Comcast and Charter Communications are losing money on their cell service plans because their partner, Verizon Wireless, sets its wholesale rates too high, making certain the two companies cannot cannibalize Verizon’s own customers for long.

MoffettNathanson analyst Craig Moffett claims the cable industry’s 2012 $3.9 billion sale of wireless spectrum to Verizon Wireless, which included an agreement allowing the two cable operators to resell Verizon Wireless service, turned out to benefit Verizon more than Comcast and Charter.

The problem is Verizon set its own price for service high enough to guarantee the two cable operators will have a hard time outcompeting Verizon Wireless. Moffett estimates Verizon is currently charging the two operators about $5/GB and around $5/month per customer for unlimited voice and texting. According to Moffett’s calculations, only the pay-per-gigabyte plans have any chance of marginal profitability. Comcast charges $12/GB for its pay-per-usage mobile plan; Charter charges $14/GB for essentially the same service. Both plans include unlimited voice and texting.

Things quickly get unprofitable when a customer signs up for Spectrum Mobile’s or Xfinity Mobile’s Unlimited plan (both $45/mo). Once a customer uses more than 8GB of 4G LTE data per month, Verizon’s wholesale price, including the cost of voice and texting, reaches the same amount those companies are charging customers for service. That does not include any of the ancillary costs Comcast and Charter have to pay to support and market their wireless plans.

Moffett believes the two companies overestimated how often subscribers would offload traffic to Wi-Fi, and the future potential for more solid Wi-Fi coverage “looks cloudy.” The problem, as Moffett sees it, appears to be the cable industry’s loss of interest building out their metro Wi-Fi networks. Moffett called the joint CableWiFi project between Comcast, Charter, Cox, and Altice USA “a bust” because the members of the coalition have largely stopped investing in new hotspot installations. That leaves about 500,000 working hotspots around the country, a number that has remained unchanged for two years. Only in-business Wi-Fi continues to grow, as business cable broadband customers are offered the opportunity to provide Wi-Fi service for their customers. But those hotspots don’t typically offer outdoor coverage.

Comcast has grown its Xfinity Mobile service to 1.2 million lines since launching in 2017 and Spectrum Mobile, which began in last September, had attracted almost 134,000 customers by the end of 2018.

Forty companies, including hedge funds, phone companies, and wireless carriers have collectively bid $336,265,480 so far for about 2,500 28 GHz licenses (out of 3,072 available) that will be a part of the buildout of 5G millimeter wave wireless service.

The FCC is currently auctioning off spectrum in the 27.5–28.35 GHz (28 GHz) band — a very large chunk of frequencies which can offer bidders the opportunity to launch a wide bandwidth cellular data service capable of very fast internet speed. But because the frequencies involved are line-of-sight, the winning bidders will have to invest in large networks of small cell antennas that will be required to reach customers.

Citigroup analysts reviewing the auction results so far told clients they suspect there are “two outsized bidders” winning many of the available licenses, including Verizon. This is not a surprise, considering Verizon already has significant spectrum holdings in the 28 GHz band. Verizon’s current 5G service relies on this millimeter wave spectrum, but is available so far only in a handful of markets. The identity of the second major bidder remains a mystery. The spectrum licenses getting no bids are mostly in rural areas with low population density.

All the other major wireless operators — AT&T, T-Mobile, and U.S. Cellular — are also bidders. Only Sprint, currently in a merger deal with T-Mobile, is missing. AT&T has not shown much interest in offering its customers millimeter wave 5G service, and T-Mobile is planning to use 5G’s technology upgrade to bolster its existing network with more capacity and speed. Dish Network, which already controls a substantial portfolio of unused spectrum, is also a bidder and could be seeking to stockpile 5G spectrum for a future venture or sales deal with one of the other wireless companies.

The qualified bidders:

Bidding starts at $200 per available county, and many rural licenses could be won for precisely that amount, with only one interested bidder offering the minimum bid.

The highest bids are just over $10,000,000 each for two licenses in the Honolulu, Hawaii market. Bids in excess of $2 million are currently on the table in these counties:

California: Kern
Colorado: El Paso
Florida: Volusia
Illinois: Winnebago
Iowa: Linn
Louisiana: East Baton Rouge
Maine: Cumberland
Missouri: Greene
Nebraska: Lancaster
Nevada: Washoe
Oregon: Jackson
Pennsylvania: Lancaster, Berks, York, Lehigh, Luzerne, Northampton, Dauphin
Texas: Cameron, Hidalgo
Wisconsin: Dane

A dispute is emerging in New York between Sprint and T-Mobile and the Communications Workers of America (CWA) and pro-consumer group the Public Utility Law Project (PULP) over the wireless companies’ attempt to argue for their merger deal in a partly secretive filing not open to review by the public.

In a joint letter signed by Richard Brodsky, on behalf of the CWA and Richard Berkley, on behalf of PULP, the two groups argue Sprint’s initial summer filing promoting its merger did not come close to meeting the state’s burden of proof that allowing the two companies to join forces would be good for New York consumers. But even worse, the two wireless companies are now trying to introduce new arguments in favor of their merger, while redacting them from public view and comment.

“The use of the public comment process to recast the Petition, to attempt to repair the fatal defects in the Petition, and to insulate this new information from public comment is fundamentally unfair,” the two men wrote. “This maneuver deprives Parties of the opportunity to respond to the full set of arguments and assertions made by the Joint Applicants; it undermines the usefulness and value of the public comment policies so fundamental to the Commissions’ history and values and the proper conduct of a rulemaking proceeding; it is not contemplated by Commission rules; and it sets a precedent for future misuse of comments to short-circuit full public analysis.”

The companies filed what they called “comments” on Nov. 16. Detailed information about how the merger will impact on New York consumers was left redacted:

Sprint and T-Mobile’s arguments regarding the consumer benefits of its merger for New Yorkers remain a public mystery. The companies redacted this submission to keep the prying eyes of average consumers from reading it.

The CWA and PULP are asking the Commission for an order that:

1) Requires the Joint Applicants to provide unredacted submissions or to withdraw any document relying on redactions; and/or
2) Convenes an evidentiary hearing permitting examination and testimony relating to the Petition and the submission; and/or
3) Grants our previous request for a formal Public Hearing on the Petition and the submission; and/or
4) Removes from the record the Joint Applicants’ November 16 submission from the record; and/or
5) Extends the deadline for Notice and Comment in the October 19 Order to December 15, 2018; and/or such other relief as the Commission may order.

The merger of the two wireless companies requires state and federal approval. Alaska, Colorado, Delaware, Georgia, Louisiana, Maryland, Minnesota, Nevada, Texas, Utah, West Virginia and the District of Columbia have already essentially “rubber-stamped” approval of the merger deal with little comment. Pennsylvania regulators submitted a series of questions that the two companies answered earlier this week.

Sprint and T-Mobile are having a tougher time dealing with regulators in New York and New Jersey, however — the two most likely to either deny approval or impose significant deal conditions in approving the transaction. A review is pending in California, which routinely asks a lot of questions but rarely opposes telecommunications company mergers. Hawaii and Mississippi will also examine the merger in the near future, but neither are expected to oppose it.

New York regulators are likely to consider the impact of the merger on the availability of affordable cellphone plans, the Lifeline program that offers discounted phone service for the poor, and how the transaction will affect rural wireless service in upstate New York.

Property owners in New Zealand may have to trim back or remove trees if they are proven to interfere with Wi-Fi or wireless broadband services in the neighborhood, according to an interesting High Court judgment that could establish a wide-ranging precedent.

As short-range 5G wireless internet services become established, high frequency and millimeter wave-based signals depend on line-of-sight communications with end users. Trees and buildings can reduce signal range or block the signal entirely, rendering the service unusable. In this case, an appeals judge was asked to rule whether broadband users or property owners took precedence when a large stand of trees or a building in an adjacent yard made wireless reception more difficult or impossible.

Justice Sally Fitzgerald found that when alternative solutions like relocating a receiver cannot be found to mitigate reception problems, nearby property owners may have to take steps to protect neighbors’ access to Wi-Fi and other wireless services, under a new interpretation of Section 335(1)(vi) of the [Property Law] Act of New Zealand. Similar laws are in place in North America and European countries.

The decision could result in a dramatic increase in legal challenges from frustrated neighbors who cannot get good reception because adjacent property owners prefer a tree-filled landscape.

Justice Fitzgerald

Fitzgerald based her decision on basic property laws that make illegal anything that can unduly interfere with the reasonable use and enjoyment of private property. Such laws are used as a basis for noise ordinances, zoning restrictions, restrictions on commercial use of residential property, and placement of structures on or near property lines. This judge found no special distinction between physical objects or noise and wireless transmissions. But she did find reasonable limitations on what would constitute a valid complaint.

In this case, Ian and Karen Vickery brought the complaint against their neighbor Christine Thoroughgood, for interfering with their access to wireless internet by refusing to trim the trees on her property line. But the judge found a better answer than ordering a robust tree trimming. Fitzgerald found the Vickery’s already receive a suitable signal after placing a receiver on a pole located away from their home. Therefore, the judge ruled against the complaint by the Kiapara Flats couple, even though they preferred placing the receiver on their home.

Legal observers found the case precedent-setting, despite its low-key outcome, because this High Court judge has established a right of access to broadband that takes precedence over property owners’ landscaping and buildings. Under certain circumstances, a neighbor may be forced to trim, remove, or alter trees and structures on their land if a neighbor can prove it directly interferes with their right to access wireless signals like broadband in a way that cannot be mitigated.

From the decision:

I am satisfied, and Mr. Allan properly accepted, that undue interference with a Wi-Fi signal caused by trees could constitute an undue interference with the reasonable use and enjoyment of an applicant’s land for the purposes of s 335(1)(vi) of the Act.

From reviewing the evidence, however, I do not agree that the Judge erred in accepting independent expert evidence (in fact called by Mr. Vickery) which objectively contradicted Mr. Vickery’s personal evidence on the issue as to Wi-Fi signal.

The expert, Mr. Lancaster, explained that Mr. Vickery’s Wi-Fi service is a “fixed wireless solution”. He notes in his technical report that it works by having the internet service provider establishing a “broadcast site” in a prominent location and connecting to customers with clear “line of sight” to that broadcast site.

In this case, the broadcast site (provided by Compass Wireless) is located on Moirs Hill Road. Mr. Lancaster notes that “nominally the solution will service customers up to 30 kilometres away from the broadcast site subject to a clear unobstructed line of sight.” In this way, Mr. Lancaster confirms that trees could obstruct the otherwise clear line of sight.

At present, the Wi-Fi transponder (or receiver) at the Vickerys’ home is mounted on a pole a little distance away from the rear of the house. I viewed its location during my site visit and have reviewed the photographs in Mr. Lancaster’s report. With the transponder located in its present position (referred to by Mr. Lancaster as “Location A”), Mr. Lancaster states:

There is currently a clear signal to the installed dish and other parts of the property, the signal has remained good for the past two years since installation.

This current location, however, is not Mr. Vickery’s preferred location. He notes that the present location is in a particularly windy site and on one occasion the wind was so strong it blew the cable out of the back of the aerial. Mr. Vickery also noted that another much larger stand of pine trees on the Thoroughgoods’ land, some considerable distance away, are also impacting what is referred to as the “Fresnel zone” of the Wi-Fi connection in its present location.

Mr. Vickery’s preferred location is closer to and attached to the back of the house itself, where it would be easier for Mr. Vickery to service the transponder. At this location however, Mr. Vickery says the trees in issue will interfere with the signal.

Mr. Lancaster states in his report that he spent over two hours on site and only identified two other locations (other than the present location, Location A) which he would consider appropriate for an installation.

The first of these alternative locations (Location B) is on the northeast corner wall of the home — Mr. Vickery’s preferred location. Mr. Lancaster states “this is the location the Compass installers would have chosen by default and as a standard installation”. In relation to Location B, Mr. Lancaster states “it is obviously at risk due to close proximity to the existing tree/shrub planted boundary, being approximately three metres above ground level.” He states that to retain adequate signal at this location, a window would be required in the shelter belt hedge — the trees in issue in this case.

In light of the independent expert evidence, I do not accept the Judge erred in concluding there was no undue interference with the Vickerys’ Wi-Fi signal. It is important to reiterate that not only does the expert evidence not indicate an interference, but the standard required by the legislation is an “undue” interference in any event. The expert evidence confirms this threshold has not been met.

Accordingly, while it is true that Mr. Vickery’s preferred location for the Wi-Fi transponder would be on the wall of the home, there is clearly an alternative location which is currently being used and which is considered by Mr. Lancaster to be adequate. There is also a further alternative and adequate location (Location C). And although this location would require cabling, this would not in my view be unreasonable in the circumstances.

I accordingly do not consider the ground of appeal concerning Wi-Fi has been made out.

“You’re giving it away… you are giving it all away!” — An unknown Wall Street analyst tossing and turning in the night.

America is simply not paying enough for wireless service. Thanks to dastardly competition introduced by T-Mobile and Sprint (potentially to be snuffed out in due course if their merger gets approved), wireless pricing is no longer a license to print money. Forced to offer one-size-fits-all affordable $40-50 unlimited plans, the prospects to grow Average Revenue Per User (ARPU) have never been worse because you can’t charge people for more service on an “unlimited plan” without admitting that plan is not exactly “unlimited.”

Wall Street analysts, already upset at the thought of carriers spending more than $100 billion on 5G network upgrades, are in a real tizzy about how companies are going to quickly recoup that investment. No matter that some wireless companies have profit margins in the 50% range and customers have paid providers for a service they were assured would keep up with the times and network demand. If there is to be a 5G revolution in the United States, some insist it must not come at the cost of reliable profits — so the industry must find a way to stick consumers with the bill.

It is not common for industry analysts to go public brainstorming higher prices and more customer gouging. After all, North Americans already pay some of the highest cell phone bills in the world, only mitigated (for now) by scrappy T-Mobile and Sprint. Mark Lowenstein, a leading industry analyst, consultant, and commentator, was willing to go public in the pages of Fierce Wireless, arguing “operators should be considering charging a premium price for what will hopefully be a premium service.” That is likely music to the ears of AT&T and Verizon, both frustrated their pricing power in the market has been reduced by credible competition from a significantly improved T-Mobile.

Lowenstein fears the prospects of a “race-to-the-bottom 5G price war” which could arrive if America’s wireless companies offer a credible home internet replacement that lets consumers tell the local phone or cable company to ‘take a hike.’ Since wireless operators will bundle significant discounts for those who subscribe to both home and mobile plans, telecommunications services may actually cost less than what Wall Street was banking on.

Something must be done. Lowenstein:

In mobile, there’s been premium pricing for premium phones. And Verizon Wireless, for a few years when it had a clear network lead, was sort of able to charge a higher price for its service (but not a premium price). But today, there isn’t really premium pricing for premium services. That should change when 5G really kicks into gear.

So how do you extract more cash from consumers’ wallets? Create artificial tiers that have no relationship to the actual cost of the network, but could potentially get people to willingly pay a lot more for something they will initially get for a simple, flat price:

One simple way would be a flat premium price, similar to the “tiers” of Netflix for a higher number of devices or 4K/Ultra HD.  So, perhaps $10 per line for 5G, or $25 for a family plan. Another approach would be more akin to broadband, where there are pricing tiers for different levels of service performance. So if the base 4G LTE plan is $50 per month today, for an average 100 Mbps service, 5G packages could be sold in gradations of $10 for higher speeds (i.e. $60 for 300 Mbps, $70 for 500, $80 for 1 Gbps, and so on). An interesting angle on this is that some of the higher-end 4G LTE services such as Gigabit LTE (and beyond) could get incorporated into this, so it becomes less of a 4G vs. 5G discussion and more of a tier of service discussion.

I would also like to see some flexibility with regard to how one can purchase 5G capabilities. For example, a user might only need those premium 5G features occasionally, and might only be prepared to pay that higher price when the service is being used. Here, we can borrow from the Wi-Fi model, where operators offer a “day pack” for 5G, or for a certain city, location, or 5G-centic app or experience. 5G is going to be hot-spotty for awhile anyway, so why not use a Wi-Fi type model for pricing?

Even better, now with net neutrality in the ash heap of history, courtesy of the Republican-dominated FCC, providers can extract even more of your money by artificially messing with wireless traffic!

Lowenstein sees a brand new world of “app-centric pricing” where wireless carriers can charge even more to assure a fast lane for those entertainment, gaming, and virtual reality apps of the future, designed to take full advantage of 5G. Early tests have shown millimeter wave 5G networks can deliver extremely low latency traffic to customers from day one. That kills the market for selling premium, low-latency add-ons for demanding apps before companies can even start counting the money. So assuming providers are willing to purposely impede network performance, there just could be a market selling sub-100ms assured latency for an extra fee.

The potential of a Money Party only 5G can deliver is coming, but time is short to get the foundation laid for surprise toll lanes and “premium traffic” enhancements made possible without net neutrality. But first, the wireless industry has to get consumers hooked on 5G at a tantalizingly reasonable price. Charge too much, too soon and consumers may decide 4G LTE is good enough for them. That is why Lowenstein recommends operators not get carried away when 5G first launches.

“We don’t want to be setting ourselves up for a WiMAX-like disappointment,” Lowenstein writes. “The next 12-18 months are largely going to be ‘5G Experimentation’ mode, with limited markets, coverage, and devices. Heck, it’s likely to be two years before there’s a 5G iPhone in the United States, where iOS still commands nearly half the market.”

The disappointment will eventually be all yours, dear readers, if Lowenstein’s recommendations are adopted — when “certain milestones” trigger “rate adjustment” letters some day in the future.

Lowenstein sees four signs to start the pillaging, and we’ve paraphrased them:

• Coverage: Wait until 30-40% of a city is covered with 5G, then jack up the price. As long as customers get something akin to 5G one-third of the time, they’ll moan about why their 5G footprint is so limited, but they will keep paying more for the scraps of coverage they get.
• Markets: Price the service differently in each market depending on how stingy customers are likely to be at different price points. Then hike those prices to a new “nationwide” standard plan when 5G is available in the top 20-30 cities in the country. Since there may not be much competition, customers can take it or leave it.
• Performance: AT&T and Verizon’s gotta gouge, but it’s hard to do it with a straight face if your 5G service is barely faster than 4G LTE. Lowenstein recommends waiting until speeds are reliably north of 100 Mbps, then you can let rip with those diamond-priced plans.
• Devices: It’s hard to extract another $50-100 a month from family plan accounts if there are an inadequate number of devices that support 5G. While your kids “languish” with 4G LTE smartphones and dad enjoys his 5G experience, mom may shut it all down when the bill comes. Wait until everyone in the family can get a 5G phone before delivering some good old-fashioned bill shock, just like companies did in the golden days of uncompetitive wireless.

These ideas can only be adopted if a lack of competition assures all players nobody is going to call them out for pickpocketing customers. Ajit Pai’s FCC won’t interfere, and is even subsidizing some of the operators’ costs with taxpayer dollars and slanted deregulation to let companies construct next generation 5G networks as cheaply as possible (claiming it is important to beat China, where 5G service will cost much less). Should actual competition remain in the wireless market, all the dreams of rate-hikes-because-we-can will never come true, as long as one carrier decides they can grow their business by charging reasonable prices at their competitors’ expense.