Fierce

It has long been observed that politics makes strange bedfellows, and a recent Federal Communications Commission filing shows that trend continues.

In this case, Google, AT&T and Verizon partnered to express their views to the FCC regarding commercial operations in the 3.5 GHz band, which is envisioned for use in small cell deployments.

According to the ex parte filing, submitted on Google letterhead, on March 13, representatives of the three companies met with members of the FCC's Wireless Telecommunications Bureau, Office of Engineering and Technology and Public Safety & Homeland Security Bureau. At issue was the FCC's proposal to open the 3550-3650 MHz band for sharing between government and commercial users.

Rival telecommunications companies AT&T and Verizon, as well as Internet giant Google, whose partnership with telcos is perhaps best characterized as one of coopetition, joined to support the three-tiered sharing framework proposed by the President's Council of Advisors on Science and Technology (PCAST) for the 3.5 GHz band.

AT&T is poised to complete its acquisition of Cricket provider Leap Wireless and Leap's 4.57 million customers.

The transaction is the latest in a long line of consolidation in the wireless industry that has removed players ranging from MetroPCS to Clearwire to Alltel. But it's unclear what will happen next. The AT&T/Leap deal leaves US Cellular as the clear No. 5 US carrier.

However, there is a major gap between US Cellular and the Tier 1 carriers, and then between US Cellular and other, smaller players. US Cellular ended the fourth quarter with around 4.77 million total customers. Due to the spectrum sales, US Cellular is not an obvious acquisition target, especially because it has continued to bleed subscribers. US Cellular lost 71,000 postpaid customers and 26,000 prepaid subscribers in the fourth quarter, for total net losses of 97,000 customers. Morgan Stanley noted that marked the 15th straight quarter it lost postpaid subscribers. US Cellular's outlook is decidedly unclear.

Copper wire retirement may be a concern for competitive providers, but AT&T, CenturyLink and Frontier said that they are still finding value in telecom's ubiquitous access medium.

The telecommunications companies don't envision a wholesale replacement of their copper facilities, but rather would like to have the flexibility to retire them if there's a reason to do so. While CenturyLink is upgrading its network to IP and adding fiber, it sees copper retirement and the IP transition as a two-part issue. It says that the IP transition should have three common characteristics: a state-by-state interconnection model, redundancy and flexibility.

Bill Cheek, president of Wholesale Markets Group for CenturyLink said that while he does not see a day where the company would retire all of its copper facilities, it wants "to have flexibility if we need to retire the copper because we don't want to be mandated to maintain two networks since the economics don't work."

If CenturyLink were to face a similar natural disaster like Verizon did with Hurricane Sandy in New Jersey, it would replace the damaged copper with fiber. Similarly, AT&T does not expect a wholesale change out of copper but sees using it in different ways for new consumer and business applications. To AT&T, the retirement of TDM services does not mean it is going to take out copper. Instead, the service provider will still require copper for some its key services such as its fiber to the node (FTTN)-based U-verse service, central office (CO)-based IP DSL service and Ethernet over Copper for businesses.

T-Mobile US warned the Federal Communications Commission not to structure the upcoming AWS-3 spectrum auction in such a way that it would tilt the playing field toward AT&T and Verizon Wireless.

AT&T recently praised a tentative, but not final, license structure and band plan for the auction. The back and forth highlights the importance of the auction and also how the carriers are going to continue to fight over spectrum policy and auction design for months to come.

The AWS-3 auction fight is notable in light of the fact that T-Mobile has lobbied for years for the FCC and other federal agencies to cobble together the spectrum that will be auctioned. Kathleen Ham, vice president of federal regulatory affairs at T-Mobile, wrote that the FCC should auction AWS-3 spectrum in 5x5 MHz blocks to "ensure the auction does not become a playing field for only Verizon and AT&T."

AT&T isn't that perturbed by recent pricing changes at its Tier 1 wireless rivals, according to a report from financial analysts who met with AT&T CFO John Stephens.

The report, by Credit Suisse analysts Joseph Mastrogiovanni, Henrik Herbst and Michael Baresich, notes that from AT&T's perspective, the "recent competitive activity is similar to what they've seen in the past, indicating management feels the market remains rational." In the meeting, the analysts said Stephens "stressed the importance of network quality over price, which is likely why we have continued to see low churn."

T-Mobile US, AT&T and other carriers have in recent months changed their rate plans in multiple ways, offering larger data buckets to some customers, raising prices on others and in general trying to retain customers and go after those who might be willing to switch.

Meanwhile, AT&T is plowing ahead with its LTE network build-out, which now covers around 280 million POPs. AT&T aims to hit 300 million by the summer. The analysts said that Stephens reiterated "the importance of network speed and quality in reinforcing" the company's competitive position.

The TDD spectrum in the 2.5 GHz band that Sprint acquired from Clearwire is "a powerful resource for Sprint to catch up to its competitors" and can enable the United States' third-largest mobile operator "to provide super high speed data connections," according to a report from Strategy Analytics.

The report, written by Guang Yang, Strategy Analytics' senior analyst for wireless networks and platforms, further notes that Sprint's 2.5 GHz spectrum is key to enabling the operator to become the "king of data speed." Sprint has said it owns around 120 MHz of 2.5 GHz spectrum in 90 percent of the top 100 US markets. By deploying LTE, operators are moving to an IP architecture that makes it easier to hack because it's a familiar territory for hackers.

However, the research firm's report may not have been issued at the most opportune time for Sprint. The Federal Communications Commission has been reviewing the spectrum screen it uses when assessing industry mergers and acquisitions and whether spectrum caps are needed in the upcoming 600 MHz auctions in order to equalize spectrum holdings among US mobile operators.

Sprint has contended that its vast holdings of 2.5 GHz BRS and EBS spectrum should be not be compared directly to lower band spectrum held by the nation's two largest operators, AT&T Mobility and Verizon Wireless. For example, in February, Sprint proposed the FCC adopt a "weighted wireless broadband spectrum screen" that would accord perceived competitive advantages to spectrum under 1 GHz.

AT&T CFO John Stephens said it would "surprising" for federal regulators to approve a deal for Sprint to merge with T-Mobile US so soon after they quashed AT&T's bid to buy T-Mobile.

While he said he did not have any specific view on a transaction -- because there is no formal deal between Sprint and T-Mobile -- he noted that for several years AT&T has pushed for more industry consolidation because of increasing data demands, capital requirements to upgrade networks, and a shortage of available spectrum. He noted that the government obviously disagreed, thwarting AT&T's proposed $39 billion takeover of T-Mobile in 2011.

"It would be interesting to see if the government varies from that," Stephens said. "I don't think they will." He said the industry would have to see what happens, but that it "would be surprising today if they changed or reversed that opinion."

Verizon Wireless could potentially tap new business models thanks to LTE Multicast technology, though it will take a few years for customers to take advantage of it on a widespread basis, according to a top Verizon executive.

Verizon Communications CFO Fran Shammo said the technology could open up new possibilities for Verizon that don't exist today. Those include the ability to sell content rights in terms of hour-long time slots, pay-per-view events or sporting events like the World Cup. There exists "a lot of ability with Multicast to really generate additional revenue for the industry," he said, but added that "the ecosystem will have to develop here." LTE Multicast, sometimes called LTE Broadcast, uses evolved Multimedia Broadcast Multicast Service (eMBMS). Essentially, the technology allows the same content to be sent to a large number of subscribers at the same time, resulting in a more efficient use of network resources than each user requesting the same content and then having the content unicast to each user. The Verizon CFO also touched on several other hot-button issues at the conference. Notably, he said that Verizon does not want to move away from the traditional US model of offering device subsidies in exchange for customers signing two-year contracts.

Edge is "another option for our customers" that Verizon does not force, Shammo said. "We believe that the subsidy model is an extremely good one," he said. "It's done wonders for us in this industry. I think that to abandon it is a mistake."

[March 10]

AT&T CEO Randall Stephenson said that the model that has prevailed in the US wireless industry for years of customers getting subsidized devices in exchange for signing two-year contracts is radically shifting.

Stephenson said that competition ramped dramatically in 2013. It was sparked mainly by T-Mobile US, which shifted away from contracts and device subsidies and has since kept up the pressure, offering to pay the early termination fees of customers who switch to T-Mobile and trade in their devices. Other carriers have embraced device financing models in the wake of T-Mobile's actions.

Stephenson said the average customer now "has a lot more transparency" and can more clearly understand the value proposition of what carriers are offering. They can see the cost of devices more clearly and then force carriers to compete more directly on network quality and pricing. Customers are opting to choose lower monthly pricing in exchange for paying for the device up front or in installments, Stephenson said. "The customers are overwhelmingly choosing that equation," he said.