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

[flv width=”480″ height=”290″]http://www.phillipdampier.com/video/AP T-Mobile Merger Dead 12-19-11.mp4[/flv]

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)

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/Bloomberg ATT Pulls T-Mobile Bid After Regulator Opposition 12-19-11.mp4[/flv]

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)

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/Bloomberg Blair Says ATT’s T-Mobile Bid Was All About Spectrum 12-19-11.mp4[/flv]

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)

[flv]http://www.phillipdampier.com/video/CNBC Baird on ATT T-Mobile Failure 12-20-11.mp4[/flv]

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)

[flv]http://www.phillipdampier.com/video/CNBC ATT Drops Bid for T-Mobile 12-20-11.mp4[/flv]

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

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

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

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/Bloomberg Horan Sees T-Mobile Eventually Merging With Sprint 12-19-11.mp4[/flv]

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)

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Bloomberg Gamcos Haverty Says Sprint an Endangered Species 12-19-11.flv[/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?

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

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)

RIM has a new PR problem.

Research in Motion, already reeling from a year of bad news about its beleaguered BlackBerry, is now red-faced over reports that two of its employees got drunk and engaged in raucous mayhem on an Air Canada flight to Beijing that grew so out of control, the pilots were forced to land the plane in Vancouver.

Now, the CBC has garnered an official transcript from a sentencing hearing which has further tarnished the image of RIM over its employees’ behavior, which a B.C. Provincial Court Judge called “disgusting.”

Pre-boarding, some fellow passengers noticed the pair of corporate executives appeared highly inebriated.

CBC News quoted from the court transcript: “…When the males boarded the flight they seemed quite intoxicated, they drank more, passed out, one would wake up and lean over the little cubicle, slap the other guy on the head because he wanted somebody to drink with, and then they would yell and abuse each other, then they’d pass out, then they’d wake up and start kicking again.”

When other passengers tried to intervene, they were threatened.  One was told “I know who you are,” while others were warned by one of the executives he would “off people when they left the plane.”

Eventually, both men were wrestled kicking and screaming to the floor, assaulting one flight attendant in the process.  Even a combination of plastic restraints and heavy tape were not enough.  Police reports indicate both men literally chewed through the plastic cuffs and ripped the tape off with their teeth.

At that point, pilots declared a security emergency and diverted the plane first to Anchorage, but quickly settled on much-closer Vancouver, where authorities met the aircraft and took both men into custody.

Air Canada eventually pegged its losses (assuming nobody files a civil case against the airline for the ‘air show’) at $193,900, which includes putting up passengers in Vancouver hotels overnight, extra fuel, navigation charges, and flying in a new crew for the resumption of the flight the following morning.

The B.C. Court Judge swiftly fined the two executives $70,000 to cover the costs of the hotel and meal vouchers for the passengers.  The judge wouldn’t hear defense attorney objections.

“I am somewhat sympathetic to your position but I am, quite frankly, absolutely disgusted with the actions of these two individuals who know better and acted like absolutely — well, I can’t say it. But that is the punishment that they should suffer,” the judge ruled.

Both men were quickly fired from the company when they returned to their Waterloo, Ont. homes.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/CBC News RIM Executives Launch Mayhem 12-12-11.flv[/flv]

CBC News has this exclusive report about the chaos caused by Research in Motion executives on Air Canada’s Flight 31.  (4 minutes)

A-la-carte cable: Still not on Rogers' menu

Carol Jameson simply can’t afford to spend $70 a month for cable television any longer.  Although Canada’s economy is doing better than some, Jameson’s husband recently had to endure a pay cut, and the costs of raising their two teenage children are not getting any lower.  The London, Ont. Rogers Cable customer ran several kitchen table meetings to discuss what expenses could be cut from the family budget.  Her teenage son and daughter targeted the family’s landline telephone — an archaic curiosity of the past for today’s cell-phone-obsessed youth, and cable-TV, which they saw as increasingly irrelevant.

“Just don’t touch the Internet connection,” Carol was advised.

Despite concerns from her sports-addicted husband, Jameson decided to start shopping around, and definitely decided the days of their landline was over.  In her neighborhood, “shopping around” meant choosing from Rogers Cable or a satellite TV provider.  Bell’s Fibe — fiber to the neighborhood — service was not up and running in her part of London.

“I had settled on a basic satellite package and keeping Rogers’ broadband and called the cable company to share the bad news,” Carol tells Stop the Cap! “But when I tried to cancel, I was transferred to someone who said I could stay and pick and choose only the channels I wanted to watch and pay for.”

Carol was shocked Rogers had a solution for her high cable bill that it never bothered to share until she tried to cancel.

“You can’t find a thing about this deal online or even on the phone with Rogers’ customer service, and who would think to ask after years of getting dozens of channels we never watch,” Jameson says.

Carol was being pitched Rogers’ new “Pick and Pay” service, currently undergoing a five month trial in the London area.

“I was offered the service until March 2012, after which I was advised to call Rogers back and discuss my options after the trial ends, if it ends,” Jameson tells us.

Rogers’ “Pick and Pay” is a modified a-la-carte suite of offerings.  It does not allow customers to pick and choose only the channels they wish.  It instead asks customers to sign up for a $20 basic cable package containing local broadcasters and certain other channels Canadian telecommunications regulators want all Canadians to have access to, and several channels Rogers wants their customers to have (home shopping, The Fireplace, Aquarium, and Sunset Channels, etc.)  Beyond that, customers can choose from mini-packages of Canadian superstations, U.S. broadcast stations, and digital music.  Customers then select 15, 20, or 30 channels of their choosing ranging in price from $26.38-$33.48 per month.

“It’s better than $70 a month, but not by too much,” Carol says.

Carol and her husband decided to consider the offer, but found an exact list of channels hard to come by.

“That’s not a problem limited to me,” Carol reports. “The Globe & Mail featured Rogers’ new cable package and the customer in that case had to obtain a photocopied list of channel choices because Rogers didn’t have one online.”

Carol ended up with the 20 channel add-on package and the U.S. network station suite, which runs $28.41 and $3, respectively.  That means her cable TV bill dropped to $52 a month, just over $22 a month less.

Rogers' scarce photocopied channel listing for their "Pick and Pay" package, obviously removed from an employee's three-ring binder.

“But here is where Rogers gets you by your pocketbook,” Carol warns. “You have to take Rogers’ phone service with the deal, so now the landline is back, although they charge less than Bell.”

Jameson also notes these prices do not include mandatory extras:

• $4.49 – Digital terminal rental (per TV)
• $2.99 – Digital service fee
• $0.70 – Local Programming Improvement Fund Fee
• + G.S.T. (taxes)

“So much for the savings,” Carol says.

The Globe & Mail speculates the Rogers’ trial is rigged to convince Canadian regulators there is little interest in a-la-carte cable, at least the way Rogers has packaged it (and kept it hidden from public view):

In September, the Canadian Radio-television and Telecommunications Commission said that it had received complaints from consumers about being forced to pay for too many channels they do not watch, and that it expects cable and satellite companies to change that. The CRTC ordered all TV providers to report back by April on what actions they have taken to give subscribers more choice.

But cable and satellite executives have told the CRTC in hearings that there is no consumer demand for cheaper, “skinny basic” packages that offer fewer channels at lower cost than today’s basic TV packages. And some think that Rogers will use the London example to tell the CRTC that there isn’t much demand for the product.

Customers like the Jameson family might end up unwittingly proving Rogers’ point.

“After all of the extras, we rejected the plan and were all ready to switch to satellite and keep the broadband, but at the last minute Rogers offered us new customer pricing on their standard package for a year if we agreed to stay, and we did,” Carol tells us.  “A-la-carte cable is exactly what we need, but this isn’t it.  Maybe that is why Rogers keeps it a secret.”

Verizon Wireless customers in New Jersey were startled Monday when the company sent out text messages labeled “Extreme Alert,” telling people a civil emergency was underway and they should seek immediate shelter.

No, Jersey Shore’s Snooki was not in the building.  It turned out to be a bungled test of the cell phone company’s emergency alert system, designed to text important information to cell phone customers located in specific geographic areas.

The fact Verizon forgot to mention “this is only a test” alarmed those receiving the warnings, as well as area 911 call centers that were subsequently flooded with calls.

Verizon admitted it sent the messages by mistake to customers in Middlesex, Monmouth and Ocean counties.

Emergency officials in all three counties began receiving calls from worried residents and the state homeland security office and emergency management center eventually posted messages on Twitter declaring the messages a false alarm.

At least Verizon didn’t charge customers for the text messages.  They, like other company-initiated communications, come free of charge.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WABC New York EAS Alert 12-12-11.mp4[/flv]

WABC’s New Jersey reporter talked with recipients of Verizon’s scary text message, and emergency officials who had to deal with the onslaught of phone calls from worried residents.  (2 minutes)

If they build it, will Verizon, Time Warner Cable, or Comcast come?

The Massachusetts Broadband Institute (MBI) has just received a major shipment of cable it will use to construct part of its 1,300-mile fiber optic network, designed to provide better-than-dialup service to over 120 communities in western and north central Massachusetts.  That is, if providers show any interest in selling access to it.

The news that the broadband blockade in the western half of the state may finally come to an end is being trumpeted by local newspapers and TV newscasts from Springfield.  WSHM used the occasion to celebrate with current AOL dial-up user Ryan Newhouser, of Worthington:

A high-speed informational highway will be set up with thousands of miles of high-speed fiber optic cables. Those fibers will now be installed on utility polls across Western Mass.

Now residents sitting at their computers in frustration can finally look forward to high-speed internet access.

Perhaps.

As Stop the Cap! first explored earlier this year, the new fiber network is good news for western Massachusetts.  But it alone will not deliver service to the masses who desperately want faster Internet access.

The incumbent phone and cable companies have certainly not shown much interest.  Verizon treats western Massachusetts much the same way it served its landline customers in the rest of northern New England (Maine, New Hampshire, and Vermont.)  The company’s landline network was allowed to deteriorate along with Verizon’s interest in providing service in the largely rural states.  Eventually, it sold its operations north of Massachusetts to FairPoint Communications.  Comcast and Time Warner Cable are missing in action in many parts of the region as well.  As big phone and cable companies concentrate investments in more urban areas like Boston, many residents in places like Worthington can’t buy broadband service at any price.

MBI optimistically hopes the presence of its new fiber backbone and middle-mile network will change all that.  But outside of AT&T’s apparent interest it to provide service to its cell towers, there has been no publicly-expressed enthusiasm by Verizon or cable operators to begin serious investment in broadband expansion across the region.

The Last Mile Network Challenge

So what is holding western Massachusetts back?  The same thing that keeps broadband out of rural areas everywhere — the “last-mile” problem.  Traditionally, operators target urban and suburban areas for their investments because the construction costs — wiring up your street/home/business — can be recouped more easily when divided between a pool of potential customers.  Every provider has their own “return on investment” formula — how long it will take for a project to pay for itself and begin to return profit.  If your street has 100 homes on it, the chances of recouping costs are much higher than in places where your nearest neighbor needs binoculars to see your house.  Pass the ROI challenge and providers will invest capital to wire your street.  Fail it and you go without (or pay $10,000 or more to subsidize construction costs yourself.)

That is why eastern Massachusetts has plentiful broadband and the comparatively rural western half often does not.

MassBroadband 123 is the state’s solution to the pervasive lack of access across the western half of The Bay State.  It will consist of a fiber backbone and “middle mile” network, solving two parts of a three-part broadband problem.  The project’s commitment to deliver open access to institutions and commercial ISPs across the region is partly thanks to the availability of broadband grant money, particularly from the federal government.

Projects similar to MBI’s MassBroadband 123 typically include the hoped-for-outcome that private companies will step up and invest to ultimately make service available to end users.  Unfortunately, large incumbent providers often remain uncommitted to wiring the last-mile, and communities promised ubiquitous broadband end up with an expensive institutional network that only serves local government, public safety, schools, libraries, and health care facilities.

Thankfully, it does not appear MBI is depending on Verizon, which has shown no interest in spending significant capital on its legacy landline network or cable operators that are unlikely to break ground in new areas.

Communities are increasingly learning if they don’t have service today, the only real guarantee they will get it is by providing it themselves.  That is where WiredWest comes in.  It is a community-powered partnership — a co-op for broadband — pooling resources from 22 independent towns (with 18 more expected to join) to build out that challenging last mile, and deliver future-proof fiber to the home service.  No last generation DSL, slow and expensive fixed wireless, or limited capacity coaxial cable networks are involved.

WiredWest Members

Founding member towns span four counties, including Berkshire County towns of Egremont, Great Barrington, Monterey, New Marlborough, Otis, Peru, Sandisfield, Washington and West Stockbridge; Franklin County towns of Ashfield, Charlemont, Conway, Heath, New Salem, Rowe, Shutesbury, Warwick and Wendell; Hampshire County towns of Cummington, Heath, Middlefield and Plainfield; and the Hampden County town of Chester.

Most of the construction costs for the new network will likely come from municipal bonds, because government grants typically exclude last mile network funding.  Commercial providers often lobby against municipal-funded networks as “unfair competition,” a laughable concept in long-ignored western Massachusetts, where Verizon pitches slow speed DSL, if anything at all.

WiredWest compares rural broadband with rural electrification.  Community-owned co-ops provide service where few private companies bothered to show interest:

Think back to the rural electrification of America. Then, as now, it wasn’t profitable enough for private companies to build out electrical service to rural communities. Imagine where those communities would be today if the government hadn’t stepped in to help fund this essential service – which over time has sustained itself and become a profitable enterprise.

Rural fiber-to-the-home is affordable when you use an appropriate financing and business model that isn’t subject to the same short-term measures of profitability as a private company. A municipal model for example, allows capital investment that can be written off over a longer period of time.

This type of business model isn’t limited to community-owned broadband.  Other countries that treat broadband as an essential utility have, in some cases, boosted broadband beyond a simple cost/benefit “ROI” analysis.

Constructing a broadband network for western Massachusetts still presents some formidable challenges, however:

1. There is a serious imbalance in government grant programs.  A largesse of government funding for institutional broadband has delivered scandalously underused Cadillac-priced networks communities, libraries and schools cannot afford to operate themselves once the grant money ends.  Meanwhile, funding to cushion the cost of wiring individual homes and businesses is extremely scarce.  Isn’t it time to divert some of that money towards the most difficult problem to overcome — wiring the last mile?
2. Government impediments to community broadband must be eliminated.  Repeal laws that restrict public broadband development.  Early experiments in municipal telecom networks have taught valuable lessons on how to operate networks efficiently and effectively.  But the broadband industry engages in scare tactics that highlight failures of older public projects like community Wi-Fi in an effort to keep superior publicly-owned fiber-to-the-home networks out of their markets.
3. The public is not always engaged on the broadband issue and accepts media reports that misunderstand institutional broadband as a solution for those stuck using dial-up.  No matter how good a network is, if the “last mile” problem remains unsolved, the closest consumers like Mr. Newhouser will get to fiber service is looking at the wiring on a nearby telephone pole.  In many communities, fiber broadband paid for by public tax dollars is only accessible at the local public library.  Taxpayers must demand more access to networks they ultimately paid for out of their own pockets, and should support existing public broadband initiatives wherever practical.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WSHM Springfield Broadband internet coming to western Mass 12-8-11.mp4[/flv]

WSHM in Springfield says if you don’t have broadband in western Massachusetts now, it should be coming to your area soon.  But will it?  (3 minutes)