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« The State of Open-Source Wi-Fi Support | Main | Rent-A-Cellular-Bridge from Avis »

December 29, 2006

Ma Bell Reunites

It's not quite a family reunion, but the new AT&T has had its buyout of BellSouth approved by the FCC in a 4-0 vote: The combined firm comprises a large fraction of the original AT&T, but with long-distance no longer a viable business, cell phone operators (including jointly owned Cingular) in fierce customer competition, and the future of broadband a monopoly and duopoly business--it's not your father's AT&T. The merger was approved with AT&T agreeing to a host of conditions, including net neutrality, the provision and sale of naked DSL lines, and the divestment of its 2.5 GHz frequency holdings.

BellSouth will receive $86b in stock; the combined firms produce $117b in revenue and operation, serve 35m customers, and handle 68.7m phone lines in their territory. Verizon, Qwest, and Embarq (the spunoff division of Sprint) represent the vast majority of the rest of the old Bell infrastructure.

One of the FCC's conditions will damper interest in metro-scale Wi-Fi in the combined AT&T/BellSouth territory: the company must offer new customers basic DSL for $10 a month for 30 months. AT&T has what has been a 12-month deal for $15 per month in its territory, but BellSouth has charged no less than $25 per month. At $10 per month, that sucks some of the life out of the use of Wi-Fi as a DSL or cable replacement for low-end wired broadband, and could affect dozens of cities' plans, and the ability for operators like EarthLink and MobilePro, which have contracts already in cities covered by the new AT&T.

A couple of related conditions also could cause a hiccup in metro-scale Wi-Fi. The combined company must offer free broadband modems to those replacing AT&T and BellSouth dial-up services with broadband. Those modems are generally free-after-rebate today, and AT&T can charge more on its higher-tiered service to recover the modem cost.

More significant, however, is the company's consent to offer broadband in every city in which it is the local phone company. Currently, that's a market-by-market policy with conditions sometimes negotiated by individual states. They can use alternates to wired broadband, such as satellite broadband, to cover as many as 15 percent of homes in the market. This could put AT&T in a position where it builds out more Wi-Fi (as it is doing now in Riverside, Calif., with MetroFi) or force them into a partnership with Sprint or Clearwire for rural mobile WiMax to fill any gaps.

Sprint and Clearwire will certainly be chomping at whatever 2.5 GHz leases that AT&T has to sell. Sprint has said it would pass 100m people around its network launch next year; Clearwire said it has licenses that cover 200m people in the US. Licenses are not in great supply, and Sprint owns a huge percentage of the band. It's possible that the broadband condition might allow AT&T to broker a combination deal and sale with one of the two future mobile WiMax firms acting as the broadband provider for rural or less-served customers in AT&T markets.

The FCC also requires that AT&T offer naked DSL--which will run 768 Kbps downstream for $20 per month--for 30 months after the merger is complete, allowing customers to have broadband without phone service bundled with it. Naked DSL is often used to provide VoIP. AT&T has also pledged to abide by network neutrality principles insofar as they won't discriminate in what traffic passes over their network. They had considered offering a fast tier of services that would throttle transfer speeds from Web sites and Internet services that hadn't paid AT&T fees for premium access.

The approved merger means that Cingular has one daddy now (it's not a mommy, let me tell you), with 100-percent ownership in AT&T's hands. This may allow AT&T to integrate Cingular fully with its other offerings, providing a seamless quadruple play in its landline markets with fixed voice, mobile voice, data, and IPTV in one package. This might also allow Cingular to push faster on fixed-mobile convergence; they've already committed to IMS, but they could adopt interim steps to pick up more of the voice over IP and voice over Wi-Fi market.


"AT&T has also pledged to abide by network neutrality principles insofar as they won't discriminate in what traffic passes over their network."

Is that for 2 yrs. (as reported being offered elsewhere) or forever?

Based on how well the Bells have stood by their agreement to run fiber to the house for concessions a few yrs. ago I would still not put much stock in anything they say or promise - or in the government's willingness to hold them to anything.

[Editor's Note: I can't find AT&T's agreement at the moment, but reports indicate two years' commitment.--gf]

Here is the URL to the final AT&T BellSouth merger commitments.

Wild speculation on my part, but AT&T could meet the "offering broadband to 100% of its markets within a year" commitment by offering very expensive satellite broadband to the least profitable rural markets while deploying 2.3GHz WiMAX in select more profitable neighborhoods just outside of the range of DSL. They agree to offer broadband service within a year, but they can price the wireless internet access in a way to control actual demand and extend actual rollout past the one year "deadline".

is this different from the Naked 1.5Mbps DSL AT&T gave California but still charged $50?

"Six months later and the Sacramento Bee is annoyed, noting that naked 1.5Mbps DSL there is $50 (after fees), while a local phone and DSL bundle costs $40. "This is not a disincentive," an AT&T rep tells tells the Bee. "We have always been committed to delivering a choice of services." The paper notes that it's not just AT&T:"