReality believe that the fundamental unfairness of an Internet service provider being treated as a utility is at the heart of the AOL acquisition and we find the various other explanations that have been given in the market to be unpersuasive. First of all, the idea that Verizon would buy an antique as an initial step to competing directly against Google and Facebook seems absurd – Verizon craves full control of its networks currently enjoyed by these behemoth content providers.

It has been over 30 years after the Ma Bell divestiture, and in a way, Verizon is being forced to go back to square one. The carrier has to assume that anything resembling true regulatory relief may never happen, and it is compelled to find imaginative ways to slowly gain its independence. Regardless of AOL’s current infrastructure, it seems like a definite possibility that Verizon can build a state-of-the-art network interconnecting data centers under that new umbrella in parallel with its existing network, which would similarly transport all kinds of traffic, especially the lucrative content from large enterprises.

In the meantime, Verizon will dutifully and fully promote the prerequisites for what would be its most recent addition, including mobile video advertising as well as what appears to be the highly overrated and not necessarily new concept of the “Internet of Things.” There is no doubt that additional revenue will be generated. However, it defies logic that a major reason for Verizon spending $4.4 billion is to acquire technology, particularly a mobile video platform from a company that the Yahoo CEO not too long ago described as “backward-looking.” (Not to mention that AOL Platforms only had a operating profit of $4.4 million last year.)

Later on, Verizon could potentially argue in the courts that the US government has no right to regulate its “content” subsidiary. It bought “AOL” as an unregulated entity and it should not be treated differently from any other content provider.

As we have mentioned in the past, Verizon has a track record for adopting strategies, which may not make sense if examined in a superficial way. The company was characterized as being nuts, specifically in the early days, when it decided to deploy a substantial amount of very costly fiber to the home. In this situation, it was actually a matter of the FCC providing some relief in deciding in 2003 that the incumbent service providers did not have to unbundle such access networks to their competitors.

While constructing the FiOS network, Verizon strived to pass every Fortune 2000 firm along the way. The actual goal of connecting a lot of these businesses with fiber was a great success. The dismantling of the substantially less profitable residential service has begun with the sell-off of those assets in the three large states outside of its incumbent territory.

[written by Mark Lutkowitz]

(For our assessment on how Verizon views SDN, please click here.)