The RBOCs Versus Google and AOL (BLS, T, VZ, GOOG, TWX)

by: Michael Eisenberg posted on: January 07, 2006 | about stocks: BLS / GOOG / T / TWX / VZ

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The Wall Street Journal has an article on today's front page about the RBOCs (Verizon, SBC, Bell South) getting ready to charge content providers for carriage and/or guaranteed bandwidth as a way to pay for their pipes. This is terrible for consumers who will now essentially pay twice for the same service: once for their DSL access and once for the cost the content providers will inevitably have to pass along. This point was made by Om Malik.

Access matters

As I have said in a previous post, access matters. Those carriers with the dumb pipes essentially have the ability to control what I will see. The access providers (cable companies and RBOCs), by pre-choosing the home page or differentiating what content can be seen at what speed, will have a major say in the success of the portals and other content players. Paid placement for home page rights as in the Yahoo/SBC partnership will become increasingly important. This will also become truer for smaller content providers as well and will have an impact on early stage internet video players who might lack the financial muscle for these kinds of deals.

But there is another important but secondary ramification of this announcement by the RBOCs:

This is potentially a double positive for Google (on a day where Piper Jaffray's Safa Ratshcy upgraded GOOG's target price to $600 (click here for internetstockblog post on Safa's upgrade). Why do i say a double positive? First, Google has been buying up dark fiber. They saw this run-in with the RBOCs coming. They will build their own network with access points (remember SF WIFI) so that they can have access on the consumer side and not need to pay ransom to the RBOCs. Second, remember that AOL deal. What people forget is that AOL is in the access business. They have ~20,000,000 customers that they provide access services to and control the home page for. Google is now that default search engine for a while. Yahoo will now also pay for that privilege as the RBOCs move to this model.

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