A 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.

“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.

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.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/XFINITY Wireless Gateway Powers Connected Home Summer 2013.flv[/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)

If your smartphone goes missing or gets stolen, should you still have to pay Verizon Wireless for service you no longer have?

Verizon Wireless apparently thinks you do, even if you are beyond your two-year contract and pay month-to-month.

KGO-TV’s consumer reporter discovered Verizon Wireless dings customers coming and going.

Bonnie Mich, a Verizon Wireless customer in Healdsburg, was stunned when Verizon insisted she had to keep paying service charges on a cell phone she no longer owned.

“I said, ‘I don’t have a phone. I’m not under contract. I have no service from you. That is ridiculous,'” Mich told 7 On Your Side reporter Michael Finney. “I was angry. I didn’t think it made sense.”

Although Verizon did agree to suspend the calling plan portion of her bill for the missing phone, it wouldn’t agree to do it for free:

A charge of $15.35 was applied six days after her phone was stolen. The explanation? Verizon charges a fee when a customer service representative temporarily suspends service on a lost or stolen phone.

The following month, Mich decided to take her business to another wireless company, but Verizon Wireless was ready for that possibility. Verizon Wireless placed a block on number transfers, meaning Fich wasn’t going anywhere until Verizon was paid an extra $17.51 in service charges to remove the phone number transfer block.

Mark Toney, executive director of the Utility Reform Network told KGO Verizon had no justification for charging those fees and called the situation “a total rip off.” Toney advised customers to complain directly to state regulators and demand Verizon Wireless credit the charges and/or refund the customer.

When KGO called Verizon, an apology came quickly:

“We did not meet our own standards and reiterate our apology to our customer,” Verizon said in an e-mail message to the television station, promising a refund.

Mich reports she is still waiting.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/KGO San Francisco Do you have to pay the bill if your cellphone gets stolen 10-3-13.mp4[/flv]

KGO in San Francisco reports a stolen or lost Verizon Wireless cell phone can be cost you more than you think. (3 minutes)

Frontier Communications is interested in buying landlines bigger phone companies like AT&T and Verizon might want to sell.

CEO Maggie Wilderotter sat down with The Wall Street Journal to answer questions about her leadership of the independent telephone company.

Despite ongoing landline disconnects and a challenging business environment that led to a second quarter loss of $38.5 million, Wilderotter says Frontier is “well positioned for success” and is willing to acquire new customers castaway by larger phone companies like AT&T and Verizon.

“I would do acquisitions only if they’re smart,” Wilderotter said. “We would buy assets that drive more scale. We would look at another carve out like the Verizon acquisition or acquiring stand-alone rural telephone companies.”

Frontier’s last acquisition in 2010 nearly tripled its size after picking up landlines sold off by Verizon Communications.

Independent telephone companies like Frontier are not just buyers, however. Wilderotter hinted Frontier has received offers encouraging a sale of the company, perhaps even one from a satellite provider like Dish Network or DirecTV.

“Other players [like] CenturyLink have similar assets,” Wilderotter said. “Some unconventional folks might look. The satellite category [for instance]. We have had conversations in the past. They weren’t the right offers.”

Many shareholders stay loyal to Frontier because the company pays a significant dividend to those holding stock. Anything that threatens the dividend typically drives Frontier’s stock price lower, so Wilderotter was quick to note any other acquisitions will not come at the expense of that dividend.

Wilderotter

“We would do acquisitions in a way that preserves the dividend,” Wilderotter said. “We might take on more debt instead.”

Frontier’s business plan relies heavily on selling service in less competitive rural areas often bypassed by large cable operators. Because of inherent network limitations created by copper telephone lines, Frontier maintains market dominance mostly in communities where cable service is not widely available or is provided over antiquated infrastructure unsuitable for significant broadband upgrades.

In the last two years, Frontier has spent several billion dollars to upgrade its own infrastructure to offer faster and more reliable Internet access, but the upgraded service is still out of reach for many Frontier customers who need it the most. In central West Virginia, Frontier customers in Gilmer (pop. 8693) and Braxton (pop. 14,523) Counties can’t wait to drop satellite Internet access for Frontier DSL. The infrastructure has been reportedly in place for several months, but the service has not yet been switched on.

Additional Frontier broadband expansion depends on company investment and federal broadband improvement funds.

In September, West Virginia’s congressional delegation announced an award of roughly $24.1 million in leftover federal funds to continue construction of broadband infrastructure in rural areas of the state.

“With help from the FCC, so many more of our families and businesses will soon have the transformative and necessary power of high-speed Internet at their fingertips, opening the doors to many new educational and economic opportunities,” said Democratic Sen. Jay Rockefeller.

Frontier also recently applied for an extra $28.9 million from the Connect America Fund to target broadband for another 47,000 homes and business in West Virginia.

Gilmer County, W.V.

If Frontier receives 100% of the requested amount, the Obama Administration’s broadband funding programs will have contributed $63 million towards service improvement in West Virginia.

Frontier Communications manager Daniel Page said the next target areas for broadband improvement are in Pleasants (pop. 7,605) and Ritchie (pop. 10,236) Counties, both in northwest West Virginia.

Wilderotter says 85% of Frontier customers now have broadband access available to them, up from 60% in 2011.

“Our goal is to be able to reach over 90%, probably by the end of this year or first part of next year,” Wilderotter said.

The biggest challenges facing Frontier over the next year?

“Technology disruption—and [industry players’] business models being challenged,” Wilderotter told the newspaper. “Customer expectations on how they utilize the Internet continue to morph as rich applications are made available.”

To manage increased traffic, Frontier can invest in capacity upgrades or start network management measures to limit subscribers’ Internet usage.

Frontier has run a usage limit trial in Kingman, Ariz., Elk Grove and Palo Cedro, Calif., Mound, Minn. as well as Cookeville and Crossville, Tenn. for over a year to measure bandwidth consumption by application type. In those areas, Frontier DSL is usage capped at 100 or 250GB per month. Customers exceeding their allowance are advised to either limit usage or convert to a “high user” service plan starting at $99.99 a month.

[flv width=”640″ height=”332″]http://www.phillipdampier.com/video/Fox Business News Frontier Broadband 8-8-13.flv[/flv]

Frontier CEO Maggie Wilderotter told Fox Business News in August the company was “laser focused” on broadband.  (5 minutes)

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

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

With 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

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.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg LightSquared 9-5-13.flv[/flv]

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

Cable ONE customers nationwide lost eight Turner Networks channels yesterday, despite the fact the cable company has a signed contract with Turner to pay for some of the networks that have gone dark.

“In an extraordinary act of retaliation and bullying, Turner Networks removed TBS, TNT and Cartoon Network from all Cable ONE systems without warning, when our prior Turner contract expired on October 1,” said Cable ONE CEO Tom Might. “This happened despite the fact that Cable ONE had signed new contracts and already agreed to pay an enormous nearly 50% rate increase for these three networks.”

Cable ONE was under pressure to carry all eight Turner-owned networks (in turn owned by Time Warner Entertainment) during contract renewal negotiations that included substantial fee increases. The cable company independently decided to boot five “less popular” networks from lineups nationwide: Boomerang, TruTV, TCM, CNN and CNN Headline News. It agreed to keep buying TBS, TNT, and Cartoon.

“We signed contracts for TBS, TNT and the Cartoon Network through the National Cable Television Cooperative (NCTC), which allows for the purchase of individual channels rather than the entire bundle of eight,” said Might. “In a disgraceful punitive reaction, Turner Networks refused to recognize the NCTC contracts and immediately de-authorized all Cable ONE systems in order to ‘teach’ Cable ONE a lesson about the power of cable programmers to tie and bundle channels together and force carriage of unwanted bundles.  They refuse to give cable operators or their customers any choice about what they can or cannot buy.”

Turner Networks claims Cable ONE has no authority to buy a slimmed-down package of channels through the NCTC and must negotiate with Turner directly.

Cable ONE will automatically credit its customers for the missing channels. The cable company is a subsidiary of The Washington Post Company and serves 730,000 customers in 19 states.

Cable ONE explains to its customers why eight Turner Network-owned channels are now missing from the channel lineup. (2 minutes)
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