Frenzied stock trading of shares of Frontier Communications began Tuesday as bearish investors placed a record number of bets the company would lose more than a third of its value by August.

Nearly 87,000 “puts” on Frontier changed hands, which is 66 times the monthly average.  This form of derivative trading lets an investor sell stock at a pre-specified, fixed price within a limited time frame, even if the stock price crashes.  These “puts” are comparable to insurance policies, usually sought by investors who believe a stock is about to rapidly decline in value.

Almost all of the volume was generated in two major trades yesterday.  Investors bought July and August puts at the $7.50 level, which suggests at least some investors are betting Frontier stock will decline below that amount.  If it does, they can still sell shares at $7.50.  Frontier fell 17 cents to $7.69 in New York Stock Exchange composite trading Tuesday. It has dropped 1.5 percent so far this year.

Speculation about why the sudden pessimism about Frontier Communications was sprinkled throughout the financial press.

“The motivation for the trades could be outright bearish,” Caitlin Duffy, an equity options analyst at Greenwich, Connecticut-based Interactive Brokers Group told Bloomberg News. “But it could also be someone buying downside protection if they’re long with a large position in Frontier.”

One factor they may be forgetting is the recent completion of Frontier’s acquisition of Verizon landlines in more than a dozen states.  On July 1st, Verizon will spin off its entity New Communications Holdings Inc., created specifically for the tax-free sale, to Frontier.  In effect, Verizon shareholders will suddenly own between 66 and 71 percent of the shares of Frontier and Frontier stockholders will be left with the remaining 29-34 percent.

Should Verizon shareholders decide that Frontier could follow earlier Verizon spinoffs into financial disaster, they’ll want to dump their shares of Frontier stock as fast as possible, causing the share price to plummet.  Those investors buying “puts” may be guessing that is precisely what is about to happen, and they’re hedging their bets.

AT&T offers up the common practice of boasting about how much you can do with a usage-limited account, based on the thousands of e-mails you'll never send, the 500 pictures you'll never take, or the one minute YouTube clips you'll never watch. Notice they never seem to include figures for streaming multimedia applications like music, movies, and TV shows or playing more bandwidth-intensive games. To do so would only upset customers further.

AT&T claims that 98 percent of its customers will save money under its new lower-priced usage-limited data plans, but an analyst predicts those savings will vanish for half of AT&T’s customers by 2013, exposing them to steep overlimit penalties.

Independent analyst Chetan Sharma crunched the numbers:

The average customer will consume more than 2 gigabytes of data a month within three years, up from 150 megabytes in 2009. Though AT&T could change its rates in the future, the cost of such data use at current rates is $35 a month. That would make it more costly than the $30 AT&T previously charged for unlimited data use.

“The devices are getting much, much better so the opportunities to multitask are more attractive,” said Sharma, who has written five books on mobile technologies and consulted for companies such as Motorola Inc. and Qualcomm Inc.

It’s not only heavy data users who may be affected, Sharma said. By year’s end, the average AT&T customer will have doubled their data consumption from 2009 to 320 megabytes, according to his estimates. Only 35 percent of AT&T’s smartphone customers use 200 megabytes of data or more, the company said.

Sharma’s forecast that half of AT&T’s smartphone customers will use more than 2 gigabytes of data is “not unreasonable,” said Christopher King, a Stifel Nicolaus & Co. analyst in Baltimore, though he said it’s difficult to predict such trends because they depend on the introduction of new phones, applications and wireless technologies.

AT&T’s new Internet Overcharging scheme has built-in profits as customers increasingly bump into the subjective limits the company imposes on its wireless customers.  Many customers have complained the 200 megabyte plan is too small to accommodate anyone but the most casual data user, while others find 2 GB too small to make video viewing more than an occasional treat.  Customers who exceed either limit face higher bills:

• Customers exceeding 200 MB in a monthly billing cycle face a $15 overlimit penalty, which nets them another 200 megabytes of service;
• Users who exceed the 2-gigabyte level will be forced to pay an additional $10 per month for an additional 1 gigabyte of service.

Even King believes AT&T’s limits are too low.

“There’s no way that AT&T is going to maintain their tiered pricing as they do today,” he said. “They’ll have to raise the caps on data usage.”

Frontier Communications filed suit Tuesday against Google claiming the search giant stole its patent for giving users one phone number connecting their home, work and cell phones, the core feature of Google Voice.

Frontier, the independent phone company based in Stamford, Connecticut, claims it holds the patent for allowing a subscriber to “be reached on multiple telephone lines from a single dial-in number.”

“Google’s deliberate infringement of the patent has greatly and irreparably damaged Frontier,” the lawsuit charges.  Frontier is seeking unspecified damages and an injunction to stop the use of the technology.

The lawsuit distracted from Google’s announcement that Google Voice was out of beta and now available to anyone in the United States.  Google Voice lets users obtain a free phone number that will ring multiple telephones and screen calls.

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The one number follow-me feature is hardly new to either Google or Frontier.  Phone companies have offered similar features to businesses through telephone products like Centrex since the 1960s.

Frontier filed its lawsuit hours after the U.S. Patent and Trademark Office issued Frontier’s requested patent.

“We believe these claims are entirely without merit, and we’ll defend against them vigorously,” said Google spokesman Andrew Pederson.

Frontier will likely face an uphill battle in its lawsuit, because the company’s patent request from 2007 comes two years after Google Voice’s predecessor, GrandCentral launched service in 2005.  Google acquired GrandCentral in 2007, rebranding it as Google Voice. GrandCentral offered the same “one number” feature Frontier is complaining about two years before the phone company applied for its patent.

Perhaps Frontier’s lawyers might acquaint themselves with the concepts of “prior art” and “first-to-invent.”

Verizon Wireless is contemplating the end of flat rate, unlimited data plans as it introduces fourth generation data networks this year.

“We will probably need to change the design of our pricing where it will not be totally unlimited, flat rate,” John Killian, chief financial officer of Verizon Communications Inc., the wireless unit’s parent, said in an interview at Bloomberg’s headquarters in New York.

Verizon expects “explosions in data traffic” as the company introduces customers to its 4G network, potentially ten times faster than older mobile broadband technology.  Verizon Wireless, already capturing enormous sums of revenue from consumers forced into mandatory, expensive data plans when they upgrade to smartphones, will soon discover some serious limits on those plans.

The irony is, Verizon’s 4G upgrade will bring wireless broadband speeds to consumers they realistically cannot use for much more than web browsing, e-mail, and low-bandwidth apps.  Video downloads will burn through data limits imposed at the level AT&T introduced for its customers earlier this month.

Killian

Wall Street wants consumers re-educated to believe broadband can never be unlimited and must be treated as a precious, limited resource.

“The more bandwidth that you make available, the faster it will be consumed,” said Craig Moffett, analyst at Sanford C. Bernstein & Co. in New York. “From Verizon’s perspective, the last thing you want is for another generation of consumers to be conditioned to the idea that data is always going to be uncapped.”

Moffett’s clients hope that is true because usage limits will control costs and make customers think twice about using their data features on their phones.  Reduced demand equals increased revenue, just what Wall Street ordered.

Verizon Wireless has already set the stage for that increased revenue with mandatory add-on plans that boost customer bills, especially for those buying smartphones.  Although just 17 percent of Americans own smartphones today, Verizon predicts 70-80 percent of customers will upgrade to smartphones in the next few years.  That guarantees an “upgraded” bill as well.

Estimates about current average data usage from smartphone customers ranges from 200-600 megabytes per month, but that was before the arrival of video-friendly 4G network technology and the newest generation of phones optimized for video, which can easily consume ten times as much.

Verizon recognizes the “video threat,” and press reports suggest the limits will only be imposed on the 4G network.  Current generation 3G networks make viewing video tedious, a natural barrier for customers planning to “use too much.”

Verizon’s widely anticipated limits, almost certainly to be equivalent to AT&T’s with respect to allowances and pricing, may dampen enthusiasm for the iPhone on Verizon’s network.  Any existing AT&T customer is grandfathered into unlimited data plans for their smartphones.  If those customers leave AT&T, they will be forced to take a usage-capped data plan from Verizon with no looking back.  AT&T won’t provide unlimited plans for customers returning to their fold.

Dick Cheney's ghost is haunting the halls at the FCC these days as the agency conducts secret, closed-door meetings with just four companies to achieve "common ground" on broadband regulation. Consumers are not invited to attend.

In 2001, Vice President Dick Cheney convened the first meeting of the always-off-the-record National Energy Policy Development Group.  Secretly inviting executives of the nation’s largest oil companies and lobbyists for natural gas and mining, Cheney hoped to find “common ground” on energy issues that he could translate into legislation on Capitol Hill.  The final report kept the names of the self-interested corporate executives off the member roster, and predictably called for legislative actions that would directly benefit those in attendance.

In June 2010, a series of meetings with FCC Chairman Julius Genachowski’s chief of staff and executives from AT&T, Verizon, Google and Skype got underway to find “common ground” on the issues of broadband regulation and Net Neutrality.  With irony, the same FCC that promised it would be “the most open and transparent ever” has barred the press and the public from participation.  No consumers were invited.  No minutes from the meetings will be disclosed.  In short, these are “closed-door” meetings.

Even more surprising, apparently the FCC forgot to invite Comcast, the cable conglomerate most directly responsible for the agency having its authority cut from beneath it in the first place.

When the Washington Post asked Eddie Lazarus, Genachowski’s chief of staff, what was on the agenda, only vague notions about “seizing the opportunity” to find common agreement on issues like Net Neutrality were disclosed.  Lazarus added the big four were also there to give input on Congress’ interest in revising the Communications Act.

That’s great news for thousands of Washington’s lobbyists who helped fashion the disastrous 1996 Communications Act that represented Christmas morning for corporate interests — more deregulation in the broadcast business which lead to massive consolidation, giveaways to the cable and telephone industry, and more handouts to wireless companies.

What was supposed to be a law to govern the public interest of the airwaves and telecommunications turned into a lobbyist feeding frenzy.  Consumers couldn’t afford the price of admission. Reopening the Communications Act means telecom companies from coast to coast can get busy working on their Christmas wish lists for the 500+ Secret Santas that live and work in the legislative branch of government these days, especially on the Republican side of the aisle.

Of course, the real outrage here is the FCC’s hope that the four companies can reach some agreement on contentious broadband issues and then the agency can do away with the entire matter of broadband regulatory reform.  Why fight the battle if you can compromise the issue away?  No matter what the four agree on, there are still many outstanding issues relating to consumer protection which cannot be negotiated by four corporate entities.

Those on both sides of the broadband regulatory issue are appalled at the secrecy.  Brett Glass, who opposes Net Neutrality and runs a WISP in Wyoming asked, “What happened to Chairman Genachowski’s promises of “the most open and transparent FCC ever?”

Indeed.

Lazarus tried his best to paper over the serious implications of holding secretive meetings in a blog post:

Senior Commission staff are making themselves available to meet with all interested parties on these issues. To the extent stakeholders discuss proposals with Commission staff regarding other approaches outside of the open proceedings at the Commission, the agency’s ex parte disclosure requirements are not applicable. But to promote transparency and keep the public informed, we will post notices of these meetings here at blog.broadband.gov. As always, our door is open to all ideas and all stakeholders.

In part, here was our response to Mr. Lazarus:

There is no transparency or openness in closed-door meetings that bar the public from participation. It’s just more of the same inside-the-beltway deal-making that will undercut consumers. Believe it or not, there is more at stake here than whatever issues Verizon, AT&T, Google, and eBay have to discuss.

And what if the four agreed on anything (improbable)? Does that mean the rest of us are expected to go along to get along?

The FCC’s door is -not- open to all ideas and stakeholders when the chairman’s chief of staff only invites four voices to his table.

There is nothing open and transparent about secret meetings peppered with excuses about why disclosure rules do not apply.

[Update 10:30am ET Wednesday — The DailyFinance quotes a government source: “We fu*ked up,” a government source familiar with the meetings told DailyFinance. “We deserve the bad press. It was a process foul at a minimum.”]