The Federal Communications Commission today raised the hurdle for AT&T when it told the wireless company it would consider its proposed acquisition of wireless spectrum from Qualcomm in concert with its application to acquire T-Mobile USA.

The FCC wrote both AT&T and Qualcomm regarding the ongoing review of both transactions:

“The Commission’s ongoing review has confirmed that the proposed transactions raise a number of related issues, including, but not limited to, questions regarding AT&T’s aggregation of spectrum throughout the nation, particularly in overlapping areas. As a result, we have concluded that the best way to determine whether either or both of the proposed transactions serve the public interest is to consider them in a coordinated manner at this time.”

AT&T Donates $9,000 to the United Way of Northwest Florida, which promptly returns the favor with a nice letter to the FCC supporting the telecom company's agenda.

At issue is whether AT&T is warehousing wireless spectrum it actually has little intention to use and whether or not AT&T is being honest when it suggests it needs to acquire T-Mobile USA to expand the number of frequencies open for its growing wireless network.

Critics of the merger claim AT&T has plenty of unused spectrum available to deliver service, particularly in the rural areas AT&T claims T-Mobile can help it serve.  T-Mobile is not well-known for its service in smaller communities and rural areas, preferring to rely on roaming agreements to achieve national coverage.  With its proposed acquisition of valuable spectrum in the 700MHz range from Qualcomm, excellent for penetrating buildings and delivering reliable service, the FCC may be wondering if the proposed merger with T-Mobile is necessary at all.

Gigi Sohn from Public Knowledge doesn’t think so.

“We are pleased that the Commission has decided to consider AT&T’s purchase of Qualcomm spectrum in the context of AT&T’s takeover of T-Mobile.  It doesn’t matter whether both transactions are in the same docket; the fact that the Bureau will consider them together in any manner is a strong statement,” Sohn said.

“This April, several public interest groups, Consumers Union, Free Press, the Media Access Project, Public Knowledge, and the New America Foundation, asked for the Commission to take that action because we said that both deals together would ‘further empower an already dominant wireless carrier to leverage its control over devices, backhaul, and consumers in ways that stifle competition,” Sohn added.  “We look forward to working with the Commission on these issues which are so vital to the economy of this country.”

Companies that have acquired wireless spectrum at government auctions have not always put those frequencies to use.  At least one firm warehoused spectrum as an investment tool, earning proceeds reselling it to other providers.  Others have simply squatted on their spectrum, sometimes to keep it away from would-be competitors.

Of course, considering AT&T is a master of dollar-a-holler astroturf operations and lobbying, it’s only a matter of time before a renewed blizzard of company-ghost-written letters start arriving at the Commission telling them AT&T needs both the Qualcomm spectrum -and- the merger with T-Mobile.

Groups like the NAACP, United Way of Northwest Florida, the National Puerto Rican Coalition, and the U.S. Cattlemen’s Association ought to know, right?

Thanks to Stop the Cap! reader Bones for alerting us.

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.

AT&T's new choke collar for "unlimited use" data plan customers, ready for wearing Oct. 1

Now that Verizon Wireless has stopped signing up new customers for its unlimited usage data plan, AT&T plans to start targeting its grandfathered unlimited-data customers with speed throttles that will effectively limit the company’s “unlimited use” plan.  And the company is trying to suggest approval of its merger with T-Mobile might prevent its growing use.

AT&T says effective Oct. 1, the top 5 percent of its wireless users will receive a warning message before their speeds are cut to near-dial up for the remainder of the billing cycle.

“We’re taking steps to manage exploding demand for mobile data,” said the company in a statement.  AT&T added that “nothing short of completing the T-Mobile merger” will effectively solve the company’s network capacity issues.

“The planned combination of AT&T and T-Mobile is the fastest and surest way to handle the challenge of increasing demand and improving network quality for customers,” said AT&T.

With Verizon Wireless’ exit as a competitive alternative for unlimited data, AT&T’s newly announced speed throttle may not pose much of a risk for business when implemented, as infuriated customers have just one remaining provider offering unlimited data – Sprint.

While AT&T has not specified an exact amount of data usage that will put users in the penalty corner, they did say most of those facing throttling are “streaming video or playing some online games.”

Some AT&T customers use their unlimited wireless plans as a home broadband replacement — an action that could easily bring back a dial-up experience when the speed throttle kicks in.

Only customers on “unlimited use” plans will face AT&T’s special speed treatment.  Those paying for usage-limited packages are exempt.

AT&T’s ongoing hard-sell for the merger has not been well-received by some on Capitol Hill.

Sen. Al Franken (D-Minn.) blamed AT&T for its lack of willingness to spend money on improving its own network infrastructure for self-inflicted network capacity problems.  Franken believes the merger would be anti-competitive and anti-consumer.

In letters to the Department of Justice and Federal Communications Commission, Franken spelled out in great detail why approving the merger does not make sense:

“The competitive effects of a merger of this size and scope will reverberate throughout the telecommunications sector for decades to come and will affect consumer prices, customer service, innovation, competition in handsets and the quality and quantity of network coverage. These threats are too large and too irrevocable to be prevented or alleviated by conditions,” wrote Franken.

The International Business Times summarized many of Franken’s larger points:

• AT&T owns more spectrum than any other company, yet AT&T has been plagued with delays in rolling out infrastructure to support spectrum it has been allocated.  The quality of the service it provides is consistently ranked last amongst the national carriers, and it continues to use spectrum in an inefficient manner;
• Many of [AT&T’s] spectrum licenses remain undeveloped, including $9 billion worth of some of the most valuable “beachfront” spectrum;
• Other national wireless carriers have been aggressively preparing for this crunch. However, unlike the other wireless providers, AT&T has not visibly taken decisive steps to prepare for the coming crunch, despite the fact that AT&T should have recognized the need for additional investment shortly after introducing the iPhone in 2007;
• AT&T only increased its spending on wireless infrastructure by one percent in 2009. Although AT&T will point out that one percent is still a significant number, Verizon made the decision to increase its capital spending by 10 percent in 2009/9 and Verizon is now in a much better position when it comes to spectrum capacity.

Don’t like the prospects of a merger between AT&T and T-Mobile and worried your AT&T bill will increase as a result?  If you are an AT&T on-contract customer, the New York law firm of Bursor & Fisher wants to talk to you.

Scott A. Bursor, the founding partner of the firm, says he wants to represent AT&T customers to help stop the proposed merger, or win significant financial concessions on behalf of those who could face skyrocketing cell phone bills as a result of reduced competition in the marketplace:

AT&T’s $39 billion takeover of T-Mobile would turn back the clock to the era of the Ma Bell monopoly. The deal would give AT&T and Verizon control over 80% of the wireless market, would stifle the competitive market forces that would otherwise help to keep prices down, and would stifle new products and innovation.

AT&T’s claim that the takeover will help improve network quality makes no sense. T-Mobile’s network overlaps almost entirely AT&T’s. And AT&T already has more spectrum than any other company. In most areas, AT&T already holds at least 40 MHz of spectrum it is not even using. AT&T is keeping that spectrum off the market, which prevents competitors from using it to provide better service at lower prices.

Turning back the clock to the Ma Bell monopoly era will allow AT&T and Verizon to dictate what type of phone you can use, how you can use it, and what you will pay. It will destroy competition, leading to higher prices and worse service.

Since AT&T’s wireless contracts specifically prohibit customers from suing the company for any reason, the law firm seeks to pursue the alternative “mandatory arbitration” specified by AT&T in an effort to either derail the merger or force the price much higher.

Customers who retain the law firm on their website can expect the firm to follow four steps that could bring arbitration awards as high as $10,000 per customer:

First, when you sign up, you will receive a confirmation email with a copy of our retainer agreement. We will also provide you with the an email address where you can contact us if you have any questions or concerns about the process.

Second, shortly after you sign up, we will send a letter on your behalf by certified mail to AT&T giving them notice that you intend to file an arbitration seeking to enjoin the takeover of T-Mobile. This is the first hoop you have to jump through to bring an arbitration under the fine print of AT&T’s Arbitration Agreement. We will send you a copy of that letter by email.

Third, if AT&T does not agree to cease and desist from completing the merger within 30 days, we will file a demand for arbitration on your behalf with the American Arbitration Association. The demand will include extensive evidence and legal authority we have gathered to prove that AT&T’s takeover of T-Mobile will harm competition in violation of the Clayton Antitrust Act. We will email you a copy arbitration demand when it is filed.

Fourth, our team of lawyers will litigate your arbitration case aggressively to make sure that your arbitration rights, and your rights under the antitrust laws, are protected. If we are successful, we may seek a $10,000 payment for you.

Bursor

AT&T scoffs at the effort, releasing a statement calling Bursor & Fisher’s actions “completely without merit.” Company officials also claimed arbitrators have no standing to block a corporate merger, hinting the endeavor may be more about winning the law firm a substantial payout than representing the interests of consumers.

Bursor & Fisher are not pursuing AT&T for free.  The attorneys will deduct 50 percent of any award as their contingency fee — a percentage considerably higher than the more common 33-40 percent attorneys usually deduct, and this does not include further reductions to cover any “costs” advanced by the firm.

We found this somewhat curious, considering AT&T’s own arbitration legalese already provides for an attorney premium in their award — twice the amount of any legal fees and reimbursement of expenses.  So deducting an additional 50 percent and taking fees from any consumer awards seems like a case of unfair double-dipping.

But since you are not obligated to pay a cent in fees, anything you might manage to walk away with is more than you started with.

Phillip "Not Paid by AT&T" Dampier

When asked if the merger of AT&T and T-Mobile will limit customer choice, NAACP’s local executive director Stanley Miller told a Cleveland, Ohio television station, “I don’t think that’s an issue in today’s environment; I think the companies are smarter today and they will make people understand and give them the beneficial services that they’ll need.”

The civil rights group had nothing to say about how much AT&T will charge for these “beneficial services.”

At least WEWS-TV in Cleveland is bothering to ask the question.  Most of America’s television news has either ignored the enormous merger on offer from AT&T and T-Mobile, or didn’t wade much further beyond AT&T’s press release about the “benefits” the merger will bring.  Unfortunately, the television station never bothered to alert viewers to the fact the civil rights group receives substantial financial support from AT&T.

Miller’s performance trying to tout his parent organization’s unqualified support for the merger sent a very clear message to anyone watching NewsChannel 5 — he doesn’t really understand what he is talking about.

On the issue of expanding wireless service into rural Ohio, Miller was left tongue-twisting his way into advocating a monopoly because they’ll be best equipped to get service to those who need it.  That’s a fascinating prospect — a monopoly spending money expanding service where it is unprofitable to provide.  That’s the reason companies like AT&T have ignored rural America, and will continue to do so — merger or not.

Miller (WEWS-TV)

In fact, AT&T’s claim that it needs the network of T-Mobile to stop the persistent problems of dropped calls and slow data service doesn’t make much sense either.  Verizon, AT&T’s closest competitor, doesn’t seem to be suffering those problems, perhaps because it has made investments in upgrades AT&T has avoided.

In California, consumer advocate Jon Fox was taking an equally skeptical look at AT&T’s claims on behalf of CalPIRG, the California Public Interest Research Group.  Fox noted AT&T’s promotion of the merger in his state came at invitation-only cheerleading sessions run by company officials:

Earlier this month, AT&T California President Ken McNeely explained to an invitation-only audience that the proposed merger with T-Mobile will create new jobs, help communities and improve wireless phone service. AT&T preferred not to take questions from the general public on how that vision fits with AT&T’s history of consolidation, layoffs and aggressive market behavior.

Nearly 30 years after regulators broke up AT&T’s unprecedented control over the U.S. wired phone market, consumers are asked to believe that this time things will be different. This notion defies both experience and common sense. Unless significant market regulation is put into place that encourages a competitive wireless arena to flourish, this proposed merger will be bad for consumers, innovation and economic growth.

Fox notes the wireless marketplace in the United States is hardly a paragon of competitiveness today.  If the merger were approved, 76 percent of Americans would receive wireless service from two providers — AT&T and Verizon.  Fox observed America’s next-most-hated conglomerate — the oil and gas industry — wishes it could have that sort of market power.  The top two oil companies in the U.S. have a combined market share of only 24 percent.  America, he notes, wouldn’t tolerate that kind of consolidation in the gasoline market, so why should we tolerate it in the mobile market?

The California Public Interest Research Group

Fox advocates more competition, not less.  He suggests the government force AT&T and Verizon to open their cellular networks to independent third party competitors at fair prices, and let everyone compete.  That could germinate competition that would end the chorus of rate increases from the largest players and allow for innovative pricing plans that don’t force customers into the nearly identical service plans AT&T and Verizon want to force you to accept.  T-Mobile already provides the most innovative pricing in the wireless marketplace, and AT&T is about to swallow that innovation whole.

What ultimately happens to a well-dwarfed Sprint remains an open question, but one many on Wall Street have already answered, suspecting America’s third largest carrier simply won’t be in a position to compete.  Fox thinks the situation is dire when two companies will have a virtual lock on wireless data services Americans increasingly depend on.

That’s not the view of the NAACP, of course.  But then the NAACP is hardly an independent observer, being the recipient of a considerable amount of money and executive talent from AT&T.  That counts for a whole lot more than the rank and file members of the organization, who will be paying the increased prices AT&T has in store for everyone.

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/WEWS Cleveland ATT T-Mobile Merger 7-14-11.mp4[/flv]

WEWS-TV in Cleveland investigates the ramifications of a merger between AT&T and T-Mobile.  More than 94% of all Ohioans filing comments with FCC oppose the merger, but groups like the NAACP support it.  NewsCenter 5 wanted to find out why.  (3 minutes)