June 2011

Iran Vows to Unplug Internet

Iran is taking steps toward an aggressive new form of censorship: a so-called national Internet that could, in effect, disconnect Iranian cyberspace from the rest of the world.

The leadership in Iran sees the project as a way to end the fight for control of the Internet, according to observers of Iranian policy inside and outside the country. Iran, already among the most sophisticated nations in online censoring, also promotes its national Internet as a cost-saving measure for consumers and as a way to uphold Islamic moral codes. In February, as pro-democracy protests spread rapidly across the Middle East and North Africa, Reza Bagheri Asl, director of the telecommunication ministry's research institute, told an Iranian news agency that soon 60% of the nation's homes and businesses would be on the new, internal network. Within two years it would extend to the entire country, he said.

Why MMTC is Endorsing the AT&T / T-Mobile Merger

[Commentary] Since its founding 25 years ago, the Minority Media and Telecommunications Council (MMTC) has been a vocal opponent of consolidation in the media and telecommunications industries. A transaction may be compelling to shareholders or have an attractive economic rationale, but transactions that shrink a sector usually come at the expense of communities of color. Too often, what may appear to be “good” for a company is, in fact, bad for minorities. Thus MMTC has never affirmatively endorsed a proposed merger – until now.

This transaction is fundamentally different from past transactions because of what’s at stake – the future of wireless broadband. Mobile broadband is profoundly important in connecting minorities to the Internet. For 4G to be rolled out in a manner that is both swift and inclusive of minorities, broadband providers will require massive amounts of new spectrum to build 4G networks. The proposed merger of AT&T and T-Mobile would help solve the spectrum crunch by putting this scarce resource to the most efficient and consumer welfare-enhancing uses. According to AT&T, this merger would give it “the scale, spectrum, and resources that will enable it to deploy LTE [its 4G network] to more than 97 percent of Americans, many of them in the rural areas and small towns most in need of greater broadband deployment and economic development.” The transaction would result in better wireless broadband connectivity in very large and disproportionately minority markets like Los Angeles, Houston, Detroit, and Washington (DC).

In the absence of such a solution to the spectrum crunch, carriers may begin to raise prices in order to suppress demand for advanced services. There is another reason to be optimistic and enthusiastic about this transaction: AT&T has a long record of excellence when it comes to diversity and working to inclusion.

Thus the proposed merger warrants a departure from MMTC’s history of opposition to such transactions. The nation has robust wireless and broadband networks. But spectrum resources are quickly running out. The proposed merger of AT&T and T-Mobile is a natural next step in the evolution of the marketplace. Done right, this transaction will be a boon to all consumers.

Sprint the winner if AT&T absorbs T-Mobile?

In March 2011, AT&T announced that it was planning to acquire T-Mobile USA for $39 billion. This was the unexpected culmination of months of rumors about the sale of the ailing T-Mobile. Many analysts had seen Sprint as the most likely partner, but it was AT&T that made the successful bid after it was approached by T-Mobile parent Deutsche Telekom.

Quick research gathered from the Web sites of various wireless providers presents a set of facts that do not support claims that T-Mobile is the lowest-cost provider. Furthermore, trend lines for wireless pricing before and after wireless mergers do not support the theory that the merger will lead to price increases. As the late Sen. Daniel Moynihan (D-NY) famously said: "We are all entitled to our opinions, but not our own facts." Nationwide, consumers have at least three offers available to them that are lower in cost than T-Mobile's current offerings. Boost Mobile, which is owned by Sprint, and Tracfone's Straight Talk both offer nationwide plans that provide a lower-cost option. In fact, Sprint's Boost Mobile, Leap Wireless, Metro PCS, and Straight Talk are all gaining customers, while T-Mobile's higher-priced services are losing customers. It is highly doubtful that Sprint, Leap, Metro PCS, and Tracfone will raise prices while competing vigorously against each other for customers at the low-cost end of the market, just because a higher-priced competitor is no longer competing.

The best way to describe T-Mobile at this time is as "the most expensive low-cost phone provider"--an oxymoron indeed, and the exact reason for T-Mobile's customer losses. The root of T-Mobile's current churn and customer drop-offs lies in the lack of focus on a clear consumer segment. The provider's plans are too expensive to appeal to customers who seek low-cost plans, while it is unable to provide a network that will satisfy the demands of customers who are willing to pay a premium.

Another popular argument against the merger is that prices would rise--a claim made in regard to every proposed merger. In the wireless industry, however, this has not been proved; in fact, it is quite the contrary.

What is perhaps even more interesting is that Sprint, while loudly opposing the acquisition, will in all likelihood be the biggest winner from T-Mobile's disappearance. It is already the best-positioned value provider in the wireless industry. Sprint's postpaid plans are providing great value, while its Boost brand is a leader in the disruptive unlimited segment, and its Virgin Mobile brand is well represented in the per-minute prepaid segment. No other provider has as firmly anchored itself as the low-cost provider as Sprint has, and no other carrier in the U.S. has done a better job of improving its customer service.

For Sprint, the merger (and opposing it) represents a win-win opportunity. By opposing the merger, Sprint makes the lives of two of its competitors more difficult and increases the chance Sprint will secure extensive and favorable conditions on the merged entity. If it succeeds in blocking the merger, Sprint will have forced AT&T and T-Mobile to waste an entire year of valuable management time that could have been used to make Sprint's life more difficult. T-Mobile would be in a particularly difficult position to reinvigorate a workforce and attract new customers. After all, how do you gain customers when your company is viewed as uninterested in staying in the United States and without a vision for the future, but was forced by regulators to still compete? In sum, opposition based on fears of price increases or a sense that T-Mobile is the lowest-cost provider, and therefore needs to remain a standalone company, is wrongheaded, because it's not based in reality.

[Entner is the founder of Recon Analytics]

The revenge of the Baby Bells

[Commentary] It was 30 years ago that lawyers from the Justice Department first went into court to ask a federal judge to break up AT&T, and much has happened since then. The breakup of the Bell system into long distance and the regional “Baby Bells.” The rush of new competition and the resulting drop in prices. The decline of wire-line service, and the explosion of voice and data over wireless broadband. The irony is that after all that entrepreneurial energy and technological innovation and fierce competition, the telephone market once again threatens to consolidate back into the hands of two national giants, AT&T and Verizon, which are direct corporate descendents of Ma Bell. That is the context to keep in mind as the Justice Department and the Federal Communications Commission consider AT&T’s proposed $39 billion acquisition of T-Mobile.

The government has two choices:
It could stick with the competitive, lightly-regulated model and try to make it work by blocking a merger of the No. 2 and No. 4 competitors that will leave 75 percent of the wireless market in the hands of AT&T and Verizon. Or it could acknowledge that, because of powerful economies of scale and limits on the amount of wireless spectrum that is available, the “telephone” market is a natural oligopoly that can support only a handful of players and limited competition — and, by implication, requires much stronger government regulation.

Which arrangement — a tightly-regulated oligopoly or a lightly-regulated market with numerous firms of varying size — is most likely to produce the next innovation that improves services while lowering costs? At different times, we've had success with both models, but surely the worst outcome would be the unregulated oligopoly that AT&T and Verizon would have us embrace.

FCC Asks Competitors about AT&T/T-Mobile

The Federal Communications Commission's Wireless Telecommunications Bureau has sent out letters to a number of wireless carriers, asking them questions about AT&T's proposed acquisition of T-Mobile. The FCC sent nine questions on geographic coverage and technical format, network development plans, cell sites, agreements between the companies, price lists, spectrum capacity requests, billing plans and more. The letters went to Verizon, Sprint, US Cellular, MetroPCS, Leap Wireless, and Cellular South.

The FCC has requested answers no later than June 20 and indicated that the replies will be treated as confidential.

Chairman Genachowski's Response to Senator Klobuchar Regarding Proposed Acquisition by AT&T of T-Mobile

On March 21, Sen Amy Klobuchar (D-MN) sent Federal Communications Commission Chairman Julius Genachowski a letter with concerns about AT&T's proposed acquisition of T-Mobile. "I remain concerned that increased concentration will, at the san1e time, lead to fewer choices, higher prices and reduced service for wireless consumers. At a time when many Americans are using wireless phones as the sole means of telephone communication, it is vital that competition in the wireless market remain robust. That is why I urge you to take a close, hard look at this proposed acquisition and ensure that consumers are provided with adequate choice in the wireless market."

On May 24, Chairman Genachowski replied noting that the FCC is accepting public comment on the proposed transaction and will do a "thorough and fact-based review" to determine if the "proposed acquisition is in the public interest."

Incentive Auction Bill Faces Lengthy Markup

The Senate Commerce Committee's planned June 8 markup of an incentive auction bill could prove to be a marathon undertaking.

According to copies of draft amendments -- there are nearly 100 of them including 30 from Sen Jim DeMint (R-SC) alone -- that move up dates, change language, strike sections and add others. The bill (appropriately numbered S. 911) would allow the Federal Communications Commission to compensate broadcasters for moving off some of their spectrum to make room for more wireless broadband. It would also allow allocate the D block of spectrum to first responders for an interoperable broadband emergency communications network rather than auction it, as Congress originally designated. Many Republicans, including leaders of the House Commerce Committee, would prefer that the block still be auctioned, which could prove an impediment to the swift passage of the bill that its sponsor, Senate Commerce Committee Chairman Jay Rockefeller (D- WV), is pushing for. Chairman Rockefeller wants the bill passed and to the president before the tenth anniversary of 9/11. Creating the emergency network was one of the recommendations of the 9/11 Commission.

Did Comcast Fool the FCC?

Do the conditions that the Federal Communications Commission imposed on the merger of Comcast and NBC Universal have any real teeth? We may find out soon, thanks to a complaint against Comcast that Bloomberg LP is set to file with the FCC -- perhaps as soon as this week.

Bloomberg will allege that Comcast is violating a condition regarding “neighborhooding”—that is, grouping similar channels together on the dial so that viewers can find them more easily. The condition, imposed to prevent Comcast from using its cable systems to shut out competitors to networks like MSNBC and CNBC that it now owns, specifies, “If Comcast now or in the future carries news and/or business news channels in a neighborhood... Comcast must carry all independent news and business news channels in that neighborhood.” Bloomberg argues that Comcast is neighborhooding those channels, and that it’s violating the condition by keeping CNBC competitor Bloomberg Television out in a nosebleed section.

Naylor to serve as FCC's Chief Information Officer

Robert Naylor will serve as the Federal Communications Commission's Chief Information Officer and implement a tech-forward strategy to cut costs, equip workers
with effective tools, and shift the Commission’s IT trajectory towards more sustainable and secure cloud-based solutions. Naylor will continue to guide the agency’s investment in tech infrastructure, reducing costs and empowering FCC employees to deploy innovative solutions inside the agency.

Naylor previously served an appointment as the Chief Information Officer for the United States Small Business Administration. He has recently served on two committees within the Federal Executive CIO Council, and was a member of two White House workgroups within the Office of Science and Technology Policy. In 1999, Naylor started an international professional services small business, servicing the human capital management industry. In this capacity, his company served many of the Fortune 100 businesses in Hong Kong, Singapore, England, Canada, Mexico, Argentina, Colombia, and Australia, as well as 30 States in the USA.

Free Press complains to the FCC about Verizon tethering

In the war to control access to services over wireless networks, the Free Press, a consumer group, has filed a complaint with the Federal Communications Commission because Verizon has reportedly asked Google to disable tethering on Android devices.

Tethering applications allow users to turn their phones into mobile hotspots, a feature operators tend to charge extra for. In the complaint, the Free Press argues that Verizon violates some of the open access provisions it agreed to when it bought its 700 MHz spectrum in 2008. Note that only the 700 MHz spectrum that Verizon is using for LTE will be affected by the open access rules.

Benton

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