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Wireless Company Lobbyists Add Cell Tower Deregulation to Connect Every Iowan Act

Is a cell tower coming to your backyard?

Is a cell tower coming to your neighbor’s backyard?

Amended language in a bill that would expand broadband service to rural Iowa strips local communities from regulating where wireless companies can place their cell towers, potentially threatening its passage.

The “killer” amended language originated from wireless phone company lobbyists, most likely working for AT&T, and suddenly appeared in the Iowa House version of the bill.

AT&T has routinely proposed such language in several states, claiming the new regulations are designed to “streamline” the expansion of cellular networks often held up by ‘spurious objections’ from local citizens opposed to the unsightly towers in their immediate neighborhoods.

Local governments have also regularly weighed in on approving cell towers in areas where they pose an aesthetic threat or a potential safety risk and some, according to AT&T, have interminably delayed consideration of cell site proposals.

The language in the House bill introduces time limits on cell tower approvals, prohibits communities from rejecting tower placement except under limited circumstances, and denies communities access to cell site documentation deemed private, competitive information by wireless companies.

(Unless you want to put a cell tower here)

(Unless you want to put a cell tower here)

The cell tower language is included in the House version of the Connect Every Iowan Act, legislation considered a priority by Gov. Terry Branstad this year. Branstad wants to remove financial and regulatory impediments and offer tax credits to stimulate expansion of broadband into areas most providers have previously deemed uneconomical to serve.

AT&T sees wireless broadband as a sensible alternative and the company has publicly advocated using wireless 4G technology in rural areas. If the House measure is approved, AT&T and other wireless companies can affix microcells or other cellular antennas to utility poles, street signs, or water towers without seeking permission from local authorities.

Colleagues in the Iowa state Senate were concerned about the language in the House version of the bill.

“The language in the House bill, in my view, is pretty egregious,” Sen. Steve Sodders, (D-State Center), who is leading the effort on the Senate bill. He told the Associated Press, “It really took away all local control of cell tower siting.”

“The real angst there is that without local control on these towers, these things can be built right in your neighborhood,” said Sen. Matt McCoy, (D-Des Moines). “Nobody wants to come home and see that. Finding that balance is going to be key.”

att-logo-221x300Des Moines city attorney Jeff Lester noted the language in the bill cleverly favors cellular companies with a built-in guarantee of approval of their cell tower requests:

The bill does not require cellular companies to provide company and business plan information to local governments when applying for a new cell tower site. Should municipal authorities deny a request, and a cellular company then brings the case to federal court, local authorities wouldn’t have the evidence necessary to justify their denial.

Lester said under federal law, company information serves as evidence in these appeals. Without it, there is no basis for denial, he said, and the ruling would be in favor of the cellular company.

Rep. Peter Cownie, (R-West Des Moines), who spearheaded the effort in the House, said determining where towers can or cannot go is a difficult task, but that it’s not his intent to weaken anyone’s say in their placement.

“I do not want to take away the authority of local officials in terms of cell tower siting,” he told AP. “I don’t think anyone’s goal is to take that away.”

Subcommittees in both chambers plan to meet to discuss the legislation next week.

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New Jersey’s Fiber Ripoff: Verizon Walks Away from Fiber Upgrades Customers Already Paid For

Bait and switch broadband

Bait and switch broadband

Since 1991, Verizon telephone customers in New Jersey have paid at least $15 billion in surcharges for a promised high-speed broadband network that would reach every home in the state by 2010. But now critics charge Verizon diverted much of that money to shareholder dividend payouts and building infrastructure for its highly profitable wireless network, leaving almost half the state with slow speed DSL or no broadband at all.

In the early 1990s, Verizon’s predecessor — Bell Atlantic — launched “Opportunity New Jersey,” a plan promising the state it would have the first 100% fiber telecommunications network in the country. In return, the company enjoyed more than two decades of generous tax breaks and collected various surcharges from customers to finance network construction. But a review of Verizon’s promises vs. reality suggest the company has reneged on the deal it signed with the state back when Bill Clinton was beginning his first term as president.

Verizon promised at least 75 percent of New Jersey would have a fiber service by 1996 offering 384 television channels and 45/45Mbps broadband service for $40 a month. The network would be open to competitors and be deployed without regard to income or its potential customer base.

The state suspected trouble as far back as 1997, when the Division of the Ratepayer Advocate with the New Jersey Board of Regulatory Commissioners blasted the company’s progress five years into the project:

Bell Atlantic-New Jersey (BA-NJ) has over-earned, underspent and inequitably deployed advanced telecommunications technology to business customers, while largely neglecting schools and libraries, low-income and residential ratepayers and consumers in Urban Enterprise Zones as well as urban and rural areas.

Verizon's wired success story

By 2006, New Jersey was being introduced to FiOS, which some believed was part of Verizon’s commitment to the state. But a decade after Verizon’s target dates, customers were still waiting for FiOS video service, the maximum broadband speeds offered at that point were 30/5Mbps and the cost of the package ranged from $180-200 a month. Most of Verizon’s FiOS deployments were in the northern half of the state, leaving southern New Jersey with few, if any service improvements.

Despite Verizon’s repeated failures to meet its target dates, that same year New Jersey made life even easier for the phone company by passing a statewide video franchise law allowing Verizon to bypass negotiating with each town and city regarding its video services and instead run FiOS TV as it pleases anywhere in the state. The company argued a statewide video franchise would allow for more rapid deployment of Verizon’s fiber network. In reality, the company was falling further and further behind. By 2013, when Verizon sought renewal of its statewide franchise, Verizon only offered FiOS TV to 352 of the 526 communities hoping for service. At least 174 communities still waiting for FiOS are likely never going to get the fiber service, despite paying Verizon’s surcharges for more than 20 years. Verizon suspended its FiOS expansion project more than two years ago.

Bait and Switch Broadband

From promises of a cutting edge fiber future to good-enough DSL....

From promises of a cutting edge fiber future to good-enough DSL.

Despite early commitments of providing New Jersey with advanced fiber broadband speeds unheard of elsewhere in the country in the 1990s, Verizon changed its tune when it became clear the company wanted to prioritize investment in its more lucrative wireless network. Instead of a commitment of 45/45Mbps, providing basic DSL broadband at any speed was now seen as adequate. Verizon spokesman Lee Gierczynski told both Newsweek and the Inquirer the company never promised a statewide deployment of FiOS.

“Nobody knew what FiOS was 20 years ago,” Gierczynski said. “It wasn’t until 2004 when FiOS came on the scene.”

Forget about that commitment for 45/45Mbps speed as well.

“It didn’t say a minimum of 45mbps,” Gierczynski said, “it just says ‘up to’.”

That means DSL service will be a part of southern New Jersey for the near future. Customers unimpressed with the 5Mbps DSL service they get from Verizon can always pay substantially more for access to Verizon Wireless’ usage capped LTE 4G network that Gierczynski believes can be used to download movies.

In effect, ratepayers that wrote checks to pay artificially higher phone bills to help subsidize a promised 100% fiber optic future have instead funneled working capital to Verizon Wireless’ network expansion and helped enrich shareholders with generous dividend payouts.

Opportunity New Jersey Verizon: Christie Administration Proposes Letting Verizon Off the Hook Permanently

Gov. Christie

Gov. Christie

Most victims of costly bait and switch schemes get angry and demand justice. In New Jersey, the Christie Administration believes Verizon is the victim of unreasonable expectations and has proposed a sweetheart deal to both let the company off the hook and keep the surcharges it collected from New Jersey ratepayers for the last 21 years.

While the rest of the country clamors for better broadband, Governor Christie’s State Commission, his Attorney General’s Office and the state Consumer Rate Counsel believe that basic DSL is good enough, and making life difficult for Verizon by insisting it live up to its part of a mutual agreement just isn’t very nice.

All eyes were on incoming president of the Board of Public Utilities Dianne Solomon, wife of close Christie associate Lee Solomon. The BPU has direct authority over Verizon’s compliance with its promises to the state. But Dianne’s only apparent experience is as an official with the United States Tennis Association. Critics immediately pounced on the odd nomination, accusing the governor of using the BPU as a lucrative parking lot for political patronage. Three of the four current commissioners are all politically connected and their experience navigating telecommunications law is questionable.

Instead of demanding that Verizon be held to its commitment to the state, government officials are bending over backwards to let Verizon walk away from its promises forever.

A stipulation proposal would allow the company to shred its commitment to upgrade New Jersey with fiber optics. Instead, Verizon gets permission to discontinue service if you have any other option for service — including cable or wireless. Not only would this stipulation eliminate any hope bypassed communities have to eventually get Verizon FiOS, it would also let Verizon scrap its rural landline network and kill DSL, forcing customers to its lucrative wireless broadband product instead.

Solomon

Solomon

The agreement also eliminates any commitment Verizon had to deliver fiber-fast speeds. Instead, Verizon will be considered in good standing if it matches the slowest speed on offer from Verizon DSL.

“Broadband is defined as delivering any technology including Verizon’s 4G wireless, fiber, copper or cable, data transmission service at speeds no less than the minimum speed of Verizon New Jersey’s Digital Subscriber line (DSL) that is provided by Verizon New Jersey today.”

New Jersey customers can file comments about the proposed agreement until March 24, 2014 with the Board of Public Utilities.

We have found a good sample letter you should edit to make your own. You can e-mail the secretary directly and/or send your message to the general e-mail address: [email protected] (be sure to include “Verizon New Jersey, Docket No. TO12020155″ on the Subject line):

New Jersey Board of Public Utilities
Kristi Izzo, Secretary
44 South Clinton Avenue, 9th Floor
P.O. Box 350 Trenton, NJ 08625-0350

Email: [email protected]

Re: In the Matter of Verizon New Jersey, Inc. Docket# TO 12020155

Dear Secretary Izzo:

I want to alert you to an urgent matter pending before the New Jersey Board of Public Utilities. Pursuant to a 1993 law called Opportunity New Jersey, Verizon NJ was obligated to upgrade New Jersey’s “copper wire” network by 2010. To fund the Opportunity New Jersey expansion, Verizon NJ was permitted to collect excess charges from their customers and received lucrative tax breaks from the State. These charges and tax breaks began in the 1990s and are still being collected today.

Verizon failed to meet its timeframe requirements under the Opportunity New Jersey agreement to New Jersey residents. As a result of Verizon’s failures, on March 12, 2012, the New Jersey Board of Public Utilities initiated a legal action against Verizon NJ. The Board and Verizon NJ have now entered into a proposed settlement agreement which I believe is inadequate and not in the best interests of myself and other New Jersey residents who have paid for this service that was not fully delivered.

I oppose the Board’s proposed settlement agreement and demand that The Board of Public Utilities hold Verizon to the original Opportunity New Jersey agreement which requires Verizon to expand broadband services to every customer in the State. The proposed settlement has the potential of costing myself and other residents even more money than I have already paid for the last 21 years. The Board of Public Utilities should not allow Verizon to flagrantly disregard the stipulations which are the framework for the charges and tax breaks that Verizon has enjoyed for 21 years.

I am asking the Board of Public Utilities to be my advocate and investigate where our dollars were spent and to require Verizon to give me what I was originally promised under Opportunity New Jersey agreement of 1993.

Sincerely,

[Your Name, Address, Phone Number]

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Verizon: Prioritization and Compensation for Certain Traffic is the Future of the Internet

McAdam

McAdam

The head of Verizon believes two concepts will become Internet reality in the short-term future:

  1. Those that use a lot of Internet bandwidth should pay more to transport that content;
  2. The “intelligent” Internet should prioritize the delivery of certain traffic over other traffic.

Welcome to a country without the benefit of Net Neutrality/Open Internet protection. A successful lawsuit brought by Verizon to toss out the Federal Communications Commission’s somewhat informal protections has given Verizon carte blanche to go ahead with its vision of your Internet future.

Lowell McAdam, Verizon’s CEO, answered questions on Tuesday at the Morgan Stanley Technology, Media & Telecom Conference, attended by Wall Street investors and analysts.

McAdam believes groups trying to whip Net Neutrality into a major issue are misguided and uninformed about how companies manage their online networks.

“The carriers make money by transporting a lot of data,” McAdam said. “And spending a lot of time manipulating this, that accusation is by people that don’t really know how you manage a network like this. You don’t want to get into that sort of ‘gameplaying.’”

netneutralityMcAdam believes there is nothing wrong with prioritizing some Internet traffic over others, and he believes that future is already becoming a reality.

“If you have got an intelligent transportation system, or you have got an intelligent healthcare system, you are going to need to prioritize traffic,” said McAdam. “You want to make sure that if somebody is going to have a heart attack, that gets to the head of the line, ahead of a grade schooler that is coming home to do their homework in the afternoon or watch TV. So I think that is coming to realization.”

But McAdam also spoke about the need for those generating heavy Internet traffic to financially compensate Internet Service Providers, resulting in better service for content producers like Netflix — not considered ‘priority traffic’ otherwise.

“You saw the Netflix-Comcast deal this week which I think — or a couple weeks ago — which is smart because it positions them farther out into the network, so they are not congesting the core of the Internet,” said McAdam. “And there is some compensation going back and forth, so they recognize those that use a lot of bandwidth should contribute to that.”

McAdam reported to investors he had spoken personally with FCC chairman Tom Wheeler, who seems to be taking an even more informal approach to Net Neutrality than his predecessor Julius Genachowski did.

Verizon's machine-to-machine program is likely to be a major earner for the company.

Verizon’s machine-to-machine program is likely to be a major earner for the company.

“In my discussions with Tom Wheeler, the Chairman, he has made it very clear that he will take decisive action if he sees bad behavior,” McAdam said, without elaborating on what might constitute ‘bad behavior.’ “I think that is great; great for everybody to see that. And I think that is what we would like to see him do, is have a general set of rules that covers all the players: the Netflixes, the Microsofts, the Apples, the Googles, and certainly the Comcasts and the Verizons. But the only thing to do is not — you can’t just regulate the carriers. They’re not the only players in making sure the net is healthy. And I think we all want to make sure that investment continues in the Internet and that customers get great service.”

Verizon has already reported success monetizing wireless broadband usage that has helped deliver growing revenue and profits at the country’s largest carrier. Now McAdam intends to monetize machine-to-machine communications that exchange information over Verizon’s network.

McAdam believes within 3-4 years Americans will have between five and ten different devices enabled on wireless networks like Verizon’s in their cars, homes, and personal electronics. For that, McAdam expects Verizon will earn between $0.25 a month for the average home medical monitor up to $50 a month for the car. Verizon is even testing wireless-enabled parking lots that can direct cars to empty parking spaces.

For those applications, McAdam expects to charge enough to guarantee a 50% profit margin.

“These can be very nice margin products,” McAdam told the audience of investors. “So even at $0.25 if you are doing 10 million of them and it’s 50% or better margins, those are attractive businesses for us to get into.”

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AT&T Proposes Pulling the Plug on Landline Service in Alabama and Florida

carbon hill

Carbon Hill, Ala.

AT&T is seeking permission to disconnect traditional landline service in Alabama and Florida as it plans to abandon its copper wire network and move towards Voice Over IP in urban areas and force customers to use wireless in suburbs and rural communities.

AT&T’s BellSouth holding company has asked the Federal Communications Commission to approve what it calls “an experiment,” beginning in the communities of West Delray Beach, Fla., and Carbon Hill, Ala.

The first phase of the plan would start by asking residents to voluntarily disconnect existing landline service in favor of either U-verse VoIP service or a wireless landline replacement that works with AT&T’s cellular network. In the next phase of the experiment, traditional copper-based landline service would be dropped altogether as AT&T and the FCC study the impact.

“We have proposed conducting the trials in Carbon Hill, Ala., and in West Delray Beach, Fla.,” AT&T writes on the company’s blog. “We chose these locations in an effort to gain insights into some of the more difficult issues that likely will be presented as we transition from legacy networks. For example, the rural and sparsely populated wire center of Carbon Hill poses particularly challenging economic and geographic characteristics.  While Kings Point’s suburban location and large population of older Americans poses different but significant challenges as well.  The lessons we learn from these trials will play a critical role as we begin this transition in our approximately 4700 wire centers across the country to meet our goal of completing the IP transition by the end of 2020.”

Delray-Beach-CrossFit1The transition may prove more controversial than AT&T is willing to admit. A similar effort to move landline customers to wireless service was met with strong resistance when Verizon announced it would not repair wired infrastructure on Fire Island, N.Y., damaged by Hurricane Sandy. Hundreds of complaints were registered with the New York Public Service Commission over the poor quality of service residents received with Verizon’s wireless landline replacement. The company eventually abandoned the wireless-only transition and announced it would also offer FiOS fiber optic service to customers seeking a better alternative.

“Be ready, beware,” Jim Rosenthal, a seasonal Fire Island resident, told Bloomberg News when asked what communities need to know about the changes. “Get your ducks in order. Make the alliances. Speak loudly, make sure you’re not roadkill.”

Customers that have already dropped landline service in favor of wireless and do not depend on AT&T for broadband will not notice any changes. Neither will customers  subscribed to U-verse phone and broadband service. But those who rely on AT&T DSL are likely to lose their wired broadband service and asked to switch to a very expensive wireless broadband alternative sold by AT&T. That alternative may be their only broadband option if the neighborhood is not serviced by a cable competitor.

The biggest impact will be in rural Carbon Hill, where 55% of AT&T customers will only be able to get wireless phone and broadband service, according to AT&T documents. At least 4% of local residents will get no service at all from AT&T, because they are outside of AT&T’s wireless coverage area. The phone company has no plans to expand its U-verse deployment in the rural community northwest of Birmingham. In contrast, every customer in West Delray Beach will be offered U-verse service. That means AT&T’s DSL customers will eventually be forced to switch to either U-verse for broadband or a wireless broadband plan that costs $50 a month, limited to 5GB of usage.

AT&T promises the transition will be an upgrade for customers, but that isn't always the case.

AT&T promises the transition will be an upgrade for customers, but that isn’t always true.

AT&T’s wireless home phone replacement is not compatible with fax machines, home or medical monitoring services, credit card machines, IP/PBX phone systems, dial-up Internet, and other data services. AT&T also disclaims any responsibility for mishandled 911 emergency calls that lack accurate location information about a customer in distress. The company also does not guarantee uninterrupted service or coverage.

AT&T chose Carbon Hill, which was originally a coal mining town, because it represents the classic poor, rural community common across AT&T’s service area. At least 21 percent of customers live below the poverty line. Many cannot afford cable service (if available). AT&T selected Alabama and Florida because both states have been friendly to its political agenda, adopting AT&T-sponsored deregulation measures statewide. AT&T was not required to seek permission from either state to begin its transition, and it is unlikely there will be any strong oversight on the state level.

“We looked for places where state law wasn’t going to be an issue, where the regulatory and legal environment in the state was conducive to the transition,” admitted Christopher Heimann, an AT&T attorney, at a briefing announcing the experiment.

Verizon faced a very different regulatory environment in New York, where unhappy Fire Island customers dissatisfied with Verizon’s wireless landline replacement Voice Link found sympathy from Attorney General Eric Schneiderman, who appealed to the state PSC to block the service. Sources told Stop the Cap! the oversight agency was planning to declare the service inadequate, just as Verizon announced it would offer its fiber optic service FiOS as an alternative option on the island.

Voice Link sparked complaints over dropped calls, poor sound quality, inadequate reception, and inadequacy for use with data services of all kinds. Customers were also upset Verizon’s service would not work as well in the event of a power interruption and the company disclaimed responsibility for assured access to 911.

carbon hill

Carbon Hill, Ala.

Although millions of Americans have disconnected landline telephone service in favor of wireless alternatives, traditional landlines are still commonly used in businesses and by poor and elderly customers. Many medical and security monitoring services also require landlines.

The loss of AT&T’s wired network could also mean no affordable broadband future for rural residents — wireless broadband is typically much more expensive. AT&T admits it will not guarantee DSL customers they will be able to keep wired broadband after the transition.

AT&T will “do our very best” to provide Internet-based services in trial areas, Bob Quinn, senior vice president for federal regulatory matters, said in a 2012 blog post proposing the trials.

“For those few we cannot reach with a broadband service, whether wireline or wireless, they will still be able to keep voice service,” Quinn said. “We are very cognizant that no one should be left behind in this transition.”

AT&T is likely to be the biggest winner if it successfully scraps its copper network. The company wants to drop landline service completely by 2020, saving the company millions while ending government oversight and eliminating service obligations.

“It’s a big darn deal,” said AT&T CEO Randall Stephenson. “The amount of cost that it removes from our legacy businesses is dramatic and it’s significant.”

http://www.phillipdampier.com/video/ATT The Next Generation IP Network 2-21-14.mp4

An AT&T-produced video showing a sunny future with IP-based phone service. But the future may not be so great for AT&T’s rural DSL customers. (1:31)

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Read Between AT&T’s Landlines: What They Don’t Say Will Cost Kentucky, Other States

Phillip "Another year, another AT&T deregulation measure" Dampier

Phillip “Another year, another AT&T deregulation measure” Dampier

It’s back.

It seems that nearly every year, AT&T and its well-compensated fan base of state legislators trot out the same old deregulation proposals that would end oversight of basic telephone service and allow AT&T (and other phone companies in Kentucky) to pull the plug on landline service wherever they feel it is no longer profitable to deliver.

This year, it’s Senate Bill 99, introduced once again by Sen. Paul “AT&T Knows Best” Hornback (R-Shelbyville). Back in 2012, Hornback disclosed AT&T largely authors these deregulation measures and he introduces them on AT&T’s behalf. In fact, he’s proud to admit it, telling the press nobody knows better than AT&T what the company needs the legislature to do for it.

“You work with the authorities in any industry to figure out what they need to move that industry forward,” Hornback said. “It’s no conflict.”

While Hornback moves AT&T forward, “his” bill will move rural Kentucky’s best chances for broadband backwards.

AT&T always pulls out all the stops when lobbying for its deregulation bills. In Kentucky, AT&T has more than 30 legislative lobbyists, including a former PSC vice chairwoman and past chairs of the state Democratic and Republican parties working on their behalf. It has spent over $100,000 in state political donations since 2007.

The chief provisions of the bill would:

  • End almost all oversight of telephone service by the Public Service Commission anywhere there are more than 15,000 people living within a telephone exchange’s service area;
  • Give Kentucky phone companies the right to disconnect urban/suburban basic landline phone service and replace it with either wireless or Voice over IP service;
  • Allow rural customers to keep landline service for now, but also permits AT&T and other companies to effectively stop investing in their rural wired networks.

yay attThis year, AT&T apparently conceded it was just too tough to convince the legislature to let them disconnect hundreds of thousands of rural Kentucky phone customers at the company’s pleasure, so this time they have permitted rural wired service to continue, with some exceptions that make life easier for AT&T.

First, the end of oversight of telephone service means customers in larger communities in Kentucky will have no recourse if their phone service doesn’t work, is billed incorrectly, is disconnected during a billing dispute, or never installed at all. The PSC has traditionally served as a last resort for customers who do not get satisfaction dealing with the local phone company directly. PSC intervention is taken very seriously by most phone companies, but the state agency will be rendered almost toothless under this bill.

Second, although existing rural phone customers would be able to keep their basic landline service (for now) under this measure, nothing prevents AT&T from marketing alternative wireless phone service to customers experiencing problems with their existing service. Verizon has attempted that in portions of upstate New York, where telephone network deterioration has led to increased complaints. In some cases, Verizon has suggested customers switch to wireless service instead of waiting for phone line repairs which may or may not solve the problem. New rural customers face the possibility of only being offered wireless or alternative phone services.

Third, provisions in the bill give AT&T and other companies wide latitude to offer wireless or Voice over IP alternatives to landline service with little recourse for customers who only later discover these alternatives don’t support faxes, medical or security alarm monitoring, dial-up Internet, credit card processing, etc.

Fourth, the bill eliminates any requirement imposed upon broadband service in existence as of July 15, 2004. In fact, the measure specifically defines both phone and broadband service as “market-based and not subject to state administrative regulation.” That basically means service will be unregulated.

AT&T's wireless home phone replacement

AT&T’s wireless home phone replacement

Here are some real world examples of where S.B. 99 could trip up consumers:

  1. An elderly Louisville couple living the summer months in Louisville discover their phone service has been switched to the U-verse platform over the winter as AT&T seeks to decommission its deteriorating landline network in the neighborhood. S.B. 99 offers customers a 30-day opt out provision upon first notification, allowing a customer dissatisfied with the alternative service the right to switch back to their landline. But this couple was in Florida during the 30-day window, did not receive the notification to opt out in time to act, and are now stuck with U-verse. Unfortunately, the home medical monitoring equipment for his pacemaker does not work with Voice over IP phone service. This couple’s recourse: None.
  2. A customer moves into a new home currently served by AT&T’s wireless home phone replacement service. The customer doesn’t like the sound quality of the service and wants a traditional landline instead. Her recourse: None.
  3. A retired couple uninterested in broadband service or television from AT&T U-verse suddenly discovers AT&T wants to raise prices on landline phone service, but offers savings if the couple agrees to sign up for U-verse. Instead of paying a $25 monthly phone bill, the couple is now being asked, on a fixed income, to pay $100 a month for services they don’t want or need. Their recourse: They can appeal to keep their landline if they meet the aforementioned deadline, but they have no recourse if AT&T raises rates for basic phone service to make its discounted bundled service package seem more attractive.

Hood Harris, president of AT&T Kentucky, follows the same playback AT&T always uses when pushing these bills by framing its argument around landline telephone service regulation, which is an easy sell for cell phone-crazy customers who have not made a landline call in years:

Harris

Harris

Some of Kentucky’s laws that regulate our phones were written before cable television, cell phones, the Internet or email existed.

Because of these outdated laws, providers like AT&T must sink resources into outdated technology that could be invested in the modern broadband and wireless technology consumers want and need.

Every dollar invested in old technology is a dollar not being invested in speeding up the build out of new technology across the commonwealth.

It’s no longer the 19th century coming into your home over the old, voice-only phone network that was put in place under now-outdated laws. It’s the 21st century coming into your home over modern networks. While technology has changed dramatically for the better in just the past few years, our laws have not.

Despite what you may have heard, SB 99 will not remove landlines from rural homes or businesses.

Instead, this legislation puts those customers in charge of deciding which communications services they want and need. If you are a rural customer, for example, you may choose to join the nearly 40 percent of Kentuckians who already have moved on from landline home phones and gone only with a wireless phone, or you may choose a landline phone that’s provided over the Internet (known as Voice over Internet Protocol, or VoIP), or you may choose both a VoIP and a wireless service.

But you do not have to — you can keep your existing landline phone if you like. Under SB 99, the choice is yours.

It’s seems like a logical argument, until you read between the lines. Harris implies that those old-fashioned laws governing landlines you don’t have anymore are slowing down AT&T from bringing about a Broadband Renaissance for Kentucky. If AT&T only was freed from the responsibility of patching up its copper wire phone network, it could spend all of its time, money, and attention on improving cell phone service and bring broadband to everyone. Harris promises every resident will have a choice to get the service they want — wireless or wired — as long as you remember he is only talking about basic phone service, not broadband.

If your community isn't highlighted on this map, AT&T has a wireless-only future in store for you.

If your community isn’t highlighted on this map, AT&T has a wireless-only future in store for you.

Harris avoids disclosing AT&T’s true agenda. The company has freely admitted to shareholders it wants to scrap its rural wired network, now considered too costly to maintain for a diminishing number of customers. Unlike independent phone companies like Frontier, AT&T has been in no hurry to upgrade these rural customers for broadband service. AT&T has not even bothered to apply for federal broadband funding assistance to defray some of the costs of extending DSL to its rural customer base. With no possibility of buying broadband from AT&T, customers have little incentive to keep wired service if a cell phone will do. But decommissioning landline service in rural Kentucky guarantees these customers will probably never receive adequate broadband.

The "long term cost reduction" AT&T mentions above is for them, not for you.

The “long-term cost reduction” AT&T mentions above is for them, not for you.

AT&T claims it will invest the savings in a wireless broadband network for rural customers, but as any smartphone owner will attest, AT&T’s wireless service is much more expensive than traditional phone service and its data plans are stingy and very expensive. Customers who can buy DSL from AT&T pay as little as $14.99 a month for up to 150GB of usage. A wireless data plan with AT&T for a home computer or notebook starts at $50 a month and only provides 5GB of usage before customers face a $10 per gigabyte overlimit fee. Which would you prefer: paying $14.99 for 150GB of usage with AT&T DSL or $1,500 for the same amount of usage on AT&T’s wireless network?

AT&T’s claims it will expand broadband as a result of not having to spend money on its landline network are specious. In fact, regardless of whether Kentucky passes S.B. 99 or not, AT&T has already embarked on its last known U-verse expansion. Project Velocity IP (VIP) devotes $6 billion to expanding U-verse to 57 million homes, reaching 75% of customer locations by the end of 2015. For the remaining 25% of customers, mostly in rural areas, AT&T’s plan isn’t to spend more money on improved wired service. Instead, it will build out its wireless network to serve the remaining customers with its LTE wireless broadband service — the same one that costs you $1,500 a month if you use 150GB.

Wireless is a cash cow for AT&T, so even saddled with its landline network, the company still spends the bulk of its investments on the wireless side of the business. Project VIP could have devoted all its resources to bringing U-verse to a larger customer base, but it won’t. AT&T sees much fatter profits spending $14 billion now to expand its wireless 4G LTE network and collect a lot more money later from its rural Kentucky customers.

Kentucky residents who don’t have U-verse in their area by the end of 2015 are probably never going to get the service, with or without S.B. 99. So why support a measure that delivers all the benefits to AT&T and leaves you sorting through the fine print just to keep the service you have now at a reasonable price. In every other state where AT&T has won deregulation, it raises the rates with no corresponding improvement in service.

Just how bad can AT&T’s wireless home phone replacement be? Just look at their disclaimers:

AT&T Wireless Home Phone is not compatible with home security systems, fax machines, medical alert and monitoring services, credit card machines, IP/PBX Phone systems, or dial-up Internet service. AT&T’s fine print on its website.

“AT&T’s wireless services are not equivalent to wireline Internet.” Wireless Customer Agreement, Section 4.1.

“WE DO NOT GUARANTEE YOU UNINTERRUPTED SERVICE OR COVERAGE. WE CANNOT ASSURE YOU THAT IF YOU PLACE A 911 CALL YOU WILL BE FOUND.” (All caps in original). Section 4.1.

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Anti-Community Broadband Bill Introduced in Kansas; Legislating Incumbent Protection

What company is behind the effort to ban municipal broadband in kansas.

AT&T is a frequent backer of anti-community broadband initiatives, as are some of the nation’s biggest cable companies.

The Kansas Senate’s Commerce Committee has introduced a bill that would make it next to impossible to build publicly owned community broadband networks that could potentially compete against the state’s largest cable and phone companies.

Senate Bill 304 is the latest in a series of measures introduced in state legislatures across the country to limit or prohibit local communities from building better broadband networks that large commercial providers refuse to offer.

SB 304 is among the most protectionist around, going well beyond the model bill produced by the corporate-backed American Legislative Exchange Council (ALEC). At its heart, the bill bans just about any would-be competitor that works with, is run by, or backed by a local municipality:

Sec. 4. Except with regard to unserved areas, a municipality may not, directly or indirectly offer or provide to one or more subscribers, video, telecommunications or broadband service; or purchase, lease, construct, maintain or operate any facility for the purpose of enabling a private business or entity to offer, provide, carry, or deliver video, telecommunications or broadband service to one or more subscribers.

For purposes of this act, a municipality offers or provides video, telecommunications or broadband service if the municipality offers or provides the service:

  • Directly or indirectly, including through an authority or instrumentality:
  • Acting on behalf of the municipality; or for the benefit of the municipality;
  • by itself;
  • through a partnership, joint venture or other entity in which the municipality participates; or
  • by contract, resale or otherwise.
Tribune, Kansas is the county seat of Greeley County.

Tribune, Kansas is the county seat of Greeley County.

This language effectively prohibits just about everything from municipally owned broadband networks, public-private partnerships, buying an existing cable or phone company to improve service, allowing municipal utilities to establish broadband through an independent authority, or even contracting with a private company to offer service where none exists.

The proposed legislation falls far short of its intended goals to:

  • Ensure that video, telecommunications and broadband services are provided through fair competition;
  • Provide the widest possible diversity of sources of information, news and entertainment to the general public;
  • Encourage the development and widespread use of technological advances in providing video, telecommunications and broadband services at competitive rates and,
  • Ensure that video, telecommunications and broadband services are each provided within a consistent, comprehensive and nondiscriminatory federal, state and local government framework.

Proponents claim the bill is open to allowing municipalities to build broadband services in “unserved areas.” But upon closer inspection, the bill’s definition of “unserved” is practically impossible to meet anywhere in Kansas:

“Unserved area” means one or more contiguous census blocks within the legal boundaries of a municipality seeking to provide the unserved area with video, telecommunications or broadband service, where at least nine out of 10 households lack access to facilities-based, terrestrial broadband service, either fixed or mobile, or satellite broadband service, at the minimum broadband transmission speed as defined by the FCC.

Even the FCC does not consider satellite broadband service when it draws maps where broadband is unavailable. But this Big Telecom-backed bill does. Even worse, it requires would-be providers to prove that 90 percent of customers within a “census block” don’t have access to either mobile or satellite broadband. Since satellite Internet access is available to anyone with a view of the southern sky, and the most likely unserved customers would be in rural areas, it would be next to impossible for any part of the notoriously flat and wide open state to qualify as “unserved.”

Each rectangle represents one census block within one census tract that partially covers Greeley County. Under the proposed legislation, a community provider would have to visit every census block to verify whether a private company is capable of providing service, including satellite Internet access.

Each rectangle represents one “census block” within a larger “census tract” that partially covers Greeley County. Under the proposed legislation, a community provider would have to visit each census block to verify whether a private company is capable of providing broadband service, including satellite Internet access.

To illustrate, Stop the Cap! looked at Greeley County in western Kansas. The county’s total population? 1,247 — the smallest in the state. Assume Greeley County Broadband, a fictional municipal provider, wanted to launch fiber broadband service in the area. Under the proposed bill, the largest potential customer base is 1,247 — too small for most private providers. Still, if a private company decided to wire up the county, it could with few impediments, assuming investors were willing to wait for a return on their investment in the rural county. If SB 304 became law, a publicly owned broadband network would have to do much more before a single cable could be installed on a utility pole.

Census Block 958100-1-075, in downtown Tribune, has a population of 10.

Census Block 958100-1-075, in downtown Tribune, has a population of 10.

To open for business, Greeley County Broadband would have to spend tens of thousands of dollars to independently verify its intended service area — the county — is unserved by any existing broadband technology, including satellite and mobile broadband. The authors of the bill intentionally make that difficult. Just one census tract in Greeley County (#9561), encompassing the county seat town of Tribune (pop. 741) has dozens of census blocks. Some are populated, others are not.

Greeley County Broadband now has several big problems. Under the language in the bill, a municipal provider must first define its service area entirely within its borders — in this case Greeley County — and base it on contiguous census blocks. That means if pockets of qualifying potential customers exist in a census block surrounded by non-qualifying census blocks, Greeley County Broadband cannot include them in its service area.

Census Block 958100-1-075 — essentially at the intersection of Broadway Ave. and West Harper St., right next to City Hall — has a population of 10. AT&T Mobility’s coverage maps show Tribune is covered by its 3G wireless data network (but not 4G). That census block, along with every other in the area, would be disqualified from getting municipal broadband the moment AT&T upgrades to 4G service, whether reception is great or not. It doesn’t matter that customers will have to pay around $60 for a handful of gigabytes a month.

But wait, Verizon Wireless declares it already provides 4G LTE service across Greeley County (and almost all Kansas). So Greeley County Broadband, among other would-be providers, are out of business before even launching. Assuming there was no 4G service, if just two of those ten residents had a clear view to any satellite broadband provider, Greeley County Broadband would not be permitted to provide anyone in the census block with service under the proposed law. Under these restrictions, no municipal provider could write a tenable business plan, starved of potential customers.

Kansans need to consider whether that is “fair competition” or corporate protectionism. Is it a level playing field to restrict one provider without restricting others? If competition promotes investment in technologically challenged rural Kansas, would not more competition from municipal providers force private companies to finally upgrade their networks to compete?

In fact, the bill introduced this week protects incumbent cable and phone companies from competition and upgrades by keeping out the only likely competition most Kansans will ever see beyond AT&T, Comcast, or CenturyLink’s comfortable duopoly – a municipal or community-owned broadband alternative. Providing the widest possible diversity is impossible in a bill that features the widest possible definition of conditions that will keep new entrants out of the market. Community-owned networks usually offer superior technology (often fiber optics) in communities that are usually trapped with the most basic, outdated services. While the Kansas legislature coddles AT&T, that same company wants to mothball its rural landline network pushing broadband-starved customers to prohibitively expensive, usage capped wireless broadband service indefinitely.

verizon 4g

Seeing Big Red? The areas colored dark red represent the claimed coverage of Verizon Wireless’ 4G LTE network in Kansas. Under SB 304, these areas would be prohibited from having a community-owned broadband alternative.

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Idaho Wireless ISP Offers Unlimited 4G LTE “Family-Friendly” Internet Access Free for the First Year

Screen Shot 2013-10-18 at 2.48.37 PMAn independent cell phone provider in Idaho has found a unique niche to innovate beyond offering traditional cell phone service by launching unlimited 20Mbps home broadband Internet access over its wireless 4G LTE network.

Syringa Wireless of Pocatello has launched a pilot LTE home fixed broadband trial that comes free for the first year if customers agree to buy the necessary equipment — a $300 wireless router. The service promises up to 20Mbps service, which represents a major improvement in communities where broadband speeds consistently rank among the slowest in the nation.

The pilot trial is open to residents in Rexburg, Ammon, Blackfoot, Chubbuck, Pocatello, Rupert, Burley, and Filer — all in Idaho. The company encourages those interested to sign up for the trial before the end of November.

Another innovation from Syringa is the company’s free “Family-Friendly Internet” option for residential, church, and business customers. It filters the Internet to block adult websites and claims not to slow down Internet connections.

syringaSyringa’s fixed wireless broadband puts the company in a stronger position for a Wireless Internet Service Provider (WISP), because it is able to also market traditional cell phone service for its rural customer base. Syringa still sells unlimited smartphone data plans and has a roaming agreement with a major national carrier for cell phone users traveling outside of Syringa’s home service area.

Many independent cell phone providers are struggling to survive because they are unable to sell the most popular new smartphones until they have been available at larger carriers for several months. A fixed wireless broadband service may diversify Syringa sufficiently to withstand any challenges from larger operators.

Founded in 2006, Syringa Wireless is Idaho’s only fully integrated wireless provider, offering cell phone service including data, text messaging, and shared minutes, with preset and unlimited options. Both local and national plans are available, with and without contract. The company also has custom plans for business users and offers service at local stores in southern and eastern Idaho.

http://www.phillipdampier.com/video/KPVI Pocatello Syringa Wireless Family Friendly Internet 11-8-13.mp4

KPVI in Pocatello talks with Scott Dike, general manager of Syringa Wireless, about the company’s new fixed wireless broadband service for Idaho. (4:44)

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Keeping Providers Honest: FCC to Announce New Crowdsourced Mobile Broadband Speed Test

fcc_appAre you getting the mobile broadband speeds your provider advertises for its whiz-bang 4G network? How do you know which carrier really delivers?

The Federal Communications Commission is hoping you can help them find out with a free Android app to be unveiled on Thursday.

The FCC has successfully used volunteer crowdsourcing before to keep wired Internet Service Providers honest through its “TestMyISP” speed measurement project for home broadband connections. When the first results were announced, an embarrassingly bad rating for Cablevision forced the cable company to quickly beef up its broadband infrastructure to match the speeds it promised customers.

Now the FCC’s new chairman Tom Wheeler hopes a similar effort will help the federal agency understand whether the promises wireless carriers make to customers are actually being kept.

With wireless broadband gaining in prominence, the FCC wants to do a better job monitoring a service most Americans use in some form while on-the-go. If providers like AT&T and Verizon Wireless are caught dramatically underperforming in coverage and speed, the agency may take that into account as part of its mission of regulatory oversight.

Consumers will also benefit from having an unbiased source that can offer regular analyses on the speed and performance of each carrier — useful information to have before being locked into a two-year contract.

Verizon, AT&T, T-Mobile, and Sprint are among the carriers agreeing to take part in the speed test project.

The FCC Speed Test app will initially be available for Android smartphones. There are no details about the release date of an Apple iOS version of the app, but the FCC’s Mobile Broadband Speed Test home page shows links (not yet active) for both versions of the app.

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Time Warner Cable: AT&T, Verizon Cannot Meet Broadband Demand With 4G Wireless Technology

freewifiA new research report issued by Time Warner Cable concludes cell phone companies like AT&T and Verizon Wireless cannot meet the future data demands of customers over their 4G LTE wireless networks without punitive usage caps and high fees to deter usage, even with new spectrum becoming available for the wireless industry’s use.

The report, authored by Michael Calabrese of the New America Foundation, finds an answer to this problem in Wi-Fi, which can offload wireless traffic and deliver wireless service customers already prefer:

There is simply not enough exclusively licensed spectrum to meet the rapidly rising demand for wireless data, to sustain a competitive market, and to keep prices at an affordable level.

Major mobile carriers are increasingly coming to grips with this reality. The Wireless Broadband Alliance, a global industry group, reports that Wi-Fi offloading has become an industry standard as “18 of the world’s top 20 largest telcos by revenue have now publicly committed to investing in deploying their own Wi-Fi Hotspot networks.” The industry is shifting steadily toward what it calls heterogeneous networks (HetNets)—i.e., a combination of licensed and unlicensed infrastructure—in order to meet their customers’ insatiable demand for data while keeping costs down.

Alcatel-Lucent forecasts an increase of “87 times [the current] daily traffic on wireless networks” over the next five years, with 50 percent of that traffic on cellular networks “while the remaining 50 percent will be offloaded to Wi-Fi.”

Cisco’s own studies back Calabrese’s findings on consumer preference towards Wi-Fi.

twc“Given a choice, more than 80 percent of tablet, laptop, and eReader owners would either prefer Wi-Fi to mobile access, or have no preference,” Cisco concluded. “And, just over half of smartphone owners would prefer to use Wi-Fi, or are ambivalent about the two access networks.”

The Cisco surveys found users are choosing Wi-Fi over mobile connectivity for reasons of cost, “because it doesn’t impose data-usage caps or reduce their mobile data plan quotas.” But the primary reason for choosing Wi-Fi “is that respondents find it much faster than mobile networks.” And since Wi-Fi traffic travels over increasingly upgraded wireline networks, that speed differential may only increase as more and more homes, businesses and retail outlets upgrade to fiber optic or other high-speed connections of 100Mbps or more.

America’s largest wireless carriers have fallen far behind offering Wi-Fi services to customers compared to their overseas colleagues:

  • AT&T: More than 32,000 Wi-Fi hotspots are available at partnered retail businesses, restaurants, and high-traffic areas like stadiums and major tourist destinations;
  • Verizon Wireless: Verizon has an insignificant Wi-Fi presence, with a small number of unadvertised hotspots in selected venues like airports and convention centers;
  • Japan’s NTT DOCOMO: Up to 150,000 hotspots, up from only 8,400 in 2o12.
  • China Mobile: More than 2 million hotspots are up and running carrying 70 percent of the company’s data traffic.
  • France’s Free Mobile: More than 4 million residential hotspots are available through Free’s parent – Iliad.
Comcast could soon be the nation's largest Wi-Fi hotspot provider.

Comcast could soon be the nation’s largest Wi-Fi hotspot provider.

Calabrese argues it is important for the United States to set aside significant spectrum for unlicensed wireless networks like Wi-Fi to meet future wireless demands. Currently, some Republican members of Congress are opposed to significant spectrum set asides they feel could best be monetized for private use through the spectrum auction process.

It is no coincidence that Calabrese’s findings would be released by Time Warner Cable which itself is growing a Wi-Fi presence in certain cities where it provides cable service.

The wireless carriers’ collective lack of interest in an aggressive nationwide Wi-Fi deployment may have provided a strategic opening for cable operators to fill that gap with Wi-Fi networks of their own. Cable operators consider them a useful tool to retain customer loyalty — access is typically free and unlimited for current customers.

This summer, Comcast announced a “neighborhood hotspot initiative” that will turn millions of customer cable Internet connections into shared Wi-Fi hotspots using a dual-use wireless home gateway. The equipment will offer two separate Wi-Fi signals — one intended for the customer and the other open for use by any Comcast customers in the neighborhood. The cable company will provision extra bandwidth for the open Wi-Fi network to ease concerns that guest users could theoretically slow down a customer’s own Wi-Fi channel. In a relatively short period, Comcast could become the nation’s biggest Wi-Fi network offering more than 20 million hotspots hosted by the company’s own broadband customers.

Calabrese points to the future of seamless transitions between wired, wireless 4G and Wi-Fi network access without dropping calls or data connections. Many customers won’t even know the difference.

The author recommends the FCC think about reserving space for new unlicensed “citizens band” frequencies dedicated for public and private Wi-Fi networks:

  • The FCC should reorganize the UHF TV band to ensure the availability of at least 30 to 40MHz of unlicensed spectrum in every media market, perhaps including Channel 37 (now reserved for radio astronomy) and eliminating two dedicated channels reserved for wireless microphones;
  • Open the grossly underutilized 3.5–3.7GHz federal band for unlicensed small cell antennas delivering a ‘Citizens Broadband Service.’ This band is now mostly used for offshore naval radar, allowing both services to co-exist without mutual interference;
  • Expand unlicensed access to the 5GHz band by allocating the 5.35–5.47 and 5.85–5.925GHz bands providing contiguous, very wide channels useful for the 802.11ac Wi-Fi standard that can support very high-speed wireless services.
http://www.phillipdampier.com/video/XFINITY Wireless Gateway Powers Connected Home Summer 2013.flv

Comcast talks about their new X3 Wireless Gateway which is capable of providing two separate Wi-Fi networks, one for the customer and another for the neighborhood. (2 minutes)

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Intrigue at Chapter 11 LightSquared: Dish’s Charlie Ergen vs. Harbinger’s Phil Falcone

Failure, Squared

LightSquared, the ill-fated venture to bring nationwide 4G wireless broadband to the masses may be all but gone and forgotten in bankruptcy reorganization proceedings, but the wireless spectrum it controls and the drama surrounding it is not.

A battle between billionaires and the hedge funds they support has broken out over who will ultimately control the failed venture — a hedge fund manager deep in LightSquared debt or the richest man in Colorado that often finds a way to get his way.

Harbinger Capital Partners’ Phil Falcone

Falcone

Falcone

Phil Falcone earned his first fortune trading junk bonds in the 1980s. In 2001, he launched Harbinger Capital Partners and by 2007, Falcone and his investors were well-positioned for a blizzard of cash betting against sub-prime mortgages just before the housing collapse and credit crisis that followed. Falcone took home $1.7 billion in compensation that year while an epidemic of foreclosures and upside down mortgages was just getting started.

In late 2008, when the economy was in free-fall, Falcone suspended or limited withdrawals from his largest funds, upsetting investors who couldn’t get their money out. But Falcone reportedly gave special treatment to certain large investors (sources say Goldman Sachs is among them) who were able to clear out their exposed accounts before the losses piled up.

By 2009, Falcone was again making money — so much he vastly underestimated his federal and state tax bills. What’s a cash-strapped billionaire to do? Quietly loan himself $113.2 million from one of his investment funds at a favorable interest rate and keep it a secret from investors for five months. When they eventually found out, they were understandably disturbed. Falcone had barred those same investors from cashing out of the fund he borrowed from.

The Securities and Exchange Commission was not happy either and filed charges against Falcone.

“Today’s charges read like the final exam in a graduate school course in how to operate a hedge fund unlawfully,” Robert Khuzami, director of the S.E.C.’s division of enforcement, said in a statement. “Clients and market participants alike were victimized as Falcone unscrupulously used fund assets to pay his personal taxes, manipulated the market for certain bonds, favored some clients at the expense of others, and violated trading rules intended to prohibit manipulative short sales.”

Despite the publicity generated by the SEC, investors who appreciated Falcone’s ability to earn them money allowed them turn a blind eye to the ethics questions and pour money into Falcone’s latest venture — a wireless network known as LightSquared.

LightSquared was preparing to launch a unique nationwide 4G LTE mobile broadband network powered by satellites and ground-based cell towers, selling wholesale access to third-party wireless companies able to market the service under their own brand. Falcone’s funds poured nearly $3 billion dollars into the venture while getting a waiver from the government to operate high-powered transmitters on the “L” band — 1525-1559 MHz. LightSquared’s plans alarmed the next door neighbors — GPS satellites facing interference issues that would hurt the accuracy of precise location information provided to millions of tracking devices on the “L1″ band — 1559 to 1610 MHz.

Initial testing showed that significant interference from the prototype ground-based transmitters would occur and potentially could cripple aviation and public safety GPS users. The FCC eventually withdrew permission for LightSquared to run its network as planned, a potential death-blow to the venture.

Creditors grew anxious wondering how LightSquared would be in a position to repay its loans when it was unable to launch its wireless network.

In May 2012, creditors forced the issue and LightSquared filed for bankruptcy protection, listing assets of $4.48 billion and debts of $2.29 billion. Falcone claimed the bankruptcy filing would give the company more time to overcome the FCC’s objections to its network operations plan. Falcone estimated it would take two years to secure a resolution. Analysts familiar with the FCC suggested Falcone might die of old age before the agency gave way.

Falcone’s subsequent efforts to win back control of the venture have been made more difficult because one man has been quietly buying up large amounts of LightSquared’s debt with designs on the venture’s spectrum.

Dish Networks’ Charles Ergen

dish logoWith LightSquared’s debt trading at around 50 cents on the dollar, Charlie Ergen went shopping.

Ergen has been involved in the satellite business for decades. Today, he controls and runs Dish Network, a satellite television provider that has seen the back of high customer growth. Dish and DirecTV are both locked out of the “triple play” business most cable and phone companies offer customers. Neither company can offer broadband or telephone service without partnering with another provider. As cord-cutting continues to take hold, customers willing to pay for increasingly expensive television packages are in decline. That likely explains Ergen’s interest in acquiring wireless spectrum — to build Dish into a broadband, television, and telephone service provider.

In May, Dish publicly bid $2.2 billion for certain spectrum assets from LightSquared. But for more than a year earlier, Ergen was quietly buying up LightSquared’s debt through holding companies and hedge funds.

Ergen created an opaque investment entity named “SP Special Opportunites, LLC” a/k/a “Sound Point” to buy LightSquared debt. Separately, Ergen asked Stephen Ketchum, a former investment banker with close ties to Ergen, to buy over $1 billion in LightSquared debt securities through Ketchum’s hedge fund. From April 2012 until May 2013, Sound Point allegedly spent $1,013,082,326.30 to purchase secured debt for Ergen’s personal benefit and without the knowledge of Dish or its board of directors. Secured debt held by creditors is paid first in a bankruptcy proceeding, and Ergen quietly because LightSquared’s largest single secured creditor.

That puts Charlie Ergen in a major ethical dilemma.

The more Dish offers to pay for LightSquared, the more money Ergen will be paid to cover the shares of LightSquared’s secure debt. Ergen has a controlling interest in Dish, which means he can order Dish to overpay for LightSquared, personally pocketing the proceeds.

Bloomberg’s Matt Levine explains the shady deal:

“An executive going around and buying up an asset for cheap, then convincing his company to buy all of that asset for a higher price – doesn’t come up a lot because it’s so obviously shady,” Levine wrote. “If you’re supposed to be devoting your time and energy to finding opportunities for your company, it looks pretty bad to steal those opportunities for yourself.”

Falcone was outraged when he learned of Ergen’s stealthy acquisitions.

Ergen

Ergen

In July, Harbinger accused Ergen of “fraudulently” becoming a creditor to block efforts by LightSquared to reorganize and emerge intact from bankruptcy. Instead, Harbinger accused Ergen of seeking to acquire the company’s assets “on the cheap.” Harbinger also points to provisions in a LightSquared debt agreement that forbids certain competitors from buying the company’s debt.

Also upset are several major Dish Network shareholders who are not pleased Ergen’s private deal could make him a lot of money while costing shareholders plenty should Dish overpay for LightSquard’s assets or worse, end up with everything but the spectrum Dish covets.

At least five lawsuits have been filed since August, accusing Ergen and other board members of casting their fiduciary duties to the wind and wasting money along the way. They are also upset Ergen and his connections purchased $1 billion in LightSquared debt at a substantial discount and will likely be repaid the full face value of those debts with Dish Network’s money. That means nearly $300 million in personal profits for Ergen.

The latest shareholder lawsuit was filed by the Louisiana Municipal Police Employees’ Retirement System. It along with the suit filed by the City of Daytona Beach Police Officers’ and Firefighters’ Retirement System claim Ergen’s near-total control of Dish’s board of directors makes it impossible for the board to meet its obligation of representing shareholder interests first.

“Ergen’s control over the company and the board is highlighted by the numerous transactions he has caused Dish to enter into with members of his family,” the lawsuit states.

Ergen and Dish’s efforts to insulate themselves from charges of conflict of interest didn’t fly with many investors.

One lawsuit noted Tom Ortolf, one of the directors on the supposedly independent committee reviewing Dish’s bid, has a daughter that works at Dish; the other, George Brokaw, chose Mr. Ergen’s wife, Cantey Ergen—a Dish director named in the shareholder suit—to be the godmother of his son.

The discomfort level at Dish reached high enough to prompt one board member, Gary Howard, to suddenly resign in early September. Howard was also on the committee formed to vet the LightSquared deal because of the potential conflict of interest on Ergen’s part.

Before Falcone could claim the high road at Ergen’s expense, this week New York’s top financial regulator banned Falcone from managing Fidelity & Guaranty Life Insurance Company of New York for seven years. Harbinger Group bought Fidelity & Guaranty, the U.S. life and annuity unit of London-based Old Mutual Plc, for $350 million in 2011.

http://www.phillipdampier.com/video/Bloomberg LightSquared 9-5-13.flv

Bloomberg News discusses the high drama between LightSquared and Dish Network. (4 minutes)

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