Verizon will begin marketing its Flex Double Play Bundle this week which offers wireless service with broadband and/or FiOS TV, and no need for a wireline. The new bundle applies to Verizon’s DSL plans of 3 Mbps or FiOS broadband plans of 20 Mbps. It does not apply to their 7 Mbps DSL or 50 Mbps FiOS plans, or their DirecTV video plans. The bundle provides a discount of between $8 and $20 per month, depending on the services selected. Verizon spokesman Bill Kula tells the Associated Press, “We remain very bullish on the traditional copper-based phone service, but we also recognize that there's a growing segment of society that wants to have wireless as its principal home service.”

AT&T launched a similar bundle without a landline last year. These moves are recognition by larger telecom service providers of wireless substitution. Carriers with wireless and broadband assets are at a competitive advantage, relative to wireless substitution, because they have the option of pursuing customers who want to cut the cord. From a wireline carrier’s point of view, having the ability to serve customers who leave the wireline behind with a wireless product presents a tremendous competitive advantage, especially against competitors who can only offer video and broadband options. We always talk about the triple play in terms of voice, video, and data. We’ll begin to see the context of triple play expand to include wireless, video, and data.

The proverbial cat is out of the bag. Verizon is acquiring Alltel for $5.9 billion, plus the assumption of $22.2 billion in debt, a deal that was first reported by CNBC yesterday. "This is a perfect fit, with Alltel's high-value post-paid customer base, its solid financials, our common network technology, and significant, readily attainable synergies," says Verizon CEO Ivan Seidenberg. Alltel serves more than 13 million customers in markets in 34 states, primarily in more rural markets. Verizon expects the deal to close by the end of the year.

As we noted in an earlier post, this deal creates some interesting competitive implications, all of which can’t be examined this quickly. The deal seems to have come together really fast. There must have been some motivated principals. The Wall Street Journal reports that the previous buyers of Alltel were anxious to sell because their original leveraged buyout terms were becoming increasingly “ugly.” They are basically breaking even on the deal, and avoiding potential losses, because the complex debt transactions of the original buy out are now coming back to haunt them because of the credit crisis in the U.S. economy. The new outcome, if it passes regulatory muster, will create the largest wireless carrier in North America, with 80 million or so subscribers. By our estimation, Verizon, the quintessential traditional wireline telephone company, will now have double the number of wireless subscribers, compared to its wireline access lines (40 million as of their last quarterly report). Perhaps we should start thinking of Verizon as a wireless company with some wireline assets, as opposed to the opposite.

Update-6/5/2008 - As of 10:00a ET, the Wall Street Journal is reporting that Verizon and Alltel have come to terms on a sale, with Verizon offering $5.9 billion and the assumption of $22.2 billion in debt. More to follow soon.

There is a rumor floating around that Verizon is in talks to purchase Alltel Wireless for $27 billion. If the rumor holds true, a Verizon acquisition of Alltel would create the largest U.S. wireless carrier, surpassing the current leader AT&T, with a combined 80 million subscribers. AT&T currently has about 72 million subscribers. Such a move would have interesting competitive implications. For example, it may open the door for other interested carriers, wireline or wireless, to gain or expand wireless assets because anti-trust concerns will certainly force Verizon and Alltel to shed some overlapping or dominant territory. Secondly, it would expand the Verizon footprint and brand into more rural territories and perhaps impact wireless substitution there. Much more information to come on this potential blockbuster deal.

Part of wireless service’s dirty little secret is that only a small portion of a wireless call is actually carried “wirelessly.” The reality is, once that wireless call hits the wireless tower, the majority of the call is transported over good old, dependable wirelines. Pivot Media, parent company of Telecompetitor, hosted a webinar focused on wireless backhaul opportunities yesterday. The webinar is part of the Rural IP Transformation webinar series, produced by Pivot Media and sponsored by Alcatel-Lucent, which focuses on the transformation of local telecom service providers into integrated communications carriers, with IP technology at their core. Several interesting points were covered in yesterday’s webinar:

• wireless backhaul will be about a $16 billion business by 2009
• wireless carriers are confronted with escalating backhaul costs due to an explosion in wireless data traffic
• unlike voice traffic, data traffic is not easily recoverable from an end user revenue perspective – meaning more data traffic equates to more operational expense for wireless carriers, but not necessarily more revenue, making backhaul cost reduction a priority
• wireless backhaul is a mult-billion dollar opportunity for wireline carriers, who can offer transport services to wireless carriers
• the move to Ethernet/IP as a transport method is well underway, and whoever can capitalize on that stands to gain

From a competitive standpoint, I was struck by the opportunity for wireline carriers. All things being equal, wireless substitution is a pain in the side of wireline carriers, so approaching wireless backhaul may be a hard pill to swallow – why facilitate your own demise, some might ask? But the contrarian view says, wireless substitution is a “genie out of the bottle” circumstance – there is no going back. So why not try to at least capitalize on it, and replace some lost revenue caused by wireless substitution with wireless backhaul revenue opportunities. To do so, wireline carriers will have to ensure their transport networks have the requirements and needs of wireless carriers in mind. You can find out what those requirements are by watching an archived version of the webinar.

Embarq has decided that its wireless partnership with former corporate parent Sprint is no longer attractive. Embarq was hoping to gain 1 million wireless customers and has only achieved 112K to date. They've essentially decided to let the wireless business "die." They'll continue selling devices and plans until everything runs out, and then shut the business down. Existing wireless customers will probably migrate over to Sprint. The move isn’t an encouraging one for the MVNO model, at least as it applies to large carriers like Embarq. When hearing news like this, it’s easy to dismiss the MVNO model entirely, but I’m not ready to do that yet. It’s also bad news for Sprint, at least from a PR point of view. Embarq joins Qwest in ditching Sprint as a wireless partner. Sprint’s MVNO business has suffered highly visible partnership failures, including Qwest, Pivot Wireless, and now Embarq. To be fair, probably the most successful North American MVNO play, Virgin Mobile, is also affiliated with Sprint.

While the Sprint MVNO model hasn’t worked for Embarq, for many smaller ILEC’s, the MVNO model is the only game in town, provided a pure play ILEC wants to get in the wireless business. It’s a difficult business to crack. The ILEC partner, particularly small ones, are at the mercy of the larger wireless carriers, and are usually low on the totem poll in priority. Finding the right business model, where both wireline and wireless partner can prosper to their respective expectations has proven to be elusive. Yet, it’s still too early to give up. Wireline carriers recognize that the future of the business lies in wireless and broadband, not in wireline voice. Most ILECs have the broadband part covered. Those who want to also hedge their bets with wireless need to find an MVNO model that works. Early indications suggest that wireless can help maintain competitiveness. AT&T and Verizon are only beginning to maximize their competitive advantage with wireless, and their future looks promising. Recent news also suggests that the cable industry intends to find the right wireless strategy as well. So while MVNOs are taking a lot of heat of late, there could and should still be a positive future with them, provided those who are interested work to persevere and find a winning business model. Good luck!

Google has petitioned the FCC regarding Verizon’s win of the 700 Mhz C block spectrum. Google pushed hard for, and won, an “open” mandate for the winner of the 700 Mhz C block. The mandate basically says that the winner of the spectrum must provide open access and allow devices from any source to access the broadband wireless network utilizing that spectrum. Google sees this open access mandate as a gateway for its upcoming wireless Android platform, which will potentially drive millions of users towards their products and solutions. Google believes those same potential users may not be able to easily reach and use Google’s wireless focused products without that open access provision. The competitive implications are numerous because most wireless Internet access is now controlled by wireless carriers through restrictions and “walled garden” approaches. Opening it up, would allow competitors to build relationships with wireless subscribers and perhaps create the “dumb pipe” scenario for wireless broadband, where wireless carriers simply provide a pipe to the Internet, and don’t create any additional value/revenue for them. It’s the same issue currently being debated by wireline broadband carriers – should I just provide the pipe, or should I try to build more value around that access for which I can create incremental revenue.

Of course we know that Verizon and other communications conglomerates are quite crafty. According to Google, Verizon interprets the open access rules a little differently, and don’t intend on providing open access on its own handsets. Google also contends that the open access provision, while being offered through non-Verizon handsets, will be offered at presumably much higher access costs to the consumer, thus discouraging its use. Google is asking the FCC to deny Verizon’s winning bid for the C-block spectrum, which Verizon won for $4.7 billion, unless they take a more broad approach to the open access mandate. This will be one to watch, because its outcome will have profound implications on the wireless competitive landscape.

Read more insight on this issue at the IP Democracy blog.

In celebration of Alltel’s second year anniversary of its successful “My Circle” plan, Alltel is awarding an additional telephone number to all My Circle subscribers. My Circle plans allow subscribers to designate 5, 10, or 20 telephone numbers for unlimited calling to and from their wireless phone. Going forward, My Circle plan members will receive one additional telephone number to their My Circle plan for each subsequent two year period that they remain on the plan.

CenturyTel, a Louisiana based tier 2 telecom carrier, has announced their intentions for the 69 700 MHz spectrum licenses they obtained in the recent FCC auction. CenturyTel says the 700 MHz spectrum provides them the "opportunity to deliver wireless voice and broadband data to a significant percentage of our current customer base, making CenturyTel the only on-net provider of both fixed and wireless broadband in many of our markets." Apparently, we can count a new wireless competitor in much of CenturyTel's current footprint. Their 700 MHz footprint provides wireless overlap to approximately 53% of their local exchange areas. "This spectrum is well suited for serving less densely populated markets and should enable us to leverage our existing network assets to offer our customers a compelling range of wireless and fixed-line voice and broadband products," said Glen F. Post, III, CenturyTel chairman and CEO.

Cable’s lack of a clear wireless strategy has been seen as somewhat of an “Achilles heel” for them. After all, their growing competitive nemesis, namely AT&T and Verizon,, have clear wireless strategies and are executing them quite well. The ability to grow the triple play bundle to include wireless (the so called quad play) hasn’t been around long enough to draw firm conclusions about its competitive impact. But most analysts would agree, all things being equal, having a wireless option in your back pocket should prove to create an advantage. The other issue of course is wireless’ role as a growth engine. AT&T and Verizon have it and their triple play cable competitors do not.

All this leads to speculation about cable companies getting into wireless, and quickly. A recent Wall Street Journal article adds to the speculation by reporting that Comcast, Time Warner and Brighthouse are in talks with Sprint and Clearwire to invest significantly in a WiMAX partnership. According to the article, the three cable companies are talking about investing close to $1.7 billion, with Comcast being the lead with $1 billion. One idea suggests that the cable company investment would give them access to wholesale capacity to launch their own branded wireless service. Cox recently signaled their intention to pursue some type of wireless strategy as well by acquiring $305 million worth of 700 MHz spectrum.

While conceivably it makes sense for these companies to partner, it does have a little cloud hanging over its head. After all, these are the same companies that jointly launched the ill fated Pivot Wireless. Will they learn from those mistakes? These same companies are also sitting on a boat load of AWS spectrum. Perhaps they’ll look to leverage that spectrum in this venture, although there is no clear path for WiMAX over AWS spectrum. All this chatter points to a somewhat simple reality. Cable recognizes that it’s probably in their best interest to have a wireless arsenal of some type going forward. It would be a wise hedge against telecom competitors seizing a potential quad play rush. The real question is, can they figure it out fast enough? With wireless penetration exceeding 80% in the U.S. and telecom having such a wide lead, cable risks wireless irrelevancy before they even get going, unless they get going quickly.

Google’s influence in wireless continues, with its focus shifting away from the 700 MHz auction to the so called wireless “white space” initiative. Wireless white space is the “empty spaces” in television spectrum used by channels 2 through 51. After the 2009 digital TV transition, this spectrum will be freed up and Google would like it to be used as unlicensed spectrum for broadband wireless. Google claims that gigabit per second speeds could be achieved wirelessly, and they would like to be very active participants in making that happen. They view white space wireless as "Wi-Fi 2.0," allowing a variety of wireless devices to access a ubiquitous broadband wireless network. In an FCC ex-parte letter, Google even suggests funding the research and development and technical support costs for bringing such a solution to market.

Google has already demonstrated their influence in wireless policy. They were very active, and may hold much of the responsibility, for ensuring the recently auctioned 700 MHz C-block spectrum had an “open access” provision tied to it. They did not win the spectrum (and probably had no intention of doing so), but their influence into the rulemaking and commitment to meeting the FCC’s minimum bid requirement ensured open access was mandated for that portion of the spectrum. They are now working to influence the white space initiative, and the FCC has no choice but to listen, and probably act. There are considerable issues to be worked out including, potential interference and equipment development issues, before white space is a reality. There are heavyweight opponents to white space wireless as well, including the National Association of Broadcasters (NAB), and even the NFL, who fear it would interfere with their game referee’s wireless mic systems. Google’s desire is to see as much open broadband wireless connectivity as possible, so their forthcoming Android platform for wireless devices can be widely deployed. They are pushing for open access and unlicensed requirements so Android can interact with wireless networks without being tied to a specific wireless carrier. If their foray into the 700 MHz debate is any indication, Google may see their desires come true with the white space initiative. The competitive implications for these moves are wide and deep, and could significantly alter the wireless landscape as we know it.