Static isn't just for the UHF dial, it's for powerhouse lobbying groups, too.

While surface reporting on “white space” broadband and “super Wi-Fi” seem to suggest the United States is on the cusp of opening up much of the UHF television dial to wireless broadband, behind the scenes broadband advocates are fretting about being outmaneuvered by the powerful broadcast lobby.  The theory behind “white space” broadband seems simple enough.  Anyone who has flipped channels up and down the UHF dial sees a lot of unused real estate.  While most cities receive 5-10 UHF TV channels, there are dozens of apparently empty channels filled with what seems to be nothing at all. Can’t we make more efficient use of the UHF dial and open the excess to other uses?

The FCC has been studying just that, with the proposition that broadcasters could be relocated closer together or agree to sell their broadcast license and sign off the air for good.  Theoretically, the UHF dial would be reduced to channels 14-30.  Stations on channels 31-51 would have to relocate down the dial to make way for broadband.

That was the plan anyway

Naturally, the National Association of Broadcasters (NAB), the broadcast industry lobbying group, was not happy to learn of this plan, which is still heavily promoted by wireless telecommunications companies.  They quickly argued there were not enough UHF channels left to accommodate every TV station on the air today, and some cities bordering Canada faced losing major stations if the plan was adopted.

In the clash of the lobbying titans, it appears broadcasters have at least temporarily won the upper hand.  Legislation authored by the powerful House Communications Subcommittee Chairman Greg Walden (R-Ore.), would grant the FCC authority to conduct spectrum horse-trading and auctions, but only if the sales take “all reasonable efforts to preserve” the coverage area of impacted broadcast stations.

In the minds of several wireless broadband advocates, “reasonable efforts” kills it. That key passage is open to wide interpretation, which in Beltway language means a full employment program for Washington law firms who will end up letting a judge decide what “reasonable” really means.

Blair Levin

Blair Levin, an attorney who served as chief of staff to FCC Chairman Reed Hundt from 1993 to 1997, where he oversaw the implementation of the disastrous 1996 Telecom Act, is all sour grapes about the latest developments in Congress.  That is to be expected — he was once considered the Obama Administration’s chief “broadband czar.”

“The legislation ties the FCC’s hands in a variety of ways,” Levin tells TVNewsCheck. “It opens it up to litigation risk, which then, in conjunction with the other handcuffs, makes it difficult to pull off a successful auction. The nature of the bill dramatically increases the probability that there will be less spectrum recovered and less money for the [U.S.] Treasury.”

Broadcasters have been legitimately worried about where they might fit within the new, slimmed-down UHF dial.  The more broadcasters packed closer together, the greater the chance of interference and reduced signal coverage for those who happen to live between two cities sharing the same channel number.  The NAB has consistently opposed forcing station-owners’ hands and wants stations compensated for their costs and inconvenience.

Before the first “white space” broadband signal takes to the airwaves, the government will have to set aside at least $3 billion to defray expenses incurred by television stations moving down the dial.  With language that guarantees broadcasters won’t have to suffer from an interference nightmare, FCC engineers will have a much harder time finding enough channels for the number of stations that need to move.  That could mean fewer channel positions up for auction.

Blair believes stations can extract even more by playing the litigation threat card.

“Nobody wants to go to an auction when there is the threat of a judge anywhere having the ability of holding it up,” Blair said. “I believe a good lawyer could find a way to get the question of  whether the FCC took all reasonable efforts in front of a judge. If you are designing the auction and a big law firm shows up and says, ‘If you don’t take care of my single broadcaster, we are going to find a way to get to court.’ That’s a real threat.’’

The Lady Gaga problem

Lady Gaga's wireless microphone malfunction.

Assuming Washington can fling enough cash to soothe the nerves of worried broadcasters, impediments to white space broadband don’t stop with the local Fox station.  The next complication is the wireless microphone issue.  When you see Lady Gaga in her latest outrageous outfit, you probably are not noticing her wireless microphone.  Performers of all kinds use these low power devices that often work over unused UHF spectrum.  Only it may not be unused for long.

Spectrum Bridge, a “white space” database administrator charged with coordinating who is using what frequency for what purpose, understands the challenges of trying to keep track of TV reporters, bands on tour, and other wireless microphone users, who all expect an interference-free experience.  Electric companies and municipalities also plan to utilize white space spectrum to manage smart city and smart grid communications.  A year later, Super Wi-Fi applications that deliver longer distance Wi-Fi service are expected to arrive.

It’s becoming a crowded neighborhood.

Congress’ NAB-friendly, Republican-sponsored bill may be modified substantially in a Democratic-controlled Senate, and there is still plenty of time for lobbyists to work their magic.  But it’s safe to say that those who have waited at least seven years for white space broadband to become a reality will have to wait a little longer.

Haven't we been here before?

History is best ignored when a Wall Street Journal columnist frames an argument in favor of strengthening the hegemony of Ma Bell, and darn ‘ole past precedent gets in the way of the writer’s “facts.”

Gordon Crovitz is a media and information industry adviser and executive, including former publisher of The Wall Street Journal, executive vice president of Dow Jones and president of its Consumer Media Group.  But today he’s unofficially, unabashedly AT&T.

In a column published this week, Crovitz hosts a whine and cheese festival on behalf of poor and abused AT&T, whose multi-billion dollar takeover of T-Mobile is in tatters. Crovitz places the blame squarely on the government for ruining everything:

How soon we forget the risks of overregulation: Last week, the Federal Communications Commission flexed the same muscle it once used to quash market forces in the phone industry to quash market forces in the wireless industry.

Today’s AT&T, a spinoff from the original, needs more spectrum to catch up with market leader Verizon, also a Ma Bell descendant, to support iPhones, Androids and other devices that feature video and sophisticated apps. It wants to buy T-Mobile, a division of a German company, which doesn’t have the resources to compete in the United States on its own. But the FCC decided to apply antitrust theory from the industrial era and claims to know better than wireless companies how they should operate their businesses.

AT&T’s proposed acquisition is best understood as a private-sector solution to a government-created problem. The FCC has not been able to get Congress to approve auctions to reallocate spectrum to wireless from less valuable uses. AT&T wants T-Mobile’s bandwidth so it can extend the latest fourth-generation network to 97% of the country from 80% and improve its spotty service in congested areas.

Under laws dating to the 1920s, the FCC gets to decide if a merger is in the “public interest,” a vague standard for top-down decision making. Government is the last institution in this era of fast technological innovation to act as if it has the information and power to dictate how change happens.

Crovitz apparently prefers AT&T and its phone pal Verizon Wireless dictate how “change happens,” because the two companies control the vast majority of wireless telecommunications in the United States.  Both also charge near-identical prices for near-identical levels of service.  AT&T & VZW are completely comfortable with that status quo, especially if disruptive competitor T-Mobile is dealt with in the usual industry manner (merger/buyout).

There is nothing vague about the FCC report that condemns the merger of AT&T and T-Mobile for the anti-competitive monstrosity it represents.  In hundreds of pages Crovitz evidently never read, a careful and credible argument against the deal was laid out for all to examine.  That evidence is far more persuasive than AT&T’s heavily-redacted filings the public was not authorized to see (for ‘competitive reasons’), and a multi-million-dollar-a-holler public relations distortion strategy based on hollow promises.

Playing Catch-Up With Verizon Wireless?  Hardly.

AT&T hardly needs to “catch up” with Verizon Wireless.  Both companies own wireless spectrum they have warehoused for “future use.”  As a backdrop to the merger, FCC Chairman Julius Genachowski has already indicated the agency is hard at work carefully re-allocating spectrum to make more room for wireless services.  The “bandwidth crisis” AT&T talks about is a convenient argument for a merger, until you realize T-Mobile’s mostly-urban wireless network won’t help AT&T achieve its goal of rural wireless expansion.  T-Mobile has never provided service in rural America and never will.

Crovitz attempts to leverage Verizon Wireless’ recent deal with America’s largest cable companies as an argument for the AT&T and T-Mobile merger, suggesting that deal was a game changer.  What goes unsaid is the fact AT&T could have pursued that deal for themselves.  Did they?  No.  Despite AT&T’s public relations spin, the proposed merger with T-Mobile is much more than a spectrum acquisition. As the FCC and the Justice Department have argued, this merger is about ridding AT&T of a competitor willing to offer more services at lower prices.  That forces AT&T to respond in kind to compete, and consumers have benefited greatly from that competition. Verizon Wireless is hardly competition at all considering both companies price services nearly identically.  Beyond that is Sprint, already saddled with the financial albatross Clearwire and questions about its long term viability in a duopolistic wireless market.

Crovitz is wrong on his other “facts” as well:

Deutsche Telekom is hardly short on cash.  The company has plenty of resources and could bolster T-Mobile USA to compete if it saw fit.  It doesn’t, preferring to focus on its more lucrative European markets.  Instead of selling the operation on the open market to other players, which could include foreign providers interested in competing in the high-priced American market, it elected to be courted by AT&T.

Overconfident AT&T

Henry De Lamar Clayton, Jr.: Author of the Clayton Act

The merger illustrates AT&T’s unparalleled level of overconfidence it could deal with regulators and consumer groups who would certainly object to the deal.  The company has since spent millions it could have used to improve its network on campaign-contribution-fueled support building on Capitol Hill, a shameless dollar-a-holler astroturf campaign that pays off non-profit groups to sing the deal’s praises, and an expensive ad campaign to sucker Americans into thinking reduced competition will somehow deliver lower prices and better service.

Even former Republican FCC Chairman Kevin Martin would have likely paused over such an obvious monopoly-building operation.  The Obama Administration’s FCC chairman — Julius Genachowski —  while often too timid for our tastes, at least knows when it is time to join the chorus of opposition.

The FCC doesn’t pretend to tell AT&T how to run its business.  It does, however, serve the public interest by providing checks and balances to unfettered corporate power.  While the Wall Street Journal‘s world view of capitalism would have been favored by the most egregious robber barons, history has taught us that when big corporations get a stranglehold on vital industries, the entire economy can suffer.

Crovitz would have us ignore the massive corporate abuses of 100 years ago that eventually provoked Congress into trust-busting legislative reform, breaking up the monopolies and oligopolies that presided over the railways, early telecommunications networks, and industrial raw materials like oil and steel.  Restrained competition brought monopoly prices and blockades against would-be competitors.  What was true then is still true now, only the technology has changed.

In 1911, the economy was powered in part by railroads, which transported goods and raw materials.  Telecommunications networks like the telegraph and early telephone helped conduct business and coordinated the movement of goods.  In 2011’s growing digital economy, telecommunications increasingly represents the railroads, telegraph, and telephone all combined-into-one.  Some of America’s richest tech companies depend on broadband and communications to fuel demand for their products.  Allowing AT&T to control the largest part of that pipeline could be disastrous to everyone but that company and their shareholders.

History Repeats Itself

In 1914, the Clayton Act was passed to put a stop to increasing anti-competitive activity and abusive market tactics.  Amazingly, the problems being solved a century ago are back with a vengeance today, all thanks to the endless drumbeat for deregulation, which has fueled mergers, acquisitions, and increased concentration of market power.  That Act cracked down on:

• Price discrimination: selling products and services at different prices to similarly situated buyers;
• Tying and exclusive-dealing contracts: sales on condition that the buyer sign exclusive contracts that force an end to dealing with the seller’s competitors;
• Corporate mergers: acquisitions of competing companies to reduce competition; and
• Interlocking directorates: Boards of directors of competing companies, packed with common members.

Today’s laissez-faire attitude towards government checks and balances helped provoke the Great Recession, corporate scandals of epic proportions, and a revolving door in Washington where regulators end up working for the companies they used to regulate. Just ask former FCC chairman Michael Powell. Three years ago he worked for us.  Today he works for Big Cable’s largest lobbying group — the National Cable & Telecommunications Association.  FCC Commissioner Meredith Attwell Baker went to work for Comcast shortly after green-lighting their super-merger with NBC-Universal.

It’s All About the Money. Always.

The only thing stopping AT&T from providing wireless nirvana to rural America is its own unwillingness to spend money on behalf of customers to upgrade its network.  The company claims it didn’t see the value of spending nearly $4 billion needed to deliver expansive 4G service, but suddenly had no trouble at all finding nearly ten times that amount to purchase T-Mobile USA.

Did AT&T suddenly win PowerBall?

AT&T saw crushing a competitor Job #1.  Central Idaho’s 4G service could wait.

Crovitz later notes AT&T “was unusually blunt” criticizing the FCC report, a classic case of protesting too much.  The company got caught with its rhetorical pants down, with a series of evolving arguments for a deal that never made the first bit of sense once you began to dig deeper into their case.

In the end, Mr. Crovitz wants you to blame Big Government for AT&T’s pervasive dropped-call problem that its competitors don’t seem to have.

It’s not the company that owns and runs the network, it is that Obama and his nasty henchmen at the FCC who are responsible!  Who knew?

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/Bloomberg FCC Says ATT Failed to Show Public Benefit of Merger 11-30-11.mp4[/flv]

Bloomberg News reports the FCC found AT&T failed to demonstrate any real public benefit of its merger with T-Mobile USA.  (2 minutes)

Internet Overcharging schemes bring even more profits to a cable industry that already enjoys a 95% gross margin on broadband service.

At least one major national cable company plans to implement a usage-based billing system in the coming year, predicts Sanford Bernstein analyst Craig Moffett.  Bloomberg News quotes Moffett in a piece that thinly references Time Warner Cable as that operator, whose CEO strongly believes in further monetizing broadband usage.

Moffett is among the chief cheerleaders hoping to see operators charge customers additional fees for their use of the Internet.

“In the end, it will be the best thing that ever happened to the cable industry,” Moffett said.

For customers, DISH Satellite chairman Charlie Ergen predicts it will lead to at least a $20 monthly surcharge for broadband users who watch online video, which could bring already sky-high broadband pricing to an unprecedented $70-80 a month, the same amount most cable operators now charge for standard digital cable-TV service.

The cable industry’s interest in being in the cable television business has waned recently as subscribers increasingly turn away from expensive cable packages.  Now companies that used to consider broadband a mildly-profitable add-0n increasingly see Internet access as the new mainstay (and profit center) of their business.

Time Warner Cable, for example, wasn’t even sure its entry in the broadband business in the late 90s would ever amount to much.  Fast forward a dozen years, and it is an entirely different story:

“We’re basically a broadband provider,” Peter Stern, chief strategy officer for New York-based Time Warner Cable, said Nov. 17 at the Future of Television conference in New York. “As a convenience for our customers, we package and distribute television and provide service around that.”

Bloomberg reports the cable industry profit margin on broadband is nearly 95 percent, a testament to the lack of competitive pressure on Internet pricing.  The industry is going where the money is to make up for increasing challenges to their video business, which currently “only” brings them a 60 percent profit margin.

Suddenlink, already enjoying a 12 percent increase in broadband revenue in the last quarter alone, is implementing its own Internet Overcharging scheme, charging $10 for every 50GB a customer exceeds their arbitrary usage allowance.  That, despite the fact CEO Jerry Kent admits Suddenlink’s broadband margins are double those earned from the cable company’s video business.

Complicit in the parade to Internet Overcharging is Federal Communications Commission chairman Julius Genachowski, who publicly supported usage-based pricing in public statements made last December.  Cable operators were fearful Genachowski might lump the pricing scheme in with the Net Neutrality debate.  Providers have since used Genachowski’s loophole in an end run around Net Neutrality.  If providers cannot keep high volume video traffic from competitors like Netflix off their networks, they can simply make using those services untenable on the consumer side by increasing broadband pricing, already far more expensive than in other parts of the world.

That is a lesson already learned in Canada, where phone and cable companies routinely limit usage and slap overlimit fees on consumers who cross the usage allowance line.  Canada’s broadband ranking has been deteriorating ever since.

Moffett - The chief cheerleader for Internet Overcharging

Bloomberg says such a pricing regime would discourage investment in online video products that currently are held responsible for some cable cord-cutting:

“It’s the reason why Apple or Google would inevitably be reticent about committing a significant amount of capital to an online video model,” Moffett told Bloomberg. “You can’t simply assume just because you can buy the content more cheaply, you can offer a product that’s cheaper to the end user.”

The only way around this might be video providers like Google getting into the broadband business themselves, something Google is experimenting with in Kansas City.  Google’s “Think Big With a Gig” project is partly designed to prove gigabit broadband delivered over a fiber network is practical and doesn’t have to be unaffordable for consumers.  It will also finally bring competitive pressure on a comfortable broadband duopoly, at least for residents in one city.

So far, video providers who depend on an Internet distribution model are not putting much money in the fight against usage-billing.  Instead, companies like Netflix are releasing occasional press releases that decry the practice.

“[Usage billing] is not in the consumer’s best interest as consumers deserve unfettered access to a robust Internet at reasonable rates,” Steve Swasey, a Netflix spokesman, said previously.

It is clear consumers despise usage pricing.  In every survey conducted, a majority of respondents oppose limits on their broadband usage, especially at today’s prices.  But that may not be enough to get companies like Time Warner Cable to back off.  The company has reportedly been quietly testing usage meters since last summer.  CEO Glenn Britt, with a considerable drumbeat of support from Wall Street analysts like Mr. Bernstein, has never shelved the concept of usage pricing, seeing it more lucrative than hard usage caps.  The company retreated from a 2009 plan to charge up to $150 a month for flat rate access after consumers rebelled over planned trials in Texas, North Carolina, and New York.

But without a solid message of opposition from consumers, and an about-face from an FCC chairman that should know better, they’ll be back looking for more money soon enough.

[Thanks to regular Stop the Cap! reader Ron for sharing the news.]

Federal Communications Commission chairman Julius Genachowski personally called AT&T CEO Randall Stephenson a few days before Thanksgiving giving him advance notice he was moving to oppose AT&T’s merger with Deutsche Telekom’s T-Mobile USA.

Genachowski told Stephenson he was handing AT&T’s merger application over to an administrative judge — extremely bad news for the merger’s prospects.  The personal phone call was revealed Friday by AT&T, which disclosed it in an ex-parte communication filed with the FCC.

“During the call, Chairman (Julius) Genachowski indicated that he would be circulating to his fellow Commissioners a draft order approving the Qualcomm transaction and a draft order designating the T-Mobile transaction for an administrative hearing,” according to the filing. “Chairman Genachowski indicated that the draft designation order would likely be voted in the next several days or weeks but the administrative hearing would be deferred until after resolution of the pending litigation with the Department of Justice.”

It was the second piece of bad news received by AT&T last week, the first being notification the Justice Department had suddenly canceled a meeting it had planned to hold with AT&T about the merger and its antitrust implications.

Earlier today, Bloomberg News reported the FCC wasn’t so sure it would allow AT&T to refile its withdrawn merger application, which immediately brought new threats of legal action by the telecommunication company.

Now AT&T is considering a new strategy to save a merger given a 10 percent chance of succeeding, according to some analysts.  It will likely hold a fire sale of T-Mobile’s assets — up to 40 percent of them to be more exact, in order to satisfy regulators concerned about the merger’s anti-competitive implications.

The prospects make Wall Street bankers salivate with dreams of steep fees earned from structuring and marketing the equivalent of a corporate estate sale.

Among potential buyers might be regional players Leap Wireless, which owns Cricket, and MetroPCS.  The New York Times reports Mexico’s multi-billionaire Carlos Slim Helú, who owns Mexico’s América Móvil, might be interested in buying T-Mobile assets himself to boost the company’s American unit, better known as TracFone.

Sanford Bernstein’s Craig Moffett suggests it would be a mistake to ignore America’s largest cable operators, which own spectrum themselves and could integrate T-Mobile into a new mobile operator owned, controlled, and branded under the names of their respective cable owners.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Bloomberg Davis Says ATT Asset Sale May Be Tricky 11-28-11.flv[/flv]

Michael Nelson, analyst at Mizuho Securities USA Inc., and Jeffrey Davis, chief investment officer at Lee Munder Capital Group, discuss AT&T Inc.’s proposed purchase of T-Mobile USA Inc. AT&T, with its T-Mobile USA takeover facing regulatory opposition, is preparing the biggest remedy proposal yet to the Justice Department to salvage the $39 billion deal, according to a person familiar with the plan: an asset fire sale. From Bloomberg News.  (4 minutes)

Here is a collection of news clips about the AT&T T-Mobile merger deal as news broke over Thanksgiving that AT&T had withdrawn its application with the Federal Communications Commission to proceed with the merger.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/WSJ ATT T-Mobile Collapsing Deal Impacts Deutsche Telekom 11-25-11.flv[/flv]

The Wall Street Journal offers two reports today about the surprise news that AT&T was pulling its merger application from the FCC.  The newspaper wonders how the deal collapse will impact Deutsche Telekom, the German parent of T-Mobile USA, which has shown every indication it wants out of the U.S. market to focus on its telecommunications interests in Europe.  (7 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg ATT to Record 4B Costs on T-Mobile USA Deal Risks 11-25-11.flv[/flv]

AT&T Inc., whose $39 billion bid for T-Mobile USA is challenged by the U.S. Justice Department, will record one-time costs of $4 billion this quarter to reflect the risks of a collapse of the deal. AT&T and T-Mobile owner Deutsche Telekom AG withdrew their applications to the U.S. Federal Communications Commission yesterday after FCC Chairman Julius Genachowski on Nov. 22 asked fellow commissioners to send the proposed purchase to a hearing, signaling an attempt to block the deal. Lizzie O’Leary reports on Bloomberg Television’s “InsideTrack.”  (2 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg ATT Decision to Withdraw T-Mobile FCC Application 11-25-11.flv[/flv]

Jennifer Fritzsche, an analyst at Wells Fargo Securities LLC, talks about AT&T Inc.’s decision to withdraw its Federal Communications Commission application to acquire T-Mobile USA Inc. from Deutsche Telekom AG. She’s still slightly optimistic the deal can still succeed, especially if the 2012 elections result in a Republican administration.  She speaks with Betty Liu on Bloomberg Television’s “In the Loop.”  (2 minutes)

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg ATTs T-Mobile Takeover FCC Application 11-25-11.flv[/flv]

Paul Gallant, an analyst with Guggenheim Securities LLC, was surprised to see the FCC chairman suddenly take a more aggressive stance against the merger.  Most on Wall Street expected Chairman Genachowski to follow the Justice Dept. lead.  That changed last week when the chairman signaled the FCC would also take a tough look at the deal.  Also, will the news of the withdrawn application benefit Sprint?  Bloomberg News reports.  (3 minutes)