“Somehow in the last 100 years, every time there is a problem of getting more spectrum, there is a technology that comes along that solves that problem. Every two and a half years, every spectrum crisis has gotten solved, and that’s going to keep happening. We already know today what the solutions are for the next 50 years.” — Martin Cooper, inventor of the portable cell phone

Despite the fear-mongering by North America’s wireless phone companies that a spectrum crisis is at hand — one that threatens the viability of wireless communications across the continent, some of the most prominent industry veterans dispute the public policy agenda of phone companies like AT&T, Verizon, Bell, and Rogers.

Martin Cooper ought to know.  He invented the portable cell phone, and remains involved in the wireless industry today.  Cooper shrugs off cries of spectrum shortages as a problem well-managed by technological innovation.  In fact, he’s credited for Cooper’s Law: The ability to transmit different radio communications at one time and in the same place has grown with the same pace since Guglielmo Marconi’s first transmissions in 1895. The number of such communications being theoretically possible has doubled every 30 months, from then, for 104 years.

National Public Radio looks back at the earliest car phones, which weighed 80 pounds and operated with vacuum tubes. Innovation, improved technology, and lower pricing turned an invention for the rich and powerful into a device more than 300,000,000 North Americans own and use today. (April 2012) (3 minutes)
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A traditional car phone from the 1960s.

The earliest cell phones have been around since the 1940s.  St. Louis was the first city in the United States to get Mobile Telephone Service (MTS).  It worked on three analog radio channels and required an operator to make calls on the customer’s behalf. By 1964, direct dialing from car phones became possible with Improved Mobile Telephone Service (IMTS), which also increased the number of radio channels available for calls.

In the 1970s, popular television shows frequently showed high-flyers and private detectives with traditional looking phones installed in their cars.  But the service was obscenely expensive.  The equipment set customers back $2-4,000 or was leased for around $120 a month.  Local calls ran $0.70-1.20 per minute.  That was when a nice home was priced at $27,000, a new car was under $4,000, gas was $0.55/gallon, and a first run movie ticket was priced at $1.75.

With many cities maintaining fewer than a dozen radio channels for the service, only a handful of customers could make or receive calls at a time.  The first “spectrum crisis” arrived by the late 1970s, when car phones became the status symbol of the rich and powerful (the middle class had pagers). Customers found they couldn’t make or receive calls because the frequencies were all tied up.  Some cities even rationed service by maintaining waiting lists, not allowing new customers to have the technology until an existing one dropped their account.

Instead of demanding deregulation and warning of wireless doomsday, the wireless industry innovated its way out of the era of MTS altogether, switching instead to a “cellular” approach developed in part by the Bell System.

[flv width=”412″ height=”330″]http://www.phillipdampier.com/video/ATT Testing the First Public Cell Phone Network.flv[/flv]

In the 1970s, when the first cell phone “spectrum crisis” erupted, the Bell System innovated its way out the the dilemma without running to Congress demanding sweeping deregulation.  This documentary, produced by the Bell System, explores AMPS — analog cell phone service, and how it transformed Chicago’s mobile telephone landscape back in 1979.  (9 minutes)

“Arguing that the nation could run out of spectrum is like saying it was going to run out of a color.” David P. Reed, one of the original architects of the Internet

Instead of one caller tying up a single IMTS radio frequency capable of reaching across an entire city, the Bell System deployed lower-powered transmitters in a series of hexagonal “cells.”  Each cell only served callers within a much smaller geographic area.  As a customer traveled between cells, the system would hand the call off to the next cell in turn and so on — all transparently to the caller.  Because of the reduced coverage area, cell towers in a city could operate on the same frequencies without creating interference problems, opening up the system to many more customers and more calls.

Inventor Martin Cooper holds one of the first portable mobile phones

In Chicago, Bell’s IMTS system only supported around a dozen callers at the same time. In 1977, the phone company built a test cellular network it dubbed “AMPS,” for Advanced Mobile Phone System.  AMPS technology was familiar to many early cell phone users.  It was more popularly known as “analog” service, and while it could still only handle one conversation at a time on each frequency, the system supported better call handling and many more users than earlier wireless phone technology.  By 1979, Bell had 1,300 customers using their test system in Chicago.

AMPS considerably eased the “spectrum crunch” earlier systems found challenging, and subsequent upgrades to digital technology dramatically increased the number of calls each tower could handle and allowed providers to slash pricing, which fueled the spectacular growth of the wireless marketplace.

Yesterday it was voice call congestion, today it is a “tidal wave” of wireless data.  But inventors like Cooper believe the solution is the same: engineering innovation.

“Somehow in the last 100 years, every time there is a problem of getting more spectrum, there is a technology that comes along that solves that problem,” Cooper told the New York Times. “Every two and a half years, every spectrum crisis has gotten solved, and that’s going to keep happening. We already know today what the solutions are for the next 50 years.”

Cooper believes in the cellular approach to wireless communications.  Dividing up today’s geographic cells into even smaller cells could vastly expand network capacity just like AMPS did for Windy City residents in the late 1970s. Using especially directional antennas focused on different service areas, placing new cell towers, innovating further with tiny neighborhood antennas mounted on telephone poles, or building out Wi-Fi networks can all manage the data capacity “crisis” says Cooper.

New technology also allows cell signals to co-exist, even on the same or adjacent frequencies, without creating interference problems. All it takes is a willingness to invest in the technology and deploy it across signal-congested urban areas.

Unfortunately, network engineers are not often responsible for the business decisions or public policy agendas of the nation’s largest wireless companies who are using the “spectrum crisis” to argue for increased deregulation and demanding additional radio spectrum which, in some cases, could be locked up by companies to make sure nobody else can use them.

[flv width=”600″ height=”358″]http://www.phillipdampier.com/video/NY Times Mobile Carriers Warn of Spectrum Crisis.flv[/flv]

The New York Times offers this easy-to-follow primer on wireless spectrum and why it matters (or not) in the current climate of explosive growth in mobile data traffic.  (3 minutes)

“Their primary interest is not necessarily in making spectrum available, or in making wireless performance better. They want to make money.” — David S. Isenberg, veteran researcher, AT&T Labs

Innovation, not wholesale deregulation, allowed the Bell System to solve the spectrum crisis of the 1970s by creating today's "cell system" that can re-use radio frequencies in adjacent areas to handle more wireless traffic.

Spectrum auctions bring billions to federal coffers, but actually deliver a hidden tax to cell phone customers who ultimately pay for the winning bids priced into their monthly bills.  It also makes it prohibitively expensive for a new player to enter the market.  Already facing enormous network construction costs, any new entrant would then face the crushing prospect of outbidding AT&T, Verizon Wireless, Bell or Rogers for the frequencies essential for operation.

As the New York Times writes:

When a company gets the license for a band of radio waves, it has the exclusive rights to use it. Once a company owns it, competitors can’t have it.

Mr. Reed said the carriers haven’t advocated for the newer technologies because they want to retain their monopolies.

Cooper advocates a new regulatory approach at the Federal Communications Commission — one that mandates wireless phone companies start using today’s technology to amplify their networks.

Cooper points to one example: the smart antenna.

Smart antennas direct cell towers to focus their transmission energy towards the specific devices connected to it.  If a customer was using their phone from the southern end of the cell tower’s coverage area, why direct signal energy to the north, where it gets wasted?  New LTE networks support smart antenna technology, but carriers have generally avoided investing in upgrading towers to support the new technology, expected to be commonplace inside new wireless devices within two years.

T-Mobile calls these technology solutions “Band-Aids” that won’t address the company’s demand for more frequencies to manage its network.  But that kind of thinking applied to the mobile phone world of the 1970s would have maintained the exorbitantly expensive IMTS technology discarded decades ago, since replaced by innovation that made more efficient use of the spectrum already on hand.  That innovation also transformed wireless phones from a tool (or toy) for the very wealthy to an affordable success story that now threatens the traditional wired phone network in ways the Bell System could have never envisioned.

[flv width=”412″ height=”330″]http://www.phillipdampier.com/video/Its a Whole New System.flv[/flv]

It’s A Whole New System: AT&T and other wireless phone companies might want to learn the lesson the Bell System was trying to teach their employees back in 1979: Meet Change With Change.  This company-produced video implores the phone company to do more than the same old thing.  No, this video is not “PM Magazine.”  It is about innovation and actually listening to what customers want. With apologies to Mama Cass Elliot, there was indeed a New World Coming — the breakup of the Bell System just five years later.  Don’t miss the diabetic-coma-inducing, sugary-sweet jingle at the end.  Then reach for a can of Tab.  (10 minutes)

Phillip "The Mayans Never Met AT&T" Dampier

AT&T has used the specter of a nationwide wireless bandwidth crisis to pressure Washington to adopt its agenda for additional mobile spectrum.  But talk of a looming “data tsunami” has done nothing to stop AT&T from heavily marketing their most data-hungry devices — smartphones and tablets to customers.

In fact, the “broadband shortage business” has become enormously profitable for the former Ma Bell.

Switch to a Smartphone

Wireless carriers like AT&T aggressively market smartphones because they drive the highest average monthly revenue earned from customers.  So far, the marketing push has been an unparalleled success.  PricewaterhouseCoopers reported smartphones accounted for 48% of all wireless phone sales in 2011, up from 30% in 2010.  More than half of customers upgrading their old phones chose smartphones to replace them — an enormous increase over just 36% of upgrades in 2010.  Because smartphones are designed for an online experience, most companies mandate customers subscribe to a data plan, often adding $30 or more per phone, per month to a wireless phone bill.

AT&T’s 4th quarter results told the story, and it was all smiles.  AT&T celebrated customer enthusiasm for smartphones and the data they consume with no worries about “data tsunamis” or “bandwidth crises”:

• In 2011, AT&T’s growth engines — wireless, wireline data and managed services — represented 76 percent of total revenues and grew 7.5 percent versus 2010, led in the fourth quarter by:
  • 10.0 percent growth in wireless revenues
  • 19.4 percent growth in wireless data revenues, up $956 million versus the year-earlier quarter
• 9.4 million smartphone sales, best-ever quarter and 50 percent more than previous quarterly record and nearly double 3Q11 sales; 82 percent of postpaid sales were smartphones
• Best-ever quarter for Android and Apple smartphones, including 7.6 million iPhone activations

Double-Digit Growth for Wireless Revenues. Total wireless revenues, which include equipment sales, were up 10.0 percent year over year to $16.7 billion. Wireless service revenues increased 4.0 percent, to $14.3 billion, in the fourth quarter.

Wireless Data Revenues Increase 19.4 Percent. Wireless data revenues — driven by Internet access, access to applications, messaging and related services — increased by $956 million, or 19.4 percent, from the year-earlier quarter to $5.9 billion. AT&T’s postpaid wireless subscribers on monthly data plans increased by 16.4 percent over the past year. The number of subscribers on tiered data plans also continues to increase. About 22 million, or 56 percent, of all smartphone subscribers are on tiered data plans, and about 70 percent have chosen the higher-tier plans.

Wireless Margins Reflect Record Sales. Fourth-quarter wireless margins reflect record-setting smartphone sales and customer upgrade levels. This was offset in part by improved operating efficiencies and further revenue gains from the company’s growing base of high-quality smartphone subscribers.

Forcing Customers to Upgrade… Or Else

AT&T's 2G Exit Strategy Started in 2009 (Courtesy: Blackberry News)

Back in 2009, AT&T decided it was inventory clearance time, released a memo entitled “2G Exit Strategy,” and slashed prices on 2G “feature” or “messaging phones” to attract customers looking for a bargain.  A few years later, the company is now sending letters to some of them strongly recommending they upgrade to a new, potentially more expensive phone.  If they don’t, AT&T writes, “your current, older-model 2G phone might not be able to make or receive calls and you may experience degradation of your wireless service in certain areas.”

AT&T hopes many customers will adopt smartphones, because the plans that accompany them are far more expensive than the 2G “messaging” plans they replace. AT&T wants to repurpose 1900MHz 2G spectrum for other services, but sometimes customers are left holding the bag if they don’t want the designated replacement phone(s) AT&T is willing to provide.

In Grand Valley, Col. last fall, AT&T created lines outside its stores as customers were compelled to upgrade phones and service plans to continue reliable AT&T service:

AT&T isn’t actually discontinuing the 2G network — it is moving 2G service to less-favorable spectrum it owns in order to make room for improved 3G coverage.  That might work fine in areas less expansive and rugged than western Colorado, but in the Grand Valley, it means many customers will find they no longer have data service at all.

The ongoing tower upgrades have also disrupted cell service generally, and when customers arrive at AT&T’s stores to complain, the employees on hand attempt to upsell them more expensive phones to “fix” the problem.

“There is significant pressure on carriers to migrate to the most efficient networks while needing to address the issue of spectrum scarcity,” explains PricewaterhouseCoopers’ Dan Hays. “We are beginning to see carriers shut off legacy networks and force customers to migrate to new technologies.”

Internet Overcharging for Profit Without Raising Company Costs

AT&T has no worries about data tsunamis and "exafloods" when app makers or consumers are willing to pay more.

With customers seeking to get the most out of expensive wireless data plans, data usage naturally goes up. But so do prices, meaning the “data tsunami” carriers warn about is not bad for their bottom line at all.

In 2011, consumer research group Validas found average data consumption was up 34.7% for all users, from 448.8MB in January to 604.8MB by December.  AT&T responded with a price increase and an allowance boost that will benefit only a tiny minority of customers.  The most popular data plans now cost $5 a month more: $30 for 3 gigabytes, up from $25 for 2GB and $50 for 5GB, up from $45 for 4GB.  But Validas found only 5% of wireless customers use more than 2GB of data per month, with only 2.7% using more than 3GB.

That translates into higher AT&T bills for the 97% of customers who don’t come close to using even 2GB a month.  Although the price hike delivers no tangible benefit to the overwhelming majority of customers, it does deliver an extra $5 a month from their bank account to AT&T’s.

The “Anyone Pays But Us” Model for “Heavy Traffic”

With online video “clogging” the wireless airwaves, companies like AT&T should be interested in offloading as much video to wired or Wi-Fi service. But late last month, the company suggested a way customers could bypass its stringent data caps by allowing content companies to pay for the wireless traffic their customers generate.

“A feature that we’re hoping to have out sometime next year is the equivalent of 800 numbers that would say, if you take this app, this app will come without any network usage,” said John Donovan, who oversees AT&T’s network and technology. “What they’re saying is, why don’t we go create new revenue streams that don’t exist today and find a way to split them … “It’d be like freight included.”

Only wasn’t the railroad already overburdened with traffic, threatened with a nationwide slowdown?  If one is willing to flash enough money, it’s remarkable how quickly the tidal wave of wireless congestion and despair can be pushed back out to sea.  Just don’t tell Washington lawmakers.  This is a crisis of epic proportions after all.

[flv width=”360″ height=”290″]http://www.phillipdampier.com/video/Bloomberg Carriers Facing Data Tsunami 3-21-12.mp4[/flv]

Derek Kerton, principal analyst at Kerton Group, talks about increased demand for data and the impact on wireless carriers. Kerton compares it to today’s gasoline prices. Demand=higher prices.  Wall Street folks like Kerton thinks more spectrum isn’t the total answer.  Smaller cell sites and more Wi-Fi might be.  Otherwise, prepare for bill shock.  (4 minutes)

AT&T’s march towards monetizing data usage has just gotten a twist with a new idea from the company to develop “a toll-free wireless Internet” where app makers foot the bill for your data usage.

First appearing in a Wall Street Journal article, John Donovan, AT&T’s executive for network and technology, suggested the new “app maker pays”-option will ease consumers’ fears about using high bandwidth apps that eat into AT&T’s data allowances.

“A feature that we’re hoping to have out sometime next year is the equivalent of 800 numbers that would say, if you take this app, this app will come without any network usage,” Donovan said at the Mobile World Congress in Barcelona, Spain. “It’d be like freight included.”

Critics of the idea pounced immediately, calling AT&T’s latest plan the realization of former CEO Ed Whitacre’s dream that content producers “can’t use [AT&T’s] pipes for free.”

Harold Feld, legal director at consumer group Public Knowledge thinks he’s got AT&T’s number:

Just to be clear, here is what AT&T Wireless is doing:

1. Create an artificial scarcity with an arbitrary bandwidth cap for its wireless services;

2. Charge users who exceed this arbitrary bandwidth cap;

3. Claim to do consumers a favor by letting the ap developer pay for exceeding the arbitrary bandwidth cap.

Which cuts to the heart of the problem in wireless, IMO. The argument in favor of a wireless capacity cap is, in a nutshell, “wireless is different from wireline because the physics imposes bandwidth limitations.” In the presence of these bandwidth limitations, we need a rationing scheme of some kind. Bandwidth caps are a neutral way of rationing and encourage app developers to write more efficient applications — thus improving the system overall.

The problem with this argument is it is impossible at present to determine just how true or false it actually is. I referred above to AT&T’s bandwidth cap as arbitrary. As far as I (or any outside observer) can tell, AT&T just selected a number and said “this is where we impose a cap.” You can buy a higher cap on a monthly basis, or can pay as you go above the cap in the form of overages.

AT&T has no worries about data tsunamis and "exafloods" when app makers or consumers are willing to pay more.

In fact, AT&T’s journey away from unlimited access to their wireless network is well underway.  Just two years ago, customers paid $30 a month for unlimited data on a smartphone.  Then AT&T ended “unlimited” access, imposing a 2GB usage cap on their most popular wireless data plan.  Now AT&T is looking to monetize its wireless traffic even further as customers grow more reticent about using high volume applications that could threaten one’s usage allowance.

Despite AT&T’s ongoing drumbeat America is in the midst of a wireless bandwidth crisis, the ‘national emergency’ is over as soon as someone — anyone other than AT&T — opens their wallet and agrees to pay more for data traffic.  Then the sky is the limit.

The logical inconsistencies of a company crying for more mobile spectrum concurrently envisioning new ways to monetize high volume wireless traffic (eg. large file downloads, online video, etc.) exposes the hollow center of  Internet Overcharging.  The “exaflood”/data tsunami only seems to threaten AT&T’s network when content producers and/or consumers are not paying extra for every kilobyte.

As Stop the Cap! has argued before, AT&T is increasingly  in the bandwidth shortage/rationing business.

The company underspent on its network, balked at the price tag to upgrade capacity (but had no trouble planning to pay substantially more to acquire T-Mobile), and now complains it has to charge higher prices because the federal government blocked its merger and the FCC won’t hand over additional spectrum.

There are two approaches to fat profits in the broadband business these days:

1. 

   A Proud Member of: Team Rationing for Profit

   Team Innovation: Believe in your product and nurture its growth with upgrades, innovation, and pricing that guarantees an enthusiastic and loyal customer base;

2. Team Rationing for Profit: Leverage your dominant market power by rationing your product, charging higher prices for less service.  Monetizing usage controls traffic growth, reducing the expense of upgrading your network. With limited competition, even alienated customers face few alternative choices and a steep early termination exit fee.

Based on statements from AT&T’s Donovan, AT&T is a firm believer in the latter.

“There’s a view of an entitlement that says that any impediment to riding over the top of our network is inherently wrong, is un-American,” Donovan said, adding AT&T needed to find creative ways to deal with and profit from surging mobile-data use.

Feld thinks it says something else.

“This new plan is unfortunate because it shows how fraudulent the AT&T data cap is, and calls into question the whole rationale of the data caps,” Feld said. “Apparently it has nothing to do with network management.  It’s a tool to get more revenue from developers and customers.”

A new study from the University of Michigan suggests one U.S. cell phone company is intentionally throttling cell phone speeds by as much as 50 percent, potentially to engage in “deep packet inspection” of their customers’ wireless traffic.

The researchers also found bad network management may be costing you up to 10 percent of your daily battery life.

The study, published by a team of researchers at the university and Microsoft Research, relied on nearly 400 volunteers running a diagnostic application while using 107 wireless providers around the world.  Researchers found company policies at several carriers in conflict with practices guaranteeing the fastest wireless data speeds, maximum battery life, and protection from malware and other hacker actions like IP spoofing.

The researchers refused to name the biggest offending carriers, citing legal reasons, but rang the alarm that network performance and security was clearly hampered by management decisions designed to keep costs down and maximize company network efficiency, at the expense of the quality of your service.  Among the conclusions:

• Microsoft engineer Ming Zhang believes the one U.S. carrier with dramatically reduced speed performance is probably using “deep packet inspection” techniques to analyze what individual customers are doing with their wireless connections.  The overhead from that inspection process is implicated in reduced speeds and performance;
• At least 11 wireless carriers are hurriedly shutting down TCP data connections that applications want to leave open in order to communicate on the network.  When an app discovers the data connection has been closed, it has to request a new connection, wasting up to 10 percent of daily battery life;
• Four of 60 cellular networks allow IP spoofing, which can make hosts vulnerable to scanning and battery draining attacks even though they are behind a firewall.