The Great yBundling (YFI)

The Great yBundling

The Great Unbundling by Ben Thompson was a core thesis I would read and re-read during my time as an equity research analyst at Oppenheimer on their cloud and telecom team given the larger telco companies began vertically integrating content; AT&T purchased Time Warner’s media empire for $85B, Comcast took a stake in Hulu before selling it to Disney for $6B and Verizon purchased Yahoo for $4.5B to create an online content entity known as Oath which the company later admitted was worthless. The TLDR of the great unbundling was that monopolies will break down as companies capture revenue directly (like Netflix) since distribution costs go to zero with the internet.

Ironically, while the telecoms were bundling in new media companies, their own legacy products were becoming unbundled; the triple play (internet, TV, Phone) was dying and everyone was buying just the internet to stream Netflix.

On the other hand, T-Mobile/Sprint’s strategy of horizontally integrating worked wonders. The combined company was able to amortize massive network improvements over a much larger customer base and offer simple pricing (see $40, pay $40) that gave it the ability to compete with AT&T and Verizon. Additionally, because the new T-Mobile/Sprint was a digitally native company, it was able to implement network functions virtualization and software-defined networking much more easily than Verizon and AT&T who had to deal with a complex legacy analog telecom stack and spent billions to do so.

In hindsight, Verizon and AT&T should have bought shares in Netflix instead of integrating dying media companies. Check out T-Mobile’s 5-year chart to see the damage.