Sprint CEO Dan Hesse has declared war on the proposed merger of AT&T and T-Mobile, suggesting it would result in a nationwide cell phone duopoly that will stifle innovation and eliminate competition.

“If AT&T is allowed to swallow T-Mobile, competition will be stifled, growth will be stifled and wireless innovation will be jeopardized,” Hesse told attendees at the Commonwealth Club of California Friday.

Sprint’s announced opposition to the proposed merger came during a speech that was supposed to be about the company’s environmental initiatives, but Hesse opened his remarks warning of the dire implications should the nation’s second largest wireless carrier absorb the fourth — T-Mobile.

Sprint CEO Dan Hesse delivers remarks at the Commonwealth Club of California – Friday, April 15, 2011. This edited clip covers Hesse’s remarks regarding the proposed merger of AT&T and T-Mobile. (12 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

Sprint has signaled it is willing to spend lobbying dollars to fight the merger in Washington, where it faces a review by the Justice Department and the FCC.  The declaration of war by Sprint did not go over well at AT&T, where the company’s top lobbyist Jim Cicconi trotted out Hesse’s prior statements to use against him in a company blog post:

As recently as last October, Mr. Hesse said the wireless industry is ‘hyper competitive‘.  The month prior, his CFO talked about how ‘tough‘ retail competition is in the wireless market, citing at least six major competitors.  In February of last year, Mr. Hesse said, “M&A is absolutely a way to get the growth in the industry, if a particular transaction makes sense for anybody.”  He went on to say, “I think consolidation will be healthy for the industry, some consolidation. It is, needless to say, very competitive.”  And in January of last year at a Citi Global Conference, Mr. Hesse said, “Well, there is no question that we have an extremely competitive wireless industry in this country and that the pricing is getting much more aggressive.”

Given that Sprint is a major competitor to AT&T in the hyper competitive wireless market Mr. Hesse describes, no one should be surprised that they would oppose this merger.  But it is self-serving for them to argue that the highly competitive wireless market they cited only months ago is now threatened by the very type of transaction they seemed prepared to defend previously.

Sprint was reportedly interested in pursuing a merger with T-Mobile before AT&T sealed their own deal with the German telecommunications company.

Hesse

Cicconi’s remarks about a “hyper-competitive” marketplace conflict with marketplace reality:

• A combined AT&T/T-Mobile enterprise would control 42 percent of the American wireless marketplace;
• Verizon Wireless would control 32 percent;
• Sprint would maintain third place with a distant 17 percent;
• Every other carrier combined (Cricket, MetroPCS, Alltel, and other regional players) would have just 9 percent.

In fact, after Sprint, other carriers AT&T routinely cites as “serious competition” individually have just three percent or less of the American market.

Hesse told his audience that besides concerns about innovation and price, also-ran carriers other than AT&T and Verizon are likely going to get stuck with less advanced handsets and face little or no access to latest generation iPhone and Android smartphones, often made available exclusively to larger carriers.

“Whoever the supplier is, you can say, ‘Hey, I’ll take all of your production,'” Hesse said. “They could restrict our access to some of the cool devices.”

Hesse predicts his company will ultimately not be the only one opposing the merger.  But smaller carriers have had little to say since the merger was announced.

Green River, Rock Springs, and other communities served by Wyoming.com

Wyoming is one of America’s most broadband-challenged, least populated states.  With just over 560,000 residents spread across its often mountainous terrain, broadband service is nothing to take for granted.  Larger communities have limited access to Qwest DSL and cable broadband, but large sections of the state rely on independent wireless providers as their only choice, or they find no broadband service at all.

In this spartan digital world, many residents are surprised Wyoming is criss-crossed by national fiber-optic lines moving traffic across the country.  It’s just that in most instances, individuals are not allowed to access it.

Wyoming.com, a privately-owned Wireless ISP, wants to expand service to Farson and South Pass City — two communities further north that have no hope of getting anything beyond dial-up or satellite fraudband service.  The commercial provider, working with the administrators of the fiber network, has access to federal grant money to expand service to unserved communities, and improve it in underserved areas like Rock Springs.  But that cannot happen if the venture is refused access to a 48-strand “middle-mile” fiber-optic line financed by public dollars and managed by the Joint Powers Telecommunications Board — a partnership between the Green River City Council and Rock Springs local government.

The notion Wyoming.com could get access to a taxpayer-financed network ruffles Tom McCullough, the city’s liaison to the Joint Powers board.  He’s opposed to allowing any government resource to benefit the public at the expense of the local cable monopoly — Sweetwater Cable TV, which doesn’t even serve most of the areas that would benefit from enhanced Internet access.  McCullough argues it violates a 2007 Wyoming law that prohibits public broadband projects when private providers provide access to similar services anywhere within the boundaries of a city or town.  The law came in response to a public broadband project undertaken in Powell that upset the state’s cable and phone companies.

If residents want access to the fiber network they paid for, they have to visit Western Wyoming Community College or the Sweetwater County Library System and use public terminals there.

McCullough so dislikes the fiber project, he has tried to disband the Joint Powers Board that manages it twice, suggesting he has enough support to sell off the entire network to anyone interested (presumably at a substantial discount.)

Shea

Local residents who remain stuck with dial-up or who live outside of Sweetwater Cable’s service area are furious.

“There are some types around here who can’t see past Rush Limbaugh — anything the government does is automatically bad and must be taken down, even if taxpayers paid to build it in the first place,” complains Stop the Cap! reader Sue who lives in Farson.  “Farson has nothing to do with Sweetwater Cable, but because a handful of politicians are looking out for the cable company, worried Wyoming.com is going to get one-up on them, that means we can’t have broadband.”

Steve Shea, chairman of the telecommunications board, is unimpressed with McCullough’s arguments as well, and accused him of allowing his personal friendship with Sweetwater Cable TV’s owner — Al Carollo — to cloud his judgment.

Shea says Wyoming’s local governments are often fiercely protective of locally-owned businesses, and told the Green River Star the Board has historically faced the attitude that “local business deserves a monopoly, no matter what.”  Sweetwater Cable TV is locally owned and operated.

In fact, Shea says original designs for the fiber network were to provide fiber-to-the-home service in the area.  Since a national fiber optic cable was already running adjacent to the community, getting a connection to it was relatively simple.  Extending service to individual homeowners was another matter.  Political opposition to “government broadband” and demagoguery about its cost and implications from private providers ultimately killed the project.

Shea documented his experience as commercial providers and their dollar-a-holler industry-connected supporters fought the fiber project:

• Opposition comes from everyone in the Telecom business;
• Opposition will be in your face constantly;
• Opposition will never run out of lies;
• Opposition is ready to strike at any time and at any place;
• Opposition will engage in back-room politics against you;
• Opposition will try to get Power Brokers and Influentials on their side;
• Opposition will spend as much money as needed to defeat you.

Local cable and wireless providers engage in a tangle in southwestern Wyoming

As Wyoming’s broadband rankings slip further and further behind much of the rest of the country, Shea hopes attitudes about the fiber network have changed, especially when residents learn Sweetwater Cable was offered access to the network as well, and they declined.

Shea shared that the long history of opposition to the project started with suggestions wireless broadband was better than fiber, or that broadband over power lines could do the same or better than fiber networks.  He even battled contentions that existing broadband networks provided “fast enough” service for Wyoming.  Today, it has extended to allowing a private company to engage in a public-private partnership.  The other providers are still opposed.

“You have to refute these arguments over, and over, and over again. Your opposition will oppose you at every corner, and will call in all of their political favors to derail your fiber project,” Shea writes.

“It’s Wyoming’s version of North Carolina,” Sue writes from her Hughes Satellite address.  “Sweetwater Cable doesn’t want access to the fiber themselves, and they want to make sure you don’t access it either, even though the family I have down there tells me their cable Internet service sucks because the cable company can’t handle the traffic.”

Sweetwater Cable gets their access from Qwest.

What bothers Sue and some other local residents about the squabble is that it is inherently political and allows an existing, underutilized fiber line to sit mostly unused when expanded broadband is desperately needed in Wyoming.  In fact, some consider it a scandal among special interests.

“They don’t care about better broadband — they only care about their political and industry friends,” Sue complains.  “When will people wake up and realize that whether it is North Carolina or Wyoming, these policies and laws don’t give anyone broadband — they keep us from getting it.”

Shea’s observation that opponents’ use of backroom politics seems to have been right on point.  On Tuesday, as the Board met to discuss Wyoming.com’s proposal, Shea was effectively forced out and announced his resignation after the owner of Sweetwater Cable TV said he contacted an attorney to look at whether Shea’s tenure on the board was legal.

Lynch

Verizon’s ambitions to provide 285 million people with the option of ditching their cable or DSL broadband account for its new LTE/4G wireless network is a dream that will never come true with the company’s wireless Internet Overcharging schemes.  With a usage cap of 5-10GB per month and a premium price, only the most casual user is going to give up their landline cable or DSL service for Verizon’s wireless alternative.

Dick Lynch, executive vice president and chief technology officer at Verizon spoke highly of Verizon’s new next generation wireless network as a perfect platform to deliver broadband service to landline customers, including many of those the company sold off to Hawaiian Telcom, FairPoint Communications, or Frontier.

“[LTE] provides a real opportunity for the first time to give a fixed customer in a home, broadband service — wireless — but broadband service,” Lynch said. “In wireless, I see a great opportunity within the LTE plans we have to begin to service the customers who don’t have broadband today … They will be able to have mobile LTE and also to be able to have fixed broadband.”

Unfortunately, Verizon’s LTE network comes with usage limits and a premium price — $50 a month for 5GB or $80 a month for 10GB.  At those prices, rural America will have two bad choices — super slow 1-3Mbps DSL ($30-60) with allowances ranging from 100GB-unlimited or LTE’s 5-12Mbps (assuming the local cell tower is not overloaded with users) with a usage cap that guarantees online video will come at a per-view cost rivaling a matinee movie ticket.

Still, Verizon is likely to test market the service as a home broadband replacement, particularly in territories they no longer serve.  Verizon has done much the same thing pitching a home phone replacement product that works with their wireless network to residents of Rochester, N.Y., and the state of Connecticut, neither currently served with landlines from Verizon.

Despite the pricing and cap challenges, Deutsche Bank — one of the Wall Street players that follows Verizon — thinks the company’s DSL-replacement has merit, if:

1. If you are a regular traveler that needs a wireless broadband service anyway;
2. You use broadband exclusively for web browsing, e-mail, and very occasional multimedia access;
3. You are wealthy enough not to care about the overlimit penalty.

For everyone else, sticking with traditional DSL service will continue to be the most affordable option, assuming usage caps are kept at bay.  Where available, cable broadband service from companies that serve smaller communities, including Comcast Cable, Time Warner Cable, and Cablevision, among others, will probably continue to deliver the most bang for the buck in rural America.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Bloomberg Kelsey Sees Higher Wireless Rates After T-Mobile Deal 3-24-11.flv[/flv]

Getting the mainstream media to cover issues in the telecommunications sphere usually means wading into the “business news” sections of newspapers or watching business cable news channels.  Unfortunately, too often these outlets cater to the whims and preconceived notions of the audience — big business.  In the case of the AT&T/T-Mobile merger, Wall Street loves the idea, but consumers do not.  Watch as Free Press’ Joel Kelsey handily deals with the gang at Bloomberg News, who are convinced mergers and acquisitions never result in price increases for consumers.  Has your cell phone bill gone up or down in the last three years?  (4 minutes)

AT&T customers using modified phones to share their 3G wireless connection with other devices are complaining about the company’s warning that if they don’t cease tethering their phones, they will be automatically enrolled in the company’s premium $45 a month DataPro for Smartphone Tethering plan next week.

An attorney tells Stop the Cap! if the company does that, his firm will consider filing a class action lawsuit against the company for forcing customers into service plans they did not enroll in themselves.

This controversy comes to those who have been using “jailbroken” phones, modified to restore features blocked at the factory by North American cell phone carriers.  Among the most coveted restored features is turning your phone into a mini Wi-Fi hotspot or allowing the phone to connect directly to other equipment, sharing your 3G connection with other devices, such as a laptop, iPad, or iPod.  While many phones include this capability, most carriers in the United States and Canada disable it for those not enrolled in an extra cost add-on plan covering “tethering.”  AT&T offers two such plans — $45 a month for 4GB of usage, or $25 a month for 2GB.

For several years, some AT&T customers have used tethering as a convenient way to bring connectivity to devices out of reach from Wi-Fi or a home broadband connection.

Jonathan in San Francisco shares with Stop the Cap! he is grandfathered in on an unlimited use data plan from around the time the first smartphones entered the marketplace.

“AT&T even sold me the tethering equipment at the same time they sold me the data plan, which they promised was unlimited,” Jonathan says.  “I don’t buy their subsidized phones — I buy my own unlocked phones at full retail price every few years, and AT&T has allowed me to keep my plan the way it is.”

Until he received a notification message from AT&T claiming his account “may need updating.”

AT&T says customers tethering their phones must pay for both a data plan -and- a tethering plan if they want to use the feature, a condition not part of Jonathan’s plan.

“My plan with AT&T says nothing about an extra tethering plan; it says I have unlimited data — something I do not abuse,” Jonathan says.

He is particularly upset that if he uses his phone as he always has, AT&T will slap a $45 additional monthly fee on his phone bill.

“Even worse, when I called AT&T to complain, they told me my plan is so old, they would automatically ‘upgrade’ my service plan to one that costs more and delivers less, effective Monday,” he tells us.

It turns out some customers on legacy plans cannot easily add the tethering option without abandoning the plans they have carefully held onto for years.

“The lady I spoke with said their computer billing system cannot add the feature to my account because it is so old,” he said.

Janie, one of our readers in Seattle, noticed AT&T “‘graciously’ wants to auto-enroll you in their most expensive tethering plan, not the cheaper $25 one.”

“My cousin is lucky enough to still have their $30 a month plan which provided 5GB a month, but they discontinued it for new customers so they could raise prices,” Janie writes.

Janie is upset because it was an AT&T reseller that charged her $30 extra to enable the feature AT&T now wants her to pay even more to use.

“I have no idea what ‘jailbreaking’ is, or that I was doing anything wrong — I bought the phone from an AT&T authorized retailer and had no idea there was even a problem until I called and they lectured me about ‘stealing’ service,” Janie says.  “The company disgusts me and I have never been accused by anyone of stealing, so I am canceling with them when my contract is up.”

Janie is not the only customer to have had her phone modified by someone representing the company.

We found another customer who paid an employee at an official AT&T store to modify his phone.  The employee told him if he keeps monthly usage under 10GB per month, no red flags would be raised, a statement that some might consider a red flag itself.

Just how AT&T tracks down its tethering customer-underground remains a mystery, but some have speculated usage may have been the major contributing factor.  Not everyone who quietly tethers their AT&T phone has gotten the notification message, while many of those using tethered phones as their only Internet connection have.

“If you are using your tethered AT&T phone on a laptop and running up 25GB of usage, AT&T will notice if they look,” an employee tells us privately.  “AT&T can run an audit on data usage and discover considerable amounts of money being left on the table by customers not enrolled in the appropriate plan.”

One lawyer that has targeted AT&T in the past said his firm is carefully watching to see if AT&T follows through on its auto-enrollment threat.

“We’ve found judges and government officials take a very dim view on automatically enrolling customers in anything that costs money without their direct, informed consent,” the attorney who is not authorized to speak publicly on behalf of his firm tells us.  “We are obviously taking a close look at this.”

AT&T’s e-mail notification text is below the jump.

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