Rumors are swirling Sprint will begin selling Apple’s iconic iPhone this October, bringing the number of carriers supporting the wildly popular phone to three.  Sprint shares soared 10 percent on the news.  But while Sprint customers and shareholders are celebrating the potential imminent arrival of iPhone, launching the phone on the Sprint network is no simple matter, especially for the last remaining carrier delivering truly unlimited data.

On the Plus Side

Apple’s iPhone has become a must-have for a significant number of consumers.  They won’t leave the phone behind to switch carriers, not even for Verizon Wireless, until they introduced the phone earlier this year.  Now Sprint can win its own share of iPhone devotees.

Sprint’s iPhone promotions could draw customers away from larger carriers, especially enticed by Sprint’s worry-free unlimited data plan that has become extinct at other wireless companies.

The iPhone locks customers into new two-year contracts with Sprint, helpful security at a time when AT&T threatens to further consolidate the wireless industry in its efforts to acquire T-Mobile.

On the Down Side

Sprint’s phone subsidy expenses will skyrocket with Apple’s iPhone, which commands the highest subsidies in the industry.  Analysts suspect AT&T currently shells out up to $425 for iPhone 4 and $375 for iPhone 3GS.  Then AT&T sells the phone to consumers for $200 or less, making the subsidy back over the life of the two year contract.  That hits AT&T’s cash on hand hard.  For Sprint, regularly accused by Wall Street of spending too much on customer promotions, it will only increase those costs.  Sprint pays less than $150 for its top of the line Evo phones in comparison.

One guarantee the iPhone always delivers: Lots of data hungry users.  The introduction of the iPhone may ultimately threaten Sprint’s unlimited usage experience because of demand placed on an already burdened 3G network.  There is also no guarantee the first Sprint iPhone will support Sprint’s 4G network.

[flv width=”480″ height=”290″]http://www.phillipdampier.com/video/KMBC Kansas City Sprint May Sell iPhone in October 8-24-11.mp4[/flv]

KMBC in Kansas City talked with customers looking forward to Sprint’s iPhone.  Sprint is a major employer in Kansas City.  (2 minutes)

Verizon Wireless is expected to enter the Alaskan mobile market sometime in 2013-2014, according to incumbent competitors, who expect Verizon’s largest impact will be to bleed AT&T of customers.

Alaska’s two primary local providers — Alaska Communications, Inc. (ACS) and General Communications, Inc. (GCI), are telling shareholders to relax because they don’t expect to see Big Red in the Alaskan market for at least 2-3 years.  Both companies reported net losses for the quarter, and GCI lost 2,400 subscribers recently when more than 4,000 soldiers at Fort Wainwright in Fairbanks were deployed to Afghanistan.

Both ACS and GCI have been using the current poor economic climate and their respective stockpiles of cash-on-hand to retire debt or reissue long-term-debt at more favorable low interest rates.  Both companies are also hurrying to outdo each other’s 4G wireless network deployments before Verizon Wireless shows up, making use of spectrum it acquired last August to enter the Alaskan market.  Government rules require Verizon to sign-on its new network by June 13, 2013.  But Verizon admits it will take up to five years after that to completely build a new network from scratch.

Right now, Verizon Wireless customers taking their phones to Alaska roam on ACS’ network, for which the company is compensated with an increasing amount of extra revenue.  ACS boosted earnings in part on that roaming revenue, even as it lost more of its own customers.  When Verizon switches on its own network, that roaming revenue will rapidly decline, but ACS executives reassured shareholders their knowledge and experience of construction seasons in Alaska guarantee Verizon won’t be able to get its network together until 2013 at the earliest.

But when Verizon opens their doors, Ron Duncan, CEO of GCI expects a hard fight on his hands.

“We recognize ultimately they’ll be a significant competitor, although I see AT&T share more at risk because Verizon’s main claim to fame when they get to Alaska is going to be devices. We’ll still outpace them on coverage. We’ll continue to be the only ones with statewide coverage,” Duncan said. “People who want to buy the coverage buy from us today; people who want devices buy from AT&T because AT&T gets much better devices than we do.”

Just months after Verizon announced they were headed north, both ACS and GCI accelerated plans to roll out respective “4G” networks for wireless customers, although each company is deploying different standards.

GCI

GCI’s cell phone network is a combination of some of its own infrastructure, the acquisition of Alaska Digitel, and a resale agreement to use parts of AT&T Wireless’ coverage it acquired from Dobson Communications Systems.  In and around Fairbanks, Anchorage, Glennallen, Valdez, Prudhoe Bay, Wasilla, and Kenai, GCI offers CDMA service.  In those communities and many other rural regions in western Alaska, GCI relies on AT&T Alascom GSM networks.  GCI pitches its CDMA network’s 3G wireless data capabilities, which offer faster wireless data speeds, if you can get coverage.  For wider coverage in Alaska’s smaller communities, GCI markets GSM phones, which currently only offer 2G EDGE/GPRS data speeds.  If you use a cell phone mostly for voice calls, the wider coverage afforded by GCI’s GSM network is a popular choice.  But if you want faster data, CDMA 3G data speeds are required.

Eventually, GCI’s 4G network may help deliver coverage and faster speeds in both urban and rural areas, particularly as GCI plans to invest up to $100 million to construct more of its own network, instead of relying on resale agreements and acquisitions.

GCI has chosen HSPA+ for 4G service on the GSM network, and will introduce the service in Anchorage later this month.  That’s the same standard used by AT&T and T-Mobile in some areas.  It’s not as fast as LTE service from Verizon Wireless, but is much cheaper to deploy because cell sites need not be linked with fiber optic cables — an expensive proposition.

ACS

Alaska Communications has a large 3G CDMA network in Alaska all its own.  Its coverage is primarily in eastern Alaska adjacent to major cities like Anchorage, Juneau, and Fairbanks, and where it does provide 3G data coverage, the company claims it extends further out than GCI.  ACS doesn’t offer much coverage in small villages and communities in western Alaska, however.

ACS expects to skip incremental upgrades and launch its own 4G LTE service in the future.  It may help the company regain its second place standing, lost to GCI last year, and protect it from Verizon Wireless poaching its customers.

While wireless providers currently treat Wi-Fi as a friendly way to offload wireless data traffic from their 3G and 4G networks, the wireless industry is starting to ponder whether they can also earn additional profits from regulating your use of it.

Dean Bubley has written a white paper for the wireless industry exploring Wi-Fi use by smartphone owners, and ways the industry can potentially cash in on it.

“It is becoming increasingly clear that Wi-Fi access will be a strategic part of mobile operators’ future network plans,” Bubley writes. “There are multiple use cases, ranging from offloading congested cells, through to reducing overseas roaming costs and innovative in-venue services.”

Bubley’s paper explores the recent history of some cell phone providers aggressively trying to offload traffic from their congested 3G networks to more-grounded Wi-Fi networks.

Among the most intent:

• AT&T, which acquired Wayport, a major Wireless ISP, and is placing Wi-Fi hotspots at various venues and in high traffic tourist areas in major cities and wants to seamlessly switch Apple iPhone users to Wi-Fi, where available, whenever possible;
• PCCW in Hong Kong;
• KT in the Republic of Korea, which has moved as much as 67 percent of its data traffic to Wi-Fi;
• KDDI in Japan, which is planning to deploy as many as 100,000 Wi-Fi Hotspots across the country.

America's most aggressive data offloader is pushing more and more customers to using their Wi-Fi Hotspots.

Bubley says the congestion some carriers experience isn’t necessarily from users downloading too much or watching too many online shows.  Instead, it comes from “signalling congestion,” caused when a smartphone’s applications demand repeated attention from the carrier’s network.  An application that requires regular, but short IP traffic connections, can pose a bigger problem than a user simply downloading a file.  Moving this traffic to Wi-Fi can be a real resource-saver for wireless carriers.

Bubley notes many wireless companies would like to charge third-party developers fees to allow them access to each provider’s “app store.”  Applications that consume a lot of resources could be charged more by providers (or banned altogether), while those that “behave well” could theoretically be charged a lower fee.  The only thing preventing this type of a “two-sided business model,” charging both developers and consumers for the applications that work on smartphones, are Net Neutrality policies (or the threat of them) in many countries.

Instead, Bubley suggests, carriers should be more open and helpful with third party developers to assist them in developing more efficient applications on a voluntary basis.

Bubley also ponders future business strategies for Wi-Fi.  He explores the next generation of Wi-Fi networks that allow users to establish automatic connections to the best possible signal without ponderous log-in screens, and new clients that can intelligently search out and connect to approved networks without user intervention.  That means data traffic could theoretically be shifted to any authenticated or preferred Wi-Fi network without users having to mess with the phone’s settings.  At the same time, that same technology could be used to keep customers off of free, third party Wi-Fi networks, in favor of networks operators run themselves.

Policy controls are a major focus of Bubley’s paper.  While he advocates for customer-friendly use of such controls, sophisticated network management tools can also be used to make a fortune for wireless providers who want to nickle and dime customers to death with usage fees, or open up new markets pitching Wi-Fi networks to new customers.

Bubley

For example, a wireless carrier could sell a retail store ready-to-run Wi-Fi that pushes customers to a well-controlled, store-run network while customers shop — a network that forbids access to competitors or online merchants, in an effort to curtail browsing for items while comparing prices (or worse ordering) online from a competitor.

Customers could also face smartphones programmed to connect automatically to a Wi-Fi network, while excluding access to others while a “preferred” network is in range.  Wireless carriers could develop the same Internet Overcharging schemes for Wi-Fi use that they have rolled out for 3G and 4G wireless network access.  Also available: speed throttles for “non-preferred” applications, speed controls for less-valued ‘heavy users,’ and establishment of extra-fee “roaming charges” for using a non-preferred Wi-Fi network.

Bubley warns carriers not to go too far.

“[We] believe that operators need to internalize the concept of ‘WiFiNeutrality’ – actively blocking or impeding the user’s choice of hotspot or private Wi-Fi is likely to be as divisive and controversial as blocking particular Internet services,” Bubley writes.

In a blog entry, Bubley expands on this concept:

I’m increasingly convinced that mobile device / computing users will need sophisticated WiFi connection management tools in the near future. Specifically, ones that allow them to choose between multiple possible accesses in any given location, based on a variety of parameters. I’m also doubtful that anyone will want to allow a specific service provider’s software to take control and choose for them – at least not always.

We may see the emergence of “WiFi Neutrality” as an issue, if particular WiFi accesses start to be either blocked or “policy-managed” aggressively.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/The Future of Wi-Fi.flv[/flv]

Edgar Figueroa, chief executive officer of The Wi-Fi Alliance, speaks about the future of Wi-Fi. Wi-Fi technology has matured dramatically since its introduction more than a decade ago and today we find Wi-Fi in a wide variety of applications, devices and environments.  (3 minutes)

The AT&T Document Dump

On Friday, the tech-wireless media was in a frenzy over news one of AT&T’s law firms accidentally posted an un-censored copy of “highly confidential information” regarding its merger proposal with T-Mobile on the Federal Communications Commission website.  Although nobody seems to have a complete copy of the notorious filing to share (it was quickly pulled down after Wireless Week — an industry trade publication — blew the whistle), it turns out if you are willing to plow through AT&T’s periodic publicly-available document dumps, you don’t really need “top secret” information to realize how AT&T is trying to sucker America into accepting its competition-busting merger deal with T-Mobile USA.

What AT&T is Telling the FCC’s Lawyers But Hiding from You

As part of the approval process, the FCC sent AT&T a significant homework assignment, demanding answers to some detailed questions about the justification for the merger, how AT&T intends to use both its existing and newly-acquired wireless spectrum from both Qualcomm and, presumably, T-Mobile, and what specific plans the company has to expand its next generation wireless data network to rural America.

Last week, we learned from the unredacted filing that AT&T will pay $39 billion for T-Mobile to expand a 4G network that AT&T refused to spend $3.8 billion dollars to build themselves.  You read that right.  AT&T says it can expand its own 4G network to an additional 55 million people for just under $4 billion, or buy T-Mobile for nearly $40 billion to accomplish the same thing.

And what exactly does AT&T get from T-Mobile?  A largely urban network running a 4G network that goes nowhere near the 55 million largely rural Americans AT&T claims it intends to serve if the merger wins approval.

So scratch AT&T’s claim that the acquisition of T-Mobile’s network will do anything directly for the rural Americans T-Mobile never directly served.

AT&T’s biggest selling point is that its acquisition of T-Mobile will allow it to reach “97 percent of America” with its improved 4G network:

Because of the spectrum gains and the overall economic benefits resulting from the transaction, senior management made a business judgment that the merger with T-Mobile USA allowed AT&T to expand its LTE build-out to 97 percent of the population. These economic benefits include incremental reductions in cost due to the addition of T-Mobile USA resources, greater scale economies, such as higher volume discounts on handsets and equipment, a larger customer base, and the expectation of a higher take-rate for its LTE service. In addition, the transaction will enable AT&T to re-purpose its existing capital budget allocated to spectrum acquisitions to be allocated for other uses. Overall, the scale and scope of the larger combined wireless business will permit the additional capital investment to be spread over a larger revenue base than would be the case absent the merger.

But the unredacted, “highly confidential” part of the same document exposes important facts AT&T didn’t want the public to know:

“AT&T senior management concluded that, unless AT&T could find a way to expand its LTE footprint on a significantly more cost-effective basis, an LTE deployment to 80 percent of the U.S. population was the most that could be justified,” wrote AT&T counsel Richard Rosen.

In other words, by collecting T-Mobile customers’ monthly payments, AT&T can utilize that additional revenue, earned mostly from T-Mobile’s urban customer base, and use it to pay for rural cell sites the company itself won’t spend the money to upgrade to achieve that 97 percent coverage.

You can read between the lines of AT&T’s public statements and come to the same conclusion Rosen made confidentially, but it helps when the company’s own lawyer says it out loud.

Karl Bode from Broadband Reports thinks there is something familiar about that 97 percent figure.  It just so happens to be Verizon’s existing 3G coverage area.  Verizon pointed to their more robust 3G coverage in a major ad campaign that began just prior to the Christmas shopping season in 2009.  It did enough damage to bring AT&T to court in an effort to stop the ads, and reacquainted America with Luke Wilson, who threw postcards on a floor map touting AT&T’s more robust, but considerably less speedy, last-generation EDGE data network.

Verizon completed their expansive 3G network without the benefit of a merger and is in the process of building their 4G LTE network on their own as well — capable of eventually reaching the majority of Americans without taking out the fourth largest wireless carrier in the country.  AT&T, on the other hand, spent its time in court and handing Wilson more postcards to throw  instead of investing appropriately in its network over the last three years.

AT&T’s Document Dump: More than 1 Million Documents Bury FCC and Justice Lawyers

Another important revelation that doesn’t require the accidental disclosure of redacted data is the fact AT&T is burying government lawyers at both the FCC and Department of Justice in virtual paper.  The company admits to sending at least 1.2 million documents to Justice alone.  Reviewing AT&T’s filings with the FCC exposes the use of the old legal trick of burying your opponents in paper, hoping they will miss important documents that could call into question the veracity of the company’s arguments.

With the FCC, AT&T’s lawyers love to use appendices and attachments as virtual dumping grounds, adding copies of virtually any company document that contain “key words” or “search terms” in response to the Commission’s questions.

Take this Q&A exchange:

FCC Question: Provide all plans, analyses, and reports discussing: (a) spectrum requirements for all band segments; (b) the average data transmission speeds that the Company expects customers will be able to obtain; (c) actual and forecasted traffic and busy hour analyses, (d) total data tonnage; (e) capacity utilization rate; (f) vertically integrated operations; or (g) other technical or engineering factors required to attain any available cost savings or other efficiencies necessary to compete profitably in the sale or provision of any relevant product or any relevant service.

AT&T’s Answer: To respond to this request, AT&T conducted key word searches of custodian files as detailed in the tables appended as Exhibit A. Documents responsive to this request are included in AT&T’s production.

It’s the equivalent of putting the phrase “data transmission speeds” into a search engine and then attaching every document that appears in the results and calling it “your answer,” relevant or not.

AT&T used the same approach in answering the FCC’s questions about how the merger would specifically bring improved 4G service to areas without service today, what impact the merger will have on roaming agreements and wholesale access to the combined AT&T/T-Mobile network, and even in response to a basic question about plans for targeting particular competitors, customers, or customer segments after the merger.

Reality: AT&T Doesn’t Care About T-Mobile’s Network

So what else does AT&T win from a nearly $40 billion investment in T-Mobile?  While the leak of confidential information continues to be largely protected by a trade industry publication that has not released it publicly in full, anyone versed in telecommunications can easily find plenty in AT&T’s public documents.

The most important point is that AT&T admits, publicly,  it has not determined exactly what it intends to do with T-Mobile’s most important asset — its network:

• “AT&T, however, will not be in a position to make any final determinations until it is able to obtain more detailed information about T-Mobile USA’s operations, which will occur later in the acquisition process.”
• “AT&T has not yet begun detailed integration planning efforts.”

Would you spend $40 billion to buy a cellular service provider and not have the first clue what you would do with it?

But it gets even sillier.  AT&T doesn’t even know, several months after the merger was announced, exactly where T-Mobile’s cell towers are and what kind of backhaul connectivity they have:

AT&T has not yet begun detailed integration planning and its knowledge of T-Mobile USA’s operations is necessarily limited at this early stage. The actual process of determining which specific T-Mobile USA sites to integrate and which to decommission will require substantially more data from T-Mobile USA regarding its network as well as a more thorough engineering analysis of each area’s characteristics and capacity needs, which could change by the time the Transaction closes. Consequently, AT&T has not yet determined the exact number or location of T-Mobile USA towers or other locations used for transmission of signals that will be integrated into the combined company’s network to increase network density.

Because AT&T has not yet begun detailed integration planning and its knowledge of T-Mobile USA’s operation is necessarily limited at this early stage, AT&T does not have documents regarding the integration of the two companies’ switching facilities and backhaul.

These facts have made it impossible for AT&T to be responsive to specific questions from the FCC about the impact of acquiring and integrating T-Mobile’s operations into AT&T’s.  That left the company answering the Commission’s questions with statements like this:

Q. Provide all plans, analyses, and reports discussing any possible modification by the Merged Company of the terms, including prices, for providing backhaul for unaffiliated mobile wireless service providers to new or existing towers.

A. AT&T has not yet begun detailed integration planning, and its knowledge of T-Mobile USA’s operations is necessarily preliminary at this early stage. Any consideration regarding potential modification of terms and pricing for backhaul has not yet occurred. Thus, AT&T does not have any documents responsive to this request.

Good to know… or not know.

So if AT&T isn’t dwelling on the details of T-Mobile’s network, what do they expect to obtain from its purchase?

Here are AT&T’s “assumptions.”  That’s right, AT&T isn’t actually promising to do any of this.  It just “assumes” it will based on earlier planning — the same kind of planning that was supposed to deliver 4G upgrades without T-Mobile in the equation, until company executives changed their minds:

• Utilize the parties’ combined scale, spectrum, and other resources to extend AT&T’s deployment of LTE services to over 97% of the U.S. population, extending service to an additional 55 million Americans;
• Integrate AT&T’s and T-Mobile USA’s wireless networks, including:

1. Integrate T-Mobile USA cell sites into the AT&T wireless network, resulting in a more robust network grid;
2. Combine AT&T’s and T-Mobile USA’s GSM networks, eliminate redundant GSM control channels and maximize utilization efficiencies;
3. Combine AT&T’s and T-Mobile USA’s GSM spectrum holdings, resulting in channel pooling efficiencies and improved coverage;
4. Optimize usage of the parties’ combined spectrum holdings and deploy additional spectrum to support more spectrally efficient network technologies; and
5. Decommission redundant cell sites and reuse radios and other equipment from decommissioned sites to enhance network efficiency and performance.

• Make AT&T rate plans available to T-Mobile USA customers, while preserving rate plans for T-Mobile USA consumers who wish to maintain their existing plan of choice;
• Make AT&T services, smartphones, and other devices available to current T-Mobile USA customers;
• Integrate retail outlets, dealers, and marketing efforts under the AT&T brand;
• Integrate billing, customer care, and other support services;
• Integrate certain functional units, including, but not limited to human resources, general & administrative, information technology, finance, procurement, and legal.
• Achieve savings in network infrastructure investment and network and customer equipment purchases; and
• Achieve efficiencies in interconnection and transport costs.

During AT&T’s periodic communications with shareholders, the company has spent most of its time talking about cost savings made possible from closing redundant retail outlets, integrating networks, and the always-vague savings from job redundancies (read that major layoffs).  In fact, AT&T has said they will save up to $10 billion dollars in infrastructure expenses with the merger.  At the same time, its public relations efforts promise the company will spend a veritable fortune — up to $8 billion, improving AT&T’s own network.

You can be certain to the uninitiated, eight billion dollars sounds like a lot of money.  It’s a dollar amount that is sure to razzle-dazzle plenty of people.  That is, until you realize during the same period of time, T-Mobile itself would have been spending up to $18 billion of its own money upgrading its network.  Eighteen billion minus eight billion equals the aforementioned $10 billion — the savings AT&T will realize from continuing to under-spend on both its network and T-Mobile’s.

More Fun Facts: AT&T Cares More About Counting Your Usage Than Measuring Network Capacity & Utilization

Wading through AT&T’s filings has revealed another important fact pertinent to Stop the Cap! readers: AT&T obsesses about measuring your wireless data usage but doesn’t have much of a clue about how much network capacity it has at different cell sites, nor the utilization rates at those sites.  No wonder AT&T drops calls.  If the company isn’t carefully measuring network utilization at a granular level, it can’t hope to find overcongested sites that badly need upgrades to stop the problem of dropped calls and slow speed data:

AT&T does not maintain in the ordinary course of business a nationwide list of all CMAs where its individual network is underutilized. With regard to the areas where AT&T’s and T-Mobile USA’s networks may be underutilized relative to each other, AT&T does not have this information on a CMA by CMA basis, nor does AT&T have engineering data that would provide this granular information for T-Mobile USA.

Money - Better Earned Than Spent

However, when the opportunity to engage in highly-profitable Internet Overcharging exists, measuring customer usage takes a high priority, as we learn from AT&T in response to another question from the FCC:

The .csv file in Exhibit 19-1 contains current (as of March 11, 2011) data usage for each UMTS site (by USID) measured in kilobytes, during the monthly busy hour, and separately for the uplink and the downlink. The .csv file in Exhibit 19-2 contains current (as of March 11, 2011) data usage for each GSM site, measured in Erlangs, combined for the uplink and downlink, for the monthly busy hour. At the Commission’s request, AT&T also provides an estimate of GSM data usage in terms of Kilobytes, using a formula that converts Erlangs to Kilobytes. ll Both exhibits identify the CMA associated with each site. The .xlsx file in Exhibit 19-3 contains usage projections that are currently used by the network engineers for each of AT&T’s 27 regional clusters in the ordinary course of business.

AT&T doesn’t lose any money when it drops your call from an overcongested cell site (unless you grow weary enough of it to cancel service), but can lose plenty if it doesn’t measure customer data usage in hopes of limiting customer use or charging them an overlimit fee when they don’t.

AT&T’s Mother-of-all-Disclaimers: AT&T Has Not Verified It Has Produced All Requested Documents

The most flippant part of AT&T’s document dump is the revelation that despite the million plus documents thrown at two government agencies, AT&T isn’t willing to affirm it actually produced copies of the relevant documents the government wants as part of the review process.  In a host of disclaimers and AT&T’s own descriptions of how it defines the meaning of the government requests, the company notes:

Pursuant to discussions with the Commission staff, AT&T is submitting its Response consistent with the following qualifications:

• Custodian files were searched covering the period from January 1, 2009 through March 21, 2011, except for certain custodians, whose files were searched through early May, 2011.
• AT&T has not verified that it has produced “all other documents referred to in the document or attachments,” pursuant to instruction 4.
• AT&T has not searched backup disks and tapes for documents.

Nothing to slip through scrutiny there, right?

Dear Chairman Genachowski, Attorney General Holder and Commissioner Sandoval:

We write to urge you to reject AT&T Inc.’s proposed purchase of T-Mobile because it will without question lead to higher prices for consumers.

This is not conjecture; it is the lesson of history. Seven years ago, AT&T Inc.’s wholly owned subsidiary, AT&T Mobility LLC (then known as Cingular Wireless Corporation) requested permission to buy AT&T’s wireless network (then known as AT&T Wireless Services, Inc.) for $41 billion. At that time, AT&T and Cingular had the first and second largest share, respectively, of wireless communications providers in the U.S.

In order to get the merger approved, AT&T and an army of executives, lobbyists and allies assured regulators and consumers that the deal was in the public interest by making promises — the very same promises that we’re hearing from AT&T today:

What happened after the AT&T – Cingular merger? Once the Federal Communications Commission approved the deal (after negligible scrutiny), the newly merged company – which later renamed itself AT&T Mobility LLC– betrayed its promises. It abandoned the old AT&T network, deliberately degrading the network so that AT&T customers would be forced to migrate to Cingular’s own network, pay an upgrade fee of $18, buy new phones and agree to new and more expensive rate plans. These anti-consumer moves were enforced by an anti-competitive “early termination fee” of anywhere between $175 and $400, which prevented customers of AT&T from moving to another carrier.

In short, AT&T policyholders were railroaded into spending hundreds of dollars more in order to maintain their cellular service – a colossal rip-off by the same corporate executives who are now asking for permission to do it all over again.

Nothing in the terms of the proposed merger bars AT&T from engaging in a repeat performance against helpless T-Mobile customers if this deal is approved. Indeed, even as the companies mount a massive public relations campaign to win your approval, T-Mobile executives are already implicitly acknowledging that once the merger is approved, AT&T will make changes in the T-Mobile network:

T-Mobile has no plans to alter our 3G / 4G network in any way that would make your device obsolete. The deal is expected to close in approximately 12 months. After that, decisions about the network will be AT&T’s to make. That said, the president and CEO of AT&T Mobility was quoted in the Associated Press saying “there’s nothing for [customers] to worry about… [network changes affecting devices] will be done over time… ”

Moreover, AT&T has publicly admitted that if the merger goes through, T-Mobile subscribers with 3G phones will have to replace their phones to keep their wireless broadband service. AT&T plans to “rearrange how T-Mobile’s cell towers work” so that T-Mobile’s airwaves can be used for 4G service rather than 3G. Even though AT&T will be altering T-Mobile’s 3G cell towers to operate 4G services, Ralph de la Vega, president and CEO of AT&T Mobility and Consumer Markets, said that after the merger, T-Mobile 3G phones will need to be replaced with AT&T 3G phones, which “will happen as part of the normal phone upgrade process.” Once AT&T forces the T-Mobile subscribers with 3G phones to buy AT&T 3G phones, it is only a matter of time before AT&T pushes all of its subscribers over to the 4G network.

T-Mobile customers who are forced to migrate to AT&T’s network will have to buy new phones, agree to more expensive rate plans, or cancel their contracts and pay a termination fee.

Once known for its low prices, T-Mobile has already begun increasing its rates and decreasing options in anticipation of the merger. On July 20, 2011, T-Mobile discontinued its unlimited data plans, replacing them with plans that cap the amount of data a customer can use; once the customer hits the data cap, T-Mobile will substantially slow down their network speed. Nine days later, AT&T, which stopped offering new unlimited data plans last year, announced it would similarly start throttling data speeds even for customers on “grandfathered” unlimited data plans. AT&T is attributing its slow-down to the “serious wireless spectrum crunch.” In another implicit promise sure to be broken, AT&T has told its customers and regulators that “[n]othing short of completing the T-Mobile merger will provide additional spectrum capacity to address these near term challenges.”

Finally, T-Mobile was recently named one of the world’s most ethical companies for 2011. It was the only U.S. wireless telecommunication service provider that made the list. By contrast, complaints about AT&T’s service and prices are legion. Indeed, the views of millions of AT&T customers have been summarized by an online campaign known as “#attfail.” This merger will eliminate a U.S. wireless company that at least seemed to care about its customers.

To this day, the AT&T customers who were misled and overcharged by AT&T’s actions after the 2004 merger are still fighting in the courts for refunds and other remediation arising from the merger. In 2006, lawyers for Consumer Watchdog, joined by a group of private law firms, filed a national class action lawsuit against AT&T on behalf of the millions of customers who were victimized by the merger: Coneff v. AT&T Corp., et al., No. C06-0944 (W.D. Wash). In response, AT&T’s lawyers claimed that when AT&T customers were forcibly moved to the new network, they simultaneously agreed to waive their right to seek refunds from AT&T in court because of a provision buried in the fine-print of AT&T’s contract that required arbitration of all disputes and barred customers from joining together in an arbitration. Throughout the litigation, AT&T changed its arbitration clause several times, each time modifying various terms while retaining the arbitration clause that prohibited customers from bringing or participating in a class action, regardless of whether it is brought in arbitration or in court.

In 2009, the U.S. District Court in Seattle, Washington, held that AT&T’s arbitration clause was unconscionable because most AT&T customers would never obtain redress without the ability to bring a class action. The case is presently before the 9th Circuit. In its briefing, AT&T now contends that the U.S. Supreme Court’s recent decision in AT&T Mobility v. Concepcion 563 U.S. __ (2011) should be interpreted by the courts to apply to the egregiously unfair and one-sided mandatory arbitration clauses like the one struck down in Coneff in 2009, which, in our case and unlike in Concepcion, has been shown to preclude customers’ basic due process rights.

Albert Einstein defined insanity as doing the same thing over and over again and expecting different results. Considering AT&T’s track record, it is irrational to expect that the AT&T and T-Mobile merger will yield different results. If the merger is approved, millions of T-Mobile customers will be subjected to the same costly and unfair practices that AT&T customers experienced after the 2004 Cingular merger. Moreover, permitting AT&T to swallow a competitor will leave the American cellular marketplace controlled by a duopoly that, through the artifice of termination fees and arbitration agreements, will effectively eliminate competition between them.

This is a bread and butter test of the federal government’s commitment to American consumers versus the Wall Street and corporate interests that too often seem to be the winners every time the federal government takes action.  The Administration should ignore the lofty pronouncements of the corporate-funded academics and allies who provide cover for the glib promises of two cellular giants, along with the Wall Street firms that will reap millions in fees for providing the merger paperwork, in favor of the average American family, who, after all they have been forced to sacrifice these last few years, should not be required to pay more of their dollars for the ability to use a cell phone.

Harvey Rosenfeld

Laura Antonini

You can find documented footnotes accompanying this letter here.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/ATT T-Mobile Merger Ad.flv[/flv]

AT&T is blanketing the airwaves with claims of improved service in its advertising promoting the merger with T-Mobile.  (1 minute)