With loose change that might have been scraped from its few remaining pay phones, Verizon this week agreed to buy Yahoo 's core web businesses for $ 4.8 billion. Not to ruin anybody's day, but the lesson is worth noting for shareholders of Facebook and Google, which, like Yahoo, also don't sell anything directly to consumers and depend on aggregating fickle public eyeballs for their revenue.
Yahoo never came close to collecting earnings to justify the $ 60 billion market cap it averaged in 2000 (much less its $ 128 billion bubble peak that year). The stock market is an efficient discounting machine but it's not clairvoyant. And Yahoo's trajectory, for the first third of its life, looks a lot like the trajectory of today's internet darlings.
In the meantime, Verizon—boring old phone company—grew its market cap from $ 23 billion in 1994 to $ 224 billion today.
Verizon is the interesting story now: Its wireless business is maturing; its margins are shrinking; yet Verizon (and its rivals) must continue to invest heavily to meet its non-growing customer base's rapidly growing appetite for bandwidth.
The idea behind the latest deal is to use Yahoo's eyeball business, matched with Verizon's already-acquired AOL eyeball business, to create an internet advertising business like Google's or Facebook's to go with its telecom business. No, Verizon may never be in their league as an ad machine. Then again, those companies don't have Verizon's boatload of reliable monthly revenue from actual consumers. These customers will frequently keep paying their wireless bills even when they stiff their mortgages and student loans.
And social payoff for the rest of us? It will come if the Yahoo deal increases Verizon's incentive to keep investing in its core business. 5G is coming—the new wireless standard delivering speeds faster than most of us get at home—but not before 2020. Verizon, meanwhile, has been telling shareholders that it doesn't need to wait for a final 5G standard to deliver a "fixed" service now based on 5G. Already being tested near its Basking Ridge, N.J., headquarters is a network 58 times faster than today's average home broadband speed—without digging up the streets.
We're talking about a powerful replacement for home cable, not next decade but next year, revolutionizing home broadband deployment costs. "We've demonstrated . . . 1.8 gigs into the house without a wire," Verizon CEO Lowell McAdam told a J.P. Morgan conference in May. "If I can do that, then virtual reality, all the other things, 3-D videoconferencing, the whole nine yards that we all grew up watching in Star Wars, actually might happen."
Now for the "but." There's no way old-style utility regulation, as layered on by the Obama administration, can be anything but a deterrent to such investment. Verizon may proceed based on hope the policy will be overturned or that future Federal Communications Commissions will "forbear" from exercising the regulatory powers now at their disposal. But every company in the broadband business now has to worry about regulators essentially annexing the assets and profits of future deployments.
This matters. Well do we remember a 2004 call from an aide to Ed Whitacre, then chief of SBC, saying its plan to roll fiber into thousands of neighborhoods would be stillborn if regulators did not waive elements of utility-style regulation then imposed on the Bell companies. Regulators did, and what's since become AT&T 's U-verse now brings competitive broadband and TV service to millions of homes previously captive to a local cable operator.
Ditto mobile broadband—which took off in 2007 after the FCC officially declared it exempt from utility regulation.
As Friday's disappointing GDP report reminds us, the Achilles' heel of the recovery has been depressed business investment. No wonder. During last year's debate over so-called Title II utility regulation for the internet, the prevailing view in Silicon Valley was to keep its head down—"In five years, there will be so much bandwidth competition that Title II won't matter," one lobbyist prayed. As a result, companies like Verizon that are expected to build this competitive bandwidth utopia were left without allies in what proved a losing fight to keep the internet lightly regulated.
Likewise, those who cite today's FCC promise that future FCCs will refrain from regulatory meddling ignore the most-cited axiom in politics: Power corrupts. There's also a lesson here for the Trumpians, in the irreducibly shallow role that public opinion played. The childlike masses for whom net neutrality became a slogan roughly synonymous with "good," and who never received any correction from the companies that benefit most from the internet, can now expect an ugly surprise at all that utility regulation actually entails.
The point is, the few things that are visibly working in the U.S. economy can still be lost.
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