700 MHz Endgame: AT&T Reverses Course So Fast It Gets Whiplash

AT&T did a full reverse thrust on Martin’s proposed open access plan. According to this USA Today piece, Jim Cicconi, Senior Executive Vice President for Public Policy at AT&T, has nothing but praise for the genius of Kevin Martin and the utter perfection of his proposed 700 MHz band plan with “open access-lite”. No, seriously, that Solomon Guy was a moron compared to Kevin Martin and the clever way he has cut this spectrum baby in half. Further, to hear Cicconi sing it, he cannot imagine why anyone would think that AT&T was threatening to sue the Commission if it implemented this wonderful, perfect, glorious plan that the genius that is Kevin Martin has brought down from Heaven after spending 40 days and 40 nights reading the docket.

So, in the last two weeks, we have seen: AT&T hint that it will bid even if there is a wholesale open access condition, followed by AT&T bactracking without actually denying they would bid, followed by AT&T breathing fire and threatening lawsuits if the FCC adopts the “Google plan” of full wholesale open access. Now, a mere week later, AT&T loves the Martin plan and can’t imagine how anyone could have thought otherwise.

I hope the AT&T Deathstar has good shock absorbers, or they are going to have serious whiplash from all these radical course reversals.

But I know y’all don’t come here just to see me mock incumbents (although I like to think of that as an added service). The big question that everyone wants to know is WHAT THE HECK IS GOING ON AT AT&T? Sadly, short of sneaking some veritaserum into Jim Ciconni’s coffee, there is no way to tell for sure. But I provide some guesses, theories, and speculations on the implications for the 700 MHz Endgame below…..

First, we note that Jim Ciconni and Robert Quinn met with Kevin Martin on July 17. As usual, the required summary is depressing devoid of useful details. But one day after the meeting, Jim Ciconni is puting out a press statement and banging on the door of USA Today reporter Leslie Caulie (who also got the initial scoop from Martin) begging for the chance to praise the Martin 700 MHz plan and make sure, in no unambiguous terms, that AT&T fully supports Martin’s proposed plan.

So what happened at the meeting? I will discount the likelihood that Martin used the Imperius curse. This isn’t Chenny or Gonzales here. I offer instead the following possible explanations, none of which are mutually exclusive.

Theory 1: AT&T Realizes This Is The Best Deal It Can Get. At last week’s “iPhone Hearing,” Dingell, Markey and Pickering made it clear that they support network attachment rules/wireless Carterfone in the 700 Mhz auction. In addition, Free Press’ well publicized “Free the iPhone Campaign” has cranked up the political heat and caused AT&T a fair amount of backlash. Finally, I imagine that they have read the same industry analysts I have, crunched the numbers, and reached the same conclusion I did, the condition doesn’t actually have much practical impact. On the other hand, under Martin’s proposal, AT&T gets the large REAG licenses and combinatorial bidding (on the REAGs only) that it wanted. The fact that it looks like a big concession for the Bells and big win for Google and the tech boys gives Martin political cover. More to the point, a minor and meaningless concession here may innoculate them against real regulatory overhaul (such as the pending Skype Petition) down the road.

So after thinking about it over the weekend and digesting the political outcomes, they’ve decided that they want to accept this deal and call off their wholly owned subsidiaries in the White House and on the Hill, lest Martin decide that there is too much political heat and Martin decides to go with McDowell for a band plan that maximizes smaller licenses.

Theory 2: Martin Made Ciconni An Offer He Couldn’t Refuse. Everyone thinks Martin is a Bellhead who takes his orders from USTA. I don’t. The relationship is far more complex. But one thing is certain. Martin really, really hates it when industry folks make him look like an idiot in public — and makes his displeasure known.

Case in point. In 2005, when Martin reclassified DSL as an “information service”, they eliminated the requirement for DSL providers to pay into the universal service fund (USF). They instituted a 1-yr phase out so that USF folks could adjust for the loss of income. Martin had justified the move on the grounds that this would translate into savings for consumers. No surprise, in August 2006, the Bells quietly let it be known that they were impossing a new ‘regulatory recovery fee’ which, by an amazing coincidence, equalled the amount of the DSL USF fee. Martin responded instantly, denouncing the move and sending nasty letters asking the Bells to explain why this didn’t violate the Truth In Billing laws. A few days later, the Bells dropped the bogus charges, earning a nice pat on the head from Martin and Tate.

So it is quite possible that while Martin and Ciconni were meeting and discussing things consistent with AT&T’s previous filings, Martin might have casually asked if it was true AT&T was not honoring the $10 DSL merger condition? “Not that one wishes to believe ill of one’s friends, Jim — especially when that might trigger an investigation and possible enforcement proceedings. But then again, friends don’t diss their friends in public and threaten to sue them, do they? Hmmm….and we still have that item on whether the business access market is competitive that the Democrats want us to do. Oh well, where was I? Oh yes, my 700 MHz open access plan. Why don’t you go home and think it over. I’m confident that if you do you’d want to tell the world that you really didn’t mean to call me a moron for proposing it . . . .”

Theory 3: AT&T Makes It Clear This Is As Far As It Will Go. Finally, AT&T may simply be making it clear that this is as far as it is willing to go. In this scenario, AT&T is leaving the lawsuit threats standing if the Democratic Commissioners Copps and Adelstein demand more conditions, but strengthening Martin’s hand by showing the Ds that they can get this much “open access” despite opposition from CTIA and others.

Frankly, I favor a combination of all three. But the fact is that AT&T is now on record as not merely giving grudging support to the Martin plan, but actively embracing it.

How Does This Impact The Endgame

AT&T’s very public embrace of the Martin plan sucks a lot of wind out of the sails of opponents. It is hard to say that no one will bid and that this constitutes corporate welfare for Google when AT&T is saying things like “Chairman Martin has struck an interesting and creative balance between the competing interests” and “the plan would enable the introduction of an alternative wireless business model without requiring changes in the business models of AT&T and others in what is a highly competitive wireless industry.” (No one else seems to have posted the full text of AT&T’s press statement, so I have reprinted it here.)

So the Martin plan gets a huge boost. The question then becomes, can the Dems leverage this for more? Martin can still go back to McDowell to get a version of the plan without any conditions, then blame the Dems for “squandering the chance for real competition” by getting too greedy. On the other hand, going to McDowell means dropping the 22 MHz “C” Block and reverting to a band plan that maximizes smaller licenses. Both AT&T and Verizon really, really want large geographic licenses. So the Dems have some room to negotiate.

As usual, signals from the Hill will have a lot of influence. If Dingell indicates that while he supports “device open access,” he doesn’t support “wholesale open access,” then it will pretty much be game over for trying to get a wholesale condition. On the other hand, if the Dems chime in loudly that they want to see real open access rather than “open access lite”, the Democratic Commissioners will have more room to maneuver. All eyes will therefore turn to next Tuesday’s Commerce Committee Hearing on FCC Oversight. While the subject is the overall oversight of the FCC, and will no doubt touch on many areas, you can bet people will be watching most carefully for statements and questions relevant to the 700 MHz auction.

Who knows? Depending on the signals, the AT&T Deathstar may reverse course once again.

Stay tuned . . . .

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4 Comments

  1. Tom Coseven says:

    Harold – again you proved your ability to dig deeper. I am not sure that your three theories are mutually exclusive. In fact, I think they may reinforce each other. The question is one of degree and initiation. Chairman Martin is proving to be a surprise, both in political intelligence and core conviction. If AT&T initiated this action, then they are proving to be smarter than most of us thought.

    What you didn’t point out is the political cover it provides Republicans in Congress. They can now say, “sure we are for open access, but we shouldn’t just hand the business to Google.” They no longer need to take the unpopular (with consumers) stand that devices should be locked and applications restricted. I think a lot of Republicans saw an “open applications” mandate as the slippery slope toward net neutrality, but AT&T is telling them not to worry. I would expect to see at least some Republicans jump on the open device bandwagon.

    Your focus on Dingle and the upcoming oversight hearing on Tuesday is absolutely correct. Last week he was very strong on an “open device” requirement, but then said that it would apply only to a small portion of the spectrum. I would have preferred that he had left the scope of spectrum covered a little more open. I also would have preferred that he included the open application piece, which is getting lost in the wholesale versus open device debate. It sounded to me like Dingle was telegraphing his compromise.

    I wouldn’t be surprised to see Verizon also come out with support for the Martin open access proposal before Tuesday. As you pointed out, support for an experiment with open devices/applications on the “C” block, takes pressure off of their closed practices elsewhere.

  2. bj says:

    An entertaining read, as usual. Thanks!

    Now for the big question. In light of your understanding of the different forces in play, how do you think the rest of the players are going to react to Google committing the Reserve Price of $4.8 Billion if all four Open Access conditions are met? And do you think there are any other players who might also come down on the Google side and put their money where their access is?

  3. Jon Baker says:

    does any of this have to do with AT&T being bought by Cingular?

  4. Harold says:

    No no. AT&T had a 50% interest in Cingular when it was SBC, the other half belonging to BellSouth. When AT&T acquired BS, it acquired 100% interest in Cingular.

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