HissyFitWatch: Damn you FCC!

For the first time in a long time, AT&T did not get what it wanted from Washington regulators and legislators. The repercussions of the company’s failure to secure its controversial merger with Deutsche Telekom’s T-Mobile USA has been one HissyFit after another, including the resignation-retirement of Forrest Miller, a 30-year veteran who was the company’s head of corporate strategy and mergers and acquisitions. After heads rolled, there was the small matter of the multi-billion dollar “breakup fee” payable to T-Mobile. Now someone has to pay:  You.

At Stop the Cap!, we scrutinize quarterly conference calls at major telecommunications companies so you don’t have to. We’ve sat through renditions of “we’re sorry” when Charter Communications’ executive management allowed the company to be flushed into bankruptcy, we’ve heard the Excuse-o-Matic from Frontier Communications about why their broadband service is woefully overloaded with promises of better days ahead, and a whole lot of creative spin to emphasize cord-cutting-bad-news at the nation’s largest cable companies isn’t really a problem all — it’s the housing market, it’s the ‘seasonal residences’ or ‘college students going home’ problem… or sunspots.  Who really knows?  It’s definitely not that they’re charging too much.

Whether it has been Time Warner Cable’s Glenn Britt, or Verizon’s Ivan Seidenberg, chief executives always project a cool, calm, steady authority that leaves shareholders and financial analysts with an impression the adults are in charge, even if they tell little white lies to keep the stock price up.

And then there is AT&T’s chief executive — Chairman Emperor Randolph Stephenson, who used the occasion of AT&T’s 4th Quarter earning results conference call to become a spectacle that brought the house down.

As we look ahead, the issue that gives me the most concern, quite frankly, isn’t our ability to execute. The #1 issue for us as we move forward, and for the industry, I believe, it continues to be spectrum. This industry continues to see just explosive mobile broadband growth and is providing one of the few bright spots in the U.S. economy, but I think we all understand this growth cannot continue without more spectrum being cleared and brought to market. And despite all the speeches from the FCC, we’re all still waiting.

He didn’t stop there.  In an impromptu rant, Stephenson lectured Washington from afar, excoriating all-concerned for failing to agree with their multi-million dollar propaganda campaign that merging America’s second and fourth largest wireless carriers in a market with just four national providers was good for consumers and would bring wireless nirvana to the heartland and lower prices for all.  Evidently America was not ready to accept the word of AT&T-compensated telecommunications experts at the NAACP, the Special Dream Farm, the Shreveport-Bossier Rescue Mission and cattle ranchers a combination of T-Mobile’s spectrum and AT&T’s would ease the capacity crunch, bring 4G to Beaver, Oklahoma, and stop driving AT&T customers nuts with dropped calls and reception black holes.

How it usually works in Washington.

AT&T would have gotten away with their merger if it weren’t for those darned kids (consumers), the FCC and Justice Department ruining everything.

“The last significant spectrum auction was nearly 5 years ago now. And this FCC has made it abundantly clear that they’ll not allow significant [mergers and acquisitions] to help bridge their delays in freeing up new spectrum,” Stephenson complained. “So in the absence of auctions, our company and others in the industry have taken the logical step of entering into smaller transactions to acquire the spectrum we need to meet this demand. But even here, we need the FCC’s action and leadership, and unfortunately, even the smallest and most routine spectrum deals are receiving intense scrutiny from this FCC, oftentimes taking up to a year and sometimes longer before these are approved.”

Stephenson ignores the fact the FCC has rubber-stamped a number of wireless mergers over the past several years, which is why consumers no longer buy competitive service from Cingular, Alltel, Dobson Communications, Centennial Wireless, West Virginia Wireless, Unicel, Ramcell, or SureWest Wireless.  All of these former competitors are now a part of the nation’s two largest carriers AT&T and Verizon Wireless.  Even more impressively for the man in full denial, the FCC just quickly and quietly approved AT&T’s spectrum transfer purchase from Qualcomm.

“Now I hope I’m wrong, but it appears the FCC is intent on picking winners and losers rather than letting these markets work,” the chief executive said.

In other words, AT&T’s definition of letting markets “work” means letting them write their own laws governing the pesky concepts of antitrust, monopoly/duopoly market power, anti-competitive activity, etc.  AT&T has no problem picking winners and losers in the community-owned broadband front, lobbying its way through state legislatures trying to block new networks from being built, even while slapping usage limits on their own customers’ DSL and U-verse accounts because of “capacity” concerns.

In the wireless marketplace, Charlie Sheen would declare AT&T “winning,” considering it has achieved 1/3rd of the U.S. wireless market.  It wants more of course, even though Trefis, a market research firm, noted that had the FCC granted Stephenson’s wishes for three national carriers, AT&T, Verizon Wireless and Sprint “will control more than 90% of the U.S. wireless market, resulting in lower competition and higher prices for consumers.”

No problem there.

Stephenson also noted a lot of the company’s close friends were on their side (and handsomely compensated along the way we might add):

A lot of recent comments and speeches about certain members of this FCC suggest that they and not Congress should decide how spectrum auctions are conducted, including who can participate and what the conditions should be for participating. Meanwhile, we pile more and more regulatory uncertainty on top of an industry that is a foundation for a lot of today’s innovation*, making it difficult for all of us to allocate and commit capital. And in this industry, we all know capital investment equals jobs*. So the end result of this is we have a industry that is just really stuck in terms of creating real capacity*.

(*- except when community-based, publicly-owned networks are involved. They must be stopped at all costs.)

No matter that AT&T continues to sit on earlier spectrum acquisitions it continues not to use.  It only grudgingly agreed to roaming agreements with the company it preferred to dismantle altogether: T-Mobile.  In earlier, accidental disclosures, it was clear even before the merger and the newly-reticent FCC, AT&T preferred to raise prices, restrict service, and hang onto its profits instead of sufficiently investing them back into its network.  Verizon Wireless has a 4G network, no dropped-call-syndrome, fewer signal black holes, and no apparent spectrum panic attacks.

Part of Sprint's fact sheet opposing the merger deal.

AT&T bit off more than they could chew through, and now faces the humiliating prospect of paying off its gambling debts.  Only now, AT&T has effectively declared they are not going to pay for their costly mistake. Customers are.

Stephenson: Payback time.

The company introduced new, higher prices for its smartphone data plans this month, and intends to continue to increase prices and crack down on data use with speed throttles in 2012 and blame it on the “spectrum crunch”:

“In a capacity-constrained environment, usage-based data plans, increased pricing, managing the speeds of the highest volume users, these are all logical and necessary steps to manage utilization,” Stephenson said.

But AT&T’s chief executive also told shareholders repeatedly those increased prices were key to boosting company revenue and profits:

“We’ll expand wireless and consolidated margins. We’ll achieve mid-single-digit EPS growth or better. Cash generation continues to look very strong again next year. And given the operational momentum we have in the business, all of this appears very achievable and probably at the conservative end of our expectations.”

AT&T’s chief financial officer John J. Stephens put a spotlight on it:

In 2011, 76% of our revenues came from wireless and wireline data and managed services. That’s up from 68% or more than $10 billion from just 2 years ago. And revenues from these areas grew about $7 billion last year or more than 7% for 2011. We’re confident this mix shift will continue. In fact, in 2012 we expect consolidated revenues to continue to grow, thanks to strength in these growth drivers with little expected lift from the economy.

[...] We also continue to bring more subscribers onto our network with tiered data plans, more than 22 million at the end of the quarter, with most choosing the higher-priced plan. As more of our base moves to tiered plans and as data use increases, we expect our compelling [average revenue per subscriber] growth story to continue.

Christmas in January.

AT&T and some of the company’s best friends in Congress have attached wireless America’s legislative wishlist to the must-pass Payroll Tax Bill that will temporarily reduce Social Security taxes for millions of Americans.  Now AT&T and other cell phone companies want their piece of the action.

Michael Weinberg at Public Knowledge has sounded the alarm attacks on Net Neutrality, spectrum auctions, and White Space Wi-Fi have turned up in amendments to a bill that Big Telecom is convinced must pass.  Weinberg explains:

No Net Neutrality Protections.  Forget your feelings about the FCC’s formal Open Internet Rules.  An amendment by Rep. Marsha Blackburn would prevent any restrictions on network management, block any requirements to make connectivity available on a wholesale basis (which would increase competition), and stop the FCC from passing a rule allowing users to attach any non-harmful device to the network.  As a result, the winner of the spectrum auction would be able to throttle, block, and discriminate however it sees fit – something that runs counter to any definition of network neutrality.

No Safeguards Against Further Consolidation.  It is no secret that one of the reasons that there are only four nationwide wireless carriers (and two dominant ones) is that only a few companies control most of the available spectrum in the United States.  This amendment would prevent the FCC from making sure that new spectrum goes towards new or under-provisioned competitors instead of being further consolidated by AT&T and Verizon.   That’s probably why AT&T is pushing so hard for this amendment.

No Super-Wifi.  One of the greatest boons of the transition from analog to digital TV broadcasting was supposed to be the creation of unlicensed “whitespaces” or “super-wifi.”  This new spectrum – which is much better at communicating long distances and through walls than current wifi spectrum – would be used cooperatively by everyone and usher in a new era of wireless devices.  However, a third amendment would destroy the FCC’s power to allocate some of this great spectrum for unlicensed uses.  That means that opportunity would simply pass us by.

Weinberg notes consumer advocates like Public Knowledge are now fighting all three amendments.  There are opportunities to strip them from the bill as it works its way through the legislative process.  Those backing the amendments hope the public doesn’t find out.

They just did.

Obama

In his State of the Union address last night to Congress, President Barack Obama complained that America’s digital infrastructure is inadequate to allow entrepreneurs and small businesses to successfully market their goods and services over the Internet.

“So much of America needs to be rebuilt. We’ve got crumbling roads and bridges, a power grid that wastes too much energy, an incomplete high-speed broadband network that prevents a small-business owner in rural America from selling her products all over the world.

During the Great Depression, America built the Hoover Dam and the Golden Gate Bridge. After World War II, we connected our states with a system of highways. Democratic and Republican administrations invested in great projects that benefited everybody, from the workers who built them to the businesses that still use them today.

In the next few weeks, I will sign an executive order clearing away the red tape that slows down too many construction projects. But you need to fund these projects. Take the money we’re no longer spending at war, use half of it to pay down our debt, and use the rest to do some nation-building right here at home.”

President Obama also touched on the problem of online piracy and imported counterfeit goods.  Last week, controversy over online piracy legislation including the Stop Online Piracy Act (SOPA) and the Protect IP Act (PIPA), brought consumer opposition to both, temporarily shelving the measures.  But the president acknowledged the problem was not going away.

“It’s not right when another country lets our movies, music, and software be pirated,” he said. “Tonight, I’m announcing the creation of a Trade Enforcement Unit (TEU) that will be charged with investigating unfair trading practices in countries like China. There will be more inspections to prevent counterfeit or unsafe goods from crossing our borders.”

Upton

Republicans fired back at the president over his rural broadband remarks, accusing the administration and the Federal Communications Commission of supporting pre-conditions on forthcoming spectrum auctions.  One House committee chairman tasked with broadband issues said the FCC was supporting policies that could reduce auction proceeds by reserving certain frequencies for up-and-coming wireless competitors or restrict how much spectrum a current market leader like AT&T or Verizon Wireless could acquire.

“The President said we have an incomplete high-speed broadband network, but his Federal Communications Commission is protecting its turf instead of joining us to free up airwaves to build the next generation communications networks,” said House Energy & Commerce Committee chairman Rep. Fred Upton (R-Mich.).

FCC chairman Julius Genachowski has had little regard for the House Republican-backed proposal that could potentially tie the FCC’s hands to set rules for spectrum auctions.  House Republicans also oppose setting aside certain spectrum for free, unlicensed high-power Wi-Fi use, preferring to auction as much spectrum as possible.

Earlier this month, Upton blasted the FCC chairman for opposing a “winner take all” auction approach:

“Bluster aside, it sounds like we have a federal agency more concerned about preserving its own power than offering serious improvements as we prepare to finalize this legislation. We worked with the FCC’s auction experts to give the agency the legitimate flexibility it needs to design the mechanics of the auction. It’s time to stop the FCC from engaging in political mischief that will hurt competition and steal money from the taxpayer’s coffers. Don’t take our word for it – look at the 2008 auction. The FCC imposed conditions on the C and D blocks that ultimately prevented the D-block from selling and pushed smaller carriers out of the auction. Taxpayers lost somewhere in the neighborhood of $5 billion, and spectrum remains sidelined. And speaking of protecting taxpayers, it’s time for the FCC and others to be honest about how taxpayers would be affected by their plans to give away valuable spectrum to favored constituencies. Our goal is to strike the right balance by keeping plenty of opportunity for unlicensed use without forcing taxpayers to forfeit any return on a resource that everyone agrees is worth billions.”

Comcast’s controversial deal with Verizon Wireless to cross-promote cable and wireless service has come to fruition in Washington and Oregon with a new introductory offer pitching Comcast’s Xfinity cable with Verizon Wireless service that includes a $300 customer rebate.

The first appearance of the new joint marketing effort started this week in metro Seattle and Portland, and includes nearby communities.  Comcast employees are now staffing at least eight Verizon Wireless stores in Seattle, primarily to pitch the company’s cable service.

The most aggressive offer includes a Visa prepaid card rebate of up to $300 for new customers who agree to bundle Comcast’s phone, Internet, and television service with a new Verizon Wireless smartphone or tablet plan, assuming the two companies can find enough new customers who do not already subscribe to cable or mobile service.

Traditional telephone companies like CenturyLink and Frontier Communications, which provide service in the region, appear to be most at risk from the bundled service promotions.  CenturyLink provides landline telephone service and DSL bundled with satellite television.  Frontier does the same and also offers a limited part of the region FiOS fiber to the home service it acquired from Verizon Communications.

Should customers sign on to the bundled offer from Verizon and Comcast, there would be little reason to do business with either CenturyLink or Frontier.

Consumer advocates like Public Knowledge, along with smaller cell phone companies, satellite provider DirecTV, and other consumer groups have co-signed a letter to the Federal Communications Commission raising questions about the parameters of the cross promotion deal, which the companies and groups say “could be a significant realignment of the competitive landscape in these industries.”

McDowell

Republican FCC Commissioner Robert McDowell is questioning whether Comcast misled the federal agency when the cable company acquired wireless spectrum it now says it had no intention of ever using.

McDowell was reacting to Comcast chief financial officer Michael Angelakis, who admitted this week his company really never had any interest in competing in the wireless space.

“Were they purchased under false pretenses?” McDowell asked.

Comcast has since sold their acquired spectrum to Verizon Wireless, which in Angelakis’ view makes sense.

“We never really intended to build that spectrum, so therefore it’s a really good use of that spectrum,” Angelakis said.

That admission puts Comcast in a difficult position, because FCC rules mandate that companies acquiring scarce wireless spectrum make a good faith effort to use it.  In McDowell’s view, had Comcast never intended to put the frequencies to use, the FCC probably would have disallowed the acquisition.

Verizon Wireless also plans to pick up unused spectrum originally acquired by Time Warner Cable in a deal that would let both companies cross-promote cable and wireless products and avoid head-on competition.

Both Comcast and Time Warner Cable have warehoused unused spectrum for several years.  Neither company appeared serious about building competing wireless networks, and with the spectrum off the market, would-be competitors couldn’t launch service either.

Verizon agreed to pay $3.6 billion to acquire the cable industry-owned spectrum, which it intends to use to bolster its LTE 4G network.

The FCC is now seeking public input on whether it should approve the spectrum sale. The Justice Department is also considering its antitrust implications.

Assurance Wireless, owned by Sprint, delivers Lifeline cell phone service to low income Americans.

Low income Americans may soon be able to obtain substantial discounts on broadband Internet service as part of an expansion of the Lifeline program, which currently provides subsidized landline and cell phone service.  The Federal Communications Commission is considering the future of the program, which currently focuses on basic telephone service, but could soon be expanded into broadband.

But before that can happen, the Lifeline program itself must undergo a comprehensive review process, according to FCC Chairman Julius Genachowski.

The FCC admits the program is overdue for reform. Recent investigations found billions in potential savings from the elimination of significant waste, fraud, and abuse.

The most costly problems appear to be coming from the recently introduced subsidized cell phone program, which hands out free or extremely low-cost cell phones to poor Americans, paid for by other ratepayers as part of the “Universal Service” surcharge.  Recent audits found many recipients double-dipping or worse, signing up for free cell phones for individual family members while already receiving a separate landline discount.  Under FCC rules, Lifeline recipients are supposed to receive a single subsidy per household, either for cell phone or landline service, not both.  But in several cases, informal audits found families with multiple cell phones, some handed out to children.

The FCC only recently decided to create an Accountability Database to track Lifeline program benefits.  Scammers have used loopholes to sign up those unqualified to participate, and some customers have obtained cell phones from multiple providers, a violation of the rules. Ratepayers could save nearly $2 billion annually once ineligible accounts are closed and the double-dipping has been stopped.  Some of those savings can be used to help defray the costs of Lifeline broadband, a potential new program that could deliver basic broadband service to low income households for around $10 a month.

Currently, a handful of cable and phone companies offer a similar service to those families who qualify for subsidized school lunches.  The FCC is analyzing data collected by providers like Comcast to help build a model program not affiliated with any single provider.

Genachowski said the program will not only help defray the costs of broadband service, but also get low-cost computers and training into the hands of needy families.

One of the most commonly-reported reasons why consumers do not adopt broadband service is its relatively high cost.  Most low-income broadband programs deliver basic 1-3Mbps service, but only to families with school-age children.

The FCC produced this video explaining the Lifeline program, who is eligible, how it works, and how to sign up.  (8 minutes)

One of the things we have tried to teach readers over the last few years is how important it is to follow the money trail when encountering a group, politician, or researcher counter-intuitively arguing “up is down” or “right is left.”  So when a business columnist in the Press of Atlantic City slammed rural broadband as a service provided “to a group of people who mostly don’t want it,” we started digging:

The FCC claims this effort will give 7 million rural people reliable access to high-speed Internet connections. So the hundreds of millions of urban and suburban Americans who wish their Internet was faster and more reliable will pay for 2 percent of us to get just that.

Or maybe we’ll be paying for redundant, overpriced telecom work by companies that donate to rural politicians.

Federal stimulus spending in response to the recession already included $7.2 billion for this same purpose. An analysis by Navigant Economics of three big projects under that Broadband Initiatives Program found:

Even “areas in which very high proportions of households were already served by multiple existing broadband providers” were eligible for subsidized broadband work.

The author’s suspicion that money was involved in all this was correct, but he completely missed who was boarding the money train.

Navigant Economics, the “research group” that produced the inflammatory report slamming rural broadband funding, happens to count AT&T as one of its important clients.

The group, a subsidiary of Navigant Consulting, provides economic and financial analysis of legal and business issues to law firms, corporations and government agencies.

In fact, Navigant pitches its services to a range of corporate clients:

Navigant Economics provides economic analysis in litigation and regulatory proceedings involving competition issues. Our experts have provided testimony in proceedings before District Courts, the Department of Justice, the Federal Trade Commission, the Federal Communications Commission, the Federal Energy Regulatory Commission, and numerous state Public Utilities Commissions.

We provide economic analysis and testimony in connection with mergers and acquisitions and antitrust claims of:

• Anticompetitive horizontal agreements (price fixing, bid rigging, potential anticompetitive effects of joint ventures)
• Unilateral conduct (predatory pricing, refusals to deal, monopolization via patent fraud)
• Vertical restraints (exclusive dealing, requirement contracting, tying and bundling)

We also offer economic analysis and testimony on issues of price and rate of return regulation, mandatory access, quality of service, and benefit-cost analysis, with especial expertise in regulatory proceedings involving communications and the Internet (software and hardware sectors, network unbundling and “net neutrality” issues affecting telecom and cable firms, retransmission consent and other content-related issues, and the range of wireless spectrum issues) and all types of energy markets.

Phillip "Making Sense, Not Dollars" Dampier

The result is what critics refer to as “dollar a holler research” — bought-and-paid-for-results that coincidentally fit the framework of a client’s public policy agenda.  In this case, AT&T (among other phone companies) has fretted about broadband stimulus funding ever since the Obama Administration made it clear the industry would not collectively control the program or reward themselves at taxpayer expense.  In addition to criticizing the decision-making process, phone and cable companies have objected to numerous applicants who applied for grants to build networks serving communities those companies have ignored or under-served for years.

To say AT&T has no vested interest in the outcome of rural broadband would be the first major understatement of 2012.

Martyn Roetter with MFR Consulting said Navigant was giving a bad name to researchers.

“Navigant Economics as well as other economists in academia and the consulting profession seem increasingly prepared to support arguments in favor of their clients’ desires and goals regardless of whether they are reasonable or preposterous,” Roetter wrote. “Unfortunately this behavior tends to blur the distinction between (a) respectable advocacy with findings based on evidence and rational arguments and (b) indefensible nonsense, discrediting both academics and consultants.”

Navigant spent much of 2011 trying to convince regulators and the public that T-Mobile actually doesn’t compete with AT&T, so there should be no problem letting the two companies merge.  Readers win no prizes guessing who paid for that stunner of a conclusion.  Thankfully, the Department of Justice quickly dismissed that notion as a whole lot of hooey.

Navigant’s second ludicrous conclusion is that there is no rural broadband availability problem.  Navigant has a love affair with slow speed, spotty DSL (sold by AT&T) and heavily-capped 3G wireless (also sold by AT&T) as the Frankincense and Myrrh of rural Internet life.  With those, you don’t need any broadband expansion (particularly from a third party interloper).

“The notion that a nominal maximum speed in a shared radio access network is comparable to a nominal maximum speed of a fixed broadband line to a location is a striking example of ignorance, wilful or otherwise, of the very different operating characteristics and capabilities of these two transmission media,” Roetter soberly observed.

But he knows better.

Roetter

Kevin Post, columnist for the Press of Atlantic City, bought Navigant’s conclusions hook, line, and sinker and repeated them in the press.  In fact, he upped the ante parroting the time-honored provider argument that rural America doesn’t need 21st century broadband because, well, they just don’t want it:

This costly effort is aimed at bringing broadband to a group of people who mostly don’t want it, according to a 2010 Pew Internet survey.

Half of Americans who don’t use the Internet told Pew that the main reason is they don’t find it relevant to their lives.

Only one in 10 nonusers said they would be interested in starting to use the Internet sometime in the future.

Actually, the Pew Internet survey came well before Navigant’s outlandish conclusions, and didn’t directly address the rural broadband availability problem.  Instead, Pew was looking at broadband adoption rates, primarily in places that already have one or more broadband providers.  Pew found what providers have already realized themselves: broadband growth and adoption is slowing; everyone who wants the service in urban America already has it or wants it.  Those that don’t are typically older and lack computers or are too poor to afford the asking price.

Post’s suggestion that a Pew Study concluded rural America does not want broadband service is an exercise in fixing the facts.

That’s the magic of the Dollar-a-Holler Echo Machine.  Big telecom companies hire public policy consultants and researchers to find their way to “scientific” evidence proving their corporate agenda, and then feeds the “facts” and “research” to receptive reporters, astroturf “consumer groups,” and politicians to bolster their case.  It’s not AT&T suggesting there is no rural broadband problem — it’s Navigant Economics.

As Roetter writes, “A basic knowledge of wireless markets exposes the [...] indefensible nature of the positions outlined above. A policy based on ‘tell me what you want to hear, pay me, and I will reproduce it all regardless of its merits’ is a disservice to professionals who try to remain objective and independent, i.e. professional.”

Verizon Wireless became the Bank of America of late 2011 when it attempted to impose a $2 “convenience fee” on select customers who prefer to pay their monthly phone bills online or through an automated telephone attendant.  It’s just the latest experiment in customer gouging — the same kind of toe-in-the-water strategic experimenting that unleashed ubiquitous baggage fees on airlines, low balance fees on checking accounts, and the increasingly-common practice of charging customers extra to mail them their monthly bill.

An entire industry of consultants pitch their creative talents to companies like Verizon who want “a little extra” from captive customers.  These specialists sell their expertise identifying the most vulnerable (and least likely to leave), who will grin and bear just about any kind of abuse heaped on them. Many income and resource-challenged consumers are left feeling powerless to protest and reverse unwarranted extra charges.

The consultant gougers-for-hire made millions for large banks when they figured out how to score the biggest bounced check and overdraft fees (simply pay the biggest check first, opening the door to $39 bounced check fees for all the little checks that follow).  Verizon’s $2 fee targeted customers who couldn’t afford to let the company automatically withdraw their monthly payment, or didn’t trust the company to do it correctly.  Even more, Verizon’s fee would target more desperate past-due customers who needed to make a fast payment to avoid service interruption.  Consumer advocates wondered if Verizon was successful charging these customers more, would they expand the fees to cover all online or pay-by-phone payments?

We’ll never know because the public outcry and intensive media coverage during a slow holiday week combined to force Verizon into a fourth quarter revenue retreat, rescinding the fee 24 hours after announcing it.  But Verizon may be pardoned if they feel they were unfairly singled out.  That is because other telecommunications companies have been charging certain customers bill payment fees of their own for years:

Verizon's evolved position on the $2 convenience fee (Courtesy: WTVT)

• Stop the Cap! reader Larry writes to share TDS Telecom, an independent phone company, charges a $2.95 “third party processing fee” when accepting payments by phone.  “In its place you either have to revert to U.S. Postal Service, or agree to electronic billing for on-line payment access.”
• AT&T charges a $5 bill payment fee for “certain customers.”
• Sprint/Nextel not only has its own $5 bill payment fee for those paying at the last minute,  it also forces customers with spotty credit to sign up for auto-pay to avoid a mandatory surcharge.  Want a paper bill?  That’s $2 extra a month.
• Comcast charges a $5.99 payment fee, but only in certain states.
• Time Warner Cable charges fees ranging from an “agent assisted payment” fee ($4.99) to a statement copy fee ($4.99) in some locations.

While Verizon has agreed to drop its latest new charge, the company’s carefully-named bill-padding extra fees attached to monthly bills remain.  In addition to breaking out and passing along all government fees and surcharges, Verizon also bills customers administrative and regulatory recovery fees that, for other companies, would represent the cost of doing business.  These latter two go straight into Verizon’s pocket, despite the implication they are third party-imposed mandatory surcharges.

Had Verizon called their new $2 “convenience” fee a “business efficiency accounting recovery fee,” would they have snookered enough consumers to get away with it?

WTVT in Tampa says Verizon did a complete 180 on its $2 bill payment “convenience fee.”  (3 minutes)

CNN hints the FCC’s potential involvement in Verizon’s business may have had something to do with the quick shelving of the $2 fee.  (2 minutes)

FAIL

AT&T announced Monday it has officially dropped its bid for Deutsche Telekom’s T-Mobile USA.

The company blamed regulator opposition for the failure of the merger, underestimating the Obama Administration’s tolerance for super-sized acquisition deals that could reduce competition and raise prices for consumers.

The real challenge for AT&T initially came not from the Federal Communications Commission, but from the U.S. Department of Justice which filed suit against the merger in August. FCC Chairman Julius Genachowski soon followed with statements that suggested the merger would have a difficult time at the Commission as well, and after a scathing report from FCC staffers was made public, Wall Street began to reduce the chances of the merger getting through to the single digits.

Had AT&T successfully merged with fourth-place T-Mobile, it would have easily become the nation’s largest and most powerful wireless provider, advancing beyond current leader Verizon Wireless.

The failure for AT&T will cost the company at least $4 billion in cash and spectrum it earlier agreed to give T-Mobile if the merger failed to complete.  Industry analysts say the real winner this year will easily be Verizon Wireless, which successfully accomplished its own spectrum acquisition by quietly buying unused spectrum from some of the nation’s largest cable companies.  With that spectrum now under Verizon’s control, AT&T has been reduced to signing new roaming agreements with an independent T-Mobile to share their GSM technology networks.  That will do little to alleviate AT&T’s dropped call problem in large cities, analysts say, because most roaming agreements specify sharing network resources only in areas where one carrier does not provide service.

Where U.S. Cell Phone Companies Stand Today

AT&T: AT&T still retains a considerable amount of unused wireless spectrum, but some of it is located on frequency bands that provide a lower quality of service indoors.  AT&T may have a difficult time finding new spectrum, because other carriers have signed partnership deals with most of the companies still holding unused frequencies. One of the largest holders of unused, warehoused spectrum is DISH Networks, and they’ve indicated no interest in selling.  DISH may partner with T-Mobile now that AT&T has exited.  That leaves AT&T with lobbying the government to speed up new spectrum auctions and working internally to expand their cell tower network to divide the traffic load.  It’s an expensive proposition, and several Wall Street analysts are advising their clients to dump AT&T stock.  Kevin Smithen, a Macquarie Capital USA Inc. analyst who downgraded AT&T to “sell” from “hold” last week advised AT&T was running out of options.

Verizon Wireless: Big Red remains in excellent shape to maintain its current market leadership position, particularly as it uses recently-acquired spectrum to bolster its 4G LTE network.  A UBS analyst was more direct: It will have 56 percent more 4G spectrum than AT&T in the top 10 markets and 46 percent more in the top 100, giving it a “meaningful competitive advantage.” Verizon has also cut a deal with cable operators that could reduce competitive pressure on Verizon’s landline/FiOS network from cable companies.  That fringe benefit comes courtesy of an agreement to market each others’ products to consumers.

Sprint: In addition to building its own 4G network, the company still has an agreement with Clearwire that allows Sprint to purchase the former company’s spectrum if it ever becomes available for sale.  With T-Mobile still obviously up for sale, Sprint could attempt its own merger, although it may be wary of stirring the same regulatory pot that got AT&T into trouble.  That leaves T-Mobile’s next buyer likely to be a regional cell phone company, a foreign firm entering the U.S. market, or an existing telecommunications company that decides a wireless division would be of benefit.

Extended Video Coverage

News of AT&T/T-Mobile Merger Failure Breaks

This report from the Associated Press informs consumers of the basics — the merger is no-go, leaving AT&T and T-Mobile as competitors, at least for now.  (1 minute)

AT&T Inc. abandoned a $39 billion takeover bid for T-Mobile USA after underestimating opposition from regulators, thwarting its ambitions to become the biggest U.S. wireless carrier. AT&T will take a pretax charge of $4 billion to reflect cash payments and other considerations due to T-Mobile-owner Deutsche Telekom AG, the Dallas-based company said in a statement today. Peter Cook, Lisa Murphy, Adam Johnson and Sheila Dharmarajan report on Bloomberg Television’s “Street Smart.” (7 minutes)

Brian Blair, an analyst at Wedge Partners Corp., talks about AT&T Inc.’s decision to abandon a $39 billion takeover bid for T-Mobile USA and Apple Inc.’s victory in a final patent-infringement ruling that bans some HTC Corp. smartphones from the U.S. Blair speaks with Emily Chang on Bloomberg Television’s “Bloomberg West.”  (11 minutes)

Apologists for AT&T on CNBC wring their hands over how wireless networks will get built out into rural areas now that the T-Mobile deal is dead. Will Power, R.W. Baird & Co, weighs in with a host who clearly cheerleads AT&T’s world-view.  (5 minutes)

AT&T drops its $39 billion bid for T-Mobile USA, with Todd Rethemeier, Hudson Square Research.  AT&T’s talking points don’t fly with Rethemeier.  (4 minutes)

T-Mobile’s CEO Speaks About the Merger Failure

http://www.phillipdampier.com/video/CNBC Deutsche Telekom CEO on Failed T-Mobile Merger 12-20-11.mp4

Rene Obermann, Deutsche Telekom CEO, explains why the merger between AT&T and T-Mobile USA should have gone through. “This transaction would have solved a number of industry issues,” he says.  Obermann is in friendly territory on CNBC.  (8 minutes)

The Impact on Sprint

http://www.phillipdampier.com/video/Bloomberg Horan Sees T-Mobile Eventually Merging With Sprint 12-19-11.mp4

Tim Horan, an analyst with Oppenheimer & Co., talks about AT&T Inc.’s decision to abandon a $39 billion takeover bid for T-Mobile USA, thwarting its ambitions to become the biggest U.S. wireless carrier. Horan speaks with Adam Johnson and Lisa Murphy on Bloomberg Television’s “Street Smart.” (3 minutes)

http://www.phillipdampier.com/video/Bloomberg Gamcos Haverty Says Sprint an Endangered Species 12-19-11.flv

Larry Haverty, portfolio manager at Gamco Investors Inc., talks about AT&T Inc.’s decision to abandon a $39 billion takeover bid for T-Mobile USA, and the outlook for Sprint Nextel Corp. and the wireless industry. Haverty speaks with Cory Johnson on Bloomberg Television’s “Bloomberg West.” (6 minutes)

 Will DISH Network Be AT&T’s Next Acquisition Target?

http://www.phillipdampier.com/video/CNBC Trading on ATT's Failed T-Mobile Bid 12-20-11.mp4

Shares of Dish Network up 9% in the aftermath of AT&T’s failed bid to acquire T-Mobile. Michael McCormack, Nomura telecom analyst, weighs in on whether Dish is the next target for AT&T.  (2 minutes)

"Hey, we're #19!"

The United States may be a leader in many things, but broadband isn’t one of them. The country has now fallen two more positions — to 19th place, behind South Korea, Sweden, Denmark, the United Kingdom, and even Iceland, since the Berkman Center for Internet and Society released its last rankings in 2009.

In 2004, President George W. Bush complained about the U.S. falling to 10th place, which he declared was “ten spots too low.”

Now eastern Europe and former Soviet Republics in the Baltics threaten to overtake the United States, and countries in southeast Asia already have.  Innovation in the United Kingdom, Australia and New Zealand means deploying fiber to the home service to the vast majority of the population.  Innovation in North America means conjuring up new pricing schemes to raise prices on broadband service and engage in competition-busting mergers and acquisitions.

But a USA Today editorial this week also places much of the blame on corporate influence inside Washington, which has promulgated legislative policies that favor telecommunications companies and throw customers under the bus.

“The simple answer is that other countries have policies that promote competition and innovation,” the editors write. “In contrast, policies here have allowed a few dominant players that control the least interesting parts of the broadband landscape (the cables and the wireless spectrum) to dominate.”

Indeed, a series of telecommunications laws enacted by Congress, combined with short-sighted policies at the Federal Communications Commission, have allowed a handful of super-sized players to own and control broadband service in America, resulting in providers establishing non-competing fiefdoms that avoid head-on competition.

The worst policy of all allowed broadband providers to keep competitors from reaching customers over existing broadband networks.  During the days of dial-up, you could purchase Internet access from the phone company, a large provider like MSN or AOL, or thousands of smaller regional and local service providers.  Simply dial a local access number and you were connected to the provider of your choice.  Now, U.S. law gives broadband network operators the right to restrict these independents from selling service over their networks.  Comcast need not sell anything other than Comcast Internet.  Frontier Communications can make a killing selling its own DSL service, while protecting that revenue from other Internet Service Providers who might sell the service over Frontier’s network for half the price.  Time Warner Cable voluntarily allows Earthlink and a handful of other companies to sell cable broadband service over its infrastructure, but at prices equal to or higher than what Time Warner charges itself.

Broadband providers argue that allowing competitors to sell service on their network would discourage future investment and rob shareholders a return on investments already made.  Today, major cable operators and phone companies are falling all over themselves denying they are in anything but the broadband business.  It has become an enormously lucrative enterprise, more profitable than television or telephone service.

USA Today compares the broadband landscape back home with that in South Korea — perennially the world’s fastest, and considerably less expensive than what North Americans pay for service:

South Korea has made broadband a national priority, mandating deployment and in some cases giving private companies incentives to build out. It has also prevented major players from monopolizing their businesses, encouraging competition and innovation. In South Korea, consumers can get broadband service from a cable or telecom company. But they may also choose among myriad independent providers that are given access to the physical infrastructure. This competition keeps prices down and the quality of service high.

[...] But over time, cable and telecom companies worked the courts and Congress to make sure that this competitive world would never come to be [in the United States]. [...] Wireless is a bit better. But the market has remained a near duopoly, with none of the smaller players emerging as a strong competitor to AT&T and Verizon.

The same open network concept has fought its way forward in Canada (where Bell has worked furiously to sabotage the business plans of independent providers) and in the United Kingdom, Australia and New Zealand where all three governments have decided the best solution would be to scrap the ancient landline network and start fresh with an open-to-all-comers fiber to the home service.

Back home in the States it is business as usual with increasing broadband prices and the looming prospect of usage-limiting schemes designed to cut capital costs, monetize broadband usage, and stop cord-cutting.

The opposing point of view comes courtesy of dollar-a-holler, corporate-backed think tank The Heartland Institute, who is stuck quoting notorious industry-funded studies and think tanks like the Discovery Institute and the Technology Policy Institute:

The idea that European and Asian countries are lapping America in the race for broadband speed and penetration is a fallacy created with statistics comparing “persons” instead of “households.” Once you make that correction, the USA is firmly planted among the top of industrialized nations, as economist Scott Wallsten pointed out when he was a staffer at the Federal Communications Commission in 2009.

And as tech researcher Bret Swanson of Entropy Economics points out, if you measure Internet usage by gigabytes used per month — a better measure of the speed and utility of networks — the USA has nearly lapped Western Europe once and Asia twice.

Heartland Institute: "By not disclosing our donors, we keep the focus on the issue."

If you measure how many mouse clicks customers in New York make on a Thursday afternoon, we could be number one as well!  Gigabytes used per month does not measure the speed or price of service on broadband networks, considerations that actually do impact broadband rankings.

Mr. Wallsten is a familiar favorite go-to-guy for The Heartland Institute.  He’s also the choice of Time Warner Cable, who paid him $20,000 for a 2010 essay: “The Future of Digital Communications Research and Policy.”

There is big money to be made writing corporate-funded research reports.  Bret Swanson knows that very well, having been involved with the Discovery Institute, a “research group” that delivers paid, “credentialed” reports to telecommunications company clients who waive them before Congress to support their positions.  Swanson is also a “Visiting Fellow” at Arts+Labs/Digital Society, which counted as its “partners” AT&T and Verizon.

The gentleman from Heartland also quotes from the misnamed “Progressive Policy Institute,” which counts among its funding partners, AT&T.

It would have been probably easier (but ineffectively transparent) to simply quote from AT&T and Comcast directly.

The Heartland Institute, unsurprisingly, believes letting existing broadband providers deliver service exactly the way they want is the best option:

The digital economy — one of the only vibrant economic sectors left — doesn’t need more government “investment” or regulation. It needs only for government to butt out and let the market work the magic that continues to bring us the marvels of the modern age.

That magic will cost you $50 a month and rising.  If some providers have their way, while the rest of the world abandons usage caps, American providers can’t wait to slap them on, reducing the value of your service even further.