When Industry Canada announced it was planning to boost competition by setting aside certain spectrum for new competitors entering the wireless marketplace, the Conservative government promised Canadians they would see a new era of robust competition and lower prices as a result.

Today, it turns out the only competition around is watching which of the three largest wireless carriers snap up their newest competitors first.

Telus, Canada’s third largest wireless carrier, today announced it was acquiring Mobilicity for $380 million — almost exactly the amount of outstanding debt owed by the Data & Audio Visual Enterprises Holdings’ venture. That means Telus will pick up its competitor just by agreeing to pay its bills.

Mobilicity said it was burning through cash at an alarming rate and simply could not attract enough customers in its home service cities Toronto, Ottawa, Calgary, Edmonton and Vancouver, to become profitable. It also reportedly lacked financial resources to take part in a forthcoming spectrum auction that would have been critical to the company’s long-term survival.

Informal merger talks among the three largest independent carriers — Wind Mobile, Public Mobile, and Mobilicity — reportedly went nowhere.

“Mobilicity has been losing a significant amount of money every month,” Mobilicity’s chief restructuring officer, William Aziz, said today. “The financial strength of Telus will allow the business to be continued in a way that will benefit customers and employees. An acquisition by Telus is the best alternative for Mobilicity.”

But that may not be the best alternative for Canadians. Regulators are expected to scrutinize the merger and current rules do not allow Telus to acquire the spectrum Mobilicity holds until next year. But with few other expected buyers, regulators may have no choice but to allow the deal to go through.

If approved, Telus will pick up Mobilicity’s 250,000 customers and likely switch them to Koodo Mobile, its prepaid division.

Minister Paradis

Mobilicity customers could do worse. Koodo Mobile, given a “C” grade by Canadian consumers, was Canada’s highest rated wireless carrier. That disparity hints at how much Canadians loathe their current wireless options.

Bay Street investors were not surprised by the announced merger, believing competition has its limits in a marketplace dominated by three enormous telecom companies — Bell (BCE), Rogers, and Telus — all collectively holding more than a 90% share of the Canadian wireless market. Many expect the remaining independent providers to also jettison their businesses or combine them in a last stand.

Industry Minister Christian Paradis, the Conservative government’s point man on independent competition in the wireless market, was caught off guard by the apparent faltering of the new carriers.

Paradis said he remains committed to making sure Canadians have a fourth choice for wireless service in every regional market in the country. But his only assured success is in Québec, where Vidéotron — the provincial cable company — competes with the big three providers. That competition has worked in that province to hold pricing down. According to The Globe & Mail, the average monthly bill in Québec dropped to $50.36 a month in 2011 from its peak in 2009 and is on par with where it stood in 2007. In comparison, according to CBC News, the average monthly wireless bill across Canada was $77 in 2013, up from $68 in last year’s survey.

Paradis is now pondering new regulations that would prevent the three largest carriers from buying out the remaining two independent providers just for their spectrum assets.

The merger will need regulatory approval from The Competition Bureau, Industry Canada, and the Canadian Radio-television and Telecommunications Commission.

BNN reported back in April that Telus and Mobilicity were in acquisition talks. The news channel speaks with Maher Yaghi from Desjardins Securities about the implications the merger would have on the Canadian cell phone market and the prices consumers pay. (5 minutes)

http://www.phillipdampier.com/video/BNN Telus Acquiring Mobilicity 5-16-13.flv

BNN this morning reported the ball is back in Ottawa’s hands as the government tries to decide how it can salvage its wireless competition agenda. (6 minutes)

Other stories of interest:

1. Canada’s Independent Wireless Providers Capitulate With “For Sale” Signs; Telus Interested
2. Industry Minister Holds Closed Door Meetings With Big Telecoms And You’re Not Invited
3. Independent Cell Providers Resign from Canadian Wireless Telecom Association
4. Bell: If You Don’t Sell Us the Frequencies, We’ll See That Rural Canada Gets Nothing
5. Rogers Launches Astroturf Campaign to Recruit Customers to Lobby For Spectrum… for Rogers

Phillip “I Shop Online” Dampier

Last week, JCPenney launched their nationwide redemption tour, apologizing to millions of ex-customers that fled the former retail giant, begging them to come back.

It took over a year for JCPenney to get the message that “disciplining” and “re-educating” customers to accept the wisdom of everyday higher prices with few sales and almost no coupons was hardly the door-busting success “miracle worker” CEO Ron Johnson originally had in mind. The ex-Apple executive was rewarded a $52.7 million signing bonus to take over JCPenney’s tired leadership and in return he dragged sales down 28.4% from the year before, with same store sales down 32%. Johnson’s new vision also steamrolled one-third of JCPenney’s online business.

The day those results became known, he confidently showed Wall Street he did not dwell in the reality-based community: “I’m completely convinced that our transformation is on track!” (For Kohl’s benefit anyway.)

Johnson also believed in a “less is more” philosophy in human resources, overseeing layoffs of 13 percent of the company’s workforce last April, with another 350 let go in July.

Despite the fact his all-new, rebooted vision of JCPenney was about as popular as bird flu, he stayed, even as customers and employees didn’t.

It wasn’t that the company didn’t know customers had a problem with all this. Many complained about the radical, unwanted changes at JCPenney, particularly middle-aged professional women representing one of the stores’ most important business segments. Company executives simply didn’t listen.

A year later, some of the same analysts that cheered JCPenney’s crackdown on discounting now wonder if the company will survive 2013. Many fretted about the real possibility the last customer to brave the “new era” of JCP might forget to turn the lights out when they left for good. Others were mostly furious the board let Johnson go.

Despite the tragic consequences, the conventional wisdom on Wall Street remains: Alienating customers with a revamp nobody asked for and “everyday pricing” designed to boost profits every day was not the problem, how Johnson implemented the strategy was. He just didn’t educate customers enough.

We see the same warped thinking in the broadband marketplace, particularly with usage caps, consumption billing, junk fees and the general ever-increasing price of broadband itself.

On providers’ quarterly results conference calls, the regular questions challenging leaders of the industry are not about providers charging too much for too little. The real concern is that your ISP is leaving too much ripe fruit on the tree:

• Where is the revenue-boosting usage caps and consumption billing, Time Warner Cable?
• Comcast: can’t you raise prices further on those recent speed increases to maximize additional revenue?
• Verizon: why are you spending so much on fiber broadband upgrades customers love when that money could have gone back to shareholders?
• AT&T: Is there anything else you can do to exploit your market share and make even more money from costly data plans?

The best ways a consumer can reward a good broadband provider include remaining a loyal customer, paying your bill on time and upgrading to faster speeds as needed. For Wall Street, the growing demand for broadband is a sign there is plenty of wiggle room for at-will rate increases, new fees and surcharges, contract tricks and traps, customer service cuts, and monetizing usage wherever possible. After all, you probably won’t cancel because the other guy in town is doing the same thing.

This is what sets the broadband marketplace of today apart from most retailers: consumers don’t have 10-20 other choices to take their business to if they are fed up.

Comcast or AT&T? Both charge a lot and have usage limits on their broadband service for no good reason. Your other alternatives? A wireless provider charging even more with an even lower usage cap. Or you can always go without.

While providers may tell you there is a healthy, competitive broadband marketplace, Wall Street knows better. When Time Warner Cable recently announced it would dramatically curtail new customer promotions and concentrate on delivering fewer services for more money, nobody bothered asking whether this would result in a stampede to the competition. What competition?

Although Google is delivering much-needed, game-changing competition in a tiny handful of cities, most Americans will not benefit because the best upgrades and lowest prices are only available where Google threatens the status quo. A larger number of municipalities are done putting their broadband (and economic) future in the hands of the phone and cable company and are building their own digital infrastructure for the good of their communities.

For everyone else, we can dream that one day, someday, the cable and phone company most Americans do business with will be forced to run their own JCPenney-like apology tour for years of abusive pricing and mediocre “good enough for you” broadband with unwarranted usage limits. Time Warner Cable went half way, but until competition or oversight forces some dramatic changes, we should not count on providers to actually listen to what customers want. They don’t believe they need to listen to earn or keep your business.

Other stories of interest:

1. Time Warner Cable’s Broadband Pricing Game: Special Wall-Street-At-Home Edition
2. Craig “Data Cap” Moffett Leaves Sanford Bernstein Wall Street Firm to Start His Own
3. Wall Street Journal’s Distorted Views on Broadband Only See the Industry’s Point of View
4. Time Warner Cable Loses 15% of Their Analog Cable Customers; News on Broadband Caps, Pricing
5. Time Warner Cable Pulling Back Hard on Promotions: New Customers Will Pay More for Less

The Heeley family have been Cox customers for over 15 years, buying cable television, broadband, and phone service that costs them nearly $200 a month.

With nearly $2,400 a year going into Cox’s bank accounts from their family alone, John Heeley was a little upset Cox sent him a warning message about his family’s “excessive Internet usage.”

“It seems we went over our usage cap by 40GB in April thanks to a rotten spring and a lot of Netflix viewing,” Heeley tells Stop the Cap! “I didn’t even understand the letter because I never knew there was a cap on the Internet.”

Cox, like certain other providers, have arbitrary usage limits on broadband accounts, with larger allowances granted to customers who upgrade to faster speeds for more money.

Heeley’s fiancé Shelley was angry after realizing just how much the couple already spends with Cox.

“I called them on the phone and the first thing they want to do is get you to upgrade and spend even more money with them,” she tells Stop the Cap! “They tried to vaguely threaten our service if we continued to ‘overuse the Internet’ and suggested we cut back or cancel Netflix which they think is the reason we went over the limit.”

Shelley says she was born at night, but not last night.

“How convenient they want you to stop using Netflix, Amazon, or other online video services that their cable TV competes with,” Shelley says. “It is unfair competition.”

Shelley requested a Cox supervisor and threatened the company right back, telling Cox if they sent one more letter like that, the Heeley family would take their business elsewhere.

“He told us quietly we could ignore the letter and any future letters and they will add a note on our account,” Shelley tells us. “He confided they have customers going over the limit all the time and the letter is really about educating customers about usage.”

It seems if Cox threatens you, threatening them back with account cancellation is usually the end of the story.

We found Broadband Reports‘ readers who exceed usage limits with Cox largely unafraid of any consequences:

• Rakeesh: I’ve gone everywhere from 300gb to 700gb over the cap for the last 19 months in a row. You’re fine.
• Skeechan: I have gone over too. The nastygrams seem to only be sent in selective markets. I am on Ultimate, perhaps that is why they haven’t sent me one since I have nowhere to go plan-wise. And being triple play since 1998 offers up a reliable and high ARPU. Of course that assumes they actually give a crap about common sense.
• Maltz: I went over my cap by about 30GB last month and got an email telling me that I was over. That was the end of it.

Other stories of interest:

1. AT&T Cracking Down on DSL/U-verse Usage While Promoting “No Bandwidth Limitations”
2. Cox Slams DSL in New Ads, But Cox Cable Customers Stuck With Usage Caps
3. Shaw Sneakiness: Company Lowers Usage Limits, Hopes Nobody Noticed
4. Cox’s 3 Steps to Fatter Profits With Internet Overcharging: Upgrade or Your Services Will Be Blocked
5. Netflix’s Reed Hastings Discovers Comcast’s Usage Cap: The End Run Around Net Neutrality

Phillip “Friends Can Agree to Disagree” Dampier

Are we being unnecessarily pessimistic and cynical when we oppose the likely nomination of Thomas Wheeler to replace Julius Genachowski as the chairman of the Federal Communications Commission?

Some of our colleagues in the consumer-focused public policy arena suspect we might be.

Stop the Cap! is very skeptical that appointing a former cable and wireless industry lobbyist with 30+ years of experience is the best choice for consumers at the FCC.

Our friend Harold Feld from Public Knowledge, which has announced cautious support for Wheeler’s appointment, has a more optimistic view about his potential:

I understand where my friends are coming from when they look at Wheeler’s resume and think “oh God, another Washington insider, why can’t we ever get a real progressive!” But I cannot agree with Senator Rockefeller’s statement that “a lobbyist, is a lobbyist,” or the view of some that the taint of industry clings insidiously forever and corrodes the soul. It’s been ten years since Wheeler left CTIA, longer than that since he left NTCA. Had he really been interested in advancing the agendas of these industries, he was in an excellent position to do so when he headed up the Obama transition team. He did not. Indeed, Susan Crawford and Kevin Werbach, long-time stalwarts of the public interest who worked for Wheeler on the transition team, have joined other public interest luminaries as Wheelers strongest public supporters. Had Wheeler been working behind the scenes in the transition to promote the incumbents, I expect Susan and Kevin would have known.

I also recognize that support from public interest friends is also not conclusive. But it should surely weigh in the evaluation of Wheeler as much as any blog post. And I recognize I’m also a “Washington insider” and as likely to be led astray by my personal friendships and the whole “Washington Bubble” culture as any other human being. That’s why I’m glad people in the community are asking the right questions and putting Wheeler on notice that, like any Chairman, he needs to prove himself as a champion of the public interest. We at PK have also made it clear we expect Wheeler to not just talk a good game, but to get his hands dirty and make tough decisions that will piss off incumbents. And when we disagree, as we expect we will, have no doubt we will make our displeasure known.

Harold specifically commented on our piece reviewing Wheeler’s personal blog, in which Wheeler fell all over himself praising AT&T’s chief lobbyist Jim Cicconi, and seemed resigned to approving a proposed AT&T/T-Mobile merger with some preconditions:

It is certainly true that behavioral conditions often fall short, are short lived, and that companies generally find ways to work around them (and the FCC’s track record for enforcement is pathetic). Indeed, we at PK made these arguments in the context of the AT&T/T-Mobile merger for why no set of merger remedies could adequately address the harms such a merger would cause. But there is a huge difference between my belief that Wheeler was wrong about the best strategy to advance the public interest and accepting that he was motivated by a covert desire to support consolidation and deregulation.

It is more than likely we will have to do business with Tom Wheeler, and we can certainly understand efforts to paint a more optimistic and hopeful picture of the likely new chairman. But we would be dishonest if we said we have high hopes Wheeler will think first about ordinary Americans before steering the country’s telecommunications future. We have learned from the past.

Remember Your History: Catering to Big Special Interests is Bipartisan

Having covered the telecommunications industry since the 1980s when Dr. John Malone of Tele-Communications, Inc., was the American consumers’ worst nightmare, confronting today’s increasingly consolidated and expensive telecommunications marketplace is a case of “Back to the Future.” The deregulation and industry consolidation abuses in the 1980s riled up both Republicans and Democrats — wherever constituents flooded offices with complaints about the local cable monopoly. The “problem politicians” that reflexively defended the abusers were just as bipartisan. Sen. Tim Wirth (D-Colo.) primarily represented the interests of the cable companies that were headquartered in his state. Current Senate Majority Leader Harry Reid (D-Nev.) also defended the cable companies. Sen. John Danforth (R-Mo.) was outraged at the abuses cable operators like TCI heaped on Missouri consumers and not only introduced legislation to stop the abuse in 1992, he also was instrumental in overriding a presidential veto of the measure.

The first mistake one can make in this fight is characterizing this as “progressive” vs. “conservative.” Real conservatives want all-out competition to manage winners and losers. Progressives want to make sure in the absence of that competition, someone — anyone can act to check the power of concentrated markets that suppress competition, raise prices, and deliver less than compelling service. Five years ago, Barack Obama promised change and a D.C. reset that would have ended “politics as usual.”

The art of the possible — changing the perception that consumer interests take a back seat to the whims of professional lobbyists at the FCC has proved less than successful after four years with Julius Genachowski. President Obama is not completely responsible, but it would be dishonest not to hold him to a promise he would deliver “change we can believe in.”

Instead, at the FCC, we got “change we think we might be able to get away with, maybe, or not.”

Julius Genachowski remained silent on the AT&T/T-Mobile merger until the Department of Justice provided him with political cover to oppose it. He caved on strongly enforcing Net Neutrality, refused to make important regulatory declarations that would have satisfied federal courts the FCC has a right to oversee broadband policy, and near the end of his tenure, hobnobbed with the cable industry and declared his support for usage billing and capped Internet.

Where Does Mr. Wheeler Stand?

(Image: MuniNetworks)

So we must ask ourselves, where does Mr. Wheeler, a man who spent most of his career as a consummate cable and wireless industry lobbyist, fall on these issues?

The best place those of us who have not shared lunch with him can make that determination is in his personal blog. Harold wants us to downplay some of Wheeler’s words written during his six years of blogging:

But in the ten years I’ve been blogging, I know that I’ve said many things that do not necessary reflect what I would have done if I had been the ultimate decisionmaker – as I have said on more than one occasion (noting that actual decisionmakers are not advocates). Certainly anyone who reads ten years worth of Tales of the Sausage Factory (has it really been ten years?) will have an excellent sense of my overall priorities and approach. But I can’t swear that all approximately 500 or so blog posts could hold up today as being either accurate predictions (like Wheeler, I too was a big believer in WiMax) or final expressions of what I would have done as Chair of the FCC.

We certainly agree that Wheeler’s predictions of industry trends like WiMAX, in hindsight, are not deal breakers (although they should serve as reminders that one should avoid picking too many winners and losers). But at the same time, Wheeler’s words on policy matters in nearly 60 articles since 2007 should not be ignored, rationalized away, or dismissed either. In some sense, this is comparable to the vetting process for an appointee to the Supreme Court. To get a feel for the philosophy of an individual, both the White House and Congress pour over one’s writings and public opinions. Being asked to accept someone who can reshape public policy for years based on the personal recommendation of others only goes so far.

Many of Wheeler’s views are profoundly concerning, because they seem to betray a telecom industry conventional wisdom about the state of technology, wireless spectrum, regulation, and competition. His familiarity and comfort working within the paradigm of big cable and wireless is strongly contrasted with his suspicions and surprise regarding interlopers like Google and Apple — dubbed by Wheeler as part of a “Silicon Mafia.” We sense Wheeler seems most comfortable expecting to oversee business as usual, while advocating and accommodating some minor innovation here and there.

What is almost completely absent in most of Wheeler’s writings is the perspective of, or concern for ordinary consumers. What would Mr. and Mrs. Joe Average think about yet another consolidating merger between AT&T and one of its smaller competitors? What impact would another cable merger have on the bills paid by ordinary people in Colorado, Nebraska, or Pennsylvania? Is it good for consumers to advocate eliminating wireless network redundancy, as Wheeler does, after major events from 9/11 to Hurricane Sandy to the recent Boston Marathon attack all reveal wireless networks are susceptible to call volume clogging and extended service outages?

Tom Wheeler is an admirer of AT&T’s top-lobbyist Jim Cicconi.

More importantly, we are disturbed by Wheeler’s perspective about wired infrastructure that could have a major impact on the near future of rural telecommunications. Wheeler comes dangerously close to AT&T’s sentiments about its yesteryear rural landline network and its wish to switch those customers to wireless (with all the added costs, usage caps, and coverage issues). We cannot help but notice Wheeler frames the general issue much like AT&T does: an “evolution” that represents “weaning ourselves” from “the old wireline.” Ask yourself if AT&T is more or less comfortable knowing Mr. Wheeler’s attitudes about its wired telephone network. AT&T considers it an outdated money-loser and a nuisance in its rural service areas. Wireless is a license to print money, just as soon as the FCC and state regulators give the green light to go ahead. Is Wheeler to be the deciding vote?

We Don’t Believe Wheeler is an ‘Industry Plant’

Harold writes:

But while it is important to ask the right questions and give no one a free pass, it is equally important to evaluate the answers and the evidence fairly and accept their logical conclusions. The evidence that Wheeler would have approved the AT&T/T-Mobile merger had he actually been Chairman (rather than playing pundit) is pretty weak. To take that a step further and say that Wheeler’s justification for approving the merger as a means of reregulating the wireless industry was mere sham to hide his true sympathies seems to me exceedingly unjustified.

That mischaracterizes our sentiments about Mr. Wheeler. We do not believe he is some secret industry plant that is itching to deregulate the agency into a stupor. Nor do we believe a theoretical vote in favor of the AT&T/T-Mobile merger is evidence he is in AT&T’s back pocket specifically. Let us be clear: he served as a professional lobbyist for these companies for nearly 30 years. His job was to absorb and reflect the views of the nation’s biggest cable and phone companies both to politicians and regulators. Some remain friends and colleagues.

It is a safe bet most of the industry will welcome and celebrate Wheeler’s appointment. Many know him personally. Many others will feel safe that he is a reachable industry insider already familiar with the issues that concern them. This is what makes the D.C. revolving door so insidious. When you move from the regulated to the regulator (and back again), the only real outsiders are average consumers.

Here is an example of Wheeler admiring AT&T’s prowess in the early days of its attempted merger with T-Mobile. Notice how he characterizes the deal’s opponents:

“The most important times in any merger approval process are the first two weeks when the acquiring company gets to define the discussion and the last four weeks when the concerns raised by others and the analysis by the government congeals to define the issues to be negotiated in the final outcome. AT&T shot out of the blocks brilliantly, framing their action in terms of the spectrum shortage and President Obama’s desire to provide wireless broadband to rural areas. Over the coming months those who were caught by surprise, as well as those who would use the review process to gain their own advantages, will have organized to present their messages.”

Wheeler shows no evidence of being the FCC’s version of a game-changer like Elizabeth Warren. Instead, he’s an avowed admirer of AT&T’s top lobbyist Jim Cicconi. What will that difference mean? The New York Times, reporting more broadly on the problem of D.C.’s revolving door, provides some valuable clues:

Government officials and lobbyists agree that former agency officials have a much easier time getting phone calls or e-mail messages returned from their old colleagues, and that access often extends to greater credibility in arguing their clients’ positions.

One corporate lobbyist who worked as a regulator, asked whether he believed he had an inside edge in lobbying his ex-colleagues, said: “The answer is yes, it does. If it didn’t, I wouldn’t be able to justify getting out of bed in the morning and charging the outrageous fees that we charge our clients, which they willingly pay.”

The lobbyist, who spoke on condition of anonymity because of concerns about alienating government officials, added that “you have to work at an agency to understand the culture and the pressure points, and it helps to know the senior staff.”

Not quite

The most likely outcome of a Wheeler nomination is that he will be quickly approved, maintain the agency’s relatively low profile, and avoid rocking the boat too much. Even he doubts the power of the FCC to effect regulatory change unless those regulated volunteer to submit to more regulation. That means more quid pro quo agreements attached to mergers, acquisitions, and other deals the industry brings the FCC for approval. But as this quote illustrates, the industry remains in the driving seat:

“[...] Jim Cicconi sits astride a process that could determine the future of wireless policy, first for AT&T and then by extension for everyone else. Quite possibly the result of this merger decision will be far wider than the merger itself. At the end of the day we may be talking about a new era of wireless policy based on the Cicconi Commitment.”

Wheeler argued that the inability of the FCC to muster the political will to deal effectively with net neutrality and other broadband regulation made a consent decree around AT&T/T-Mobile the best way to update consumer protection rather than leave these services essentially unregulated.

Wheeler’s recognition of the inability of the FCC to get virtually anything done comes with no assurance he will do any better. Harold himself admits that the FCC’s track record of enforcement is “pathetic.” Has Wheeler written on his blog that he would seek to change that?

Wheeler’s reflections on the failed T-Mobile/AT&T merger present a clear sign he considers it a missed opportunity, with the usual voluntary divestiture of certain assets here and there with time limited pre-conditions that carry all the impact of one of those class action settlements that nets consumers a coupon or a $2 refund. Everybody but consumers walk away winners.

The Justice Department’s antitrust division, in contrast, illustrated the usefulness of a backbone when it quickly declared the merger proposal monstrously anti-consumer and anti-competitive and announced it would sue to stop it. Deal over and dead. When is the last time the FCC issued such a clear-cut, high-profile decision all on its own? Why is it so hard for the FCC to see the same anti-competitive nightmare so visible at the Department of Justice? Public Knowledge and other consumer groups saw the dangers from day one. Does Mr. Wheeler agree with the Justice Department or does he think he can do business with that shrewd AT&T lobbyist Jim Cicconi to get such deals approved the ‘right way?’

Our view remains the country and the Obama Administration could do far better choosing someone to lead the FCC that has not made a career lobbying for big cable and phone companies. If we want to solve America’s rural broadband problems, enforce fair billing practices and Net Neutrality, find new creative ways to utilize and distribute wireless spectrum, and promote competition while restricting industry consolidation, would we do better choosing an ex-industry lobbyist or an engineer, network planner, professional regulator, or an antitrust attorney?

President Obama went with the ex-lobbyist.

Other stories of interest:

1. Change We Can Believe In? Cable/Wireless Industry Lobbyist Will Now Head FCC
2. “Future FCC Chairman” Tom Wheeler’s Fruit Doesn’t Fall Far from Big Telecom’s Tree
3. FCC to AT&T: Justify Your Spectrum Demands, Merger With T-Mobile
4. Verizon Appoints New Head Lobbyist for New York and Connecticut
5. Start the Countdown Clock on Julius Genachowski’s Departure from the FCC

Frontier’s new mascot

I’m sure more than a few readers work for a company with a marketing department that churns out advertising and imagery that leaves you shaking your head wondering what they were thinking.

There are some employees at Frontier Communications who are head-scratching this week as the company unleashes “Frontier’s First Ever Spokesman.”

His name is Francis Abraham Buffalo (his friends get to call him “Frank.”) He’s a… buffalo.

An internal memo obtained by Stop the Cap! informs employees Frank is prepared to bulldoze his way through “the clutter and get consumers buzzing.”

“Think of the Aflac duck and the Geico gecko,” a Frontier executive writes. “People have a truly positive association with them that translates into a positive feeling for those companies.”

But can a new mascot really change perceptions about a company more than the quality of the products or services a company provides (or doesn’t)?

For the record, your editor has never been particularly moved by either the duck or the gecko, and I, along with many other Americans, stopped watching television commercials years ago with the advent of the DVR. I have also never bought a product or service based on anything other than its merits and price. Frontier’s buffalo will not change that.

The mascot search involved a nationwide focus group of at least 800 customers and non-customers who were shown a series of “try-outs” involving lip-synched ducks, pigs, and various other creatures you may have last encountered as roadkill.

“Frank was the top choice, lifting our preference rating over the competition by 8 points and decreasing the competition by 3 points.  That’s a net 11 point increase for Frontier and solid support that we’re on the right path,” the company trumpets.

Of course, their cable competitors can always suggest while Frontier is busy playing with animals, they are delivering far faster broadband service and a better package of phone, broadband, and television service that does not involve a third-party satellite dish stuck on your roof.

Even some Frontier employees were less than enthusiastic about the endeavor, already predicting the response ads from the competition.

“I thought the pig would’ve been a better choice,” writes one. “I can just see the competition running ads about not getting ‘Buffaloed’ by Frontier!”

Most of the excitement among employees seems to emanate from the office that envisioned the campaign and spent a lot of money to make it happen.

“A landmark decision in the continuing evolution of Frontier,” jokes a Frontier worker less than thrilled with the result.

Even Frontier executives admit that Frank might be a big, fat target:

“We have also heard some concerns from our employees that we are proactively addressing in the campaign so our competitors won’t take advantage of our new brand spokesperson.”

“Frank will be a boffo buffalo. A solid, truth-talking machine that doesn’t like fuss or tricks - and neither do we.   We play it straight — price guarantees and no contracts make it easy for consumers to understand our products and services.  So if anyone asks, Frank is not here to “buffalo” or trick anyone (call Cable if you want that!).  He doesn’t deal with BS or malarkey, and that means no hidden fees, no surprises.”

Phillip “It’s actually an American bison” Dampier

Frontier is asking for advice on how to make Frank a better buffalo and offer any additional feedback. At Stop the Cap! we are always willing to help, so we publicly offer advice for our hometown phone company.

1. The American buffalo is actually the American bison, but that probably sounds too French (it is actually Greek, but nobody wants to get too close to Greece these days). The bison’s story is remarkably similar to phone companies like Frontier. It once roamed across the American landscape in great herds but was targeted to near extinction. Just like your landline. It still maintains “near threatened” status, and is only gradually making a comeback with the help of conservation efforts. While our ancestors shared their lives with the bison, most people today will only meet one in a zoo or park. We are unsure why Frontier would want to associate itself with an animal best known in the past and unlikely to be seen today.
2. Lip-synching animals (and babies) has become cliché. We were not too impressed with the voice talent Frontier decided to use for their animals either. Instead, check out Telus, western Canada’s biggest phone company. They turn animal wrangling into an art form, using various critters in their ads for phone, broadband, and wireless service. Telus compliments their animal friends with Canadian musicians to visually and musically deliver whatever message the company wants to share.
3. While Frontier may have eliminated some of its old tricks like contract termination, equipment, service protection, and surcharge fees from customer bills, many of us have long memories of the surprise steep cancellation fees charged when dropping landline service that we kept for 20+ years. Others found Frontier’s inadequate DSL only slightly less annoying than the $100+ service termination fee thrown on the last bill. Some of those fees are still being charged to customers, including a particularly silly broadband account service order charge that still stings departing customers. It is hard to accept Frontier’s new marketing messages when the company is still baiting the traps.
4. Frontier’s reputation problem does not come from poor advertising. It comes from a poor selection of products and services. Frontier until recently has simply refused to keep up with the reality of today’s broadband market. Sorry, basic DSL will no longer cut it, particularly when a competitor arrives. Cable can still out-class Frontier’s broadband products even after upgrades to ADSL2+ and VDSL. Frontier bills are still loaded with surprise surcharges and extras that raise the out-the-door price, sometimes even higher than what cable charges. The more important question to ask focus groups is why people do business with Frontier. Is it because they have to or they want to?

Frontier still does not evoke “cutting edge” anything. Frontier FiOS, inherited from Verizon, is the child nobody wants to talk about.

For years, Frontier only offered ADSL at speeds that stopped keeping up with cable a decade ago, even in large metro areas like Rochester, N.Y. When the company advertised “up to” in association with broadband speeds, it meant it: advertise up to 12Mbps but deliver service as slow as 3.1Mbps. With VDSL, 25Mbps might be doable, but cable already offers 30/5 or 50/5Mbps that is a sure thing.

Frontier’s landline service is generally reliable and works even with a power outage if you have a wired phone. But the company charges too much for a phone line many people are now jettisoning in favor of their cell phone and the company is still pushing long distance calling plan bundles that are now irrelevant. Does anyone under 35 know what a toll-call is?

Frontier’s “television” service for most customers is a third-party reseller agreement with a satellite provider with its own contract and conditions. Exciting? Not exactly.

There isn’t much to see here. AT&T and Verizon have spent money to earn money. The only major success story from AT&T’s landline business is its U-verse platform. Verizon FiOS delivers the most formidable competition cable operators like Time Warner Cable and Cablevision have seen. Even CenturyLink has invested in Prism, a fiber to the neighborhood system that can deliver a true triple-play package of services that give customers a reason to stay.

Frontier has Frank the Buffalo and some long-overdue technology upgrades that probably won’t win back a lot of customers.

So what are the strengths Frontier can sell?

1. In most markets, Frontier has no hard limit on broadband usage. That is an attractive selling point where cable operators slap usage caps on customers. Usage caps can and do trigger customer defections;
2. Frontier phone service is generally more reliable than cable or Voice over IP. Talk to customers in storm-struck areas who lost power and cable, but their phone line kept on working;
3. Frontier ADSL2+ and VDSL can outperform rural cable operators who have either oversold their shared network or don’t offer higher DOCSIS 3 speeds yet;
4. Frontier Wi-Fi, if vastly expanded, can be a useful free add-on and selling tool in areas served by cable operators that do not offer the service. But Frontier Wi-Fi hotpots have to be more commonly encountered to make a difference.

Above all, Frontier must keep upgrading its network to stay competitive. Once you lose customers, they can be extremely hard to get back. For many of us, establishing an account with the phone company meant significant installation fees and several days before a crew would turn up to connect service. Frontier knows perfectly well going back to the phone company after leaving is a high hurdle many never attempt.

The best mascot a company like Frontier can adopt are real customers and employees talking about their satisfaction with the changes Frontier is making. Without that, the customers that left will probably always think of Frontier as yesterday’s news. Using an American buffalo that neared extinction itself is probably not going to change that perception.

Here are Frontier’s animal mascot tryouts. (1 minute)

Other stories of interest:

1. Upstate New York Broadband Rankings Out: Rochester Ranks Last in Speed and Value
2. Charter’s Latest Bill Padder: The $3 ‘Change of Service Computerized (Junk) Fee’
3. FiOS TV Rate Hike in Indiana: “It’s Not Just a Price Increase, It’s an Offer,” Says Frontier Exec
4. Frontier Settles Oregon Class Action Lawsuit Over Unjust FiOS Video Late Fees; Refunds Coming
5. Frontier’s Mess of a 4th Quarter: Dividend Slashing, Underwhelming Broadband Don’t Impress

AT&T and Verizon Wireless have the largest share of wireless customers. (Wall Street Journal)

The Department of Justice has recommended the Federal Communications Commission promote competition by setting aside certain future low-frequency wireless spectrum for auctions open exclusively to smaller wireless carriers including Sprint and T-Mobile USA.

“Today, the two leading carriers have the vast majority of low-frequency spectrum whereas the two other nationwide carriers have virtually none,” the Department of Justice wrote in comments to the FCC. “This results in the two smaller nationwide carriers having a somewhat diminished ability to compete, particularly in rural areas where the cost to build out coverage is higher with high-frequency spectrum.”

The Justice Department’s antitrust division has monitored the wireless industry with increasing concern consumers are not getting benefits from a robustly competitive marketplace increasingly concentrated in the hands of two wireless giants: AT&T and Verizon Wireless.

That dominance is made possible, in part, from the control of lower frequency spectrum, particularly in the 600-800MHz range that easily penetrates buildings and delivers a more reliable signal over longer distances than frequencies counted in the gigahertz. Verizon and AT&T control large swaths of these lower frequencies that work well indoors and provide longer distance coverage in rural areas. Conversely, Sprint and T-Mobile, among other smaller carriers, rely heavily on higher frequencies that need a larger network of cell towers to support good signal levels.

It often means rural customers may find reception with AT&T or Verizon Wireless but end up with a roaming indicator or no service at all with smaller providers.

The Justice Department worries that auctioning off future prime 600MHz spectrum carved out of the UHF television band reallocated for wireless services will end up in the hands of the deepest pocketed providers — AT&T and Verizon Wireless, and further hamper the ability of Sprint, T-Mobile and other small carriers to compete.

“Due to the scarcity of spectrum, the Department is concerned that carriers may have incentives to acquire spectrum for purposes other than efficiently expanding their own capacity or services,” writes the DoJ. “Namely, the more concentrated a wireless market is, the more likely a carrier will find it profitable to acquire spectrum with the aim of raising competitors’ costs. This could take the shape, for example, of pursuing spectrum in order to prevent its use by a competitor, independent of how efficiently the carrier uses the spectrum. Indeed, a carrier may even have incentives to acquire spectrum and not use it at all.”

The Justice Department echoes critics’ contentions that given a chance, large wireless carriers will “warehouse” acquired spectrum, unused, denying it from the competition. Carriers object to that claim, calling it baseless. But incentives remain for providers to drag their feet: spectrum warehousing forces competitors to pay even higher prices for other scarce spectrum, the necessity of constructing a larger network of costly cell towers to offer robust coverage, and fighting customers’ perceptions of inferior quality indoor phone reception.

In response, AT&T sent a multi-page, thinly veiled threat to sue if the Commission adopted the recommendations of the Justice Department.

“The Department is quite candid about its motive for this blatant favoritism: it hopes that reducing competition for the spectrum may enable Sprint and T-Mobile ‘to mount stronger challenges’ to AT&T and Verizon,” AT&T wrote in response. “Picking winners and losers in this fashion would be patently unlawful.”

AT&T also claimed the Justice Department’s recommendations were specifically tailored to help the two competitors, despite the fact neither company has shown much interest in acquiring low-frequency wireless spectrum, much less further expand the reach of their wireless networks:

“It is especially puzzling that the Department feels the need to help Sprint and T-Mobile in particular. Sprint already has by far the largest nationwide portfolio of spectrum, and holds vastly more spectrum than either AT&T or Verizon. It will also have ample financial resources at its disposal, as the Department has already approved Sprint’s purchase by Softbank, a financially strong Japanese company, and Dish Network has now made a competing offer for Sprint, citing the financial and strategic advantages of its own proposed combination.

Regardless of how this bidding war turns out, Sprint will receive a sizable infusion of cash, spectrum or both. T-Mobile, which is owned by Deutsche Telekom, one of the largest telecommunications companies in the world, just recently acquired substantial amounts of spectrum from both AT&T and Verizon, and is on the verge of completing a merger with MetroPCS that will add another trove of spectrum. So it is surely not for a lack of spectrum resources or financial backing that the Department needs to propose a financial giveaway to these companies.

Moreover, neither company even chose to bid at the Commission’s last auction of low-frequency spectrum, nor have they availed themselves of opportunities to acquire such spectrum in secondary markets. If low-frequency spectrum was critical to their business plans, as the Department simply assumes, someone should have informed their management, which has, instead chosen to acquire deep holdings in [higher frequency] PCS, AWS, and BRS/EBS spectrum.”

The Justice Department filing did not name Sprint or T-Mobile directly, but both companies are the only remaining national competitors to both AT&T and Verizon Wireless.

Spectrum set-asides are not unusual in telecommunications regulation. The Canadian Radio-television and Telecommunications Commission set aside significant wireless spectrum exclusively for new entrants to promote competition. Ultimately, the new competitors had little impact with less than a 10 percent market share and all three are now considered up for sale. That spectrum may eventually end up in the hands of the largest Canadian wireless companies regardless of the CRTC’s original intentions when license transfer restrictions expire in 2014. All three could be acquired by one or more of the major providers.

Other stories of interest:

1. FCC on Verizon-Big Cable Spectrum Deal: Sure, Why Not?; But Justice Dept. Thinking Twice
2. Wall Street Wants Two Wireless Carriers for Americans: AT&T and Verizon
3. Moody’s Declares AT&T and Verizon the Winners — Sprint and T-Mobile Can “Never Catch Up”
4. Breaking: Justice Dept. Files Suit to Stop AT&T/T-Mobile Merger
5. The AT&T/Verizon Wireless Duopoly: “Humpty Dumpty Has Been Put Back Together Again”

Austin gets a horn of plenty with free Time Warner Cable Wi-Fi because Google is coming to town.

As Time Warner Cable faces forthcoming competition from Google Fiber in Austin, the company is responding with the construction of a free Wi-Fi network for its broadband customers to protect its business.

TWC WiFi is available now from a limited number of hotspots, but hundreds more will become available across Austin in 2013 as the company builds out its wireless network.

Time Warner Cable customers with Standard Internet or above qualify for free access, as do Business Class customers. Others can trial the service for free and then buy access for $2.95 an hour.

“Increasingly, our Austin customers want to take their high-speed Internet with them out of the home and on-the-go,” said Area Vice President Kathy Brabson. “The TWC WiFi network we are building for Austin will allow our customers to greatly maximize their TWC Internet subscription at no additional charge.”

It is no coincidence Time Warner Cable has selected Austin for a Wi-Fi rollout. The Wi-Fi service was specifically intended to provide more value for Time Warner Cable customers in competitive markets to keep them from switching to a competitor.

It represents a sea change for a cable company that in 2009 targeted Austin for an Internet Overcharging scheme that would have slapped a usage limit and consumption billing on the area’s broadband customers. With the advent of strong competition from Google, Time Warner Cable is giving customers something instead of taking things away.

Austin customers can download the free TWC WiFi Finder app available in Google Play and the Apple App Store or visit www.twc.com/wificoverage to view the hotspot coverage map as the wireless network grows. Once authenticated, customers can also access Wi-Fi hotspots in other cities including New York City, Los Angeles, Chicago, Philadelphia, Atlanta, Baltimore, Boston, Washington, D.C., San Francisco, Orlando, Tampa, Kansas City, Charlotte and more.

Other stories of interest:

1. Frontier Introducting Wi-Fi in Fort Wayne; Free Service Limited & Slow
2. Kansas City Time Warner Cable Customers Getting Downtown Wi-Fi Access, Starter Internet
3. Austin Media Gushing for Google Fiber
4. Time Warner Cable Wi-Fi Now Available in Los Angeles, Orange Counties
5. AT&T, Time Warner Cable Claim They Are Ready for Google Fiber in Austin

Wheeler

Tom Wheeler has a blog.

The presumptive leading candidate for America’s next chairman of the Federal Communications Commission also has a major conflict of interest problem, with at least 30 years of working directly for the business interests of the cable and telephone companies he may soon be asked to oversee in the public interest. Wheeler is the former president of the National Cable & Telecommunications Association (NCTA) — the nation’s largest cable industry lobbying group and past CEO of the Cellular Telecommunications & Internet Association (CTIA) — the AT&T and Verizon-dominated wireless trade association. Today Wheeler serves as a managing director at Core Capital Partners, a Washington, D.C.-based venture capital firm that invests in these and other industries.

In more than 60 articles in the last six years, Wheeler has written of his trials and tribulations with federal regulators who simply refuse to see telecom industry wisdom on spectrum management, the legacy telephone network, obstinate broadcasters, outdated regulations, mergers and acquisitions, and the amazing story of private Wall Street investment and its wisdom to naturally shape America’s telecommunications landscape by “letting the marketplace work” unfettered by oversight and consumer protection laws.

Almost entirely absent in Wheeler’s writings is any interest in the plight of ordinary consumers that do business, often unhappily, with the companies Wheeler used to represent. America’s love of many-things Apple and Google, two runaway success stories heavily invested in the digital economy and well-regarded by more than a few consumers, are scorned by Wheeler as part of the “Silicon Valley mafia.”

Wheeler is the consummate Washington beltway insider, a lifelong lobbyist well-positioned to walk through the perpetually revolving door between the public and private sector. Even worse, he has maintained warm regards for not one, but two telecom industry lobbying giants — the cable and wireless industry trade associations that have daily business before the FCC. Whether Wheeler can stand up to his former best friends is open for debate. Wheeler wrote in one blog entry he remains in awe of AT&T’s chief lobbyist, Jim Ciccioni, who he called “one of the smartest and shrewdest policy mavens in the capital.”

Wheeler’s blog makes it clear he would have supported the 2011 attempted merger between AT&T and T-Mobile, with a few temporary token pre-conditions. He heaped scorn on antitrust regulators for missing an opportunity the merger approval could have had on reshaping the American wireless marketplace. Less is more in Wheeler World.

D.C.’s perpetually revolving door keeps on spinning.

Like outgoing FCC chairman Julius Genachowski, Wheeler is a longtime Obama loyalist and was involved in Obama’s 2008 election campaign.

Wheeler relays to C-SPAN’s Brian Lamb in a 2009 interview that who you know in Washington can mean a lot. After Obama entered the 2008 race, Wheeler connected to Obama through a friend — Peter Rouse, who had recently accepted the position of Obama’s chief of staff.

“I picked up the phone one day and there was a message from Barack Obama that he wanted to talk about some issues related to technology,” Wheeler described. “Things began to develop. We got really interested in the potential of this person and the opportunity that he represented for a transformational moment in American history, and we decided that Iowa was the place.”

Wheeler and his wife Carol (employed by the National Association of Broadcasters, itself a lobbying group) had the financial resources in place to put their D.C. jobs on hold and spend six weeks in the Region 2 Obama election office in Ames, Iowa.

After Obama won the election, Lamb predicted Wheeler might find himself at the FCC. Instead, Obama’s college friend and money-bundler Julius Genachowski won the position.

Wheeler’s chances of succeeding Genachowski improved dramatically in mid-April after receiving the written support of several public policy advocates. One of them was Susan Crawford, whose recent book, Captive Audience: The Telecom Industry and Monopoly in the New Guilded Age, railed against many of the policies supported by the largest telecommunications companies Wheeler professionally represented in his roles at the NCTA and CTIA. Some consumer groups wrote President Obama directly, strongly recommended a change from the ‘business as usual’ revolving door:

During his election campaign, President Obama pledged “to tell the corporate lobbyists that their days of setting the agenda in Washington are over.” Yet the president is reportedly considering a candidate for the next FCC chair who was the head of not one but two major industry lobbying groups. After decades of industry-backed chairmen, we need a strong consumer advocate and public interest representative at the helm. It’s time to end regulatory capture at the FCC and restore balance to government oversight.

Those consumer groups have plenty to worry about if Tom Wheeler becomes the next head of the FCC. Stop the Cap! has found several quotes from his blog which paint a picture of a potential FCC chairman devoted to industry interests:

Close Wireless Retail Stores to Save Money and Kill Jobs: “Sprint announced plans to close eight percent of its over 1,500 company-owned retail outlets. Why stop there? Why does it make sense for wireless carriers to operate more stores than Sears and Macy’s combined?”

Wireless network redundancy is a waste of money — an interesting sentiment in light of major wireless network failures during Hurricane Sandy and insufficient capacity during the terrorist attack on the Boston Marathon last week: “The history of the U.S. wireless industry is a network-centric history that wasted untold billions of dollars building duplicative networks and advertising ‘mine is better than yours.’”

The failed merger of AT&T and T-Mobile represented a missed opportunity in Wheeler’s view.

WiMAX is King of the World?: “Back in the mid-1990s new digital technology called Personal Communications Service (PCS) was forecast to be the death knell of the cellular industry. It seemed all anyone could talk about was the “smaller, cheaper, lighter” handsets that would perform feats beyond the capabilities of analog cellular. Now in the mid-2000s the differentiator is speed and throughput and WiMAX is the new hot technology.”

Who needs free over the air television when only 10-15 percent of the country watches?: “What is the purpose of continuing the local TV broadcasting model when between 85 and 90 percent of American homes are connected to cable or satellite services?”

AT&T and Verizon will save us from the Great Recession, except for the fact they laid off “redundant” workers: “In the midst of the first shrinking of global economic growth in almost 70 years, the wireless industry represents what must be the largest non-governmental stimulus program in the world. Wireless is an economic recovery triple play.”

Those mooching broadcasters got their spectrum for free when Verizon and AT&T had to pay real money: “The setting for these theatrics is the digital conversion for which broadcasters lobbied so hard for. Yes, they won new spectrum – which they got for free while all other were paying billions – but getting what they asked for also brought something no one ever imagined. Broadcasting ceased to be broadcasting. Going digital meant that what used to be about moving atoms is now about moving bits.”

We need to verify broadcasters use their spectrum the way we define it or we might take it away: “But threatening a shootout at the OK Corral in order to ‘hang on to every last hertz of spectrum’ is an invitation to irrelevance and proof that the spectrum needs to be assigned to parties that think digitally and see themselves as a part of the solution to the spectrum crisis. Opportunity is knocking for the broadcasters; we’ll see if anyone is at home.”

Cicconi

Reduced quality of service is worth it, even if it means shutting down wired telephone service or increasing interference for wireless users: “It is time to abandon the concept of perfection in spectrum allocation. The rules for 21st century spectrum allocation need to evolve from the avoidance of interference to interference tolerance. We’ve seen this evolution in the wired network; it’s now time to bring the chaotic efficiency of Internet Protocol to wireless spectrum policy. What the FCC’s TAC is proposing is that we officially wean ourselves from the old wireline switched circuit world to embrace the reality of IP and its benefits. It’s time to start down the same road with spectrum allocation.“

Did you know your mobile bill is lower than ever and sending data wirelessly costs next to nothing? How much is your limited data plan costing you again?: “As wireless rates have plunged for both voice and data such regulation has less impact than it did in the wireline era anyway. When each connection required an analog circuit, the cost of such a connection, and the return on that investment was a more logical nexus than today’s digital networks where the incremental cost of a packet of information approaches zero.”

AT&T’s propaganda supporting its attempted merger with T-Mobile was brilliant. Those pesky consumer groups and their meddling, truth-telling agenda ruined everything. When Americans think of rural wireless broadband, the first company that comes to mind is T-Mobile, right?: “The most important times in any merger approval process are the first two weeks when the acquiring company gets to define the discussion and the last four weeks when the concerns raised by others and the analysis by the government congeals to define the issues to be negotiated in the final outcome. AT&T shot out of the blocks brilliantly, framing their action in terms of the spectrum shortage and President Obama’s desire to provide wireless broadband to rural areas. Over the coming months those who were caught by surprise, as well as those who would use the review process to gain their own advantages, will have organized to present their messages.”

Wheeler sends a Hallmark card to AT&T’s most powerful lobbyist: “AT&T’s recent negotiations with the FCC on the Net Neutrality/Open Internet issue provide an insight into how the company deals with such a complex issue. Jim Cicconi, AT&T’s Senior Executive Vice President, is one of the smartest and shrewdest policy mavens in the capital.”

What do they know about it?

AT&T’s Jim Cicconi is the go-to-guy for determining future wireless policy, not the FCC: “Randall Stephenson may be channeling Theodore Vail, but Jim Cicconi sits astride a process that could determine the future of wireless policy, first for AT&T and then by extension for everyone else. Quite possibly the result of this merger decision will be far wider than the merger itself. At the end of the day we may be talking about a new era of wireless policy based on the Cicconi Commitment.”

The Justice Department just proved it does not understand regulatory concepts governing relentless corporate telecom mergers because it decided Americans should have at least four wireless companies to choose from, not three: “Thus, the long-term impact of the Justice Department’s decision would appear to be the growing irrelevance of traditional telecommunications regulatory concepts on mobile broadband providers.”

Wheeler lacks the realization wireless providers are moving to usage pricing for fun and profit, not because of spectrum shortages: “Having walked away from taking the easy money, will the Congress remain as committed as they were to selling spectrum? What will be the light at the end of the tunnel for wireless carriers who see their spectrum capacity being consumed by huge increases in demand? Will the resulting shortage mean that usage based mobile pricing becomes a demand dampening and profit increasing tool?“

We don’t need free over the air television. Just tell free viewers to subscribe to cable like everyone else: “I’ve been mystified why broadcasters have declared jihad against the voluntary spectrum auction. Getting big dollars for an asset for which you paid nothing while still being able to run your traditional business over cable (the vast majority of its reach anyway) and maintain a broadcast signal at another point on the dial seems a pretty good business proposition – unless you really are serious about providing new and innovative services and need all that spectrum.”

You don’t deserve free Internet access either, because it hurts the corporate business plans of other providers: “Competition among networks for customers has put the consumer in the enviable position of being told they won’t have to pay for access to Internet services. “Free It,” the advertisements of British network operator “3″ proclaim to promote their unlimited data plan, for instance. The policies that created wireless network competition have trapped operators between holding market share and giving away capacity for ever-increasing data demands. So long as there is one carrier willing to offer its capacity at a low price (or for free), the other carriers must play along thus bringing those who run networks to loggerheads with those who use the networks.”

(Image courtesy: FCC.com)

Google and Apple are privacy invaders that collect your personal data as part of a great Silicon Valley mafia: “If wireless carriers are truly going to become “operators” participating in the broader ecosystem their focus needs to shift from running networks to managing the information created by the 21^st Century’s digital networks. The Silicon Valley mafia hijacked that information, but they could quite possibly be in the process of blowing their escape with the goods by exposing what they were really up to.”

We need a “voluntary” auction of the public airwaves with a subjective standard for what represents their “best use” (ie. the way the wireless industry defines it): “For almost four decades I have listened to businesspeople tell government policy makers to “let the marketplace work.” There is no more effective marketplace than a voluntary auction where everyone is free to decide whether to sell, how much to sell, and at what price to sell. The marketplace for wireless spectrum has spoken through its explosion; now it’s time for the marketplace to be able to decide the best use of spectrum. There is no doubt that some broadcasters will opt to use their spectrum in innovative ways [my firm, Core Capital Partners, has invested in such a belief]. Bully for the broadcast entrepreneurs! The FCC should be encouraging and rewarding of entrepreneurial initiative. Just as clearly, however, some broadcasters will choose other options. It is essential that we get on with offering that option quickly so we can nip the spectrum crunch in the bud, spur innovation, stimulate investment, create jobs, and continue American leadership in wireless services.”

Coming Clean: Wheeler ran astroturf operations that pretended to represent the interests of consumers but actually were little more than corporate sock-puppetry: “In the early days of cable television a cabal of Hollywood and broadcast interests combined to convince the Federal government to deny cable its competitive advantage of more channel choices for consumers. Corporate lobbyists told Congressmen and Senators how cable would mean the end of “free TV” unless it was stopped or controlled. Then these same groups recruited real people – the so-called “grassroots” – to back up their claims. Such lobbyist-organized grassroots efforts were the Standard Operating Procedure (SOP) of political organizing – I know because I used to do it.”

The alliance between Verizon and a cabal of cable companies selling each others’ products is pro-competition: “A TV subscription service like the one Apple is proposing is the heart of what cable is all about. And whatever Google is doing, they aren’t in every TV just for the heck of it. The Mongols of Silicon Valley have been behaving just like their 13^th and 14^th century predecessors. Using new technology to their advantage, the Mongols of the Middle Ages sent invasions in every direction. Soon they had the largest contiguous empire the world has ever seen.  Sound familiar? It may be a case of “my enemy’s enemy is my friend,” but a cable-wireless alliance is an exceedingly logical response to the impending attack. Cable operators have program distribution rights (or leveraged access to them) and Verizon has the high-speed wireless network to deliver to the growing number of mobile devices. Both these players can help each other confront the coming onslaught.”

Other stories of interest:

1. FCC Chairman Julius Genachowski’s Roadshow: Now He’ll Headline the Cable Industry’s Big Splash
2. FCC Chairman Mouths Telecom Industry Talking Points on Usage Pricing, “Innovation”
3. FCC Chairman Opens Wireless Industry Convention Mouthing AT&T Talking Points
4. The Wall Street Journal’s Revisionist History: AT&T Isn’t the Problem, the Government Is?
5. The Fat Lady Sings: What Happens Next Now That AT&T-Mobile Merger Deal is Dead

Time Warner Cable and Cablevision customers: Is Charter Cable in your future?

The best way the cable industry can grow revenue in the lucrative broadband business is to bring back the same type of collusion and control cable companies maintained over video programming 20 years ago.

Dr. John Malone did not want to sound nefarious in his recent interview with CNBC’s David Faber, but the new part-owner of Charter Communications has built a reputation as cable’s Darth Vader over the last 30 years. His detractors consider his way of doing business akin to a nationwide cable mafia, complete with exclusive, non-competitive territories that assure operators can charge sky-is-the-limit prices.

Malone is now back in the cable business in a big way, and analysts expect he will quickly amass influence in an industry he once led as CEO of the nation’s then-largest cable operator — Tele-Communications, Inc. (TCI).

Why is John Malone back in the cable business and why buy a piece of Charter Cable? Malone tells CNBC’s David Faber Charter is a company with enormous growth potential through mergers and acquisitions. CNBC says Malone could be targeting Time Warner Cable and Cablevision for acquisition by Charter as early as next year. “There is consolidation yet to be done,” Malone hints.  (7 minutes)

Malone notes the cable industry is on the cusp of transformative consolidation through collaborative agreements, mergers, and outright acquisitions both here and abroad. CNBC speculated that could begin with efforts to further reduce the number of cable operators in the United States, perhaps beginning with a deal by Charter Communications to acquire both Time Warner Cable and Cablevision, which could combine under Malone’s stewardship and Charter’s executive leadership to “compete” with Comcast.

Dr. John Malone

CNBC reporters note Malone has high praise for Thomas Rutledge, CEO of Charter Communications. Rutledge’s earlier experience working for both Time Warner Cable and Cablevision could be an asset in combining all three companies into one. Analysts speculate such a deal could be pitched as early as 2014 when Time Warner Cable will undergo a management makeover with the departure of CEO Glenn Britt. CNBC also noted Cablevision’s imminent sale has been rumored for years, and current leader and family patriarch Chuck Dolan is 87 years old. With cheap credit and Malone’s business savvy, both companies could find themselves part of a Malone-engineered takeover that would vastly expand Charter Communications into the second largest cable operator in the country.

Malone sees the days of traditional cable television coming to an end as consumers turn to “over the top” online video for an increasing share of their viewing time. As cable television rates continue to increase, customers are cutting the cord. Malone believes today’s bloated cable packages are ripe for an upheaval from a-la-carte pricing or theme-based programming bouquets that break expensive sports programming or movie channels out of the traditional basic cable lineup. Malone even suspects a challenge to the industry’s current price models could surprisingly come from the programmers themselves.

Sports networks will be among the first to notice their affiliate revenue collected from cable and satellite companies (and passed on to customers in the form of higher rates) will stagnate as customers drop cable television. Declining viewer ratings also mean lower ad revenues. Malone believes at some point sports teams and/or programming networks will decide that the biggest barrier to winning new viewers is the $70-80 asking price for basic cable. If sports programmers find they can reach new audiences selling their programming online, direct-to-consumer, for $5-10 a month, the basic cable all-for-one-price model will quickly collapse.

“As the cable guys and the satellite guys start to lose customers to the over-the-top guys, some of those economics will be reflected back on the sports guys,” Malone said. “They’ll start losing advertising revenue. They’ll lose affiliate revenue. And they have to face reality that maybe you need to segregate your market like everybody else.”

John Malone predicts the demise of the traditional bundle of cable television programming within five years. The future is streamed video online, declares Malone, so it is important the cable industry move to manage that competitive threat by acquiring streaming competitors or launching their own services to assure video programming revenue can be protected.  (5 minutes)

Malone sees the future sustainability of the cable industry dependent on the high revenue broadband business.

“I think it is at a point in history when the most addictive thing in the communications world is high-speed connectivity,” Malone told CNBC. “Everywhere in the world that we operate, we’ve just seen the public want more and more data rate. Whether it’s wireless or wired. There’s a big appetite for it. Cable technology right now is the most cost-effective way to deliver that growth in speed.”

Malone believes there is also plenty of room for revenue growth and cost-cutting, which he said can best be accomplished by getting other cable operators together to “cooperate” and “coordinate” broad scale broadband projects that counter competitive threats from third parties.

Malone helped pioneer the cable industry business practice of “don’t compete in my backyard and I won’t compete in yours,” an informal agreement among operators to stay within their own specific territories, safe and secure from competition. In the 1980s and 1990s, Malone’s TCI was one among many cable operators buying and swapping cable systems to build large, regional system “clusters” where only a single cable company provides service, winning economy of scale and a formidable presence that discouraged other wired competitors from entering the business. In most cities, only the deep pockets of AT&T (U-verse) and Verizon (FiOS) have managed to shake things up.

Bring back the cable mafia? CNBC’s David Faber gets John Malone to admit vertical and horizontal integration — controlling the content and the pipeline — are important factors to protect cable revenue and expand American dominance in cable internationally. Malone is also a big supporter of industry consolidation and believes mergers and acquisitions are necessary to shrink the number of cable operators in the United States. (5 minutes)

The cable mafia?

Malone wants broadband to be carefully managed under the industry’s own control and direction.

Faber asked if Malone wanted to bring back the days of the “cable mafia.”

“Yes, I think we do want to bring back the days of @Home, the days of Ted Turner, the days when we all got together, because together we provided national scale,” Malone said. “Now I think we have the opportunity to create global scale,” he said. “The goal is not to be bigger. The goal is to be more cost-effective.”

Other stories of interest:

1. He’s Back: Dr. John Malone’s Liberty Media Buying 27.3% of Charter Cable
2. Former Cable Czar John Malone Says Internet Video is Too Chaotic: It Needs to Be Controlled (By Them)
3. Suddenlink Cable CEO: ‘People Don’t Realize the Days of Cable Company Upgrades are Basically Over’
4. Cable’s ‘Darth Vader’ is Back: John Malone’s Liberty Global Buys Virgin Media for $16.3 Billion
5. Cable Stock Booster Predicts AT&T Provides ‘Safe Passage’ for Cable Internet Overcharging Schemes

Canada’s effort to expand mobile competition has likely failed with news that three of the most significant new independent entrants have put themselves up for sale, with one likely to be acquired by Telus, western Canada’s largest phone company.

With Bell Canada, Rogers Communications, and Telus dominating at least 90 percent of Canada’s wireless marketplace, breaking up the triopoly was unlikely to be easy, but three of Canada’s newest players that acquired spectrum just five years ago are already looking for exit strategies.

Bloomberg News reported Friday that Mobilicity is in talks to be imminently acquired by Telus for between $350-400 million. Public Mobile has hired investment bankers to find a buyer. Vimpelcom, Ltd., which owns Wind Mobile, announced it was “exploring its options, including divestment.”

The three companies have competed with the dominant players for about three years with little success. Combined, the three have not managed to achieve even a combined 10 percent market share. Most sell unlimited talk and text plans to customers that would normally buy prepaid service.

Potentially slowing any sale is a requirement that none of the independent companies can transfer their spectrum licenses until 2014, a condition of the 2008 special spectrum auction that reserved prime frequencies for new competitors and put them off-limits to larger mobile companies.

Telus remains the most likely suitor of independent providers because the company lacks the spectrum assets of its larger competitors Bell and Rogers.

Mobilicity operates its HSPA+ “4G” network on Advanced Wireless Services (AWS) frequencies in the 1,700MHz range. Although Telus has considerable spectrum in British Columbia and Alberta — its home territory — the provider has considerably less in eastern Canada, particularly in large metropolitan cities. Mobilicity has a tiny market share in the Greater Toronto Area, yet its AWS spectrum equals that of Telus in the city. Telus could find an acquisition of Mobilicity the easiest way to bolster its available spectrum for future 4G deployment and expansion.

Three small independent wireless providers hold almost as much combined spectrum as Telus holds today.

Any exit of a combination of Canada’s newest wireless players will likely be seen as a failure of the government’s efforts to bolster competition. The dominance among the three largest providers has left Canadians with high-cost plans and a wireless service contract that lasts one year longer than America’s standard two-year service agreement.

Industry Canada, the economic regulator fostering a growing, competitive and knowledge-based Canadian economy, had little to say about the news.

“Any transaction that requires regulatory approval will be considered accordingly,” said Alexandra Fortier, a spokeswoman for Industry Minister Christian Paradis. “We cannot comment on speculation.”

BNN reports industry consolidation is likely forthcoming in Canada’s wireless marketplace as Telus seeks to acquire independent provider Mobilicity. A financial analyst says the move is designed to curb budget-priced wireless service in Canada. Mobilicity would likely eventually be merged into Telus-owned Koodo Mobile, the company’s prepaid mobile division.  (5 minutes)

http://www.phillipdampier.com/video/Globe and Mail Feds aim to open up wireless market 3-13.flv

Too little, too late? Industry Minister Christian Paradis says the Harper government wants to open up the wireless market to more players with another wireless spectrum auction. But now several of Canada’s newest independent providers are all up for sale, and the country’s dominant three may end up owning one or more of them.  (2 minutes)

http://www.phillipdampier.com/video/Globe and Mail Market View Why we love to hate our wireless companies 3-13.flv

The Toronto Globe & Mail explores why Canadians hate their cell phone and mobile broadband providers so much.  (2 minutes)

Other stories of interest:

1. Bell: If You Don’t Sell Us the Frequencies, We’ll See That Rural Canada Gets Nothing
2. Independent Cell Providers Resign from Canadian Wireless Telecom Association
3. Cell Phone Companies Hoarding Cash/Credit for Spending Blitz on Canadian Spectrum
4. Canada’s Cellular Cartel: 3 Wireless Companies Control 94 Percent of the Market
5. Industry Minister Holds Closed Door Meetings With Big Telecoms And You’re Not Invited