On Wednesday, four cellular company CEOs are set to testify before a Senate Judiciary subcommittee at a hearing looking into AT&T’s proposed $39 billion acquisition of T-Mobile USA. A day earlier, Apple and Google are set to appear before a different subcommittee to explore issues related to privacy and location-based information.

According to a witness list released on Thursday, AT&T CEO Randall Stephenson, T-Mobile USA CEO Philipp Humm, Sprint CEO Dan Hesse and Cellular South CEO Victor “Hu” Meena are all scheduled to testify at Wednesday’s hearing of the Subcommittee on Antitrust, Competition Policy and Consumer Rights. Also on the list are Gigi Sohn, the president of Public Knowledge and Larry Cohen, head of the Communication Workers of America.

And, if AT&T and T-Mobile needed any more hint that this would not be a friendly audience, they need look no further than the hearing’s title: “The AT&T/T-Mobile Merger: Is Humpty Dumpty Being Put Back Together Again?”

And that’s not the only big tech hearing on Capitol Hill next week. On Tuesday, representatives of Apple and Google are scheduled to appear before the Judiciary’s Subcommittee on Privacy, Technology and the Law at a hearing about location-based data practices

The hearing comes in the wake of concerns over how both companies are handling location-based information gathered on cell phones and tablets. CEO Steve Jobs told Mobilized in an interview last week that Apple would be testifying before Congress.

“They have asked us to come and we will honor their request, of course,” Jobs said. Apple has maintained that it isn’t tracking anyone and that location data found on the iPhone was the relevant portion of a broad, crowdsourced location database. Apple has since released an update to the iPhone operating system that limits the amount of such information stored on the device and ensured that all data is deleted when users opt not to use location-based services.

Google has also defended its handling of information, arguing that the information it collects is necessary to provide location-based services.

Obviously. Though it’s interesting to hear an FCC official say that on the record. During an appearance at CTIA earlier this week, FCC Chair Julius Genachowski declined comment on the deal, which is burdened by all sorts of competitive concerns.

AT&T, which has been spinning the acquisition as a boon for Americans and their country, says it’s confident it will win approval. “We understand that Congress, the DOJ, the FCC, as well as wireless consumers will have questions about the transaction. We look forward to answering and addressing those questions,” said a company spokesman. “We are confident that the facts will demonstrate that the deal is in the public interest and that competition will continue to flourish.”

I hope so. AT&T stands to lose $3 billion if the deal falls through.

Bernstein Research analyst Craig Moffet calls the deal a “clear win” for AT&T, despite T-Mobile USA’s high price tag. “Even paying a premium to market for T-Mo, AT&T believes it can acquire the asset for free,” he writes. “The relative compatibility of the two companies suggests that very high synergies in this range are, in fact, plausible. The company can point to synergies in the areas of network, advertising and marketing, retail stores, support and SG&A, and spectrum.”

At Barclays, James Ratcliffe also describes the deal as a win, but worries about regulatory challenges. “While we don’t expect this deal to have an easy time getting approval in Washington, AT&T’s offer to expand its LTE coverage (feeding into administration goals of nationwide wireless broadband) and support from AT&T’s unions (T-Mobile is non-union), certainly help,” he says. “AT&T’s regulatory team is high-quality, and we don’t think the company would be going down this path (given $3BN breakup fee, especially), if they didn’t have high confidence of success.”

Simon Flannery at Morgan Stanley, too, sees the acquisition as a good move. “The AT&T/T-Mobile USA merger fits our thesis of logical combinations, with synergy opportunities and a common network technology,” he told clients this morning. “The deal would increase AT&T’s wireless revenues by 36.4 percent bringing wireless to 55 percent of consolidated revenues versus 47 percent currently. It would also raise AT&T to the number one place in terms of subscribers, revenue and EBITDA. Importantly, from a spectrum standpoint, the deal relieves significant pressure off AT&T.”

Over at BTIG Walter Piecyk applauds the deal for similar reasons. “[It] solves AT&T’s longer term spectrum issues,” he says. “It also eliminates a price aggressive competitor and blocks Sprint from merging with TMO.”

And Piper Jaffray’s Christopher Larsen states the obvious, saying the merger will make AT&T a more formidable competitor. “First, all of the carriers have been feeding off of T-Mobile’s subscriber base due to its lack of differentiated service,” he writes. “AT&T’s market position and reputation should help stem subscriber defections over the long-term (there could be some losses early due to merger-related distractions or forced divestitures). Second, the combination should allow AT&T to accelerate its 4G network build. Finally, AT&T’s new spectrum position gives it an opportunity to build the premier wireless network in the nation, as it relates to quality and capacity.”

At Oppenheimer, Tim Horan praises it as a wise strategic move, noting that it undermines a potential Verizon-Sprint deal. “In our view, from AT&T’s perspective, this is a smart time to come to an agreement of this magnitude and we believe the deal should be approved by regulators,” he writes. “By taking the strategic initiative, we believe [the carrier] is precluding other major deals from taking place.”

Consensus, then, seems to be that the deal is a savvy one which brings serious scale benefits and synergies–if AT&T can win the necessary regulatory approvals.

More Coverage

• AT&T Wraps Self in Flag, Says T-Mobile Deal Essential to U.S. Competitiveness
• The AT&Terminator: Rise of Ma Bell
• Sprint: AT&T’s T-Mobile Buy Would “Dramatically Alter” Market
• First Casualty of AT&T Deal: T-Mobile Drops From CTIA Panel
• What AT&T Owes T-Mobile if Deal Doesn’t Go Through
• T-Mobile USA: No, We’re Not Getting the iPhone Yet
• T-Mobile’s Memo to Staff on the AT&T Deal
• AT&T’s President on Why T-Mobile Deal Should Pass Muster and Won’t be a Customer Nightmare
• T-Mobile: We Were Totally Kidding About AT&T’s Crappy Network!
• AT&T Agrees to Acquire T-Mobile USA for $39 Billion

Such morally admirable altruism and patriotism. But few, it seems, are buying it. On Sunday afternoon Sen. John Rockefeller (D-W.Va.), chairman of the Commerce Committee, urged “both the Department of Justice and the FCC leave no stone unturned in determining what the impact of this combination is on the American people.” A few hours later, Sen. Herb Kohl (D-Wisc.), chairman of the Senate Antitrust, Competition Policy and Consumer Rights Subcommittee, promised a hearing on the deal. “The explosion of cell phone usage – especially smartphones – makes competition in this market more important than ever as a check on prices, consumer choice, and service,” Kohl said in a statement. “That’s why the Antitrust Subcommittee will take a close look at what this loss of competition will mean for people who increasingly rely on wireless phone service to connect to friends, family and the Internet.”

Consumer groups echoed those concerns, with Public Knowledge president Gigi Sohn calling the combination of America’s second-largest wireless carrier with the fourth-largest “unthinkable” and Bert Foer, president of the American Antitrust Institute, reminding us of AT&T’s monopolistic past. “AT&T was broken up and now it’s back with a vengeance,” he said. “We have to decide if we’re happy with the idea of going back to monopolistic treatment of the telecom industry. AT&T has come back to monopolistic power just like the Terminator.”

A colorful analogy and one which I’m sure will irk AT&T to no end. But Foer’s point is well taken. The wireless business is becoming more concentrated; the Federal Communications Commission said as much in its last Mobile Wireless Competition report. “One widely-used measure of industry concentration indicates that concentration has increased 32 percent since 2003 and 6.5 percent in the most recent year for which data is available,” the agency concluded.

Thing is, the FCC didn’t say that there wasn’t effective competition in the market. Which is perhaps why AT&T seems so confident it will get regulatory approval for the deal. “This is probably the most fiercely competitive wireless market in the world,” AT&T CEO Randall Stephenson told The Wall Street Journal. “The majority of Americans have the option of five different wireless carriers.”

Complete Coverage:

• AT&T Wraps Self in Flag, Says T-Mobile Deal Essential to U.S. Competitiveness
• The AT&Terminator: Rise of Ma Bell
• Sprint: AT&T’s T-Mobile Buy Would “Dramatically Alter” Market
• First Casualty of AT&T Deal: T-Mobile Drops From CTIA Panel
• What AT&T Owes T-Mobile if Deal Doesn’t Go Through
• T-Mobile USA: No, We’re Not Getting the iPhone Yet
• T-Mobile’s Memo to Staff on the AT&T Deal
• AT&T’s President on Why T-Mobile Deal Should Pass Muster and Won’t be a Customer Nightmare
• T-Mobile: We Were Totally Kidding About AT&T’s Crappy Network!
• AT&T Agrees to Acquire T-Mobile USA for $39 Billion

In a 4-1 vote–Commissioner Michael Copps dissented–the FCC is allowing the deal to go through, but with some conditions, most of them relating to the online video business. One key requirement that’s not happening: Comcast isn’t being required to divest itself of its equity in the Web video site Hulu, which a few lawmakers had called for. It will however be required to give up its role in managing Hulu. NBC U jointly owns it with the Walt Disney Co. and News Corp. (which also owns this Web site).

In a statement, FCC Chairman Julius Genachowski said the conditions imposed “include carefully considered steps to ensure that competition drives innovation in the emerging online video marketplace.”

Among those conditions, the FCC will also require Comcast to offer Web versions of its TV shows to what it calls “bona fide online distributors” under the same terms it offers them to cable and satellite providers. This would indicate that shows appearing on Hulu will probably end up on Apple TV or YouTube or elsewhere, meaning, as MediaMemo’s Peter Kafka suggested last month that Hulu’s exclusive rights to NBC content are over.

Comcast will also be required to offer broadband to some 2.5 million low-income households for less than $10 a month, and will be required to extend its network to reach 400,000 homes, build out service in six rural communities and provide free video and high-speed Internet access to 600 schools and libraries in underserved areas. This will allow Genachowski to claim some kind of victory on one of the Obama administration’s signature technology policy issues, which is spreading the availability of broadband.

In a dissenting statement, Copps called the merger “a transaction like no other that has come before this commission–ever,” and said “It confers too much power in one company’s hands.”

Harold Feld, legal director at Public Knowledge, a Washington, D.C.-based public interested group, said the organization was largely satisfied with the conditions except for one. It would have liked to see Comcast required to sell broadband service on a wholesale basis. “As longtime supporters of wholesale access, we believe such a condition would go a long way to help consumers by increasing broadband competition,” he said.

Democratic Commissioner Mignon Clyburn said in a separate statement that she plans to vote in favor of the rules, while Republicans Robert McDowell and Meredith Attwell Baker have both promised to vote against them.

Copps’s statement is below.

“These past three weeks have been devoted on my part to intensive discussions about ensuring the continued openness of the Internet and putting consumers, not Big Phone and Big Cable, in maximum control of their online experiences. I have been fighting for nearly a decade to make sure the Internet doesn’t travel down the same road of special interest consolidation and gate-keeper control that other media and telecommunications industries–radio, television, film and cable–have traveled. What an historic tragedy it would be to let that fate befall the dynamism of the Internet. The item we will vote on tomorrow is not the one I would have crafted. But I believe we have been able to make the current iteration better than what was originally circulated. If vigilantly and vigorously implemented by the Commission — and if upheld by the courts–it could represent an important milestone in the ongoing struggle to safeguard the awesome opportunity-creating power of the open Internet. While I cannot vote wholeheartedly to approve the item, I will not block it by voting against it. I instead plan to concur so that we may move forward. I do thank the Chairman for his engagement, and I owe a special debt of gratitude to Commissioner Mignon Clyburn for her thoughtful and creative work to improve this item.”

Reactions are quickly coming from net neutrality advocates. First out of the gate is FreePress, a nonpartisan advocacy group. Its Managing Director Craig Aaron isn’t happy.

“We are deeply disappointed that this Commission appears to be moving forward with deeply flawed rules that don’t live up to the promises of the president or the FCC chairman to protect the free and open Internet. These rules appear to be flush with giant loopholes, and the FCC chairman seems far more concerned with winning the endorsement of AT&T and the cable lobbyists than with listening to the millions of Americans who have pleaded with him to fix his proposal. This short-sighted decision is all too familiar to those who have watched the Obama administration and its appointees squander the opportunity for real change in favor of industry-written compromises that reward the biggest players from Wall Street to health care and now the Internet. There is overwhelming public support for real Net Neutrality, and this setback won’t stop those fighting to save the Internet.”

Next up is Gigi Sohn, president of Public Knowledge–another advocacy group:

The actions by the Federal Communications Commission fall far short of what they could have been. Instead of a rule that would protect everyone, from consumers to applications developers from predatory practices of telephone and cable companies, the Commission settled for much less. Instead of strong, firm rules providing clear protections, the Commission created a vague and shifting landscape open to interpretation. Consumers deserved better. The FCC should have fought for consumers, not put the burden on them to fight for their rights.

AT&T dropped off about 127 dozen cupcakes throughout the agency, according to a delivery list acquired by Public Knowledge, a digital-rights public interest group that’s been heavily lobbying on the net neutrality issue this week.

That’s roughly $3,700 worth of cupcakes from Georgetown Cupcake, a gourmet cupcake store.

“We’re pro-open Internet and pro-cupcake,” and FCC spokeswoman said.

Read the rest of this post on the original site

Everyone has something to say about today’s speech by FCC Chairman Julius Genachowski on the subject of net neutrality (video below). Having been blocked in the courts from imposing sanctions on Comcast for throttling users of BitTorrent, the commission has been spinning its wheels trying to find a way to nudge the broadband industry in a direction toward treating all Internet content fairly.

To Genachowski and network neutrality proponents, a bit is a bit is a bit, and your broadband service provider should have nothing to say in blocking you from using the services and applications that you choose and saying what you want to say so long as you’re not breaking any laws.

It makes sense until you hear rebuttals from the providers who spend billions to build the networks, arguing that they should have some right to protect their networks from cases where the heaviest users–video-downloading BitTorrent users are the classic example–can degrade the experience of other users. Think of it as “My network, my rules.”

Without the legal authority to force net neutrality on the providers, Genachowski has circulated draft rules that would instead require them to disclose what they intend to throttle and why, so that consumers can more intelligently choose whom they’re going to do business with. If there are going to be rules, put them on a sign where all can see them before walking in the door, he’s saying here.

Gone is the talk of reclassifying broadband, which some had described as a sort of “nuclear option” that would potentially give the FCC the authority to force net neutrality on the carriers, and would have probably led to more pointless, expensive lawsuits.

The big shift came when Genachowski said he’d be open to “business innovation to promote network investment and efficient use of networks, including measures to match price to cost such as usage-based pricing.”

That means broadband providers can start creating variable price plans under which consumers will pay more for using more.

Oh, and the wireless Internet? It’s too early in its lifetime to impose any rules on it. The FCC, he said, “would closely monitor the development of the mobile broadband market and be prepared to step in to further address anti-competitive or anti-consumer conduct as appropriate.”

The reactions have been predictable:

It’s “not perfect,” but it’s reasonable, says Kyle McSlarrow, president of the National Cable & Telecommunications Association. If the order changes materially, however, the group reserves the right to fight it.

It’s a step in the right direction but needs to be “strengthened,” says Gigi Sohn of Public Knowledge, a Washington, D.C., public interest group.

Tyrone Brown of the Media Access Project says he is “very disappointed.” By taking the reclassification option off the table, the FCC loses a key piece of the legal authority it would otherwise need to require service providers to extend broadband service to people who don’t currently have access, which has been a key objective of the Obama administration.

Josh Silver, president of FreePress, another policy organization that advocates for net neutrality, called it “fake Net Neutrality” and said that “Genachowski is taking the same exact approach to splitting the open Internet into fast and slow lanes that Verizon and Google proposed last summer.”

Republican FCC Commissioners Robert McDowell and Meredith Attwell Baker essentially promised to vote against the proposal when it comes before the commission on Dec. 21. Only Congress, Baker said, should decide if the Internet is to be regulated. Unlikely with the GOP taking control of the House in less than a month. “We don’t have authority to act,” he said.

After all that: Comcast stock is up 4 percent today; Verizon shares up one percent; Time-Warner shares are up more than two percent; Cablevision shares are up about 1.5 percent. This news will be a boon to broadband providers, says Sanford Bernstein analyst Craig Moffett in a research note issued today.

Usage-based broadband plans are probably soon to follow, which would be good for business because consumers would probably embrace them. One question for all the critics: Would that be so bad?

Here’s the video of the speech:

It’s a Comcastic day for BitTorrent. This morning the cable provider, under fire for degrading the performance of the peer-to-peer file-sharing service on its broadband network, announced plans to develop better ways to manage peer-to-peer traffic. To that end, Comcast (CMCSA) will work with BitTorrent to develop a network capacity-management technique that is protocol agnostic.

Said Tony Werner, Comcast’s chief technology officer, “This new architecture would enable many new and emerging applications and will be based upon an open, nondiscriminatory framework that could interface with or support multiple technologies. We believe that P2P technology has matured as an enabler for legal content distribution, so we need to have an architecture that can support it with techniques that work over all networks.”

Of course you do. You just didn’t realize it until FCC Chairman Kevin Martin pointed it out, right?

Anyway, like most such corporately altruistic pledges, this one has the potential to do more good than bad–or more bad than good. “… We must recognize that these are two commercial entities whose goals are, in the end, to make sure that their networks and technologies are as profitable as possible,” writes Public Knowledge’s Jef Pearlman. “One can conceive of a world where an ISP and an application developer band together to make a proprietary system in which sanctioned application data gets preferred treatment, the ISP gets greater control of the application running on your computer, and both companies are happy in the exact situation we want to prevent. Time will tell what this partnership actually means.”

In comments delivered to the Federal Communications Commission yesterday, the Justice Department’s Antitrust Division warned that imposing Net neutrality regulations could hamper development of the Internet and prevent service providers from upgrading or expanding their networks. “Precluding broadband providers from charging content and application providers directly for faster or more reliable service could shift the entire burden of implementing costly network expansions and improvements onto consumers,” the agency said in its filing. “If the average consumer is unwilling or unable to pay more for broadband Internet access, the result could be to reduce or delay critical network expansion and improvement.”

And, in the end, creating different tiers of Internet service is really no different than the Postal Service charging different rates for shipping varying classes of mail. “The United States Postal Service, for example, allows consumers to send packages with a variety of different delivery guarantees and speeds, from bulk mail to overnight delivery,” the agency explained. “These differentiated products respond to market demand and expand consumer choice. No one challenges the benefits to society of these differentiated products; nor does anyone seriously propose that the United States Postal Service be banned from charging different fees for next-day delivery than for bulk mailers.”

Right. And like BellSouth CTO William Smith has been saying for years now, providing Internet service is the shipping business of the digital age.

Internet advocacy groups were predictably peeved by the Justice Department’s filing. “It is at odds with reality for a Justice Department that approved the largest telecommunications merger in history with a mere press release to now claim that market forces and antitrust enforcement will be able to protect the free and open Internet,” said Gigi Sohn, president of Public Knowledge. “Perhaps the DoJ does not recall that there is very little in the way of market forces to protect consumers. Perhaps the department has forgotten that many consumers have little or no choice at all for their high-speed broadband services. A more vigorous antitrust analysis would have recognized there is a market failure and would have resulted in conditions on the AT&T takeover of BellSouth that would have benefited consumers and Internet companies.”

In comments delivered to the Federal Communications Commission yesterday, the Justice Department’s Antitrust Division warned that imposing Net neutrality regulations could hamper development of the Internet and prevent service providers from upgrading or expanding their networks. “Precluding broadband providers from charging content and application providers directly for faster or more reliable service could shift the entire burden of implementing costly network expansions and improvements onto consumers,” the agency said in its filing. “If the average consumer is unwilling or unable to pay more for broadband Internet access, the result could be to reduce or delay critical network expansion and improvement.”

And, in the end, creating different tiers of Internet service is really no different than the Postal Service charging different rates for shipping varying classes of mail. “The United States Postal Service, for example, allows consumers to send packages with a variety of different delivery guarantees and speeds, from bulk mail to overnight delivery,” the agency explained. “These differentiated products respond to market demand and expand consumer choice. No one challenges the benefits to society of these differentiated products; nor does anyone seriously propose that the United States Postal Service be banned from charging different fees for next-day delivery than for bulk mailers.”

Right. And like BellSouth CTO William Smith has been saying for years now, providing Internet service is the shipping business of the digital age.

Internet advocacy groups were predictably peeved by the Justice Department’s filing. “It is at odds with reality for a Justice Department that approved the largest telecommunications merger in history with a mere press release to now claim that market forces and antitrust enforcement will be able to protect the free and open Internet,” said Gigi Sohn, president of Public Knowledge. “Perhaps the DoJ does not recall that there is very little in the way of market forces to protect consumers. Perhaps the department has forgotten that many consumers have little or no choice at all for their high-speed broadband services. A more vigorous antitrust analysis would have recognized there is a market failure and would have resulted in conditions on the AT&T takeover of BellSouth that would have benefited consumers and Internet companies.”