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AT&T Celebrates Broadband Plan by Buying Out Competition

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AT&T commemorated last week's one-year anniversary of the Federal Communications Commission's (FCC) National Broadband Plan in its own, unique way. Ending a week of celebrations, it bought one of the other four biggest competitors, T-Mobile, further shrinking competition in wireless broadband, further concentrating an already concentrated market. Now instead of the big four wireless companies, there are the bigger three.

The government hasn't blocked a telecom merger yet, but this one should given these policymakers pause. And if they let it through, there should be some very strong conditions.

That $39 billion move was just the capper to the celebrations. It levied bandwidth caps on its customers. It then told its customers that it was a no-no to use data from their broadband data plan service to connect a Blackberry to a laptop. Not all data is created equal. Separate tethering plan required, it seems. That basically sums up the state of broadband in America.

Of course, some can look at the FCC plan another way -- as a real plan. Until last year, the U.S. didn't have a broadband plan, although other countries did. Congress wrote the requirement that the FCC come up with one into the 2009 stimulus bill, which also contained $7.2 billion in grants to construct high-speed Internet networks.

Given that a year is a short time frame for this sort of thing, it's still a legitimate exercise to try to evaluate the plan in a couple of frameworks. One is the narrow view -- which proceedings have been started, which have been completed, which stand no chance of seeing the light of day, that sort of thing.

By that standard, the FCC isn't exactly moving with blazing broadband speed. By the Benton Foundation's reckoning, 34 percent of the 218 recommendations have yet to get started, 9.6 percent have been finished, and 40.4 percent are still in progress. By the FCC's reckoning, they have completed about 80 percent of the plan, including issuing notices of inquiry and notices of proposed rulemaking. Whatever.

Such bean-counting misses the picture. It really doesn't matter how many notices the FCC puts out, although it's nice to see the Commission will apparently tackle the issue of agreements among mobile carriers for data -- the kind that already exist for voice calls.

What matters in the larger sense is whether the country has any prospects for improved broadband and whether consumers have any hope of getting to lower prices and more competition. The broadband plan was big on creating "demand" for broadband. Done. Netflix has been a broadband-creation machine all by itself. Their thanks for stimulating demand for more services from the phone and cable companies has been to see broadband customers who are also Netflix customers, smacked with usage caps.

It's a good thing that news organizations picked up the usage-cap story, because AT&T didn't make it very clear in its new Terms of Service. This is what the company told customers: "Data Usage. For more information about the use of your High Speed Internet Service, data usage allowances that may apply to your service, how much data you use, and management of your data usage, please refer to www.att.com/internet-usage." That's very helpful.

The bandwidth caps, 150 GB per month for DSL customers and 250 GB for U-verse (the same as Comcast) are just the start. Go over the cap for three months and there will be more charges of $10 for each 50 GB. How much does the cap cover? By one estimate, about three hours per day of high-definition movies.

That's why Netflix CEO Reed Hastings referred in a recent letter to stockholders, to "ISP-related threats" to the company's business, using the abbreviation for Internet Service Providers -- companies like AT&T and Comcast. Hastings noted that the cost for transmitting 1 GB of data is "less than a penny." Yes, that's AT&T's overage penalty.

Los Angeles Times tech editorial writer/blogger Jon Healey commented that even if the cap doesn't affect users now, "it's troubling when a broadband provider that faces little competition summarily raises prices, particularly when the move hurts rivals in a separate market. AT&T's pay-TV service competes with online video-on-demand offerings from Netflix, Amazon, Vudu, Apple and CinemaNow, to name just a few. If the bandwidth caps deter consumers from using those services, that's a very bad thing."

That's the point. High-speed Internet access is still a market with little competition and the government has been trying to stress the need to convert to a broadband-based economy. There is nothing in the National Broadband Plan to address that crucial fact. Indeed, the plan's writers ignored the study that addressed the issue of competition.

With no meaningful competition, the reaction from some carriers is to set up a system that will stifle usage and squash competitors. As a GigaOm story pointed out, Netflix has a relatively narrow standard for high-definition movies, called 720p (for the number of horizontal lines on the screen). If it goes to a higher HD standard, like 1080p, then the three hours per day you might get now shrinks to 90 min. And to think some TV programs are being broadcast in HD-3D. Now that's bandwidth, ladies and gentlemen. Just wait until that starts being streamed regularly.

What other industry is like that in trying to stifle consumer demand, to say, "use less of our product"? It's too bad they don't have the attitude that Doritos chips had some years back in the TV commercials -- "Don't worry. We'll make more."

To their credit, other ISPs have not followed suit. Verizon doesn't have a cap, and Time Warner Cable only refers to problems with an undefined "excessive usage" in its terms of its Internet service. That's helpful because Time Warner Cable (TWC) introduced a new service that allows its cable customers to use TWC's Internet service to stream TV onto an iPad. But it only works in the customer's home. That might be more convenient than watching a program on another TV, but who knows?

What we do know is that no innovation goes unchallenged. Almost immediately, programmers challenged TWC, saying they wanted to be paid for people who watched their programs on the iPads via TWC cable. TWC doesn't have "streaming rights," the programmers argue.

How else is the National Broadband Plan being honored? In North Carolina, the same Time Warner Cable is on the verge of winning the legislative war to keep municipalities from offering their own competing Internet service. TWC has been trying for years to get the bill passed and now, with a friendly legislature, they have a good shot. The local groups who beat back the bill the last couple of years are fighting valiantly but they recognize it's an uphill battle.

And up in Minnesota, cable company Mediacom is still fighting against a $66.5 million broadband stimulus project, filing a complaint with the U.S. Agriculture Department's Inspector General against Lake County, Minnesota. Those companies trying to squash municipal networks should realize the local governments wouldn't take on the challenge of a network if they got decent service from the private sector.

Somehow, the caps and the challenges seem at odds with FCC Chairman Julius Genachowski's vision that "what matters is the full broadband economy - a broad and widely available ecosystem of fast networks, valuable applications, and innovative devices."

By most measurement, U.S. consumers still pay more money for less speed than other developed nations. Nothing in the National Broadband Plan will address that situation.

With so much strife on the wired side of the business, at least the National Broadband Plan can count on wireless to show some accomplishments, right? Wireless is the source of pride for the National Broadband Plan because wireless is the future. There were huge sections in the Plan devoted to wireless -- finding more spectrum services, helping public service, finishing the unlicensed white spaces.

This is what Genachowski said about mobile broadband in a March 16 speech:

"The Broadband Plan also placed unprecedented emphasis on mobile broadband, because few sectors of our economy offer greater opportunities for economic growth and improvements to our quality of life.

"The hunger for mobility is even greater than many imagined a year ago, because even 3G wireless services can deliver speeds capable of handling a dramatically wide array of consumer applications, from entertainment, to education, to health care."

And yet, many consumers can't buy the iPhone because the FCC hasn't ruled on "handset exclusivity." Most cellular companies can't sell the iPhone. Big companies are the ones who buy up the spectrum at auction. Data roaming is still problematic although it's possible the situation may clear up after the April 7 FCC meeting when the FCC will take up the issue. Mining for another 500 MHz of spectrum will be painful. The FCC still hasn't finished the white spaces, even though Kevin Martin's FCC did most of the heavy lifting.

And yet, the big question not in the discussions -- if wireless is that big and that important, why aren't wireless customers and innovators guaranteed a non-discriminatory network as they are on the wired side? Because, contrary to the story some, including some in Congress believe, AT&T forced the issue on the FCC, not the other way around. The situation is a total win for AT&T. If the Net Neutrality rules are upheld, the company (and other ISPs) still don't have to have a neutral wireless network, the growth area for the future. If the rules are thrown out, they get to do whatever they want on both the wireless and wired sides.

Some wireless networks also have data use caps, so consumers won't be jumping at the chance to watch movies or transfer big files. T-Mobile doesn't, although that will change when AT&T takes over. They won't use a smartphone for data transfer hooked to a laptop, even under a cap, because that's not allowed, either, without an extra charge. Those circumstances certainly don't comport with the FCC's notion of a vibrant wireless marketplace.

So, yes, observe one year of the National Broadband Plan, if the observations are properly muted as fit the dreary reality.

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