Verizon Proposes Video Service, Puts Netflix and Hulu in Jeopardy

According to the Wall Street Journal, Verizon CEO Lowell McAdam announced that the company is planning to launch a service that will allow Verizon customers to stream cable television onto their mobile devices. Amazingly, customers using this service may not have to worry about exceeding their data caps — a feat made possible by Verizon’s recent purchase for $3.6 billion of airwaves (known as spectrum) from major cable companies such as Comcast and Time Warner. ┬áThe deal, which is still pending approval by federal regulators, could spell disaster for rival video streaming services such as Netflix, Hulu and YouTube, all of which bump up against the data caps.

In the interview, Mr. McAdam expressed his excitement for the deal, arguing that an integrated service such as the one Verizon has proposed will allow customers to pick and choose the channels they want to watch, rather than being forced to buy bundles of channels.

Critics, however, are less sanguine about the prospect. They argue that allowing Verizon to stream its own content over spectrum that it owns could lead to anti-competitive pricing designed to muscle out other video streaming services such as Netflix. If this happens, critics worry, consumers could ultimately pay more for streaming video on their mobile devices as competition declines.

Jeff Kagan, a tech analyst, worries that smaller video streaming companies such as Netflix could be forced out by Verizon if regulators allow the deal to go ahead. “Netflix discovered a vein of gold,” Kagan told us in a phone interview. “When something like streaming video becomes a successful niche, the big companies move in. In the past, small companies similar to Netflix have not survived when larger providers offered the same services in a cheaper bundle. If two companies offer the same services and features, people will choose the cheapest option.”

Within the last few years, data has rapidly surpassed voice as the most profitable part of wireless service. In just a few years, Kagan believes, data will account for as much as 97 percent of spectrum usage, while voice will account for just 3 percent. This dramatic shift in spectrum usage underscores the importance of streaming content to wireless providers, who are going to great lengths to acquire as much spectrum as possible.

Kagan worries that less financially powerful carriers such as T-Mobile won’t be able to keep up with Verizon and AT&T in the race to acquire spectrum. “The wireless marketplace has consolidated so much in the last few years, the government needs to step in and ensure that we have more than just two companies providing wireless service,” Kagan argues. “Regulators have to be concerned with what is best for the rapidly growing industry as a whole, and not one competitor or the other.”

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