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Altice’s World Comes Crashing Down; No More Acquisitions Until Massive Debt Reduced

Drahi’s World

Shareholders have shaken Patrick Drahi’s dreams of being the next king of telecom in the United States by plunging Altice’s share price by more than a third in a single week, forcing Drahi to announce he won’t be making any additional acquisitions until the company’s staggering $59 billion debt is repaid.

Investors were also given a sacrificial lamb from the very sudden departure of Michel Combes, the ruthless cost-cutter that also served as titular operations leader of Altice’s European operations. Combes paid the ultimate price for the continued mediocre financial results at SFR-Numericable, which provides wireless and cable service in France and is Altice’s largest holding. That departure comes only two months after Michel Paulin, Drahi’s right-hand man at SFR, was also shown the door.

Drahi made it clear that he is formally taking back control of Altice, although observers have claimed he has always been in charge. European business analysts have uniformly described Altice as a company mired in crisis management, as European investors lose trust in Drahi’s business philosophy, which depends heavily on acquiring companies with other people’s money.

Drahi’s prominence in France came with his acquisition of SFR-Numericable just three years ago. SFR is France’s fourth largest wireless carrier and the company also has a prominent place in the wired telecom market, providing cable television, phone and internet service. Drahi has attracted investors with promises to wring every possible concession out of the companies he acquires. For financial markets, Drahi’s best trait is his ruthless cost-cutting and employee reductions. In France, employees have reported providing their own copy paper and toner cartridges for empty office printers, occasionally supply their own toiletries, and take turns mopping floors and vacuuming offices.

Employees of Altice-owned Suddenlink have been forced to take requests for replacement coffee machines for break rooms to skeptical company committees that review virtually every transaction. More recently, Cablevision technicians are complaining Altice eliminated their winter apparel budget, leaving workers without coats, bibs, overalls, or rain gear for the upcoming winter. Technicians will have to pay for their unsupplied winter gear out-of-pocket.

While shareholders and financial analysts bid up Altice stock on the premise that cost cutting would deliver better results, the fact France has a highly competitive telecom market brought unintended consequences for Altice and its shareholders: customers fled as cost cuts took their toll on service quality and support.

Competition Matters

Between the end of 2014 and mid-2017, SFR lost 514,000 subscribers in wired internet and 1.7 million mobile customers, delighting Altice’s competitors Orange, Free, and Bouygues Telecom. SFR’s internet problems are well-known across France. Altice’s attempt to offer a “one-box” solution for internet and television service has been of dubious value. Its equipment is notorious for failures, has compatibility problems with online games, and has high support costs. Altice is starting to bring similar equipment to the United States to supply its Cablevision customers, and technicians report many of the same problems are occurring in the U.S., adding they are skeptical Altice’s Le Box, known here as Altice One, will perform well for customers.

The biggest enemy of Altice in Europe is robust competition, which has allowed dissatisfied customers to switch providers in droves. SFR-Numericable, despite promises of fiber-fast speeds, has endured complaints about slow and uneven speeds and persistent service outages. Drahi’s original business plan was to upgrade broadband speeds and performance to win over France’s remaining DSL customers. That worked for a time, according to the French newspaper Libération, but not for long.

Paulin, who used to run the division responsible for Altice’s wired broadband, complained bitterly competitors have “polluted” his marketing campaign by advertising their 100% fiber optic networks, educating customers that Altice isn’t selling that. That ruined Drahi’s plans to slowly upgrade services with the belief customers are more captive to their broadband provider and wouldn’t switch providers if Altice took its time.

A competitor put it this way: “SFR’s remaining DSL customers have indeed migrated at the encouragement of SFR-Numericable… to Orange or Free’s 100% fiber optic network offerings.”

Accusations about service problems and slow upgrades were readily believed by customers because Altice drew headlines for its ruthless efforts to save money.

“First, the restructuring – cuts in spending and pressure on suppliers – has shaped its image as a bad payer,” notes the newspaper. “At the end of 2015, SFR was fined $400,000 for its late payments. Second, package price increases, imposed discreetly and justified by the addition of exclusive video content, annoyed customers when they found extra charges on their bills. Finally, recurring network problems have undermined user trust. The new satisfaction survey of UFC-Que declared SFR was in last place among operators.”

Altice’s one-box solution for TV and internet has proven troublesome for customers in Europe.

Altice blamed most of SFR’s problems on its previous owner, Vivendi, who it claimed underinvested in its network for years. But customers were in no mood to stick around waiting for upgrades. Throughout 2015 and 2016, customers fled, finally forcing Drahi to embark on costly upgrades of SFR’s wireless and broadband networks. Drahi’s investments in SFR amounted to only $2 billion in 2014 and $2.12 billion in 2015, but dramatically increased to $2.71 billion in 2016. By the beginning of 2017, the upgrades stemmed some of the customer losses as independent tests showed SFR’s 4G LTE service finally became competitive with France’s top two providers. SFR commissioned 5,221 new 4G cell sites over the last 12 months, beating 4,333 for Bouygues Telecom, 3,543 for Orange and a distant 2,010 for low-cost carrier Free.

Drahi also made headlines last summer by announcing SFR-Numericable was completely scrapping its coaxial cable networks in France (as well as in Cablevision territory in the United States) to move entirely to optical fiber technology, even in the most rural service areas. But the fiber upgrades are not being financed with cash on hand at Altice. Libération reports the $1.78 billion Altice will need to spend on fiber upgrades for France alone will be financed by more bank loans. Drahi hopes to eventually offer bonds to investors to internally finance fiber upgrades.

The Suddenlink/Cablevision Cash Machine

Drahi was banking on his ability to manage Altice’s debt and boost revenue by milking U.S. cable customers. Unlike in France, where competition and regulation have kept cable television and broadband prices much lower than in North America, Drahi saw enormous potential from the U.S. telecom market, where Americans routinely pay double or even triple the price many Europeans pay for television and internet access. Drahi sold investors on the prospects of slashing costs, initiating employee cutbacks, and raising prices for acquired U.S. cable companies. Suddenlink customers are particularly captive to cable broadband because the only alternative in many Suddenlink markets is slow speed DSL. Cablevision faces fierce competition from Verizon FiOS, but Verizon has sought to ease revenue-eating promotions that the company has offered in prior years. Both U.S. cable operators have raised prices since Altice acquired them.

Altice’s investors demand short-term results more than long-term prospects, and Altice’s heavy reliance on bank loans at a time when interest rates are gradually rising could spell peril in the future. Drahi used to promote a 38% profit margin to his investors with predictions of 45% in the future. Altice recently removed all predictions of its margins going forward, a sign Altice is being forced to spend more money than it planned on network upgrades and expensive exclusive content deals for French cable television customers that might otherwise switch providers to secure a better deal.

Increasing costs and decreasing customers pushed Altice’s net profit in the red in 2016. The company also faces a lump sum loan payment of $4.72 billion in 2022. For now, Drahi will continue to refinance his portfolio of loans to secure lower interest rates and better repayment terms, but investors no longer believe Altice can continue to carry, much less increase its debt load.

That has forced Drahi to declare he is suspending further acquisitions at Altice and will instead spend resources on paying down its current debts. If he doesn’t, any recession could spell doom for Altice if his bankers are no longer willing to offer favorable credit terms.

The Great Telecom Merger Carousel: Altice <-> Sprint <-> T-Mobile <-> Charter

A last-ditch effort last weekend by executives of SoftBank and Deutsche Telekom to overcome their differences in merging Sprint with T-Mobile USA ended in failure, killing Wall Street’s hopes combining the two scrappiest wireless carriers would end a bruising price war that had heated up competition and hurt profits at all four of America’s leading wireless companies.

Now Wall Street, hungry for a consolidation deal, is strategizing what will come next.

Sprint/T-Mobile Merger

In the end, SoftBank’s chairman, Masayoshi Son, simply did not want to give up control of Sprint to Deutsche Telekom, especially considering Sprint’s vast wireless spectrum holdings suitable for future 5G wireless services.

The failure caused Sprint Corp. shares and bonds to plummet, and spooked investors are worried Sprint’s decade-long inability to earn a profit won’t end anytime soon. Sprint’s 2010 Network Vision Plan, which promised better coverage and network performance, also helped to load the company with debt, nearly half of which Sprint has to pay back over the next four years before it becomes due. Sprint’s perpetual upgrades have not tremendously improved its network coverage or performance, and its poor performance ratings have caused many customers to look elsewhere for wireless service.

Investors are also concerned Sprint will struggle to pay its current debts at the same time it faces new ones from investments in next generation 5G wireless technology. Scared shareholders have been comforted this morning by both Son and Sprint CEO Marcelo Claure in an all-out damage control campaign.

Son has promised the now-orphaned Sprint will benefit from an increased stake in the company by SoftBank — a signal to investors SoftBank is tying itself closer to Sprint. Son has also promised additional investments to launch yet another wave of network upgrades for Sprint’s fourth place network. But nothing is expected to change very quickly for customers, who may be in for a rough ride for the immediate future. Son has already said his commitment to raise Sprint’s capital expenditures from the current $3.5-4 billion to $5-6 billion annually will not begin this year. Analysts claim Sprint needs at least $5-6 billion annually to invest in network improvements if it ever hopes to catch up to T-Mobile, AT&T, and Verizon Wireless.

Masayoshi Son, chairman of SoftBank Group

“Even if the next three-four years will be a tough battle, five to 10 years later it will be clear that this is a strategically invaluable business,’’ Son said, lamenting losing control of that business in a deal with T-Mobile was simply impossible. “There was just a line we couldn’t cross, and that’s how we arrived at the conclusion.”

During a call with analysts on Monday, Sprint’s chief financial officer Tarek Robbiati acknowledged investors’ disappointment.

Investors were hoping for an end to deep discounting and perks given to attract new business. T-Mobile’s giveaways and discounting have reduced the company’s profitability. Sprint’s latest promotions, including giving away service for up to a year, were seen by analysts as desperate.

Son’s own vision plan doesn’t dwell on the short-term, mapping out SoftBank’s progress over the next 300 years. But for now, Son is concerned with supporting the investments already made in the $100 billion Vision Fund Son has built with Saudi Arabia’s oil wealth-fueled Public Investment Fund. Its goal is to lead in the field of next generation wireless communications networks. Sprint is expected to be a springboard for those investments in the United States, supported by the wireless company’s huge 2.5GHz spectrum holdings, which may be perfect for 5G wireless networks.

But Son’s own failures are also responsible for Sprint’s current plight. Son attempted to cover his losses in Sprint by pursuing a merger with T-Mobile in 2014, but the merger fell apart when it became clear the Obama Administration’s regulators were unlikely to approve the deal. After that deal fell apart, Son has allowed T-Mobile to overtake Sprint’s third place position in the wireless market. While T-Mobile grew from 53 million customers to 70.7 million today, Sprint lost one million customers, dropping to fourth place with around 54 million current customers.

Son’s answer to the new competition was to change top management. Incoming Sprint CEO Marcelo Claure promptly launched a massive cost-cutting program and layoffs, and upgrade-oriented investments in Sprint’s network stagnated, causing speeds and performance to decline.

Claure tweetstormed damage control messages about the merger’s collapse, switching from promoting the merger’s benefits to claims of relief the merger collapsed:

  • “Jointly stopping merger talks was right move.”
  • Sprint is a vital part of a larger SoftBank strategy involving the Vision Fund, Arm, OneWeb and other strategic investments.”
  • “Excited about Sprint’s future as a standalone. I’m confident this is right decision for our shareholders, customers & employees.”
  • “Sprint added over 1 million customers last year – we have gone from losing to winning.”
  • “Last quarter we delivered an estimated 22% of industry postpaid phone gross additions, our highest share ever.”
  • “Sprint network performance is at best ever levels – 33% improvement in nationwide data speeds year over year.”
  • “We are planning significant investments to the Sprint network this year and the years to come.”
  • “In the last 3 years we’ve reduced our costs by over $5 billion.”
  • “Sprint’s results are the best we’ve achieved in a decade and we will continue getting better every day.”

In Saturday’s joint announcement, Claure said that “while we couldn’t reach an agreement to combine our companies, we certainly recognize the benefits of scale through a potential combination. However, we have agreed that it is best to move forward on our own. We know we have significant assets, including our rich spectrum holdings, and are accelerating significant investments in our network to ensure our continued growth.”

“They need to spend (more) money on the network,” said William Ho, an analyst at 556 Ventures LLC.

CNBC reports Sprint’s end of its T-Mobile merger deal has hammered the company’s stock. What does Sprint do now? (1:30)

Sprint/Altice Partnership

Sprint executives hurried out word on ‘Damage Control’ Monday that Altice USA would partner with Sprint to resell wireless service under the Altice brand. In return for the partnership, Sprint will be able to use Altice’s fiber network in Cablevision’s service area in New York, New Jersey, and Connecticut for its cell towers and future 5G small cells. The deal closely aligns to Comcast and Charter’s deal with Verizon allowing those cable operators to create their own cellular brands powered by Verizon Wireless’ network.

An analyst at Cowen & Co., suspected the Altice deal may be a trial to test the waters with Sprint before Altice commits to a future merger between the two companies. Altice is hungry for expansion, currently owning Cablevision and Suddenlink cable operators in the U.S. But Altice has a very small footprint in the U.S., leading some analysts to believe a more lucrative merger might be possible elsewhere.

Sprint/Charter Merger

Charter Communications Logo. (PRNewsFoto/Charter Communications, Inc.)

Charter Communications stock was up more than 7% in early Monday morning trading as a result of speculation SoftBank and Charter Communications were restarting merger talks after a deal with T-Mobile collapsed.

CNBC reported that Mr. Son was willing to resume talks with Charter executives about a merger between the cable operator and Sprint. Charter executives have shown little interest in the deal, still distracted trying to merge their acquisitions Time Warner Cable and Bright House Networks into Charter’s current operation. Charter’s entry into wireless has been more tentative, following Comcast with a partnership with Verizon Wireless to resell that considerably stronger network under the Charter brand beginning sometime in 2018.

According to CNBC, John Malone’s Liberty Media, which owns a 27% stake in Charter, is now in favor of a deal, while Charter’s top executives are still opposed.

CNBC reports Charter and Sprint may soon be talking again about a merger between the two. (6:33)

Dish Networks <-> T-Mobile USA

Wall Street’s merger-focused analysts are hungry for a deal now that the Sprint/T-Mobile merger has collapsed. Pivotal Research Group is predicting good things are possible for shareholders of Dish Network, and upgraded the stock to a “buy” recommendation this morning.

Jeff Wlodarczak, Pivotal’s CEO and senior media analyst, theorizes that Sprint’s merger collapse could be good news for Dish, sitting on a large amount of unused wireless spectrum suitable for 5G wireless networks. Those licenses, estimated to be worth $10 billion, are likely to rise in value as wireless companies look for suitable spectrum to deploy next generation 5G networks.

Multichannel News quotes Wlodarczak’s note to investors:

“In our opinion, post the T-Mobile-Sprint deal failure there is a reasonable chance that T-Mobile could make a play for Dish or Dish spectrum as it would immediately vault the most disruptive U.S. wireless player into the leading U.S. spectrum position (w/ substantially more spectrum than underpins Verizon’s “best in class” network),” Wlodarczak wrote. “This possible move could force Verizon to counter-bid for Dish spectrum (or possibly the entire company) as Dish spectrum is ideally suited for Verizon and to keep it out of T-Mobile’s hands.”

AT&T/DirecTV Buyout of Dish Network

Wlodarczak has also advised clients he believes the deregulation-friendly Trump Administration would not block the creation of a satellite TV monopoly, meaning AT&T should consider pairing its DirecTV service with an acquisition of Dish Networks’ satellite TV business, even if it forgoes Dish’s valuable wireless spectrum.

“AT&T, post their Time Warner deal, could (and frankly should) be interested in purchasing Dish’s core DBS business taking advantage of a potentially more laissez faire regulatory climate/emergence of V-MVPD’s, to significantly bolster their DirecTV business (and help to justify the original questionable DirecTV deal) by creating a SatTV monopoly in ~10-15M US households, increased programming scale and massive synergies at a likely very attractive price.”

Such a transaction would likely resemble the regulatory approval granted to merge XM Satellite Radio and Sirius Satellite Radio into SiriusXM Satellite Radio in 2008. Despite the merger, just months after its approval, the combined company neared bankruptcy until it was bailed out with a $530 million loan from John Malone’s Liberty Media in February 2009. Liberty Media maintains an active interest in the satellite radio company to this day.

Unfair Tax Policies Disadvantage New Fiber Competitors, Harm Broadband Expansion

Providers attempting to wire rural communities to offer broadband service or a competitive alternative to cable and phone companies face unfair tax and pole attachment fees that often give the advantage to existing companies and deter would-be competitors.

Those differences have a meaningful impact on rural broadband providers in states like New York, where wiring rural upstate communities is being made difficult by bureaucratic pole attachment fee policies and wide differences in property taxation that give an edge to existing cable giants like Charter Communications while hampering small start-ups with costly and confusing tax policies that slow down broadband rollouts.

The Watertown Daily Times recently published an in-depth special report on the broadband challenges impacting northern New York, where fast internet access has evaded some communities for more than two decades. That lack of access is becoming a critical problem for a growing number of employers who are now considering exiting those communities because companies like Verizon, Frontier Communications and Charter/Spectrum are refusing to provide 21st century broadband service in rural upstate communities.

One example is Tupper Lake Hardware in Tupper Lake, N.Y., which wanted to expand, but considered exiting the area instead after being stuck using satellite internet access because no phone or cable company offered broadband service in the area.

“It came to the point where if you are going to make a $1 million investment, we actually talked about this, we said ‘do we put our money into this place or do we just pick up and move?’” general manager Chris Dewyea told the newspaper. “It is real. It sounds dramatic, but that is the way it goes. The connectivity speed that we had with satellite internet was not good enough, so that is when we started on our journey to get high-speed here.”

Calling Verizon, Frontier, or Spectrum was fruitless, so the company picked up the phone and called… the Empire State Forest Products Association, a group that has tangled with internet connectivity problems in upstate New York before. The group pointed the company to Slic Network Solutions, owned by the independent Nicholville Telephone Company, which has spent the last several years slowly expanding the reach of its fiber optic network in the north country. Slic currently provides service to about 10,000 homes in small communities like Belmont, Lake Placid, Schroon Lake, and Titus Mountain.

Like many fiber overbuilders operating in New York, Slic has to plan its network expansion carefully, as it lacks the financial resources and staff of a company like Verizon or Charter. Slic’s fiber service is in very high demand, because the alternatives are almost always satellite internet access or appallingly slow DSL service from Verizon or Frontier, neither of which have shown much interest in delivering the FCC’s 25Mbps definition of broadband. Charter’s Spectrum service is available only in larger concentrated communities that can meet the cable company’s return on investment property density test. Many rural upstate communities don’t.

“In most of the places, there really was the option of satellite. Some places had DSL but it was usually pretty marginal,” said Kevin Lynch, vice president of technical operations & chief operations officer of Slic Network Solutions. “There are a few areas, but very limited, that might have had Spectrum.”

Slic is one of several small fiber providers operating in New York, each trying to cover territories larger phone and cable companies have ignored for years. Cooperation in commonplace among some companies operating in similar regional areas to keep construction and operating costs down. Some providers share their networks to extend their reach. Most target commercial or institutional users but will lease out their networks for residential providers. Some of the state’s middle mile fiber networks were built with economic stimulus money or through other grant or government programs. Others are privately funded. Many are underutilized but lack the funds to expand.

Westelcom, based in Watertown, counts Slic as one of its partners. Westelcom currently limits its business to commercial accounts in its six county service area, which includes Watertown, Malone, Clayton, Elizabethtown, Ticonderoga and Plattsburgh. But it is willing to provide wholesale access to third-party companies that want to serve residential customers.

One of the biggest and most surprising impediments to serving “last-mile” residential customers isn’t the cost of construction or the return on investment. It’s New York’s tax laws. Current tax policy requires fiber providers to pay taxes on the value of the infrastructure being used, regardless of revenue. At present, that tax rate can cost between $25,000 and $30,000 per fiber route mile. If it takes five miles of fiber to reach only a half-dozen homes, the provider would owe New York over $100,000 in taxes alone, making it impossible to recoup costs and drain the provider’s finances.

The National Conference of State Legislatures, a bi-partisan group, published Property Taxation on Communications Providers: A Primer for State Legislatures in 2015, outlining a legacy of inconsistent and often outdated state and local taxation policies across the United States that treat communications providers differently on issues like property tax. The group points out New York’s tax authorities treat cable and phone companies very differently than upstart fiber providers. Mobile phone companies are taxed differently as well:

The taxation of communications property varies widely in New York. There are several types of property taxes that are applied in varying ways to the communications sector. While New York does not generally tax tangible personal property, the state considers lines, wires, poles, electrical conductors, fiber optic equipment, and related equipment to be real property. Landline companies and cable companies are subject to a real property tax on “Special Franchise” property which is centrally administered and assessed using the reproduction cost method by the Office of Real Property Tax Services (ORPTS). The Special Franchise property tax applies to equipment located on public property. In addition, Nassau County and New York City have a “split roll” which  requires higher taxes on the “utility” class which includes landline telephone companies. Wireless companies and cable companies are assessed locally for their real property (land and buildings,  e.g., towers)

In plainer English, Lynch points out Slic is taxed about $465 per mile per year in St. Lawrence County, which is “significantly higher” than what cable companies like Charter pay, because they are taxed differently.

In the college town of Potsdam, Slic pays more than double the school and property taxes paid by Charter Communications, even though it serves fewer customers and earns much less. That disparity forces providers to target their networks in more dense areas like inside towns and villages, which means more customers per fiber route mile, reducing the bite of the tax man.

“Broadband infrastructure is considered real property, so it is taxed just like a house when it is in the right of way. So when we attach to these poles which are in the public right-of-way, we pay taxes on it and it is based on construction costs,” Lynch added. “There are a certain number of customers we have just to break even on those two operational costs and that does not include any of the other overhead and the content, the electronics and all that.”

After paying New York, Slic then faces the bureaucratic challenge of pole attachment permitting and fees. Every pole on which Slic attaches its fiber wiring is owned by someone else, typically utility companies like National Grid, Verizon, or Frontier. Some poles are jointly owned and maintained by the phone and electric company in the area. Fees and procedures vary in different parts of the state. There is generally a very costly pole attachment application fee and ongoing pole rental fees, which in this part of New York can run $400 a mile, per year.

Lynch said the costs of pole attachment fees alone can account for up to 40 percent of Slic’s expansion budget, and those initial fees can run between $10,000-14,000 per mile. This is why fiber overbuilders frequently decide on coverage areas based on customer commitments to sign up for service if it becomes available. This allows companies like Slic to secure the financing required to provision the service. But money alone doesn’t buy instant access.

“We apply to National Grid or whoever the pole owner is and say, ‘We would like to attach to these 30 poles on this road,’ and do a pole application and pay a fee,” Mr. Lynch explained to the newspaper. “They come out, they look at each pole and they determine if there is space on the pole, do they need to rearrange the electrical wires so they are in compliance with the electrical code, do they need to move down the phone lines. A lot of times these poles are jointly owned. It will be National Grid and Verizon, so they have to coordinate and then there might be a section that has Spectrum on it, so you have three or four companies that have to coordinate this effort.”

The state adds its own layer of bureaucracy with different Department of Transportation regions, regional economic regions, and Department of Environmental Conservation regions, each with its own rules and procedures. It is common for fiber projects to cross from one region into another, requiring additional paperwork and likely delays. If a project has to cross into the Adirondack Park, the rules and permits required to manage that are byzantine.

The result of all this is usually a significant delay in getting started, but once the paperwork is complete and fees are paid, the work can go faster than many realize.

“In these areas where we are constructing right now, Schroon Lake and Belmont and Lyon Mountain, we are building three to five miles of fiber per week. Our next group of projects that has been funded by New York state is 300-plus miles of fiber,” Lynch said. “And when I say three to five miles per week, that is per area.”

Fiber providers would like to see tax fairness and a lot less bureaucracy. The rules in states like New York may eventually leave fiber to the home service at a distinct disadvantage, because wireless networks don’t face pole attachment complications and pay lower taxes because their real property is generally a cell tower and the fiber line that connects to it. As it stands, some internet providers may gravitate towards wireless internet solutions in rural areas instead of fiber just to avoid excessive taxes and the pole attachment bureaucracy. Most homes and businesses prefer fiber optic service when given a choice, but without some changes to tax laws and a more centralized, less bureaucratic approach to pole attachments, fiber optics may never make financial sense in rural upstate New York.

Sprint/T-Mobile Merger is Dead

Phillip Dampier October 30, 2017 Competition, Consumer News, Sprint, T-Mobile, Wireless Broadband 2 Comments

After months of negotiations, it all came down to a matter of control.

Softbank Group Corp., owner of Sprint Corp., has abandoned a long-expected merger between Sprint and Deutsche Telekom’s T-Mobile USA, citing concerns about which company would have effective control of the combined wireless carrier.

At the 11th hour, Softbank’s board of directors in Japan expressed concern the merger would leave Deutsche Telekom with majority control of Sprint’s assets and network, leaving Softbank effectively out of the U.S. market at a time when companies like Sprint and T-Mobile are preparing for the future launch of 5G wireless networks that will likely be a backbone for the future multi-billion dollar Internet of Things (IoT) marketplace. Multiple sources have told both Japanese and American newspapers that SoftBank’s founder and CEO Masayoshi Son had always been reluctant to give up control of Sprint, but had not made the issue a potential deal breaker until the talks were nearly complete and final decisions had to be made.

Deutsche Telekom considered the issue practically non-negotiable, because the international telecommunications company has relied heavily on the financial performance of T-Mobile USA to brighten its financial reports. Deutsche Telekom subsidiaries in Europe have struggled financially as a result of competition and other factors and international accounting rules require DT to have control of assets it wishes to include in its financial reports. Had T-Mobile ceded control of the merged company to Softbank, it could not include its U.S. business in its financial reports.

T-Mobile USA is regarded as the stronger of the two companies, and its German parent is very happy with its U.S. subsidiary. Most analysts argue Sprint needs the merger with T-Mobile far more than T-Mobile needs Sprint, so there was reportedly little disappointment from Deutsche Telekom over the merger talks achieving an impasse. To calm nervous investors, Softbank plans to announce it will step up its investment in Sprint to improve its network and coverage. Sprint customers have heard such promises before, but the fourth largest wireless carrier has continued to lose market share, mostly to the benefit of T-Mobile. Independent tests have shown Sprint’s network often performs worse than its three major competitors in many areas.

4GCommunity’s Sprint-Powered 4G LTE Service Shutting Down

4GCommunity.org, a non-profit provider of unlimited 4G LTE wireless internet service, is ending the service by Nov. 30, 2017 for “circumstances beyond the organization’s control.”

The service cost $250 for the first year, which included a mobile hotspot device, and $168 each year thereafter, which means many subscribers that started in the past year may lose some or all of their annual fee as the service closes down.

The company e-mailed its members this morning:

Dear 4GCommunity.org Members,

We are saddened to inform you that due to circumstances beyond the organization’s control the Internet connectivity benefit of membership will be ceasing no later than November 30, 2017. It may be sooner, so please begin looking for other Internet connectivity options right away.

The member online support center will remain a resource through this time next year. Member and support team volunteers will be providing their general assistance through the online support center to assist with questions about basic home computing, networking, and related technologies. It can be accessed through the Support Center page of the website, or directly at: https://4gcommunityorg.happyfox.com/

Respectfully yours,

Support Team

Sprint was 4GCommunity’s 4G service provider, and was potentially not enthusiastic about the partnership.

4GCommunity.org is one of several non-profit groups that have taken advantage of an agreement made years earlier with Clearwire, a company acquired by Sprint in 2013.

Non-profit groups offering inexpensive 4G wireless internet service are exploiting a loophole in a 2006 contract agreement between Clear (now owned by Sprint) and Educational Broadband Service licensees.

In 2006, Clearwire reached an agreement to lease wireless spectrum earmarked for Educational Broadband Service (EBS) providers including Mobile Citizen and Mobile Beacon. In return for the use of those frequencies, Clearwire agreed to sell wireless internet service on its WiMAX network at rock bottom prices to those two providers, their non-profit affiliates and dues-paying members. As a result, more than 1,800 nonprofits, 429 schools, and 61 libraries signed up for service at prices averaging $10 a month. A few of those non-profits creatively exploited a loophole in the agreement which guaranteed access “as long as you are a user, recipient or beneficiary of a non-profit programs or services, but not thereafter.” That provision was interpreted to mean non-profit groups attached to either Mobile Citizen or Mobile Beacon could resell the service to their own members.

A groups have turned up, including 4GCommunity.org, typically offer access to unlimited 4G LTE data on Sprint’s network for an annual fee. 4GConnection effectively charged only $14 a month after the first year. The service has been especially popular with those within Sprint coverage areas, but outside of range for DSL or cable broadband. It also attracted a large number of RV owners and frequent travelers looking for portable internet access.

Sprint and other wireless companies have had experience with all kinds of resellers before. Historically, many of those providers offering unlimited data have been suddenly notified their contract to resell service was canceled or modified, usually after the carrier discovered a surge in traffic and usage it did not originally expect.

4GCommunity did not reveal the specific reasons for the decision to cancel its internet offering, but does suggest the termination is connected to Sprint. The decision is causing customers to scramble to find a new service provider. Selling low-cost internet plans that depend on one of the four major carriers has proven a risky business for providers and customers, because a carrier can put a provider under just by canceling a service agreement.

4GCommunity obviously understood the risks of having their provider drop them, placing this warning (emphasis theirs) in their service agreement:

You understand your support and membership in the organization is not a guarantee of any particular benefit for any duration of time.  You understand you are supporting an organization mission.  You understand we reserve the right to cancel any Internet connectivity Service as a member benefit at any time without notice, for any reason.  You understand that your membership charges may not be refunded or prorated if the Internet connectivity benefit is terminated or modified regardless of reason at any time.   

Customers may be less forgiving, especially if they recently paid several hundred dollars for a year of service that may not be refunded.

Similar resellers still appear to be offering service, but potential customers should be cautious and not assume other service provision contracts won’t be similarly canceled. A customer could be out up to $679 if a service later disappears.

  • Calyx Institute – Membership costs $500 the first year, which includes wireless mobile hotspot service. The renewal rate is $400.
  • Freedata.io – First year prices range from $449 – $679 for three different tiers of service offering different hotspot devices (currently showing as out of stock) and different options to access 3G service, which can be more reliable in rural/fringe reception areas. The service has also been battling with its small business payment processors, which suggests this is a very small operation.
  • PCs for People & Connectall.org – Provide service to those below the 200% poverty level or currently enrolled in an income-based government assistance program. Proof of income required.

One of the few remaining unlimited wireless data providers unlikely to be affected by these developments is Unlimitedville, which offers a variety of expensive plans that correspond to the carrier providing the service. The “Yellow” plan, powered by Sprint, is $99 a month. The “Pink” plan, powered by T-Mobile, is $149 a month. A “Blue” plan offering service from AT&T costs $199 a month, and a “Red” plan using Verizon’s network is $249 a month. All of the plans are free of caps and speed throttles and offer 4G LTE data without hotspot restrictions, but require a one-time $99 “membership fee.”

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