Bell this week brought out its saber collection for a little rattling in Ottawa over the Canadian government’s consideration of a plan to set aside certain mobile spectrum for new competitors.

A mobile spectrum auction, expected later this year, will increase the number of 700Mhz frequencies available for wireless communications.

Some of Canada’s largest cell phone companies are well-positioned to outbid the competition, but not if Industry Canada decides it needs to set aside some of the frequencies for an auction among smaller competitors.

BCE, Inc., the parent company of Bell, has little regard for that plan and has now joined Rogers in a lobbying effort for an “open and transparent” sale, which effectively means the highest bidder takes all.

If Canada doesn’t follow Bell’s advice, the company is threatening to withhold advanced mobile Internet services in Canada’s lesser-populated regions.

“An auction for this spectrum that isn’t open and transparent would limit the amount of spectrum available to Bell, forcing a focus on more densely populated centers in order for Bell to compete with new carriers,” the company said in a news release.

In response, Wind Mobile, one of the newest entrants in the Canadian mobile market, said it would sit out of a spectrum auction that favored deep-pocketed incumbents with winner-take-all rules.  In short, it could not afford the prices players like Rogers and Bell will be able to bid for the new frequencies.

Industry Minister Christian Paradis was unwilling to set an exact date or format for the 700MHz spectrum auctions.  Observers suspect if he waits much longer, the auction won’t take place until 2013.

Just three major wireless companies — Bell, Rogers, and Telus, control 94 percent of the Canadian wireless market.

...some of that juicy 700MHz spectrum Verizon is getting from the nation's biggest cable companies.

In an ironic turnabout, Deutsche Telekom’s T-Mobile USA, last year an acquisition target of AT&T, has filed comments with the Federal Communications Commission opposing Verizon’s spectrum purchase from the nation’s largest cable companies as “contrary to the public interest.”

Verizon Wireless is seeking to acquire a substantial block of unused AWS spectrum that is unlikely to provide any near-term benefits to Verizon Wireless customers (indeed, the company already holds other AWS spectrum and has not even put it to use yet). Rather, the principal impact of the acquisition would be to foreclose the possibility that this spectrum could be acquired by smaller competitors – such as T-Mobile – who would use it more quickly, more intensively, and more efficiently than Verizon Wireless. The acquisitions will limit the deployment of LTE by competitors of Verizon Wireless and the bandwidth available for such deployments.

If these transactions go forward, the end result will be less LTE capacity available overall and reduced competition in the provision of LTE, which would be contrary to the public interest.

T-Mobile, in particular, is upset because it owns no spectrum in the valuable 700MHz range — frequencies that can travel longer distances and easily penetrate buildings.  Verizon Wireless does, and will acquire much more if the FCC approves the deal to transfer spectrum from Comcast, Time Warner Cable, and Cox. [Correction: As one of our readers pointed out, the spectrum being acquired is in the AWS band, which T-Mobile argues in its filing is still suitable for a 4G network deployment.]  T-Mobile argues Verizon does not need the spectrum, and will effectively “warehouse” the frequencies to keep them off the open market.  Without prime spectrum, T-Mobile argues, it will be difficult for the company to deliver a 4G experience to its customers.

T-Mobile also has a bone to pick with Verizon Wireless and the cable industry over what it suspects is a non-compete agreement:

At least in effect, this has all the hallmarks of a pure horizontal allocation of markets.

From the limited information available, it appears as though Verizon, the majority owner of Verizon Wireless, has agreed (tacitly if not expressly) to halt its extensive efforts to expand into the cable business and the cable companies have, in turn, traded their control of valuable spectrum in exchange for this protection of their cable markets.

It has been publicly reported that, coincident with acquiring the cable companies’ spectrum, thereby eliminating potential new competition in mobile wireless, Verizon ended its FiOS build out plans and terminated its agreement to resell satellite television. This series of acts appears to limit Verizon’s activity as a potential competitor in the video market and limit the cable companies’ role as potential competitors in the wireless market, while at the same time foreclosing competing providers from one of the only available sources of spectrum.

As a result of this “triple play,” competition in both markets will be substantially reduced. The antitrust laws have long condemned such agreements, even among potential competitors.

Not All Frequencies Are Created Equal

Will Verizon ultimately warehouse its newest acquired spectrum?

Unless you are well-acquainted with the wireless industry, all most people know about their cell phones is that they turn them on and a signal strength meter indicates what kind of reception quality you are getting.  In fact, wireless companies use a range of frequencies across several different frequency bands to handle voice calls and data.  As an end user, you never know the difference.  But if your wireless company is forced to use higher frequencies, they often have a harder time penetrating buildings or provide only limited distance coverage.  That’s why AT&T and Verizon customers have a better chance of making and receiving calls in the middle of a supermarket or office building while others lose reception.

Clearwire has an extensive holding of very high frequencies at its disposal — frequencies the company cannot effectively use because they require considerably more infrastructure (ie. more cell towers) to provide an effective service to customers.  Clearwire customers already complain about poor reception inside buildings, a problem exacerbated by the very high frequencies the company has to use for its service.  Verizon and AT&T collectively control the majority of the best, more robust spectrum — the 700MHz band.  Verizon’s LTE network, for example, relies on spectrum that used to be used by high numbered UHF television channels.

Companies like T-Mobile rely on frequencies in the 1700MHz and 1900MHz bands.  While certainly adequate in urban and suburban areas, T-Mobile has to spend more on cell tower deployment and be especially concerned with rural coverage, especially in areas where the terrain makes “line of sight” reception from cell towers more difficult.

While today’s 2G and 3G networks have made due with current spectrum, companies like T-Mobile are having a hard time finding space to launch the next generation — LTE/4G technology — on their current spectrum.  Without LTE, T-Mobile (and others) will find themselves at a competitive disadvantage.  The company argues it should have the right to acquire some of the frequencies Verizon intends to capture from the cable industry, especially if Verizon has no immediate plans to use the spectrum.

Some of the wrangling by T-Mobile seems especially ironic because parent company Deutsche Telekom has indicated it wants to sell T-Mobile USA and leave the American wireless market.  It has shown little interest so far investing in a LTE/4G network upgrade.  Additionally, as part of AT&T’s failed merger bid, T-Mobile is expecting to receive frequencies from AT&T as part of the “failed transaction” clause in the original merger proposal.

A billionaire who invested enormous sums to purchase airwaves for a new national wireless broadband network learned Tuesday ruled he cannot use them to launch LightSquared.

The Federal Communications Commission said yesterday Philip Falcone’s vision for competitive wireless service cannot go forward on the frequencies he acquired because tests show they create significant interference to other nearby spectrum users, especially GPS.

Falcone’s hedge fund poured nearly $3 billion into LightSquared, which the company still claims would not create significant problems for GPS users including aircraft, cars, and ships.

Falcone

But when tests were conducted in early 2011, significant interference problems were reported, some that could jeopardize the safety of American air travel.  The FCC decided it preferred to be safe instead of sorry.

The announcement by the FCC calls into question the future of the company and the value of its airwave assets, which are now likely worth a fraction of the price paid.

The company’s agreements with at least 30 wholesale customers are also at risk, and one of its largest partners, Sprint-Nextel, has spent the last few months distancing itself from the project, anticipating the decision the FCC announced yesterday.

The rejection has upset the FCC’s plans to increase wireless competition for AT&T and Verizon, which dominate American wireless.  The agency hoped the spectrum LightSquared obtained would open the doors to a new national player, but that appears unlikely for now.

LightSquared executives said in October they would sue the FCC in court if the agency blocked their network from operating.

The only new player on the horizon may be Dish Network, which earlier acquired wireless spectrum from two bankrupt companies, and now seeks to use them as mobile phone spectrum.  Separately, Clearwire is working with Sprint to construct a new national 4G network, while still operating Clear’s existing WiMAX 4G service.

[flv]http://www.phillipdampier.com/video/CNBC LightSquared Faces Prohibition Following Interference Report 2-14-12.flv[/flv]

CNBC discusses LightSquared’s new troubles and where the company can go from here.  (3 minutes)

HissyFitWatch: Damn you FCC!

For the first time in a long time, AT&T did not get what it wanted from Washington regulators and legislators. The repercussions of the company’s failure to secure its controversial merger with Deutsche Telekom’s T-Mobile USA has been one HissyFit after another, including the resignation-retirement of Forrest Miller, a 30-year veteran who was the company’s head of corporate strategy and mergers and acquisitions. After heads rolled, there was the small matter of the multi-billion dollar “breakup fee” payable to T-Mobile. Now someone has to pay:  You.

At Stop the Cap!, we scrutinize quarterly conference calls at major telecommunications companies so you don’t have to. We’ve sat through renditions of “we’re sorry” when Charter Communications’ executive management allowed the company to be flushed into bankruptcy, we’ve heard the Excuse-o-Matic from Frontier Communications about why their broadband service is woefully overloaded with promises of better days ahead, and a whole lot of creative spin to emphasize cord-cutting-bad-news at the nation’s largest cable companies isn’t really a problem all — it’s the housing market, it’s the ‘seasonal residences’ or ‘college students going home’ problem… or sunspots.  Who really knows?  It’s definitely not that they’re charging too much.

Whether it has been Time Warner Cable’s Glenn Britt, or Verizon’s Ivan Seidenberg, chief executives always project a cool, calm, steady authority that leaves shareholders and financial analysts with an impression the adults are in charge, even if they tell little white lies to keep the stock price up.

And then there is AT&T’s chief executive — Chairman Emperor Randolph Stephenson, who used the occasion of AT&T’s 4th Quarter earning results conference call to become a spectacle that brought the house down.

As we look ahead, the issue that gives me the most concern, quite frankly, isn’t our ability to execute. The #1 issue for us as we move forward, and for the industry, I believe, it continues to be spectrum. This industry continues to see just explosive mobile broadband growth and is providing one of the few bright spots in the U.S. economy, but I think we all understand this growth cannot continue without more spectrum being cleared and brought to market. And despite all the speeches from the FCC, we’re all still waiting.

He didn’t stop there.  In an impromptu rant, Stephenson lectured Washington from afar, excoriating all-concerned for failing to agree with their multi-million dollar propaganda campaign that merging America’s second and fourth largest wireless carriers in a market with just four national providers was good for consumers and would bring wireless nirvana to the heartland and lower prices for all.  Evidently America was not ready to accept the word of AT&T-compensated telecommunications experts at the NAACP, the Special Dream Farm, the Shreveport-Bossier Rescue Mission and cattle ranchers a combination of T-Mobile’s spectrum and AT&T’s would ease the capacity crunch, bring 4G to Beaver, Oklahoma, and stop driving AT&T customers nuts with dropped calls and reception black holes.

How it usually works in Washington.

AT&T would have gotten away with their merger if it weren’t for those darned kids (consumers), the FCC and Justice Department ruining everything.

“The last significant spectrum auction was nearly 5 years ago now. And this FCC has made it abundantly clear that they’ll not allow significant [mergers and acquisitions] to help bridge their delays in freeing up new spectrum,” Stephenson complained. “So in the absence of auctions, our company and others in the industry have taken the logical step of entering into smaller transactions to acquire the spectrum we need to meet this demand. But even here, we need the FCC’s action and leadership, and unfortunately, even the smallest and most routine spectrum deals are receiving intense scrutiny from this FCC, oftentimes taking up to a year and sometimes longer before these are approved.”

Stephenson ignores the fact the FCC has rubber-stamped a number of wireless mergers over the past several years, which is why consumers no longer buy competitive service from Cingular, Alltel, Dobson Communications, Centennial Wireless, West Virginia Wireless, Unicel, Ramcell, or SureWest Wireless.  All of these former competitors are now a part of the nation’s two largest carriers AT&T and Verizon Wireless.  Even more impressively for the man in full denial, the FCC just quickly and quietly approved AT&T’s spectrum transfer purchase from Qualcomm.

“Now I hope I’m wrong, but it appears the FCC is intent on picking winners and losers rather than letting these markets work,” the chief executive said.

In other words, AT&T’s definition of letting markets “work” means letting them write their own laws governing the pesky concepts of antitrust, monopoly/duopoly market power, anti-competitive activity, etc.  AT&T has no problem picking winners and losers in the community-owned broadband front, lobbying its way through state legislatures trying to block new networks from being built, even while slapping usage limits on their own customers’ DSL and U-verse accounts because of “capacity” concerns.

In the wireless marketplace, Charlie Sheen would declare AT&T “winning,” considering it has achieved 1/3rd of the U.S. wireless market.  It wants more of course, even though Trefis, a market research firm, noted that had the FCC granted Stephenson’s wishes for three national carriers, AT&T, Verizon Wireless and Sprint “will control more than 90% of the U.S. wireless market, resulting in lower competition and higher prices for consumers.”

No problem there.

Stephenson also noted a lot of the company’s close friends were on their side (and handsomely compensated along the way we might add):

A lot of recent comments and speeches about certain members of this FCC suggest that they and not Congress should decide how spectrum auctions are conducted, including who can participate and what the conditions should be for participating. Meanwhile, we pile more and more regulatory uncertainty on top of an industry that is a foundation for a lot of today’s innovation*, making it difficult for all of us to allocate and commit capital. And in this industry, we all know capital investment equals jobs*. So the end result of this is we have a industry that is just really stuck in terms of creating real capacity*.

(*- except when community-based, publicly-owned networks are involved. They must be stopped at all costs.)

No matter that AT&T continues to sit on earlier spectrum acquisitions it continues not to use.  It only grudgingly agreed to roaming agreements with the company it preferred to dismantle altogether: T-Mobile.  In earlier, accidental disclosures, it was clear even before the merger and the newly-reticent FCC, AT&T preferred to raise prices, restrict service, and hang onto its profits instead of sufficiently investing them back into its network.  Verizon Wireless has a 4G network, no dropped-call-syndrome, fewer signal black holes, and no apparent spectrum panic attacks.

Part of Sprint's fact sheet opposing the merger deal.

AT&T bit off more than they could chew through, and now faces the humiliating prospect of paying off its gambling debts.  Only now, AT&T has effectively declared they are not going to pay for their costly mistake. Customers are.

Stephenson: Payback time.

The company introduced new, higher prices for its smartphone data plans this month, and intends to continue to increase prices and crack down on data use with speed throttles in 2012 and blame it on the “spectrum crunch”:

“In a capacity-constrained environment, usage-based data plans, increased pricing, managing the speeds of the highest volume users, these are all logical and necessary steps to manage utilization,” Stephenson said.

But AT&T’s chief executive also told shareholders repeatedly those increased prices were key to boosting company revenue and profits:

“We’ll expand wireless and consolidated margins. We’ll achieve mid-single-digit EPS growth or better. Cash generation continues to look very strong again next year. And given the operational momentum we have in the business, all of this appears very achievable and probably at the conservative end of our expectations.”

AT&T’s chief financial officer John J. Stephens put a spotlight on it:

In 2011, 76% of our revenues came from wireless and wireline data and managed services. That’s up from 68% or more than $10 billion from just 2 years ago. And revenues from these areas grew about $7 billion last year or more than 7% for 2011. We’re confident this mix shift will continue. In fact, in 2012 we expect consolidated revenues to continue to grow, thanks to strength in these growth drivers with little expected lift from the economy.

[…] We also continue to bring more subscribers onto our network with tiered data plans, more than 22 million at the end of the quarter, with most choosing the higher-priced plan. As more of our base moves to tiered plans and as data use increases, we expect our compelling [average revenue per subscriber] growth story to continue.

Christmas in January.

AT&T and some of the company’s best friends in Congress have attached wireless America’s legislative wishlist to the must-pass Payroll Tax Bill that will temporarily reduce Social Security taxes for millions of Americans.  Now AT&T and other cell phone companies want their piece of the action.

Michael Weinberg at Public Knowledge has sounded the alarm attacks on Net Neutrality, spectrum auctions, and White Space Wi-Fi have turned up in amendments to a bill that Big Telecom is convinced must pass.  Weinberg explains:

No Net Neutrality Protections.  Forget your feelings about the FCC’s formal Open Internet Rules.  An amendment by Rep. Marsha Blackburn would prevent any restrictions on network management, block any requirements to make connectivity available on a wholesale basis (which would increase competition), and stop the FCC from passing a rule allowing users to attach any non-harmful device to the network.  As a result, the winner of the spectrum auction would be able to throttle, block, and discriminate however it sees fit – something that runs counter to any definition of network neutrality.

No Safeguards Against Further Consolidation.  It is no secret that one of the reasons that there are only four nationwide wireless carriers (and two dominant ones) is that only a few companies control most of the available spectrum in the United States.  This amendment would prevent the FCC from making sure that new spectrum goes towards new or under-provisioned competitors instead of being further consolidated by AT&T and Verizon.   That’s probably why AT&T is pushing so hard for this amendment.

No Super-Wifi.  One of the greatest boons of the transition from analog to digital TV broadcasting was supposed to be the creation of unlicensed “whitespaces” or “super-wifi.”  This new spectrum – which is much better at communicating long distances and through walls than current wifi spectrum – would be used cooperatively by everyone and usher in a new era of wireless devices.  However, a third amendment would destroy the FCC’s power to allocate some of this great spectrum for unlicensed uses.  That means that opportunity would simply pass us by.

Weinberg notes consumer advocates like Public Knowledge are now fighting all three amendments.  There are opportunities to strip them from the bill as it works its way through the legislative process.  Those backing the amendments hope the public doesn’t find out.

They just did.