10 reasons Google should own Verizon by 2017

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Steve Donohue, FierceCableI began contemplating the possibility of a Google (Nasdaq: GOOG) acquisition of Verizon's (NYSE: VZ) wireline business last September, after Verizon said that it would buy Vodafone's stake in Verizon Wireless for $130 billion. Google's announcement Wednesday that it is looking at expanding Google Fiber to 34 additional cities where its primary competitors would be Comcast (Nasdaq: CMCSA), Time Warner Cable (NYSE: TWC) and AT&T (NYSE: T) left me wondering if Google could be on the path to buying not only Verizon's FiOS business, which doesn't operate in any of those 34 cities, but the entire company, including Verizon Wireless.

A Google-Verizon marriage would be the largest corporate merger ever. The companies had a combined market cap of $537 billion at Wednesday's market close. It would dwarf the $164 billion AOL-Time Warner Inc. merger in 2000, and the $183 billion acquisition Vodafone AirTouch closed that year of German telephone and Internet provider Mannesmann. There was buzz about a potential Google-Verizon merger in 2009, when the companies released a joint policy statement that detailed a shared vision for network neutrality. I have no idea if Google and Verizon are discussing a merger. But here are 10 points to consider, including reasons why the deal makes sense and signs that it could actually happen.

No Google Fiber-FiOS overlap
The cities Google said on Wednesday that is exploring for a Google Fiber expansion don't include a single FiOS market. If Google expands to all 34 markets, it would challenge Comcast and AT&T in Georgia, AT&T and Time Warner Cable in parts of Colorado and North Carolina, Cox Communications in Arizona, and Comcast in parts of California, Oregon, Tennessee and Utah.

Ubiquitous and affordable broadband
A Google-Verizon merger could help deliver affordable high-speed Internet service through both wired and wireless networks. It would help the United States keep pace with South Korea, Japan, and other countries where faster and more affordable Internet access is available. It would help President Obama achieve his goal of seeing affordable broadband access available nationwide.

Verizon already offers FiOS TV and Internet in 16 states, including parts of New York, California, Texas, Florida, Pennsylvania and New Jersey. Google could rapidly expand Google Fiber by upgrading the fiber-to-the-premises (FTTP) network that delivers FiOS. A merger would also appease consumers in dozens of cities that have complained about Verizon's decision in 2010 to halt its FiOS expansion.

Competition for Comcast, Time Warner Cable
A Google-Verizon merger could reduce concerns about Comcast's planned merger with Time Warner Cable hurting broadband competition. Overbuilds of cable operators by Verizon and AT&T haven't resulted in reduced broadband prices. But Google's announcement last year that it would expand to Provo prompted Comcast to offer faster Internet tiers with better pricing, including a $120 monthly triple-play that includes a 105 Mbps Internet connection.

In addition to offering consumers in the Kansas City area a $120 monthly pay TV and 1-Gig Internet bundle, or a $70 monthly 1-Gig standalone service, Google offers a free 5 Mpbs service to any consumer within its footprint who is willing to pay an installation fee. Google would likely agree to a merger condition that would require it to offer a free wideband Internet tier. And with Verizon's targeted advertising technology and wireless assets, it could make a profit from offering low-priced or even free broadband tiers.

Reduced programming costs
Google and Verizon wouldn't need to hammer cable networks and broadcasters for volume discounts in order to reduce the cost of pay TV programming packages. Instead, the companies could cut subscription prices by taking advantage of targeted advertising technology that would allow them to deliver relevant ads to viewers watching programming on TV, tablets, smartphones and other IP-connected devices.

In December, Verizon CEO Lowell McAdam predicted at a Goldman Sachs conference that some content owners would subsidize wireless data plans, similar to the way companies pay the costs of toll-free 800 phone numbers.

Earlier this month, we ran a story about a recent Verizon patent application that detailed how it may be able to offer subscribers discounts on phone and pay TV services, along with free pay-per-view movies, if they agreed to allow media buyers to deliver ads to the home screens of mobile devices. In 2012, we wrote about a Verizon targeted advertising patent application that showed how it could deliver ads to viewers based on information collected from infrared cameras and microphones in subscriber homes that could detect conversations, people, objects and even animals that are near a TV. Google and Verizon could make those next-generation concepts a reality. 

Improved home automation
It may only be a coincidence that a few weeks after Google announced a $3.2 billion deal to acquire home automation device provider Nest Labs, Verizon confirmed that it has stopped offering Verizon Home Monitoring and Control to FiOS subscribers. "We are revisiting the service to more accurately reflect our vision for the connected home," Verizon spokesman John Columbus said. Could that vision include the integration of devices from Nest?

Telemedicine and telehealth services
Verizon and Google have both expressed interest in offering telemedicine and telehealth services. A merger could move concepts that are currently being tested in laboratories into the homes of millions of Americans, and help President Obama achieve the goals outlined in the Patient Protection and Affordable Care Act of 2010, which is better known as Obamacare.

Virtual cable
Industry observers suspect that both Verizon and Google are preparing to launch virtual pay TV platforms. Google would benefit from Verizon's recent purchase of Intel's virtual cable technology, and Google has the Internet advertising capabilities to make the concept of a virtual MVPD (multichannel video programming distributor) profitable for both distributors and programmers.

Shared vision for network neutrality
Google and Verizon showed in October 2009 that they are on the same page when it comes to network neutrality when they released a set of principles for an open Internet. While Verizon sued the FCC after it implemented network neutrality rules, the company demonstrated in its policy statement with Google that it does support the concept of "new, enforceable prohibition against discriminatory practices."

Support in Washington
Under President Obama, the Department of Justice approved Comcast's acquisition of NBCUniversal in 2011. It also gave the green light to a spectrum, marketing and innovation deal that Verizon struck with Comcast, Time Warner Cable and Bright House Networks in 2011. A Google-Verizon merger could win support in Washington if the companies commit to offering affordable broadband and pay TV programming. The deal could make the United States the worldwide leader in broadband, and it would be part of the legacy of President Obama. Google and Verizon may have a better chance of wining approval for a merger under the current administration. That's why it would make sense to push for closing the deal before January 2017, when President Obama completes his second term.

Merger would drive needed consolidation
There's no doubt that a Google-Verizon merger would be controversial, and spark concerns about competition. But the deal could also accelerate major telecom consolidation that would make cable and telephone rivals stronger. A Google-Verizon merger could result in Comcast buying not just Time Warner Cable, but Cablevision and several other major MSOs. It could also spark mergers between other wireless carriers. The end result could be stronger wireless and wireline broadband providers who could drive broadband nationwide, and help the United States compete on a global basis.--Steve