All Things Digital

Those on-again, off-again talks between Sprint (S) and Clearwire (CLWR)? They’re on again. In fact, they’re so on that they’re already over. This morning the two companies announced a $14.5 billion multi-player joint venture backed by cable operators Comcast and Time Warner as well as Intel and Google.

The alliance will see the four cable and tech companies investing $3.2 billion in the nationwide wireless network that Sprint and Clearwire have been struggling–with profound unsuccess–to roll out. Comcast (CMCSA) will contribute $1.05 billion, Time Warner Cable (TWX) $500 million. Intel (INTC) will invest $1 billion, Google (GOOG) about $500 million. The new venture will be majority owned by Sprint, but it will take the Clearwire name and be run largely by Clearwire execs, among them cellular industry pioneer Craig McCaw.

For the cablecos, which have yet to settle on a clear wireless strategy, the deal is a quick and dirty way to establish the high-speed wireless network they need to compete with telcos like AT&T (T) and Verizon (VZ). For Sprint and Clearwire, it’s a chance to make their non-starter of a WiMax network viable and something happy to talk about when conversation turns to Sprint’s stock price, which has fallen nearly 60% over the past 12 months.

That said, the deal is not without its problems–top among them WiMax itself. As Craig Moffett, an analyst with Bernstein Research, explained in a note to clients earlier this year, the 2.5 GHz spectrum upon which Sprint and Clearwire are building their network isn’t nearly as good as the spectrum Verizon and AT&T just purchased in the FCC’s 700 MHz auction. “Serious questions remain about penetration through walls and windows,” Moffett explained. “Elsewhere in the world, operators have also raised questions about WiMax’s real-world bandwidth, latency and non-line-of-site coverage. How competitive the offering would be versus Verizon’s or AT&T’s planned LTE broadband service therefore remains to be seen.”

That it does–though there have been some indications that it may not be quite up to par. Speaking at an international WiMax conference in Bangkok in March, Garth Freeman, CEO of Buzz Broadband, Australia’s first WiMax operator, described the technology variously as a “disaster,” “miserable failure,” and a standard “mired in opportunistic hype.”

So will that prove true for Clearwire as well? We won’t know for some time. Building out a massive network like this will take some doing. “We’ll likely to see early trials in 2010, but a full-fledged build-out will take longer,” Clearwire CEO Benjamin Wolff said during a conference call this morning. “Building faster is a matter of logistics. The build plan we’ve laid out will be one of the largest and fastest build-outs ever done. We have the capability to do it, but it’s a massive undertaking.”

The economy may be slowing, the traditional wireline phone business deterioriating, but Verizon (VZ), as director Michael Bay says in one of the company’s new commercials (see below), is doing “awesome.”

The company’s first-quarter earnings met Wall Street expectations today thanks to strong growth in its wireless and FIOS home fiber-optic services businesses. With a 10% increase in first-quarter profit, and revenues that rose 5.5% to $23.83 billion, Verizon’s business would appear to be more recession-proof than others. “We’re really not seeing a change in trends,” Chief Financial Officer Doreen Toben said in an interview. “How many people are really going to drop their wireless phone?”

Not very many. Verizon added 1.5 million subscribers to its mobile business during the quarter. That said, there are plenty of folks willing to drop their landlines. Verizon wire-line subscribers declined 8.2% to 40.52 million from 44.15 million in the first quarter of 2007.

Google (GOOG) won the recent wireless spectrum auction by not winning. That’s the claim of Richard Whitt, Google’s Washington telecom and media counsel, and Joseph Faber, its corporate counsel. In a post to Google’s Public Policy Blog Thursday, the two attorneys explained that the company’s main goal in bidding in the auction was, as many suspected, to make ensure the $4.6 billion reserve price that would activate open access rules was met. “Google’s top priority heading into the auction was to make sure that bidding on the so-called ‘C Block’ reached the $4.6 billion reserve price that would trigger the important ‘open applications’ and ‘open handsets’ license conditions,” the two wrote, adding that the Google wasn’t opposed to winning the valuable swath of spectrum. “We were also prepared to gain the nationwide C Block licenses at a price somewhat higher than the reserve price; in fact, for many days during the early course of the auction, we were the high bidder,” Whitt and Faber explained. “But it was clear, then and now, that Verizon Wireless (VZ) ultimately was motivated to bid higher (and had far more financial incentive to gain the licenses).”

Really. You don’t say?

Anyway, Google’s lucky it got what it wanted from the auction without really spending anything. “If Google had won a license, there was only downside risk for them,” said Gregory L. Rosston, a former F.C.C. official and senior fellow at the Stanford Institute for Economic Policy Research. “Now they can just spend $1 million a year on a law firm to ensure Verizon lives up to the openness requirements.”

After nine days of nail-biting excitement, the Federal Communications Commission’s auction of the 700 MHz spectrum is beginning to wind down.”

I wrote that over a month ago, and boy was I wrong. Though the FCC is clearly keen to end it, the auction continues to drag on with cellphone companies fighting it out over niggling little bits of 12-megahertz B-Block spectrum in Albany, Ga., Yuba City and Imperial, Calif., Ashtabula, Ohio and Hunterdon, N.J. Apparently, pushing the clocks ahead an hour this past weekend didn’t do much good.

With bidding appearing to have entered the final stretch, the auction has raised nearly $20 billion, double the sum for which the FCC had hoped. Stifel Nicolaus analysts Blair Levin and Rebecca Arbogast predict it will end this week with Verizon (VZ) and AT&T (T) coming out as the auction’s biggest winners, and Google (GOOG) as a “willing loser.”

What do you do when you’ve just posted a $29.5 billion loss and you expect to lose 1.2 million customers this quarter, as many as you lost in all of 2007? Well, if you’re Sprint (S), you announce a $99.99 unlimited calling and data services plan.

This morning the nation’s third-largest wireless carrier recorded a massive fourth-quarter loss, suspended its dividend program for the ”foreseeable future,” borrowed $2.5 billion to improve its “financial flexibility” and announced a shiny, new discount service plan presumably intended to make everyone forget about its deteriorating business. Sprint’s ”Simply Everything” plan offers unlimited “voice, data, text, email, Web surfing, Sprint TV, Sprint Music, GPS navigation, Direct Connect and Group Connect” for $99.99 a month.

Not bad for a package of services for which customers have typically paid a premium. Trouble is, it’s relatively close to the $99 price point plans introduced by Verizon, AT&T and T-Mobile earlier this year. Granted, Sprint’s plan is the only one that includes data right now, but it likely won’t be for long. Certainly, Sprint CEO Dan Hesse doesn’t see it as a cure-all for Sprint’s problems. “I want to make it clear that it’s not a silver bullet,” he said during a conference call with analysts. “But it’s a very important piece. Our business is not performing well right now. We are working aggressively to turn this around, but our financial performance will not improve overnight.”

Less than 5% of Pakistan’s citizens have Internet access, but those who do must have nasty tempers. Fearing that a reportedly anti-Islamic YouTube video would incite civil unrest, the Pakistani government ordered the country’s Internet service providers to block access to the video site, inadvertently triggering a two-hour long, global outage of YouTube yesterday.

Seems Pakistan Telecom blocked YouTube by hijacking its IP address and directing it to a so-called “black hole.” But when it sent that address out to the country’s Internet providers, it accidentally passed it on PCCW, one of Asia’s leading ISPs, as well. And PCCW propagated it to the rest of the world, and YouTube went down.

“It is exactly like the ‘game of telephone’ that kids play,” one network engineer explained: “For example, Pakistan Telecom says ‘I am responsible for 1.2.3.4 (some IP address)’ and then they tell PCCW. PCCW tells Verizon Business and NTT and others. NTT tells us, and so when my customers ask ‘Where is YouTube,’ we’re just answering based on what we’ve heard. … But all we know is that we heard it from NTT, who heard it from PCCW, who heard it from Pakistan Telecom. If Pakistan Telecom was lying (or made a mistake), we’d have no way to verify it.”

Apparently the transitive trust system on global routing is based can’t be trusted. “Whether accidental or not, the black-holing of YouTube by Pakistan Telecom demonstrates a serious weakness in the ‘longest prefix wins’ rule: There is no concept of trust contained in it,” Tomas Byrnes wrote in a message to the North American Network Operators Group mailing list. “Trust, whether implicit or explicit, is inherent in all human interactions, yet expressing it in cyberspace has continued to be troublesome. In routing decisions, once you are beyond a connected (either directly or multi-hop) peer, it becomes much more difficult.”

After nine days of nail-biting excitement, the Federal Communications Commission’s auction of the 700 MHz spectrum is beginning to wind down.

The FCC instituted the auction’s “Stage Two Transition” this morning, requiring participants to bid more actively or withdraw. The move inspired hundreds of new bids, pushing the auction total to $19.02 billion. That said, aside from two middling bids on the Alaska C-Block license, no new bids were entered for the C Block licenses covering the 50 states.

With just a few more days to go, it’s looking more and more like the C Block will be sold to the bidder who offered $4.74 billion for the regional licenses that comprise the national C-Block license. Presumably, that bidder is Verizon. Which means that Google, which supposedly pushed the C-block auction over its $4.6 billion reserve price, thus activating its open-access provision, is off the hook. If it wants to be, anyway.

“Verizon wants more spectrum to close the gap between it and AT&T,” Stifel Nicolaus analyst Rebecca Arbogast told Forbes. “I’m reasonably confident that Google does not have the spectrum now.”

PREVIOUSLY:

• The 700-MHz Auction Is Decadent and Depraved
• We Want the Airwaves, Baby …
• The 700 MHz Club

You wouldn’t know it to look at the headlines, but Microsoft’s hostile bid for Yahoo isn’t the only big news in tech this week. The Federal Communications Commission’s 700-MHz spectrum auction took an unexpected turn yesterday when a new bidder emerged for the the highly prized “C” block spectrum, which could be used to build a new national wireless broadband network.

C block bidding now stands at $4.74 billion. But what’s most interesting is how it got there. No bids were made for the C block at all Friday, and the $4.71 billion bid for the block’s national license stood. Then yesterday, eight separate bids were made for the individual regional licenses that comprise the national C license. The sum of those bids totaled $4.74 billion, barely eclipsing the $4.71 billion potential winning bid.

Who made them? We don’t know; bidding is anonymous until the auction concludes. That said, analysts speculate that the bids were likely placed by Verizon. “This could reflect a continued battle between two original bidders–most likely Verizon Wireless and Google–on the C block, or could represent an entirely different bidder or combination of bidders that are exiting the sky-high prices of (another) block,” analysts at Stifel Nicolaus wrote in a research note.

The Federal Communications Commission’s highly anticipated 700-MHz spectrum auction kicked off last week, and after almost three days of bidding, the tally stands at just over $4.4 billion.

The hottest bidding action continues to be around the highly prized “C” block spectrum, which could be used to build a new national wireless broadband network. As of this writing, total potential winning bids for the C-block licenses stand at just over $2.15 billion. The FCC won’t say who placed those bids, though. It’s keeping bidder identities under wraps in order to “reduce the potential for anticompetitive bidding behavior.”

It’s a safe bet, however, that it was placed by a major player like AT&T, Verizon or Google, which analysts believe may be bidding not to win the spectrum, but to drive its selling price to $4.6 billion to ensure the FCC imposes open-network requirements on it.