LightSquared’s basic business plan of delivering a nationwide 4G network has been an open question ever since the company’s technology threatened to obliterate GPS satellite navigation technology.  Now the company is taking a page from the Washington’s Public Relations Firm Playbook by ingratiating itself with important lawmakers that can make or break the multi-billion dollar endeavor.

LightSquared announced it is donating equipment and service to Native American organizations, starting in Oregon, Washington, Idaho and Arizona — all conveniently located in key lawmakers’ states and districts.  In addition to agreeing to provide satellite phone service to remote tribal communities completely unserved by other technologies, LightSquared is also contributing 2,000 satellite telephones to the Indian Health Service, the federal agency responsible for administering health care to native populations on reservations and throughout tribal communities in Alaska.

How can the company deliver service over a network threatened with legislative obliteration?  LightSquared’s donation to Native Americans will rely on the company’s satellite network, which has not been deemed an interference generator by opponents.

Satellite telephony has proved to be obscenely expensive and of limited interest outside of military, shipping, and forest service applications.  At rates averaging up to $5 a minute or more, keeping conversations short is key to avoid bill shock.  Such technology is completely out of reach for most tribal communities, who are among the most income-challenged of all North Americans.  The contribution may buy the venture some goodwill on Capitol Hill, where it is sorely needed as skepticism over the company’s 4G service, to be operated on frequencies adjacent to GPS satellites, has reached an all-time-high.

LightSquared is learning the time-tested ways of Washington, where substance and common sense often take a back seat to political posturing, special interest politics, and campaign contributions.

U.S. Cellular Monday told investors the company plans to abandon unlimited data service sometime in the next two or three quarters in favor of tiered data plans similar to what is on offer from AT&T and Verizon Wireless.

U.S. Cellular president and CEO Mary Dillon told investors the company is changing pricing as a result of “significant changes in pricing strategies” at their larger competitors, who have moved away from unlimited data plans over the last year.  Dillon applauded the adoption of tiered data pricing, but noted increasing pricing pressure in the market.

For the nation’s sixth largest wireless carrier, best known in the midwest, northern New England, the Carolinas, and northern California, being a regional provider in an increasingly concentrated wireless marketplace has some on Wall Street concerned about the long term viability of smaller cell phone companies.

Blaming the continuing challenges of “an extremely competitive market and a sluggish economy in which carriers continue to fight for a dwindling pool of new subscribers and the cost of acquiring switchers are significant,” the company reported a net loss of 41,000 customers during the last quarter.  Only 226,000 new customers signed up, down from 307,000 in the prior year quarter.  Another 17,000 prepaid customers dropped U.S. Cellular last quarter as well.  U.S. Cellular now has just under six million customers in all.

Adrian Mill from Eagle Capital noted the customer losses — presumably to larger AT&T or Verizon Wireless, and pondered how long the company can continue to exist on its own in a market increasingly dominated by those two larger carriers:

“I know you guys did a lot of work a couple years ago on whether our regional cellular company could still be relevant and looked at ways in other industries and had some good data from it.

I’m just curious if after the past couple quarters of results where we’ve now seen everybody lose share to AT&T and Verizon if that was something you thought might happen in short term or if it’s been surprising?

If its been surprising, how long would you guys potentially consider losing subs before you do a strategic transaction or consider a sale?”

U.S. Cellular executives didn’t directly answer the question, but acknowledged the wireless carrier does have challenges in the marketplace its larger competitors don’t have.  They include:

• Access to coveted smartphones, particularly Apple’s iPhone, which continues to be unavailable from smaller, regional wireless carriers;
• Access to sufficient wireless spectrum to deploy robust data networks to meet customer demand;
• Capital requirements to build and expand the next 4G generation of wireless;
• The downward pressure on smartphone equipment pricing due to competition and expensive equipment subsidies;
• Roaming agreements to ensure nationwide coverage for voice and data services.

U.S. Cellular's primary service areas

Company officials told investors U.S. Cellular intends to continue to compete for new customers, leveraging its top consumer ratings for reliable service and satisfaction with the deployment of its own 4G LTE wireless network.  But first it intends to re-align pricing to reduce costs.

Alan Ferber, U.S. Cellular’s executive vice-president, sales operations, notes U.S. Cellular wants to see more of its customers upgrade to smartphones, which guarantee higher revenues per customer from the higher-priced service plans that accompany the phones.  The company needs less expensive phones from manufacturers, because consumers typically won’t pay more than $200 for a smartphone that comes with a 2-year service agreement.

Ken Meyers, chief financial officer for the company, has been crunching the numbers on smartphone equipment costs and is grateful for the presence of Android phones in the marketplace, which are starting to drive phone prices downwards.

“[It’s] exciting to me is to see what’s happening with the Android phone cost that will allow carriers to start to recapture some of the economics needed to support LTE [4G] investment and the subsidization of those smartphones, whereas that works on a $200 smartphone but if I’m subsidizing $400 or $500 suddenly most of that revenue isn’t going to pay for the network,” Meyers said.

Ferber expects to deliver new smartphones to U.S. Cellular customers for less than $200 by the holiday season, so customers will find the initial cost for phones lower than ever.  But Ferber admits the company’s forthcoming tiered data pricing means increased revenue and “better cost controls” over the life of a customer’s 2-year contract.

“We have also talked about things like tier data pricing on a going forward basis,” Ferber said. “We do believe that has at least two major benefits. The first is to align data revenue with data cost better and the second is to, in combination with the lower cost smartphones, enable more customers to get into a smartphone.”

But Ferber also acknowledges the company’s move to LTE 4G technology will actually cut the company’s costs to deliver that data — great news to investors, but potentially higher cell phone bills for consumers.

“Over the long turn it’ll certainly make the economics much more attractive,” Ferber said.

Other highlights from Monday’s conference call:

• U.S. Cellular will not acquire other providers not within or adjacent to its current operations, but is stockpiling cash for the potential purchase of any T-Mobile territories the federal government requires AT&T to divest as part of any merger agreement.  T-Mobile is not a major competitor in most of U.S. Cellular’s more-rural/suburban markets, but if U.S. Cellular does acquire any of these customers, they will have to convert them from T-Mobile’s GSM network to the company’s CDMA network;
• Data roaming from Verizon and Sprint customers traveling through U.S. Cellular’s service areas have brought increased traffic to the company’s data network, and roaming revenue with it;
• System operations expenses of $228 million were up $14 million or 7% year-over-year. This was due primarily to higher usage and roaming expenses as customers use more data services both on and off U.S. Cellular’s network. Through June of this year, total data of network usage increased nearly 400% over the same period last year.

Sprint’s 4G experience has been nothing to write home about for a number of their customers, who are increasingly disabling the service to save on battery life.

Speed tests of Sprint’s 4G WiMAX experience show increasingly unimpressive results, as the network grows exponentially more crowded with customers trying to capitalize on the higher speeds 4G is supposed to deliver.  The result?  BTIG Research in April found, after exhaustive testing, the average Sprint 4G customer was now getting around 1/1Mbps service from a network that promised to deliver speeds many times that.

This isn't even a contest. (Source: BTIG Research)

Now an increasing number of customers are simply switching the 4G service off completely to extend battery life.

Doug Mahoney, a contributing editor for TechZone360, says he has about given up on WiMAX:

WiMAX tends to stay turned off so I run 3G and there’s no big differences in the convenience of reading email or using simple apps like Twitter and Foursquare.  With more public places starting to offer free WiFi, the case for WiMAX — or LTE — on a smart phone starts to grow weaker between the extra cost and the battery life issue.

Mahoney complains Sprint’s 4G network is simply not robust enough to support consistent speeds and access.  In suburban Washington, he compares Sprint’s 4G coverage to an open air tree, with spotty service scattered across the region.  As a result, his 4G phone spends a lot of time desperately-seeking-signal — a process that accelerates battery depletion.

Given Sprint’s WiMAX “tax” of an additional $10 a month for the service, Mahoney isn’t so certain he’d pay it again on a future Sprint phone.

Are the same speed reductions in store on Verizon’s currently-lightning-fast LTE 4G network few customers use right now?  Perhaps, but Verizon’s brand may force the company to make sure coverage is much stronger than what Sprint customers currently tolerate:

LTE has the same power consumption issues as WiMAX. I suspect Verizon will have better, more ubiquitous LTE coverage just due to the characteristics of the 700 MHz spectrum and physics involved, so I should have faster broadband available in more places rather than the abstract green tree coverage map.

Leap Wireless is trying to save face on less-than-impressive second quarter financial results showing the company is losing its mobile broadband customers who are increasingly weary of Cricket’s price increases and speed throttles.

The company lost at least 132,000 broadband customers since the first quarter, mostly due to price increases, reduced usage allowances and “network management” practices, which reduce speeds to near dial-up for customers who are deemed to be “using too much.”

“On broadband, we tightened our focus to more profitable customers while shedding less profitable ones,” said Leap Wireless CEO Douglas Hutcheson.

Internet Overcharging Facts of Life: What 'Network Management' tools are really used for. (Courtesy: Cricket's Second Quarter Results Investor Presentation)

Cricket recently announced increased pricing on their usage limited plans: $45/month for 2.5GB, $55/month for 5GB, or $65/month for 7.5GB.

With a less-than-robust regional 3G network and higher pricing, broadband customers have decided to take their business elsewhere, despite the company’s recently announced expanded data roaming agreement with Sprint.

Cricket acknowledges their “increased network management initiatives” are partly to blame for the loss, but the company also says increased prices for mobile broadband devices, which used to be available for free after rebate, are also responsible.  Cricket’s least expensive mobile broadband modem now runs just under $90.

Company officials told investors the losses “were expected,” and that the company has been trying to make up the difference with higher value smartphone data plans.  Mobile broadband customers tend to consume more data than smartphone users, so the company’s emphasis on smartphone data users, who use less, will deliver increased revenue at a reduced cost.

Cricket’s CEO explains the company’s renewed focus on keeping highly-profitable mobile broadband customers while effectively getting rid of “heavy users” who have been targeted with aggressive speed throttling over the past year, and now face higher prices for lower usage allowances. Also explored: Cricket’s future 4G LTE network buildout.  August 3, 2011.  (4 minutes)
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Cricket's declining mobile broadband business

In fact, the company’s presentation to investors credits network management tools for driving away “higher usage customers,” allowing Cricket to reap the benefit of “improved revenue yield per gigabyte.”  In short, that means Cricket profits handsomely from data plans they hope customers will only occasionally use.

One of Cricket’s biggest product priorities this year is pitching its Muve Music service, bundled into an all-inclusive $55 wireless prepaid phone plan.  It gives Muve phone customers unlimited access to an enormous downloadable music library accessed on the phone.  Since the service does not allow customers to transfer the music to other devices, record companies are happy to participate.

The biggest downside for some is that the Muve phone becomes your music player — a phone many customers consider a work in progress.  Some critics have labeled the service a “total fail” because of sound quality and DRM restrictions. But since the service is already bundled into the wireless plan at no additional cost, more than 100,000 customers are using it, downloading at least 130 million songs since it was first introduced in January.

Muve Music is another way Cricket is trying to differentiate itself from other wireless providers, and the company may try to expand the Muve Music service to much-more-profitable smartphones in the near future. Cricket hopes to begin selling no-contract smartphones at prices below $100 by Christmas.

Cricket executives answer questions from Wall Street about how the company intends to deal with a decline in mobile broadband customers, and explains their use of network speed throttles. Cricket plans to “follow industry trends” and experiment with “session-based” throttles sometime next year. These allow customers to pay an extra charge to temporarily remove the speed throttle when they need additional bandwidth. It’s just one more source of lucrative revenue from conjured up network management schemes.  August 3, 2011.  (4 minutes)
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Cricket is also planning further expansion of its ‘welfare wireless’ plan — a Universal Service Fund-backed home phone replacement for customers receiving public assistance.  The Lifeline USF subsidy is designed to provide affordable home telephone service to the most income-challenged among us.  Many landline providers charge around $1 a month for the service (before fees), and then charge for every call made.

Cricket’s implementation of this subsidy could draw some controversy because it delivers a $13.50 monthly discount off -any- of their rate plans.  That means qualified customers could pay just over $40 a month for a high end smartphone service plan, subsidized by every telephone ratepayer in the country.

Cricket also plans to launch LTE 4G service starting in early 2012.

Cricket plans to introduce 4G LTE service in 2012.

While T-Mobile isn’t bashing AT&T in advertising as badly as it did before the announced proposition of a merger between the two companies, T-Mobile is still calling out AT&T’s high mobile prices with innovative new service plans that can deliver substantial savings for consumers — savings that will evaporate if AT&T swallows the company whole.

Take this week’s introduction of T-Mobile’s new Family Mobile Unlimited Plans, which deliver unlimited texting, calling, and 2GB of throttle-free “4G” (HSPA+/HSPA+42) data for as low as $69.99 per line (two-line minimum), which is just shy of $140 a month before taxes and fees.  Comparable plans from AT&T run $99.99 per line — a $30 difference.  A two year contract is required.

Although T-Mobile is pitching these plans as delivering “unlimited data,” in reality their speed throttle kicks in on some of them after 2GB of usage per month.  While customers will not experience bill shock from overlimit fees common with AT&T and Verizon Wireless, they won’t actually get an unlimited data experience like the one Sprint still delivers on its unlimited data plans.

Additional lines are available for $20 a month with 500 calling minutes and 200MB of data usage, or $40 a month each to upgrade to unlimited talk (but keep the same 200MB usage allowance for data.)

T-Mobile is pitching these plans to value-conscious families who live on their phones.  While other providers let you pool calling minutes on Family Plans, each phone usually has to also select any additional added-cost features like data and texting.  T-Mobile is bundling some of these features into the sale price.

AT&T told investors the merger would bring about higher revenue and cost savings.  Not having to respond to T-Mobile’s aggressive price competition by lowering its own prices is one great way to achieve this.

That means higher prices for everyone.