AT&T executives with dreams of a consolidated wireless marketplace are not having a happy Thanksgiving holiday today as the company quietly released news it is withdrawing its application with the Federal Communications Commission to buy T-Mobile USA from German parent Deutsche Telekom.

“The deal is over the cliff and falling rapidly into the sea,” one unnamed analyst told Bloomberg News this morning.  “The only thing left to do is cut T-Mobile a check for $6 billion in cash and spectrum.”

AT&T’s accountants are evidently preparing to do just that, booking at least $4 billion in “one time costs” this quarter, representing a significant chunk of the breakup fee.  Even as AT&T’s bookkeepers bow to the likely unconsummated marriage with T-Mobile, AT&T’s spin for the media is that the deal is still a go; the company only withdrew the FCC application to fully focus on the Justice Department case against the merger.

Odds-makers on Wall Street don’t buy it.

“What that tells you is AT&T’s auditors have now concluded that the deal is likely to fail and have forced the company to take that charge,” Will Draper, an analyst at Espirito Santo told Bloomberg.

Andrew Schwartzman, policy director of Media Access Project, called the move an “act of desperation.”

T-Mobile executives insist the deal is still on, however. AT&T and Deutsche Telekom plan to renew their attempt to gain FCC approval “as soon as practical,” T-Mobile executives claim. “This doesn’t mean that anything is over,” said Andreas Fuchs, a spokesman for the German company.

One bonus for AT&T: the decision to withdraw the application from the FCC will let AT&T maintain confidentiality of documents filed with the Commission in support of the merger.  An unnamed FCC official has been leaking portions of them to the media all week.  Among the most important revelations: AT&T’s public claims that the merger will create jobs ran headlong into their own internal documents, which guarantee the exact opposite, according to the official.

If AT&T’s merger with T-Mobile is approved, it would create an industry behemoth with 134 million customers, dwarfing current market leader Verizon Wireless.

Draper says the $4-6 billion award to T-Mobile for a merger failure still won’t be enough for the company to upgrade its network.

“They’re still going to have a very, very big problem in the U.S., which is going to cost them maybe $10 billion to fix,” he said.

Shark-infested waters for AT&T and T-Mobile USA

Months after the U.S. Department of Justice announced its formal opposition to the merger of AT&T and T-Mobile, the Federal Communications Commission yesterday announced it would hold its own unusual “administrative hearing” to review the deal regardless of the outcome of a Justice Department lawsuit.

It has been more than nine years since the FCC last held such a hearing, which derailed the proposed merger of satellite TV providers DISH Network and DirecTV.  It is the clearest indication yet that regulators are deeply uncomfortable with the deal.

FCC Chairman Julius Genachowski waited for the Justice Department to announce its opposition to the deal before making his own concerns known.  The decision to pursue the special hearing, which won’t begin until 2012 and is likely to take several months, follows the lead of antitrust regulators at the DOJ.

It represents a nightmare scenario for AT&T, which has spent millions lobbying and promoting a merger with Deutsche Telekom’s T-Mobile USA.

An unnamed FCC official told The Wall Street Journal AT&T’s campaign has been playing fast and loose with the facts, particularly relating to claims the merger will create up to 100,000 new jobs. The official, who has seen confidential document filings from AT&T, says the phone company’s secret papers reveal the exact opposite — “massive job losses” if the deal gets approved.

Most companies confronting an FCC administrative hearing think long and hard about the prospects of the deal. Unlike an antitrust legal case, which must prove that a merger will substantially undercut competition, the FCC need only prove a deal is contrary to the “public interest” to reject it, a much lower hurdle.

When DirecTV and DISH failed to win a nod from the FCC for their merger, it fell apart.

Solomon

AT&T was testy after hearing the news.

“It is yet another example of a government agency acting to prevent billions in new investment and the creation of many thousands of new jobs,” AT&T senior vice president of corporate communications Larry Solomon told the Journal. He added, “We are reviewing all options.”

A growing number of Wall Street analysts believe those options are dwindling by the day, and an all-out war by AT&T against regulators could come at a cost when the giant phone company brings other business before them. Genachowski is still willing to go to bat for AT&T, circulating a draft approval among fellow commissioners that would grant the company’s separate proposal to purchase $1.9 billion in additional wireless spectrum from Qualcomm, Inc.

Observers predict AT&T might offer to divest a larger portion of T-Mobile than it was originally comfortable considering.  That may ultimately prove less expensive than the alternative — paying Deutsche Telekom a breakup fee worth $6 billion dollars should the merger fail to succeed.

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/WSJ FCC Chief to Seek Hearing on ATT Deal 11-22-11.flv[/flv]

The head of the Federal Communications Commission will seek an administrative hearing on AT&T’s proposed $39 billion deal to acquire T-Mobile USA, according to a person close to the matter. Thomas Catan has details on The Wall Street Journal’s ‘News Hub.’  (2 minutes)

Time Warner Cable’s latest series of rate increases and perceived snubs has rubbed some New York residents the wrong way, and one upstate city has retaliated by extending the cable operator’s franchise by just one year.

Cable customers from Lowville to Massena, adjacent to the Canadian border, have been venting about the cable company’s decision to increase cable rates for the second time this year across the region.  The anger is nearly universal, whether one is a conservative tea party member in Norwood or a liberal Democrat in Watertown.

But the strongest message heard by Time Warner officials was delivered by Massena Deputy Supervisor Albert N. Nicola, who helped shoot down the cable company’s request for a 15-year franchise renewal, and approved a one year renewal in its place.  The vote was 5-0.

“They’re asking for a 15-year extension, which is absolutely totally outrageous,” Mr. Nicola told the Watertown Daily Times. “We’ve got to be crazy for even thinking about that.”

That is no Christmas present for Time Warner, whose cable franchise agreement in Massena expires this year on Dec. 25.

Town board members noted the cable company didn’t bother show up for franchise renegotiation discussions and were reportedly not in attendance for this week’s vote.

“It’s tough to ask questions of a group that isn’t here,” Nicola said.

Massena wants some changes in the local cable lineup, more responsiveness to local residents, and more involvement in the community by the cable company.

Residents want lower rates.

Wayne D. Mihalyi of Lowville called Time Warner the poster child of corporate greed.  Tim Donahue of Lowville wondered how much more he and his neighbors would take from the cable operator:

How long are we going to continue having Time Warner Cable increase their rates without hesitation? Isn’t anybody out there looking out for us?

We just had all our rates increase 7.5 percent in January 2011. They cried poverty and increases in dealing with the networks. Yet another small increase occurred (because of taxes) somewhere between June’s bill and October’s.

And now we just received yet another 8 percent increase within the same year? They must have seen how Netflix did it and said, “What the heck, if they can do it so can we.”

This time we’re supposed to believe it is because of their significantly increased cost of programming. Don’t forget, we also got socked a whopping 16.5 percent increase in January of 2010. When is this nonsense going to end? I am beginning to understand the reason for some of the protesting going on. This is outright greed. There is no other explanation or words for it. They have to know that seniors haven’t even had a 1 percent raise in three years.

AT&T pays a lot of money — millions annually — to make sure its business agenda does not run into political or legislative roadblocks in Washington, D.C.  With dozens of members of Congress effectively on AT&T’s campaign contribution payroll and the company’s unparalleled skill at convincing non-profit organizations to advocate for its interests, worrying about the government’s antitrust views on its proposed buyout of Deutsche Telekom’s T-Mobile was the least of its troubles.

“It’s a done deal,” several analysts predicted shortly after the deal was announced, especially after AT&T demonstrated its confidence level in the merger was as high as the enormous $6 billion dollar breakup concession payable to Telekom if it ever fell apart.

Then the government dared to put its two cents in, in the form of a “are you kidding me?”-lawsuit courtesy of the U.S. Department of Justice.  It seems, in the words of some Beltway cynics, the Obama Administration can manage to see a clear cut case of anti-competitive behavior when given enough time.

Since the lawsuit was announced on Aug. 31, it has been “all-hands-on-deck” for the company’s government relations division, packed full of the company’s top lobbyists.  While company lawyers desperately attempt to block what it sees as “pile on” objections and lawsuits from worried competitors, Sprint-Nextel in particular, AT&T lobbyists are trying to compromise away the Justice Department case with proposals of concessions and giveaways to make approval more palatable.

Further north, as fall turns into winter in New York’s financial district, Wall Street analysts are cold on the troubled deal themselves.

The Financial Times reports most analysts think there is now less than a 50-50 chance the merger will be completed unless the two companies agree to disgorge themselves of market share, territories, and increasing “shareholder value” that will come from eventual rate increases a wireless duopoly would inevitably bring.

Some are even less sanguine, predicting AT&T has only a 20 percent shot, and only if it sells off considerable chunks of valuable spectrum to competitors other than Verizon Wireless.

AT&T is retuning its “message” for the times, downplaying the original, ludicrous notion that urban-focused T-Mobile would be the keystone of a new era in 4G wireless service for rural America.  There is a reason T-Mobile isn’t the first choice for small town America’s cell phone buyers.

Instead, AT&T is now positioning the merger deal as a lifeboat for its troubled competitor.  AT&T suggests the number four carrier is in immediate peril — hemorrhaging customers, caught without a coherent 4G strategy, and an exodus of interest by its increasingly neglectful parent — Deutsche Telekom.

Could Time Warner Cable be an eventual part-owner of T-Mobile USA?

“Over the past two years, T-Mobile USA has been losing customers despite explosive demand for mobile broadband,” AT&T said in a statement this week. “T-Mobile USA has no clear path to 4G LTE, the industry’s next generation network, and its German parent, Deutsche Telekom, has said it would not continue to make significant investments in the United States.”

With AT&T predicting the demise of its smaller would-be cousin, consumers may not be in the mood to sign a two-year contract with a company that could soon be rechristened AT&T, especially those leaving AT&T for T-Mobile.

But don’t tell T-Mobile’s marketing department it’s a phone company on life support.  T-Mobile has beefed up its advertising and continues to irritate its larger competitors, particularly AT&T, with very aggressive pricing on its prepaid plans.

T-Mobile recently unveiled two disruptive $30 4G prepaid plans that offer either 1500 shared minutes/text messages and 30MB of data usage -or- 100 voice minutes combined with unlimited texting and up to 5GB of mobile data before the speed throttle kicks in.  Those prices are too low for AT&T and Verizon to ignore, especially when offered on a 4G network.

So far, the Justice Department shows no signs of backing down from their resolute opposition to the deal, minor concessions or not.  Shareholders may not appreciate giving the government too much of what it wants in order to win approval.  Washington lawmakers are split — virtually every Republican favors the merger, Democrats are less absolute, with most opposed.  Among those in favor, by how much is often a measure of what kind of campaign money AT&T has thrown their way.

AT&T absolutely denies they have a “Plan B” in case the merger eventually fails.  But the Times doubts that, reporting as time drags on, an alternative deal might emerge.  Some of the possibilities:

• T-Mobile USA could merge its spectrum with Dish Network, the satellite TV company, to launch a new 4G mobile operator in the USA;
• Combine forces (and spectrum) in a deal with leading U.S. cable companies like Cox, Comcast, and Time Warner Cable to launch a new cable-branded mobile operator;
• Sell or merge operations with MetroPCS, Leap Wireless’ Cricket, or one of several regional cell companies.

Perennial cable booster Craig Moffett from Sanford Bernstein predictably favors the cable solution, which would let companies offer a quad or quint-play of cable TV, wireless mobile broadband, wired broadband, phone, and cell phone service all on one bill.  It would also get the FCC off the backs of cable operators Time Warner and Comcast, who both control a total of 20MHz of favored wireless spectrum they have left unused since acquiring it at auction.  The Commission is increasingly irritated at companies who own unused spectrum at a time when the agency is trying to find additional frequencies for wireless providers.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg ATTs 96000 Job Claim in T-Mobile Deal Questioned 11-8-11.flv[/flv]

Bloomberg News questions AT&T’s claim its merger deal with T-Mobile will create 96,000 new jobs. [Nov. 8] (3 minutes)

Winston-Salem Time Warner Cable customers can expect to pay around 4% more for cable service in 2012.

Time Warner Cable’s annual rate increases have now reached the Carolinas.

The company is mailing letters to customers that announce rate hikes for off-contract clients in the $2-4 a month range, including price increases for Road Runner broadband that will now cost between $49.45-$57.95 a month.

“Our new prices reflect dramatically higher programming costs, additional programming and features, and continued investment in our network and customer service,” said Time Warner spokesman Scott Pryzwansky. “Time Warner Cable invested more than $350 million in capital in the Carolinas over the past year to make our network even more robust and to enable our customers to get the services and features they want.”

The company also invested heavily in lobbying lawmakers to keep community-owned broadband competition at bay, helping pass a measure through the Republican-controlled legislature that makes municipal broadband competition much more unlikely.

The result is another year of unfettered rate increases for customers in cities like Winston-Salem:

• Cable TV increases from $10.23 to $11.49 for broadcast basic, $64.99-$69.49 for standard analog service, $80.99-$85.49 for digital cable;
• Broadband increases from $47.95 to $49.45 for customers who also have digital cable, $52.95 to $55.95 for customers with any other tier of cable TV, $57.95 for standalone broadband service;
• Telephone rates are unchanged.

Customers can avoid some of the price increases through creative bundling, threatening to take your business elsewhere, or by signing up for alternative providers:

1. Customers on discounted promotional packages, retention deals, and term contracts will not face the rate increases until their promotional rates or contract expires;
2. If you are unhappy with the rate increase, consider calling Time Warner and telling them to cancel your service 1-2 weeks from today’s date.  Then wait for them to start calling you with promotional “win-back” offers that deliver at least a year of substantial savings off regular rates;
3. If you are a broadband standalone customer, consider signing up for Earthlink under their six-month promotion for just under $30 a month.  You will continue to be billed by Time Warner Cable and receive the same speeds and service with two exceptions: no PowerBoost (a temporary speed increase during the first few seconds of downloading), and you lose your Road Runner e-mail address (which you are not actually still using, are you?)  Get a Gmail account, don’t worry about speed gimmicks, and save $28 a month.  At the end of six months, sign up for Time Warner’s Road Runner service under their promotional rate, which is around $30 a month for a year.  Total savings over the 18 month combined promotional rate term: $504!

More than two years after Time Warner introduced DOCSIS 3 speed upgrades in New York, Time Warner is finally completing broadband upgrades for their customers in the Carolinas.  The latest cities scheduled to get the company’s Wideband (50/5Mbps) and Road Runner Extreme (30/5Mbps) services are Wilmington, Jacksonville and Morehead City. The new services will be available by early 2012.

Most customers in eastern North Carolina and parts of South Carolina still get Standard service speeds of 10Mbps download, 512kbps upload.  After the upgrade, a boost in upstream speeds to 1Mbps for Standard service customers is expected.