Amazon.com has quietly introduced a 50 megabyte usage cap on Kindle owners using 3G-equipped models to browse web pages over AT&T’s 3G wireless network. Customers exceeding the limit after July 1 reportedly began receiving this pop-up message on their device:

The Experimental Web Browser is currently only available for some customers outside of the United States and may be limited to 50MB of browsing over 3G per month. This limit does not apply when customers are browsing over Wi-Fi.

The new usage cap does not affect users browsing Amazon.com, Wikipedia, and the Kindle store.

Web browsing on an electronic ink display instinctively has a built-in cap: the limited patience of the user trying to browse websites that were never designed for the Kindle experience.

But some enterprising hackers managed to jailbreak the Kindle device and turn its free 3G connection into a wireless mobile hotspot.

That means Amazon was footing the bill for Kindle owners who have re-purposed the device to provide Internet connectivity to wireless phones, laptops, tablets, and other Wi-Fi enabled devices.

At AT&T’s prices, Amazon decided to pull the plug after 50MB, which is barely enough for a few dozen busy web pages accessed during the month.

AT&T lost 649,000 DSL customers in three months.

AT&T’s broadband customers are taking their business elsewhere as second quarter results show the phone company lost 649,000 DSL customers in the last three months, while only picking up 553,000 new U-verse Internet users to replace those leaving. The result was a net loss of nearly 100,000 broadband customers in a single quarter. The company also only managed to attract 155,000 new U-verse television customers away from satellite or cable operators during the quarter.

AT&T blames the losses on “seasonality” — code language for part-time residents, college students, and other fluctuations that occur as customers come and go. Total broadband connections dropped 0.2% for AT&T, with 16.43 million remaining customers.

Landline customers also continue to depart AT&T in droves. More than one million home phone customers pulled the plug on AT&T this quarter. AT&T has lost nearly 11 percent of their landline customers over the past year.

For those remaining, a combination of rate increases, cost cutting and fierce marketing of bundled packages of services are keeping revenue growing on both the residential and business side.

AT&T is getting closer to announcing a “rural landline solution,” which some analysts predict will be the company’s exit from the rural landline business.

Executives continue to hint the company is reviewing its future in the rural landline business. AT&T lobbyists have shepherded new laws in several states that would allow them to abandon rural landline customers where the company is no longer required to be “the carrier of last resort.”

AT&T U-verse is turning out to be not much of a threat to cable and satellite operators, only achieving a 17.3% penetration rate in areas where the service is available.

The real money for AT&T is being made in the wireless sector, where increasing prices, changes to service packages, and data usage-based billing are all paying off  — revenue for wireless data alone is up 18.8% to $1 billion during the second quarter. AT&T earned $14.3 billion from its wireless business in just the second quarter alone.

At the same time, the company is slashing investments in parts of its network and cutting employees.

Capital expenditures in the second quarter amounted to $4.48 billion, down 15% from the $5.27 billion AT&T spent a year ago. AT&T also cut its workforce by 6.4% since June 2011, with a reported 242,380 total remaining employees.

Despite the company’s talking points, AT&T’s upgrade fee is designed to slow down customers considering upgrading their smartphones.

In other highlights:

• Wall Street analysts are praising AT&T’s stricter upgrade policies and device upgrade fees. In fact, at least one analyst wants to see AT&T raise the fee to $50 for every phone upgrade. The fees discourage customers from upgrading their phones, which dramatically reduces AT&T’s costs. AT&T subsidizes phones for customers. The longer customers hold off from upgrading, the more revenue AT&T keeps for themselves and shareholders. AT&T has made it clear it will continue to “introduce discipline”  in the handset market to enforce “rational pricing,” which means customers will continue to see further reductions in device subsidies and face higher prices when upgrading phones.
• Much of AT&T’s investment will be in its LTE 4G network. AT&T’s spending on wireline services including U-verse is on the decline.
• AT&T admitted its policy of monetizing data usage for profit is well underway: “[We are getting] ourselves set up for revenues that are going to be tied to usage, which will then be tied to our capital requirements and a really profitable situation.”
• AT&T is aggressively pushing customers to upgrade to smartphones so they can earn additional revenue. “Smartphone subscribers now number 43 million and make [up] 62% of our total postpaid base. But smartphones accounted for 77% of postpaid sales during the quarter, showing continuing opportunity for growth. And when you look at our total smartphone base, we’ve added 9 million high-value smartphone customers in just the last 12 months.”

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/ATT 2Q2012 Results.flv[/flv]

AT&T spins its 2nd Quarter results for shareholders in the best possible light. Although revenues are up, the number of customers leaving AT&T for other providers may challenge future growth and earnings. (4 minutes)

Still not listening

Around the beginning of July, Time Warner Cable invited customers facing the imminent arrival of their 5GB-usage capped “Internet Essentials” plan the opportunity to participate in “conversations” with the cable operator on a special website.

As we near the end of the month, despite readers sending a number of comments to Time Warner about the plan, the company has chosen to publish just one, which has nothing to do with the issue:

Ann McGarity
I am very upset at the loss of channel 9. We were without it before when we had Dish for a while and one of the reasons we returned to TWC was to get it back. Now we have to put up with Maine news and will have no idea about important NH issues. This is very disturbing, particularly in this political season. Can anything be done?

Apparently Time Warner isn’t too interested in what customers have to say, even on a website that was supposed to be all about dialogue.

A new forecast from an industry research firm predicts sales of tablets with built-in LTE-4G connectivity will continue to drop because of high prices for wireless data from the nation’s cellular phone companies.

CCS Insight notes (via FierceWireless) that only 48 percent of tablets shipped in 2011 were enabled with built-in cellular capability. The researcher predicts that number will drop to 37 percent by 2016.

“Most users do not regard cellular connectivity in tablets as a must-have, especially given the current price of tablets and mobile data subscriptions,” CCS reports.

Customers simply do not find the $100+ price premium for a cellular-enabled tablet worth the expense, especially when they also face costly data charges to use the service. Most tablet owners prefer to rely on Wi-Fi, often provided free of charge. Among those who acquire a cellular-enabled tablet, nearly half never bother to activate the wireless service from the supported carrier.

“In the future, the share of cellular-enabled tablets will be determined by three factors: the availability and attractiveness of multi-device tariffs from mobile operators; the availability of public Wi-Fi networks; and the difference between the retail prices of cellular and Wi-Fi-only tablets,” CCS found.

Carriers like Verizon and AT&T hope their new “family share” data plans will ease the pain for customers who want to use their tablets on cellular networks, but companies still have to overcome the substantially higher price cell modem-equipped tablets carry and the expensive price tag for data usage, shared or otherwise. Verizon Wireless is not making it any easier. It discontinued selling subsidized tablets to customers this month.

The wireless industry is in transition. Increasing capacity also means decreasing the number of customers trying to share a traditional cell tower. The future will bring a combination of shorter-range cellular and Wi-Fi antennas that can sustain traffic loads much easier than overburdened traditional cell towers.

The President’s Council of Advisors on Policy and Technology’s recommendation that the growing demand for wireless spectrum be met by sharing frequencies with the federal government is getting a cold reception from the wireless industry.

AT&T, other wireless operators, and their lobbying trade association have been embarked on a fierce campaign in Washington to free up additional spectrum they can use to meet growing demands for wireless data. Unfortunately, clearing spectrum that can be re-purposed for wireless phone companies requires complicated, and often expensive frequency reassignments as existing users relocate elsewhere. With the federal government holding a large swath of spectrum for the use of a range of public safety, research, and military applications, the best source for new frequencies comes from Washington.

PCAST’s final 200-page report urges the Commerce Department prioritize locating 1000MHz of frequencies that could be re-purposed for private wireless communications. But the council also recommended that frequencies could be more quickly made available by asking wireless telecom companies to share them with existing users.

Today’s “exclusive use” licenses all too often are being underutilized and, in fact, are sometimes used as a valuable investment tool to buy, trade, or sell. Issuing exclusive licenses guarantees that no other players can use those frequencies. That is a valuable tool for wireless companies protecting their market share from potential competitors.

PCAST declared the concept of a “spectrum shortage” to be largely a myth:

Although there is a general perception of spectrum scarcity, most spectrum capacity is not used. An assigned primary user may occupy a band, preventing any other user from gaining access, yet consume only a fraction of the potential spectrum capacity. Unique among natural resources owned by the public, spectrum capacity is infinitely renewable from second to second—that is, any spectrum vacated by one user is immediately available for any other user.

Measurements of actual spectrum use show that less than 20 percent of the capacity of the prime spec­trum bands (below 3.7 GHz) is in use even in the most congested urban areas.

This spectrum inefficiency is not just a problem for the wireless industry, it also afflicts government use as well. But it is a problem that can be solved by modernizing spectrum allocation policy in the United States.

“Exclusive frequency assign­ments should not be interpreted as a reason to preclude other productive uses of spectrum capacity in areas or at times where the primary use is dormant or where underutilized capacity can be shared,” the report concludes.

If implemented, the wireless industry could begin accessing hundreds of megahertz of new spectrum, with the understanding there may be other users sharing certain frequencies in different areas at different times. For example, AT&T could use spectrum assigned to forest rangers in federal parks for wireless data in Manhattan or other urban areas, where neither user will create interference for the other. Verizon could use spectrum allocated for naval communications at seaside ports in land-locked Nebraska, Utah, Kansas, or West Virginia.

The proposal identifies these frequency bands as ideal for shared use between private and government users.

As technology progresses, shared spectrum users will easily afford equipment that dynamically locates open frequencies for communications with little or no interference even if two users are located right next door to each other.

The benefits to taxpayers, governmental users, and private industry are notable:

1. The cost to relocate existing government users to other bands is prohibitively time-consuming, complicated, and expensive. Taxpayers often foot the bill for the frequency changes;
2. Government use of spectrum is not particularly efficient either. Identifying under-utilized spectrum for shared-use can bring pressure to government users to consolidate operations and increase operating efficiency;
3. Private industry gets much faster access to new spectrum, which suddenly becomes plentiful and potentially affordable for new entrants in the wireless marketplace.

Despite the benefits, the wireless industry had a frosty reception to the new report:

Joan Marsh, AT&T Vice President of Federal Regulatory:

“While we are still reviewing the PCAST report, we are encouraged by the sustained interest in exploring ways to free up underutilized government spectrum for mobile Internet use.  However, we are concerned with the report’s primary conclusion that ‘the norm for spectrum use should be sharing, not exclusivity.’  The report fails to recognize the benefits of exclusive use licenses, which are well known.  Those licenses enabled the creation of the mobile Internet and all of the ensuing innovation, investment and job creation that followed.

“While we should be considering all options to meet the country’s spectrum goals, including the sharing of federal spectrum with government users, it is imperative that we clear and reallocate government spectrum where practical.  We fully support the NTIA effort of determining which government bands can be cleared for commercial use, and we look forward to continuing to work with NTIA and other stakeholders to make more spectrum available for American consumers and businesses.”

CTIA – The Wireless Association:

The CTIA is the wireless industry’s lobbying group

“We thank the Administration and PCAST for focusing on the need to make more efficient use of spectrum currently assigned to federal government users. As the PCAST report notes, it is sensible to investigate creative approaches for making federal government spectrum commercially available, including the development of certain sharing capabilities. At the same time, and as Congress recognized in the recently-passed spectrum legislation, the gold standard for deployment of ubiquitous mobile broadband networks remains cleared spectrum.

“Cleared spectrum and an exclusive-use approach has enabled the U.S. wireless industry to invest hundreds of billions of dollars, deploying world-leading mobile broadband networks and resulting in tremendous economic benefits for U.S. consumers and businesses. Not surprisingly, that is the very same approach that has been used by the countries that we compete with in the global marketplace, who have brought hundreds of megahertz of cleared spectrum to market in recent years.

“Policymakers on a bipartisan basis have grasped the importance of making more spectrum available to meet the growing demand for mobile Internet services, and this report highlights a range of forward-looking options, some of which are not yet commercially available, that may be considered to meet this important national goal. We look forward to continuing to work with the Administration, the FCC, NTIA, Congress and other interested parties to increase access to federal government spectrum and to continue to assist our nation in its economic recovery.”

Wireless carriers will continue to lobby Washington lawmakers to leave the current “exclusive use” spectrum policies in place, even if it delays opening up “badly-needed” spectrum for years.

In short, the major players in the wireless industry are hostile to the idea of losing exclusive-use spectrum. That comes as little surprise because shared spectrum cannot be controlled by the wireless industry. Spectrum squatting, where large phone companies or investment groups hang on to unused spectrum either to keep competitors out or as an investment tool until it eventually can be resold at a major profit, is a significant problem in the industry. Wall Street analysts routinely assign value to the spectrum holdings of wireless carriers, whether they are used or not. Since most spectrum is now sold to the industry at “highest bidder wins” auctions, only the largest players are frequently serious contenders. Auctioning off shared spectrum, if practical, will bring lower bids — but could potentially bring new bidders like start-up ventures that have some new ideas on how to use wireless frequencies to compete.

Therefore, it has been in the wireless industry’s best interests to keep the idea of sharing frequencies with other players out of the minds of Washington regulators and legislators. Their technical objections and claims that shared spectrum would somehow destroy innovation and investment ring hollow, and are weak deflections from the more obvious agenda: to maintain their status quo control of wireless frequencies, well-utilized or not.

AT&T and other wireless players will no doubt lobby their case to Washington politicians, many who will rush to the industry’s defense. The shadow argument most likely to be used to defend the current “exclusive use” auction system is the auction proceeds collected by the federal government. Billions have been raised from past auctions, and shared use frequencies would never net that level of return. But PCAST’s report exposes the rest of the story. The cost to reallocate existing users to other frequencies, hand out new radios, raise new antennas and purchase new transmitters is often so costly, the government’s net gain, post-auction, is likely to be minimal.

Abroad, many governments have already adopted shared use, discarding the focus on spectrum earnings and refocusing spectrum allocation on delivering the best bang for the buck — whether that dollar belongs to the consumer, the wireless industry, or the government.

Attempts by AT&T and others to kill PCAST’s recommendations should also be considered proof the industry’s dire claim of a spectrum shortage emergency is vastly overblown. In a true crisis, everyone makes compromises.  That does not appear to be the case here. Congress and regulators should receive that message loud and clear.