Luxurious wireless industry profits of up to 50 percent earned from selling some of the world’s most expensive cellular services may soon be a thing of the past as Google and Cablevision prepare to disrupt the market with cheap competition.

With more than 80 percent of all wireless data traffic now moving over Wi-Fi, prices for wireless data services should be in decline, but the reverse has been true. AT&T and Verizon Wireless have banked future profits by dumping unlimited data plans and monetizing wireless usage, predicting a dependable spike in revenue from growing data consumption. Instead of charging customers a flat $30 for unlimited data, carriers like Verizon have switched to plans with voice, texting, and just 1GB of wireless usage at around $60 a month, with each additional gigabyte priced at $15 a month.

With the majority of cell phone customers in the U.S. signed up with AT&T or Verizon’s nearly identical plans, their revenue has soared. Sprint and T-Mobile have modestly challenged the two industry leaders offering cheaper plans, some with unlimited data, but their smaller cellular networks and more limited coverage areas have left many customers wary about switching.

Google intends to remind Americans that the majority of data usage occurs over Wi-Fi networks that don’t require an expensive data plan or enormous 4G network. The search engine giant will launch its own wireless service that depends on Wi-Fi at home and work and combines the networks of Sprint and T-Mobile while on the go, switching automatically to the provider with the best signal and performance.

Cablevision’s offer, in contrast, will rely entirely on Wi-Fi to power its mobile calling, texting, and data services. Dubbed “Freewheel,” non-Cablevision customers can sign up starting in February for $29.95 a month. Current Cablevision broadband customers get a price break — $9.95 a month.

Cablevision’s dense service area in parts of New York City, Long Island, northern New Jersey and Connecticut offers ample access to Wi-Fi. Cablevision chief operating officer Kristin Dolan said its new service would work best in Wi-Fi dense areas such as college campuses, business districts, and multi-dwelling units.

New York City is working towards its own ubiquitous Wi-Fi network, which could theoretically blanket the city with enough hotspots to make Cablevision’s service area seamless. But the biggest deterrent to dumping your current cell phone provider is likely to be available coverage areas. Google’s answer to that problem is combining the networks of both Sprint and T-Mobile, offering customers access to the best-performing carrier in any particular area. While that isn’t likely to solve coverage issues in states like West Virginia and the Mountain West, where only AT&T and Verizon Wireless offer serious coverage, it will likely be sustainable in large and medium-sized cities where at least one of the two smaller carriers has a solid network of cell towers.

Comparing the Wireless Alternative Providers

• Google Wireless will offer seamless access to Wi-Fi, Sprint and T-Mobile voice, SMS, and mobile data at an undetermined price. Likely to arrive by the summer of 2015;
• Cablevision Freewheel depends entirely on Wi-Fi to power unlimited voice, SMS, and data. Launches in February for $29.95/mo ($9.95/mo for Cablevision broadband customers);
• FreedomPop Wi-Fi ($5/mo) offers an Android app-based “key” to open unlimited Wi-Fi access to 10 million AT&T, Google, and cable industry hotspots nationwide for calling, texting, and mobile data;
• Republic Wireless developed its own protocol to properly hand off phone calls between different networks without dropping it. Calling plans range from $5-40 a month. Less expensive plans are Wi-Fi only, pricier plans include access to Sprint’s network;
• Scratch Wireless charges once for its device – a Motorola Photon Q ($99) and everything else is free, as long as you have access to Wi-Fi. Cell-based texting is also free, as a courtesy. If you need voice calling or wireless data when outside the range of a hotspot, you can buy “access passes” to Sprint’s network at prices ranging from $1.99 a day each for voice and data access to $24.99 a month for unlimited data and $14.99 a month for unlimited voice.

Scratch Wireless

Google is pushing the FCC to open new unlicensed spectrum for expanded Wi-Fi to accommodate the growing number of wireless hotspots that are facing co-interference issues.

Wi-Fi-based wireless providers are likely to grow once coverage concerns are eased and there is reliable service as customers hop from hotspot to hotspot. The cable industry has aggressively deployed Wi-Fi access with a potential to introduce wireless service. Comcast is already providing broadband customers with network gateways that offer built-in guest access to other Comcast customers, with the potential of using a crowdsourced network of customers to power Wi-Fi coverage across its service areas. FreedomPop will eventually seek customers to volunteer access to their home or business networks for fellow users as well.

AT&T and Verizon are banking on their robust networks and coverage areas to protect their customer base. Verizon Wireless, in particular, has refused to engage in price wars with competitors, claiming Verizon customers are willing to pay more to access the company’s huge wireless coverage area. AT&T told the Wall Street Journal its customers want seamless access to its network to stay connected wherever they go.

Verizon’s chief financial officer Fran Shammo appeared unfazed by the recent developments. On last week’s conference call with investors, Shammo dismissed Google’s entry as simply another reseller of Sprint’s network. He added Google has no idea about the challenges it will face dealing directly with customers in a service and support capacity. While Google’s approach to combine the coverage of T-Mobile and Sprint together is a novel idea, Shammo thinks there isn’t much to see.

“Resellers, or people leasing the network from carriers, have been around for 15 years,” Shammo said. “It’s a complex issue.”

Investors are taking a cautious wait-and-see approach to the recent developments. Google’s new offering is likely to offer plans that are philosophically compatible with Google’s larger business agenda. Challenging the traditional business models of AT&T and Verizon that have implemented usage caps and usage pricing may be at the top of Google’s list. The new offering could give large data allowances at a low-cost and/or unlimited wireless data for a flat price. Such plans may actually steal price-sensitive customers away from Sprint and T-Mobile, at least initially. Sprint is clearly worried about that, so it has a built-in escape clause that allows a termination of its network agreement with Google almost at will.

[flv]http://www.phillipdampier.com/video/WSJ Google Cablevision Challenge Wireless Industry 1-26-15.flv[/flv]

The Wall Street Journal talks about the trend towards Wi-Fi based mobile calling networks. (1:59)

AT&T has asked a federal judge in California to throw out a lawsuit filed by the Federal Trade Commission over wireless speed throttling, claiming the federal regulator has no authority over how AT&T manages its network.

The FTC filed a lawsuit in October 2014 alleging AT&T was throttling the speeds of its grandfathered “unlimited data” customers by as much as 90 percent and failed to sufficiently disclose the practice in violation of the FTC Act.

Although AT&T discloses its network management policies in broad terms deep within its website, the original complaint charges AT&T failed to directly notify customers identified as the ‘heavy unlimited users’ targeted for wireless speed reductions reportedly as low as 56kbps for up to 30 days or more.

AT&T’s lawyers claim the FTC has no jurisdiction to file the lawsuit because a portion of AT&T’s business — cellular voice service — is defined by the Communications Act as a regulated common carrier service by the Federal Communications Commission. The FTC had argued AT&T’s mobile data services are unregulated and do not fall under the FCC’s exclusive jurisdiction.

AT&T’s attorneys argue two apparently contradictory assertions about wireless regulation that both require the court, in AT&T’s view, to dismiss the FTC’s case:

1. AT&T acknowledges that its mobile data services are not subject to Title II regulatory oversight by the FCC as a common carrier service. Therefore, federal agencies like the FTC have no jurisdiction to interfere in AT&T’s private business decisions on issues like data caps and speed throttling because it is an unregulated service;
2. AT&T claims the FCC has asserted sweeping authority over wireless services under Section 706 of the Telecommunications Act of 1996. Therefore it should be up to the FCC alone (and not the FTC) to decide the fairness of AT&T’s network management practices. But AT&T doesn’t remind the court this is the same authority that large telecom companies sued into impotence by successfully arguing the FCC exceeded its mandate attempting to assert jurisdiction on data services to enforce concepts such as Net Neutrality and attempting to fine Comcast for throttling peer-to-peer network traffic.

AT&T calls the FTC’s claims it can intervene in services not regulated by the FCC “irrelevant,” arguing once one of AT&T’s services is subject to the FCC’s common carrier regulation, all of its services become untouchable by the FTC.

“The FTC lacks jurisdiction to prosecute this action because AT&T is a common carrier subject to the Communications Act and therefore outside the FTC’s authority under Section 5 of the FTC Act. 15 U.S.C. § 45(a)(2),” argues AT&T. “Indeed, the FTC itself has recognized that, as drafted, the exemption altogether removes common carriers such as AT&T from its jurisdiction and has asked Congress to modify the statute. So far, Congress has refused.”

“But whether AT&T’s network management program is ‘unfair’ and whether its disclosures were ‘inadequate’ are issues for the FCC to decide, and in fact the FCC is in the process of so deciding, just as Congress intended,” AT&T said. “Congress drafted Section 5 to avoid subjecting common carriers like AT&T to precisely this sort of conflicting authority of separate federal agencies over the same conduct.”

Should the FCC find AT&T in violation of its transparency rules, AT&T will have a strong legal case to have that ruling tossed as well on the grounds the agency has no mandate from Congress to regulate mobile data services under Section 706/Title III of the Communications Act — the same case other telecom companies have successfully argued in the D.C. Court of Appeals.

Ironically, AT&T’s apparent regulatory loophole will vanish should the FCC order that broadband services of all kinds be reclassified as Title II telecommunications services as part of the ongoing effort to implement strong Net Neutrality policies.

The Federal Communications Commission announced Friday it will postpone an important spectrum auction until 2016 after broadcasters filed suit against the regulator challenging its proposed format.

The FCC wants your free, over-the-air television dial to be a lot smaller with a deal that will pay broadcasters to sign-off their channels for good to benefit the wireless industry. Remaining stations will be moved to VHF channels 2-13 and UHF channels 14-30. The spectrum covering UHF channels 31-51 would likely then be sold in pieces to major wireless carriers including AT&T, Verizon Wireless, Sprint, and/or T-Mobile.

To entice broadcasters to voluntarily switch off their transmitters, the FCC has designed a spectrum auction that would provide tens of millions in proceeds to smaller stations and up to $570 million for a UHF station in Los Angeles to get off the air. Technically, stations giving up their channels don’t have to sign-off — they can move to low/lower-powered broadcasting, share channel space with another television station on a digital subchannel, or move to cable television exclusively.

To sell stations on the deal, FCC Chairman Tom Wheeler hired Greenhill, a Wall Street investment bank, to prepare a presentation sent to every eligible television station in the country, encouraging them to sell their channels for some eye-popping proceeds:

(These numbers refer to full-power stations; in some markets there are also Class A stations, low-power stations that meet certain programming requirements. The estimated value of their spectrum is lower.)

Source: The FCC

There is so much money to be made buying and selling the public airwaves — at least twice as much as broadcasters originally anticipated– spectrum speculators have also jumped on board, snapping up low power television station construction permits and existing stations with hopes of selling them off the air in return for millions in compensation. Wireless customers are effectively footing the bill for the auction as wireless companies bid for the additional spectrum. Television stations will receive 85% of the proceeds, the FCC will keep 15%.

Major network-affiliated or owned stations in major cities are unlikely to take the deal. But in medium and smaller-sized markets where conglomerates own and operate most television stations, there is a greater chance some will be closed down, moved to a lower channel, or transferred to a digital sub-channel of a co-owned-and-operated station in the same city. The most  likely targets for shutdown will be independent, CW and MyNetworkTV affiliates. In smaller cities, multiple network affiliates owned by one company could be combined, relinquishing one or more channels in return for tens of millions in cash compensation.

In Los Angeles, the stakes are especially high with auction prices estimated at up to $570 million for a high-powered UHF station like KDOC-TV.

“There is some real money to be had,” Bert Ellis, chief executive of Ellis Communications, which owns KDOC-TV, told the Wall Street Journal. “I think every broadcaster should take a very close look at this.”

Estimates show at least 80 significant U.S. cities will likely lose one or more channels, especially when the bid price well exceeds the value of an independent, ethnic or religious station. Many of these will go dark, move to cable or a less desirable lower power VHF channel, or sign an agreement with a remaining station to carry its programming on a sub-channel.

The National Association of Broadcasters filed suit against the FCC’s auction in August. The NAB wants the FCC to guarantee that stations that wish to stay on the air will not have their coverage area reduced or forced to pay to move to a new channel number assigned by the FCC as the regulator “repacks” a much smaller UHF band.

“We’ve said from day one, if stations want to volunteer to go out of business, that’s their prerogative. But for those stations that choose to remain in business, they should be held harmless,” NAB spokesman Dennis Wharton said.

The spectrum auction is designed to address the wireless industry’s claim of a spectrum crisis, warning that if more frequencies are not found, wireless users will eventually see their service degraded.

Verizon Wireless, facing scrutiny from FCC chairman Thomas Wheeler, today announced it has canceled plans to introduce a new “network optimization” policy that would have significantly throttled down speeds for heavy users still on grandfathered, unlimited use data plans.

Stop the Cap! received a statement from Verizon Wireless this afternoon announcing a sudden change of heart:

Verizon is committed to providing its customers with an unparalleled mobile network experience.  At a time of ever-increasing mobile broadband data usage, we not only take pride in the way we manage our network resources, but also take seriously our responsibility to deliver exceptional mobile service to every customer.  We’ve greatly valued the ongoing dialogue over the past several months concerning network optimization and we’ve decided not to move forward with the planned implementation of network optimization for 4G LTE customers on unlimited plans.  Exceptional network service will always be our priority and we remain committed to working closely with industry stakeholders to manage broadband issues so that American consumers get the world-class mobile service they expect and value.

Chairman Wheeler questioned Verizon’s strategy almost immediately after the company announced its “network optimization” strategy in July.

Wheeler

“‘Reasonable network management’ concerns the technical management of your network; it is not a loophole designed to enhance your revenue streams,” Wheeler wrote in a July 30 letter to Verizon Wireless CEO Dan Mead. “It is disturbing to me that Verizon Wireless would base its ‘network management’ on distinctions among its customers’ data plans, rather than on network architecture or technology.”

Wheeler reminded Mead the FCC defined network management practices to be reasonable “if it is appropriate and tailored to achieving a legitimate network management purpose, taking into account the particular network architecture and technology of the broadband Internet access service.”

Wheeler told Mead Verizon’s plans didn’t qualify.

“I know of no past FCC statement that would treat as ‘reasonable network management’ a decision to slow traffic to a user who has paid, after all, for ‘unlimited” service,'” Wheeler wrote.

Wheeler also questioned how Verizon could justify its planned speed throttling under the conditions it agreed to after winning the 700MHz “C Block.” That spectrum was accompanied by a special FCC mandate – open platform rules which prohibits Verizon Wireless from denying, limiting, or restricting the ability of end users to download and use applications of their choosing on the C Block networks. A speed throttle would make using some applications impossible.

In August, Wheeler hammered home his opposition to Verizon’s plans at a news conference.

“My concern in this instance–and it’s not just with Verizon, by the way, we’ve written to all the carriers–is that [network management] is moving from a technology and engineering issue to a business issue, such as choosing between different subscribers based on your economic relationship with them.”

Wheeler has expressed irritation that Verizon’s justification for congestion management only applied to its unlimited customers, while those paying on a per-gigabyte basis could use (and spend) as much as they like.

Verizon responded that other providers — notably AT&T — already have a similar network management policy in place, throttling speeds of grandfathered unlimited customers who consume more than 3GB of wireless traffic on its 3G network or 5GB on its 4G network a month.

“‘All the kids do it’ was never something that worked with me when I was growing up and didn’t work with my kids,” Wheeler responded, noting Verizon was trying to reframe the issue instead of justifying the need for speed throttles for some customers, while giving others unlimited access as long as they pay.