Monthly Research Update

Experton Group Weekly IT News

FCC's Power Moves, Clearwire and T-Mobile Report

By: Jerald Murphy

Officials at the Federal Communications Commissions (FCC) are looking to change the rules on 911 location accuracy and net neutrality at Comcast Corp. In other news, Clearwire Corp. posted a loss, but continues to move forward on its WiMAX merger with Sprint Nextel. In addition, T-Mobile posted disappointing quarterly results.

Focal Points:

• The FCC went to a federal appeals court asking for them to eliminate the current location accuracy rules. These rules were approved in November 2007, but have not yet been put in effect. Commission officials said they had the support of the public safety community for a more relaxed standard. The mobile phone industry has been trying to get the FCC to support E911 accuracy by a statewide average. However, FCC officials believe this method is not accurate enough for use with people place 911 call from their cell phones. In other actions, FCC claims Comcast broke the network neutrality principles when it throttled peer to peer traffic from BitTorrent Marketing GmbH. The agency found Comcast guilty Aug. 1 of secretly degrading network traffic and ordered Comcast to stop blocking traffic, disclose to the FCC the full extent of the cable giant's traffic practices and to keep the public informed of its future network management plans. Comcast contends its practices are reasonable under FCC rules, acceptable to BitTorrent, and not discriminatory.
• Officials from Clearwire said that they had losses in the second quarter of 2008 that amounted to $199.1 million. This is a loss of $1.21 per share. This compares with previous losses in 2007's second quarter of $118 million. Clearwire's recent losses are on increased revenues of $58.6 million. While dealing with these losses, officials stated that they are still planning on moving forward with its WiMAX merger with Sprint Nextel is continuing on schedule. Sprint Nextel's WiMAX business added 18,400 customers last quarter, with is a 54 percent increase from 2007. The merger with Clearwire should be completed by the end of 2008. Other involved companies still need to approve the merger, including Google, Inc., Intel Corp., and involved cable companies. The collected companies are investing over $3 billion in the WiMAX venture.
• Officials from T-Mobile USA, Inc. stated that they had added 668,000 subscribers in the last quarter of 2008. This represents the lowest number of subscribers T-Mobile has added since 2006. T-Mobile is handicapped compared with the major US carriers by not having its own nationwide high-speed data network. T-Mobile total US subscriber base is now 31.5 million. T-Mobile added 981,000 new subscribers the first quarter of 2008. T-Mobile is now in the process of building out its UMTS data network. However, it is currently only available in a couple regional markets. Revenues for the first quarter rose from $4.57 billion to $4.85 billion, with its average revenue per user (ARPU) at $52, a decrease by one dollar from the same quarter last year. T-Mobile's churn increased from 1.7 percent to 1.9 percent.

Experton Group believes wireless services will continue to increase in penetration in both consumer and business markets. The penetration of wireless services is likely to have a far greater negative effect in consumer landline services than business services. However, business users are likely to increase their use of wireless data services, which will increase the profitability of wireless services providers. WiMAX services will increase penetration once WiMAX chipsets are included in laptop sales in 2009. IT executives should bundle wireless and data network services in contracts to get better overall rates and service concessions.

Experton Group deems the FCC's net neutrality actions a dangerous overreach of its authority. Comcast and BitTorrent had agreed upon the rules under which Comcast was operating and users were not being harmed by the cable company's actions. In fact, the agreement better ensured fair usage of the network by users rather than degraded service caused by excessive BitTorrent downloads. IT executives in enterprises reliant upon real-time Internet data transmissions should discuss the implications of the FCC actions with their legal teams and develop strategies to deal with a potentially shifting Internet regulatory environment.