A “disruptive market force” in France’s mobile phone market has turned an expectation of fat, easy, and fast profits on its head as companies scramble to slash prices to meet the challenge of a new player in town.

That “disruptor” is Free Mobile, owned by French broadband service provider Iliad.  In December, Iliad’s Xavier Niel delivered an early warning shot to other cell phone providers in France:

“Start cutting your prices! We are coming. Go away this weekend, rethink your marketing strategy and that way you might have a chance to continue existing.”

Evidently they were not listening, or did not believe Niel.

In January, Free Mobile arrived with prices shocking to a French market used to paying much more.

For $26.50, Free Mobile delivers a plan with unlimited calling, messaging, 3GB of mobile data and free international calls to 40 countries in North America and Europe.

The nearest comparable plan, Orange France’s “Sosh,” charges more than $66 for a similar range of features.  That’s more than double the price.

“Up until now you have been cash cows,” Niel said during a press conference introducing the service. “Now you can either call your current operator and ask for the same price or join us.”

The French people are doing both. Panicking operators that have lived happily on fat profit margins made possible by a generally uncompetitive marketplace were shocked out of their complacency and have begun lowering their own prices as customers threaten to leave for Free Mobile.

La Poste Mobile for example, which has about 550,000 customers, announced three new plans that start at prices comparable to Free Mobile, but include a subsidized phone — something Free Mobile does not offer.  Instead, Free Mobile splits any upfront equipment costs into installments which run the length of the contract, up to 24 months.

Other companies are turning to their marketing departments to solve the problem, resulting in some wild marketing claims that play fast and loose with the facts. Curious about Clientverge? Learn all about them here. French consumer group UFC-Que Choisir has heavily criticized a handful of providers that claim to provide unlimited calling and texting but then limit call time to 200 hours per month in the fine print.

Free Mobile’s offer has resonated across France and at least 1,000,000 people signed up in January, overwhelming the country’s number portability system allowing customers to change providers and keep their current phone number.  The overwhelming majority of Free Mobile’s customers come from other carriers.  Sixteen per cent switched from Bouygues Telecom, 22 per cent from SFR and 30 per cent from Orange France, with most of the rest switching from resellers who lease airtime from the three largest providers in France.

Financial analysts opine that if Free Mobile is here to stay, it will have a major impact on the French mobile marketplace, first on resellers that offer service delivered over other companies’ networks.  French unions fear their workers will pay the price as providers protect investments and management perks.

CGT, SUD and the CFE-CGC suggest wage and job cuts for workers will come as companies look for savings to offset their profit losses.  One report predicted as many as 10,000 job cuts in the mobile industry in the future.

Ironically, while Iliad, a French broadband provider, has challenged the French mobile market and has brought price savings to consumers, American cable companies capitulated on competition, selling their wireless spectrum to the country’s largest wireless company, Verizon Wireless.  Additionally, American cable and phone companies have agreed to market their products together in bundle offers, potentially eliminating any serious competition between them.

AT&T increases upgrade fee. (Photo courtesy: Engadget)

AT&T has announced it is doubling the price of its equipment upgrade fee, now charging $36 when a customer activates a new phone on their wireless account.

Our regular reader Scott sent word AT&T raised the upgrade fee Feb. 12, from $18 to $36, to “cover their costs. ” The fee now matches that charged by Sprint.

From AT&T’s official statement:

Wireless devices today are more sophisticated than ever before. And because of that, the costs associated with upgrading to a new device have increased and is reflected in our new upgrade fee. This fee isn’t unique to AT&T and this is the first time we’re changing it in nearly 10 years.

Wireless companies in North America encourage more frequent phone upgrades because of their business model: pitching subsidized phones in return for a two-year contract commitment, along with higher-priced service plans which gradually recoup the cost of the subsidy.

Consumers who hang on to their phones longer than two years continue to pay higher prices for service plans designed for those who always upgrade phones every two years at contract renewal time.  Phone companies also prefer customers who live under a term contract because they are less likely to switch providers.

In the past, loyal customers not only received extra incentives and discounts when they renewed their contracts, they also had these kinds of service fees waived.  No more.  Most companies have discontinued extra upgrade discounts for existing customers and increasingly refuse to waive service and equipment fees.

AT&T 3G MicroCell

AT&T has lost another customer.

PC World‘s Tony Bradley noticed reception on AT&T’s network in suburban Houston has been losing bars in more places than it has maintained over the last few years.

“[…] for reasons unknown to me the AT&T network in my area has been getting steadily worse. There have been a couple of weak spots in the same location for years. Rather than improving and eliminating those weak spots, the weak spots became dead zones…and then proliferated.

I don’t live in the boonies. I live in suburban Houston in a community that is very near a major highway, and yet there are four or five areas with literally no service. I could almost understand if the signal decreased, or if it switched from 3G to the older Edge network in places, but in 2012 in an affluent suburb near a highway there is no excuse for a company like AT&T to have any area where my phone literally displays “No Service”.

Even with the growing dead zone epidemic, I was still reluctant to switch. I maintained that the grass is always greener, and that I was better off to stick with the devil I know. That is, until I moved.

I only moved four miles, and I am still in the same community I was in before. However, in my new house the AT&T signal is too flaky and unreliable. I have to walk to special places in my house to get a workable signal, and even then I am told constantly that I am “breaking up” by the person on the other end of the line. I often miss calls because there is no signal and my phone doesn’t even ring. I don’t realize I even had a call until I receive the voicemail.”

AT&T’s response to these kinds of reception problems is to suggest customers purchase one of their 3G MicroCell units, which delivers a wireless signal inside your home or business connected through your broadband account.  But Bradley took exception that AT&T would charge him $200 (negotiated down to $100) and a monthly service fee just to mitigate the company’s own reception problems.  AT&T has since lost Bradley as a long-lasting customer — he took his business to Verizon Wireless, which offers better reception in his neighborhood.

The columnist cannot understand why AT&T would treat a long-term customer so poorly.

“AT&T could have kept me happy, but chose to let me leave instead,” Bradley writes.  “So, let me get this straight. AT&T isn’t capable of delivering the service I am already paying for, and the proposed solution is that I spend $200 (or $100 after a lengthy and heated debate), plus additional money every month for the privilege of routing my calls over the broadband Internet service I am also paying for? That was really the last straw for me with AT&T.”

A coalition of high tech companies including Google and Alcatel-Lucent are warning South Carolina legislators they are playing with future high tech jobs and will stifle the state’s digital economy if they grant the request of large phone and cable companies to make it difficult, if not impossible for community-owned broadband to compete.  Alcatel-Lucent, American Public Power Association, Atlantic Engineering, Fiber to the Home Council, Google, OnTrac, Southeast Association of Telecommunications Officers and Advisors, Telecommunications Industry Association, and the Utilities Telecom Council all co-signed the letter addressed to the state’s Senate Judiciary Committee:

Dear Senator McConnell and Members of the Senate Judiciary Committee:

We, the private-sector companies and trade associations listed below, urge you to oppose H.3508 because these bills, on top of South Carolina’s existing barrier to public communications initiatives, codified in SC Code §§ 58-9-2600 et seq., will harm both the public and private sectors, stifle economic growth, prevent the creation or retention of thousands of jobs, hamper work force development and diminish the quality of life in South Carolina. In particular, these bills will hurt the private sector in several ways: by curtailing public-private partnerships, stifling private companies that sell equipment and services to public broadband providers, and impairing educational and occupational opportunities that contribute to a skilled workforce from which businesses across the state will benefit.

Clearwire's coverage map shows no service in South Carolina.

The United States continues to suffer through difficult economic times.  The private sector alone cannot lift the United States out of this crisis.  As a result, federal and state efforts are taking place across the Nation to deploy both private and public broadband infrastructure to stimulate and support economic development and jobs, especially in economically distressed areas.  For example, in South Carolina, Orangeburg and Oconee Counties have received broadband stimulus awards to bring much-needed broadband services and capabilities to communities that the private sector has chosen not to serve adequately.  H.3508, together with SC Code §§ 58-9-2600 et seq., would impose burdensome financial and regulatory requirements that will prevent public broadband providers from building the sorely needed advanced broadband infrastructure that will stimulate local businesses development, foster work force retraining, and boost employment in these economically depressed areas.

Consistent with these expressions of national unity, public entities across America, including South Carolina, are ready, willing, and able to do their share to bring affordable high-capacity broadband connectivity to all Americans. Enactment or retention of direct or effective barriers to community broadband, such as H.3508 and SC Code §§ 58-9-2600 et seq., would be counterproductive to the achievement of these goals.  These measures are also inconsistent with our country’s National Broadband Plan, which recommends that no new barriers be enacted and that existing barriers be removed.

We support strong, fair and open competition to ensure that users can enjoy the widest range of choices and opportunities.  H.3508 is a step in the wrong direction.  South Carolina should be removing barriers to public broadband initiatives rather than establishing new ones, so that high technology companies can spread and prosper into all the communities in this beautiful state.  Please oppose H.3508, repeal SC Code § 58‑9‑2600 et seq., and reject any future measures that could significantly impair municipal broadband deployments or public-private partnerships in South Carolina.

Stop the Cap! earlier noted this legislation is heavily sponsored by AT&T and other telecommunications companies already operating in South Carolina.  Several months ago, we reported on South Carolina’s woeful broadband: A Corridor of Shame, with large sections of the state without anything close to “broadband” service, even as state legislators in 2009 leased away the state’s publicly owned Educational Broadband Service-spectrum to private companies like Clearwire that don’t appear to be delivering any service in South Carolina.

HissyFitWatch: Damn you FCC!

For the first time in a long time, AT&T did not get what it wanted from Washington regulators and legislators. The repercussions of the company’s failure to secure its controversial merger with Deutsche Telekom’s T-Mobile USA has been one HissyFit after another, including the resignation-retirement of Forrest Miller, a 30-year veteran who was the company’s head of corporate strategy and mergers and acquisitions. After heads rolled, there was the small matter of the multi-billion dollar “breakup fee” payable to T-Mobile. Now someone has to pay:  You.

At Stop the Cap!, we scrutinize quarterly conference calls at major telecommunications companies so you don’t have to. We’ve sat through renditions of “we’re sorry” when Charter Communications’ executive management allowed the company to be flushed into bankruptcy, we’ve heard the Excuse-o-Matic from Frontier Communications about why their broadband service is woefully overloaded with promises of better days ahead, and a whole lot of creative spin to emphasize cord-cutting-bad-news at the nation’s largest cable companies isn’t really a problem all — it’s the housing market, it’s the ‘seasonal residences’ or ‘college students going home’ problem… or sunspots.  Who really knows?  It’s definitely not that they’re charging too much.

Whether it has been Time Warner Cable’s Glenn Britt, or Verizon’s Ivan Seidenberg, chief executives always project a cool, calm, steady authority that leaves shareholders and financial analysts with an impression the adults are in charge, even if they tell little white lies to keep the stock price up.

And then there is AT&T’s chief executive — Chairman Emperor Randolph Stephenson, who used the occasion of AT&T’s 4th Quarter earning results conference call to become a spectacle that brought the house down.

As we look ahead, the issue that gives me the most concern, quite frankly, isn’t our ability to execute. The #1 issue for us as we move forward, and for the industry, I believe, it continues to be spectrum. This industry continues to see just explosive mobile broadband growth and is providing one of the few bright spots in the U.S. economy, but I think we all understand this growth cannot continue without more spectrum being cleared and brought to market. And despite all the speeches from the FCC, we’re all still waiting.

He didn’t stop there.  In an impromptu rant, Stephenson lectured Washington from afar, excoriating all-concerned for failing to agree with their multi-million dollar propaganda campaign that merging America’s second and fourth largest wireless carriers in a market with just four national providers was good for consumers and would bring wireless nirvana to the heartland and lower prices for all.  Evidently America was not ready to accept the word of AT&T-compensated telecommunications experts at the NAACP, the Special Dream Farm, the Shreveport-Bossier Rescue Mission and cattle ranchers a combination of T-Mobile’s spectrum and AT&T’s would ease the capacity crunch, bring 4G to Beaver, Oklahoma, and stop driving AT&T customers nuts with dropped calls and reception black holes.

How it usually works in Washington.

AT&T would have gotten away with their merger if it weren’t for those darned kids (consumers), the FCC and Justice Department ruining everything.

“The last significant spectrum auction was nearly 5 years ago now. And this FCC has made it abundantly clear that they’ll not allow significant [mergers and acquisitions] to help bridge their delays in freeing up new spectrum,” Stephenson complained. “So in the absence of auctions, our company and others in the industry have taken the logical step of entering into smaller transactions to acquire the spectrum we need to meet this demand. But even here, we need the FCC’s action and leadership, and unfortunately, even the smallest and most routine spectrum deals are receiving intense scrutiny from this FCC, oftentimes taking up to a year and sometimes longer before these are approved.”

Stephenson ignores the fact the FCC has rubber-stamped a number of wireless mergers over the past several years, which is why consumers no longer buy competitive service from Cingular, Alltel, Dobson Communications, Centennial Wireless, West Virginia Wireless, Unicel, Ramcell, or SureWest Wireless.  All of these former competitors are now a part of the nation’s two largest carriers AT&T and Verizon Wireless.  Even more impressively for the man in full denial, the FCC just quickly and quietly approved AT&T’s spectrum transfer purchase from Qualcomm.

“Now I hope I’m wrong, but it appears the FCC is intent on picking winners and losers rather than letting these markets work,” the chief executive said.

In other words, AT&T’s definition of letting markets “work” means letting them write their own laws governing the pesky concepts of antitrust, monopoly/duopoly market power, anti-competitive activity, etc.  AT&T has no problem picking winners and losers in the community-owned broadband front, lobbying its way through state legislatures trying to block new networks from being built, even while slapping usage limits on their own customers’ DSL and U-verse accounts because of “capacity” concerns.

In the wireless marketplace, Charlie Sheen would declare AT&T “winning,” considering it has achieved 1/3rd of the U.S. wireless market.  It wants more of course, even though Trefis, a market research firm, noted that had the FCC granted Stephenson’s wishes for three national carriers, AT&T, Verizon Wireless and Sprint “will control more than 90% of the U.S. wireless market, resulting in lower competition and higher prices for consumers.”

No problem there.

Stephenson also noted a lot of the company’s close friends were on their side (and handsomely compensated along the way we might add):

A lot of recent comments and speeches about certain members of this FCC suggest that they and not Congress should decide how spectrum auctions are conducted, including who can participate and what the conditions should be for participating. Meanwhile, we pile more and more regulatory uncertainty on top of an industry that is a foundation for a lot of today’s innovation*, making it difficult for all of us to allocate and commit capital. And in this industry, we all know capital investment equals jobs*. So the end result of this is we have a industry that is just really stuck in terms of creating real capacity*.

(*- except when community-based, publicly-owned networks are involved. They must be stopped at all costs.)

No matter that AT&T continues to sit on earlier spectrum acquisitions it continues not to use.  It only grudgingly agreed to roaming agreements with the company it preferred to dismantle altogether: T-Mobile.  In earlier, accidental disclosures, it was clear even before the merger and the newly-reticent FCC, AT&T preferred to raise prices, restrict service, and hang onto its profits instead of sufficiently investing them back into its network.  Verizon Wireless has a 4G network, no dropped-call-syndrome, fewer signal black holes, and no apparent spectrum panic attacks.

Part of Sprint's fact sheet opposing the merger deal.

AT&T bit off more than they could chew through, and now faces the humiliating prospect of paying off its gambling debts.  Only now, AT&T has effectively declared they are not going to pay for their costly mistake. Customers are.

Stephenson: Payback time.

The company introduced new, higher prices for its smartphone data plans this month, and intends to continue to increase prices and crack down on data use with speed throttles in 2012 and blame it on the “spectrum crunch”:

“In a capacity-constrained environment, usage-based data plans, increased pricing, managing the speeds of the highest volume users, these are all logical and necessary steps to manage utilization,” Stephenson said.

But AT&T’s chief executive also told shareholders repeatedly those increased prices were key to boosting company revenue and profits:

“We’ll expand wireless and consolidated margins. We’ll achieve mid-single-digit EPS growth or better. Cash generation continues to look very strong again next year. And given the operational momentum we have in the business, all of this appears very achievable and probably at the conservative end of our expectations.”

AT&T’s chief financial officer John J. Stephens put a spotlight on it:

In 2011, 76% of our revenues came from wireless and wireline data and managed services. That’s up from 68% or more than $10 billion from just 2 years ago. And revenues from these areas grew about $7 billion last year or more than 7% for 2011. We’re confident this mix shift will continue. In fact, in 2012 we expect consolidated revenues to continue to grow, thanks to strength in these growth drivers with little expected lift from the economy.

[…] We also continue to bring more subscribers onto our network with tiered data plans, more than 22 million at the end of the quarter, with most choosing the higher-priced plan. As more of our base moves to tiered plans and as data use increases, we expect our compelling [average revenue per subscriber] growth story to continue.