Dial Zero
A look at what's surprising, silly, scary or stupid in telecommunications and data

Wednesday, December 31, 2008

Internet providers want to take advantage of Obama's broadband push

President-elect Barack Obama's call to improve the nation's broadband infrastructure has cable and phone company lobbyists maneuvering for prime positions to cash in.

Congress wants a plan that will create jobs over the next two to three years while also tackling the longer-term goal of improving the availability and quality of high-speed Web access. The US has slipped to 15th from fourth place since 2001 in broadband penetration. Advocates say broadband deployment is critical to the competitiveness of the US economy.

Among the issues are what speed Congress should define as broadband and whether government money should be funneled only to areas that have no broadband access, or if it should also subsidize upgrades to existing networks.

Policies under serious consideration are corporate tax credits to build new wireless or landline infrastructure, government-backed broadband "bonds" and grants to companies or local governments, legislative aides and lobbyists close to the process say. There also is strong agreement that low-income consumers need to be encouraged to sign up for broadband -- for example, through vouchers to purchase computers or discounts on monthly service.

Large cable operators are seeking to increase the FCC's definition of broadband download speed to about five megabits per second, about 6½ times as fast as the current definition. Internet service providers building out "unserved" regions, where service of that speed isn't available, would be given the full benefit of tax incentives or grants.

The big cable providers also want to target "underserved" areas, where there is only one broadband provider or the service isn't widely available. In those markets, companies would get incentives to build out next-generation services. The download speed that would qualify as next-generation would likely be in the range of 40 to 50 megabits per second.

The cable plan would disadvantage phone companies, especially smaller ones whose DSL services are slower than cable. The Independent Telephone and Telecommunications Alliance, which represents midsize phone companies, is pushing for a slower broadband standard, in the range of 1.5 to 3 megabits per second. Curt Stamp, the group's president, says the federal largesse should be used to subsidize carrier investments in rural areas rather than to finance upgrades to their existing networks.

Wireless services will likely be able to qualify as broadband at a slower download speed than landline services. But if the mark is set above 2 megabits per second it could be a boost for Clearwire Corp., a start-up operator that is rolling out a WiMax network capable of download speeds of 2 to 4 megabits per second. Other carriers weren't planning major wireless upgrades until at least 2010.

Equipment makers such as Cisco and Motorola stand to benefit if carriers undertake massive upgrades. Carl Russo, CEO of Calix, which supplies equipment to phone and cable providers, says Congress should define broadband as 10 megabits per second so the networks it builds now will be able to support bandwidth-hogging applications of the future, such as high-definition video.

"Remember, you only get to do this once, so you want to build the widest highway possible," Russo said. The Telecommunications Industry Association, which represents equipment makers, is pushing for a $25 billion grant program for Internet service providers. Under another proposal, grants could go to state and municipal authorities, which would build high-speed networks and then open them up to competing service providers. That would likely meet with considerable resistance from large carriers like Verizon, which have challenged attempts by local governments to build and operate their own wireless or high-speed fiber networks.

Steve Davis, senior vice president of policy for Qwest Communications, says the big phone company wouldn't object to public broadband projects in areas that currently have no high-speed Internet service, provided private operators have a right of first refusal in building the networks. "The first place the government should look is to the industry," Davis says.

Meanwhile, outside groups are offering various proposals to Congress. Consumer advocacy group Free Press released a broadband stimulus proposal that calls for a $44 billion investment in Internet services over three years, much of which would be funneled through the FCC's existing Universal Service Fund, which subsidizes telephone services in rural areas and for low-income people.

Public-interest groups are clamoring for conditions to be imposed on carriers that receive tax credits, such "net neutrality." (info from The Wall Street Journal)

Tuesday, December 30, 2008

Blackberry maker sues Motorola over hiring restriction

BlackBerry maker Research In Motion is hiring, Motorola is laying off thousands, and the two mobile and wireless rivals are going to court because RIM claims Motorola is unfairly blocking former employees from working for RIM.

RIM is seeking a court order preventing Motorola from blocking its former workers from working for RIM. In a complaint filed last week, RIM claims Motorola is engaging in improper competitive practices by unfairly enforcing a nondisclosure and nonsolicitation agreement signed by the two rival cellphone makers in February.

RIM claims in the Dec. 23 complaint filed in a Chicago court that the agreement expired in August and it is free to hire former Motorola employees. In September, Motorola sued RIM to bar it from hiring any Motorola employees under the terms of the February agreement.

Since May 2007, Motorola has laid off approximately 10,000 workers and plans to cut another 3,000 employees in 2009. Most of the fired employees worked in Motorola's financially bleeding handset unit.

"Motorola's position shamelessly ignores the fact that Motorola's massive layoffs, and not the RIM entities, have caused hundreds of Motorola employees to date to seek employment with the RIM entities," states the RIM complaint.

The complaint adds the claim that Motorola's actions are preventing RIM "from hiring any Motorola employees, including the thousands of employees Motorola has already fired or will soon fire, without regard for [RIM's] rights or for the damage this tactic will unfairly inflict on Motorola's own employees and ex-employees who will be prevented from finding new employment" with RIM.

The filing also notes that RIM "continue[s] to grow and hire new employees" while Motorola is making "massive layoffs of thousands of its employees in an effort to cut costs within its faltering wireless communication devices businesses." (info from eweek.com)

Monday, December 29, 2008

Now there are thousands more places
to buy an iPhone

In a confirmation of swirling rumors, Apple's iPhone 3G went on sale yesterday at about 2,500 Walmart stores and at Walmart.com.

Walmart is the second independent retail chain after Best Buy to sell iPhones. They are also sold at Apple and AT&T stores.

Walmart sells the black 8 GB iPhone 3G model with the every day price of $197 and the 16 GB black or white model for $297, with a new two-year AT&T service agreement or a qualified upgrade. Walmart's price match policy allows stores to match the price of any local competitor's advertised store price on the same item within the same promotional period.

The new iPhone 3G combines the features of the original iPhone plus 3G networking that can be twice as fast, built-in GPS for expanded location-based mobile services, and iPhone 2.2 software which includes support for Microsoft Exchange ActiveSync and runs over 10,000 third party applications available through the new App Store.

There are Apple iPhone kiosks in the Home Entertainment departments at Walmart stores. Employees have been trained to assist customers with questions, demonstrations and activation.

Friday, December 26, 2008

Cybersquatting company lost $33.2 million judgement to Verizon, but skipped the trial

Verizon has been awarded $33.2 million in a "cybersquatting" case against a San Francisco company that registered Internet domain names purposely similar to the telecommunications giant's trademarks. Verizon, however, may not see any money, as the registrar, OnlineNIC, never appeared in federal court to defend itself.

The default ruling said the company "unlawfully registered at least 663 domain names that were either identical to or confusingly similar to Verizon trademarks.," Verizon was awarded $50,000 per name for OnlineNIC's "bad-faith registrations" that were intended to steer traffic away from Verizon's sites.

"This case should send a clear message and serve to deter cybersquatters who continue to run businesses for the primary purpose of misleading consumers," said Sarah Deutsch, Verizon associate general counsel. "Verizon intends to continue to take all steps necessary to protect our brand and consumers from Internet frauds and abuses." The company has won several similar cases.

Complaints about cybersquatting -- setting up a Website using a trademarked name and then profiting by selling the name to the trademark owner -- surged to a record in 2007, according to World Intellectual Property Organization.

Anyone can register domain names for a few dollars per year, but cybersquatters claim popular domain names with the intention of selling them at a profit when the real owners of the names come calling. More recently, Internet entrepreneurs have set up Websites using famous names -- or even versions with typos in them -- and setting up per-click ads leading to the entity's official site.

The practice was barred in the US. in 1999. After declining for several years, incidents began to rise in 2004 and have been climbing in recent years. (info from The Wall Street Journal)

Wednesday, December 24, 2008

Estonians will vote by phone

The Estonian Parliament has approved a law making Estonia the first country to allow voting by cellphone, in the next parliamentary elections in 2011.

Estonians were allowed to cast Internet ballots in last year's parliamentary vote. Government officials said the Internet voting system proved secure despite worries about hacker attacks, identity fraud and vote count manipulation.

The mobile-voting system, which has already been tested, requires that voters obtain free, authorized chips for their phones. The chip will verify the voter's identity and authorize participation in the electronic voting system.

The system and software have proven effective and reliable in an independent security audit. A spokesman said the system "is the most secure way to authenticate digital signatures."

Finland and Sweden possess the software and technical capabilities to conduct a similar cellular election. (info from The Associated Press)

Tuesday, December 23, 2008

Maybe satellites are safer.
Undersea cable cut hurts mideast Web access
& phone calls

Yesterday the Middle East spent its first workday coping with slow and spotty Internet access after key communication cables were cut. Telecommunication providers from Cairo to Dubai continued to scramble to reroute voice and data traffic through potentially costly detours in Asia and North America after the lines running under the Mediterranean Sea were damaged Friday. The cause of the cuts wasn't yet known.

It is the second time this year that trans-Mediterranean cables to Europe have been cut, knocking out Web and telephone access for many in the Middle East. The earlier cut, in late January, was apparently caused by a ship's anchor.

On Sunday afternoon, a ship operated by France Telecom's marine division arrived at what it believes is the accident site south of Sicily.

The crew released a robotic submarine to search for two of the three damaged cables, which are owned by a consortium that includes France Telecom. Once found, the cable ends will be pulled to the surface and repaired on deck -- a process that could take several days. The company hopes to have the first line fixed by Thursday. (info from The Wall Street Journal)

Monday, December 22, 2008

Television questions caused phone system to crash

Two years ago, Congress set 2/17/09 as the date requiring the US to switch to digital TV. Digital signals don't take up as much air space as analog signals, and Congress wanted to auction off some of the airwaves left vacant by the switch to make money. It also set aside some of those airwaves for a future network for police and firefighters, who have complained about communications problems during disasters.

Households with satellite or cable TV won't be affected by the switch to digital, but others need converter boxes. Broadcasters and cable operators across the country are in the midst of a campaign to raise viewers' awareness about the transition. But problems have arisen with a government coupon program that helps consumers buy digital-converter boxes needed to keep old TVs operational, suggesting that some viewers may not be prepared.

Almost 20 million homes rely on free, over-the-air television. An additional 15 million households have cable or satellite TV but also own some TVs that may require converter boxes. Nearly 17 million of the $40 government coupons have been redeemed to buy converter boxes. The boxes, which cost about $40 to $60 each, allow analog TVs to pick up digital signals.

The government doesn't know how many TVs need converter boxes. Nielsen Media Research estimated Friday that 7% of U.S. households remain unprepared for the digital transition.

Last week, 40 stations in Ohio shut off their analog signals for five minutes to show viewers what their analog TVs would look like without converter boxes: a blank screen.

Viewers flooded a broadcasters' hot line with calls to ask how to get the government coupons and how to operate converter boxes, among other questions, said Christine Merritt, executive vice president of the Ohio Association of Broadcasters. She added that the hot line got so many calls -- about 7,500 -- that the phone system overloaded and crashed. (info from The Wall Street Journal)

Friday, December 19, 2008

Give or get a Batphone for Chanukah, Kwanzaa, Christmas

Now everyone can have a flashing red phone like Batman

When there’s trouble in Gotham City, Police Commissioner Gordon calls caped crusader Batman, the secret alter ego of millionaire Bruce Wayne.

At Wayne Manor, the flashing red Batphone is answered by Alfred the butler, who tells Wayne about the trouble. Then Wayne and his young ward Dick Grayson put on their superhero costumes. As Batman and Robin, they race from the Batcave in the Batmobile to battle evil-doers, or rescue citizens in distress.

Now everyone can have a bright red flashing Batphone just like a superhero. When an emergency call - or even an ordinary call - comes in, a bright red light centered in a shiny chrome ring starts flashing to attract attention.

The Batphone has classic sixties styling, with heavy-duty construction, a two-year warranty, and is made in the USA. It gets all of its power from the phone line, and doesn’t require a power cord or batteries. It can work on an ordinary home phone line, or on an "analog extension port" in a business phone system.

The phone rings when the light flashes, unless a purchaser prefers the bell to be disconnected for silent signaling, or an optional high-pitched "BatSignal" or buzzer to be installed instead of the bell. Price with the bell is $122, including "ground" shipping to all 50 states. Fast shipping for delivery before Christmas is available at an extra charge.

Order online at www.GetABatPhone.com, or call toll-free 1-888-225-3999.

Thursday, December 18, 2008

French iPhone monopoly deal is illegal

French antitrust authorities ruled that Apple's deal to sell the iPhone in France exclusively through France Télécom posed an unfair barrier to consumer choice. This move could pave the way for other operators to sell the iPhone.

The decision from France's Competition Council suspends a five-year contract that the companies signed last year. The ruling came in response to a complaint filed by one of France Télécom's competitors, Bouygues Telecom. France Télécom said it would appeal the decision.

The decision is a blow to France Télécom, which has bet that the iPhone would help attract high-tech savvy customers who tend to spend more on their monthly communication bills. It also complicates Apple's marketing plans in one of Europe's biggest markets, but the decision isn't likely to have immediate repercussions outside France.

There is a patchwork of different situations in Europe. In Belgium, for example, consumers can buy an iPhone and use it with any operator. In Germany, a similar legal challenge filed in 2007 by Vodafone to derail Deutsche Telekom's exclusive contract with Apple failed.

The Competition Council said France Télécom's deal with Apple was "clearly excessive" and risked "serious and immediate damage to competition on the mobile market and to consumers."

France Télécom said the decision would have the unwanted effect of stifling innovative services for consumers, such as mobile video, by causing operators to think twice before investing in network upgrades. The operator said it had "heavily invested" to upgrade its network to handle and optimize the iPhone. It has sold about 600,000 iPhones. (info from The Wall Street Journal)

Wednesday, December 17, 2008

Texas prison cancels cellphone jamming test, but FCC wants them to go ahead

An Austin, Texas prison, citing legal concerns, canceled plans to test cellphone-jamming technology that a South Carolina jail demonstrated last month. However, an FCC spokesman says: “We would encourage Texas authorities to move forward with their test.”

Smuggled cellphones are an ongoing problem in prisons, where they facilitate crime both behind bars and in the outside world. In Texas, officers have found hundreds of contraband phones this year, and State Sen. John Whitmire even received a call from a death-row inmate using one.

Michelle Lyons, a spokeswoman for the Texas Department of Criminal Justice, said the state’s attorney general recommended the cancellation because jamming wireless signals remains illegal in the US, with the exception of some uses by federal agencies.

“At every turn, we have attempted to identify a legal way to perform this test so that we could move forward,” Oliver Bell, chairman of the Texas Board of Criminal Justice, said in a statement. “I cannot, in good faith, violate the law in front of our nearly 38,000 employees and then demand they violate no law under threat of prosecution.”

The jamming technology is made by CellAntenna. At the Ridgefield, SC demonstration, the Associated Press reported that it successfully blocked cellphones in the auditorium, but didn’t affect reception outside the room, a key concern of wireless-industry advocates who oppose the technology on the grounds that it could interrupt calls in too broad an area.

To date, that demo hasn’t resulted in legal action, and the FCC said prior to it that it is willing to work with state and local law enforcement officials on the issue.

Lyons said that Texas is still restricted by the law, regardless of the South Carolina demo. “We support the technology. That’s not the issue,” she said. “But until it’s legal for us to use or even demonstrate, we’re just not going to go down that path.” (info from The Wall Street Jiournal)

Tuesday, December 16, 2008

More heads to roll at Alcatel-Lucent

Alcatel-Lucent said it will eliminate another 1,000 white-collar jobs as part of its new chief's plan to return the company to profitability, but shares slumped as investors were hoping for a bolder shift in business strategy. Investors dumped the stock on the news. Shares sank 14 percent and the company was the biggest percentage loser in the CAC 40 index.

The Paris-based maker of telecom networking equipment also intends to get rid of half of the 10,000 contractors it employs in measures aimed at nearly a billion dollars by the fourth quarter of 2009.

Investors were disappointed that Alcatel-Lucent's strategy appeared to consist of rooting out duplication rather than making major spin-offs of businesses, said Roland Pitz, a Munich-based telecoms industry analyst for Unicredit. "It looks like more restructuring but not the substantial change in the business model" that investors were hoping for, Pitz said.

Alcatel-Lucent said the cuts could help it break even at the operating level next year. It hasn't made a profit since the company was formed through Alcatel's purchase of Lucent for $11.4 billion in 2006. The company's shares have fallen around 85 percent since the company was formed, as it has struggled to integrate its two halves and compete with emerging Asian rivals. The Alcatel-Lucent merger aimed to boost margins through savings on expenses and research and development, but intense competition has forced the company to pass many of those savings to customers in the form of discounts.

CEO Ben Verwaayen, who took over in September following the removal of Patricia Russo, said the cuts would make Alcatel-Lucent a "more agile" company by stripping out layers of management. Verwaayen, who is credited with transforming British telecommunications operator BT Group into a broadband Internet powerhouse earlier this decade, was brought in to pull off similar results at Alcatel-Lucent.

The 1,000 new job cuts will come out of Alcatel-Lucent's total white collar work force of 15,000, and come on top of a previous plan to cut 16,500 jobs by the end of next year. The company employed a total of 76,410 as of the end of 2007.

Verwaayen said Alcatel-Lucent will shift investment to technologies in which it is either already a leader or which it has targeted for development, such as LTE, W-CDMA, and enhanced packet core. The company will also cut investment in aging technologies such as CDMA, GSM and ADSL and seek to sell "non-core" businesses that Verwaayen declined to identify. (info from The Associated Press)

Monday, December 15, 2008

Google wants to speed past network neutrality

The celebrated openness of the Internet -- network providers are not supposed to give preferential treatment to any traffic -- is quietly losing powerful defenders. Google has approached major cable and phone companies that carry Internet traffic with a proposal to create a fast lane for its own content. Google has traditionally been one of the loudest advocates of equal network access for all content providers.

At risk is a principle known as network neutrality: Cable and phone companies that operate the data pipelines are supposed to treat all traffic the same -- nobody is supposed to jump the line. But phone and cable companies argue that Internet content providers should share in their network costs, particularly with Internet traffic growing by more than 50% annually. Carriers say that to keep up with surging traffic, driven mainly by the proliferation of online video, they need to boost revenue to upgrade their networks. Charging companies for fast lanes is one option.

One major cable operator in talks with Google says it has been reluctant so far to strike a deal because of concern it might violate FCC guidelines on network neutrality.

Separately, Microsoft and Yahoo have withdrawn quietly from a coalition formed two years ago to protect network neutrality. Each company has forged partnerships with the phone and cable companies. In addition, prominent Internet scholars, some of whom have advised President-elect Barack Obama on technology issues, have softened their views on the subject.

The contentious issue has wide ramifications for the Internet as a platform for new businesses. If companies like Google succeed in negotiating preferential treatment, the Internet could become a place where wealthy companies get faster and easier access to the Web than less affluent ones and could choke off competition. For computer users, it could mean that Websites by companies not able to strike fast-lane deals will respond more slowly than those by companies able to pay. In the worst-case scenario, large companies would control both distribution and content -- and much of what users can access.

Lawrence Lessig, an Internet law professor at Stanford University and an influential proponent of network neutrality, recently shifted gears by saying at a conference that content providers should be able to pay for faster service. The shifting positions concern some purists. "What they're talking about is selling you the right to skip ahead in the line," says Ben Scott, policy director of Free Press, an advocacy group. Advocates of network neutrality believe it has helped the Internet drive the technology revolution of the past two decades, creating hundreds of thousands of jobs.

The concept of network neutrality originated with the phone business. The nation's longtime telephone monopoly, nicknamed Ma Bell, and its regional successors were prohibited from giving any public phone call preference in how quickly it was connected. When the Internet first boomed in the 1990s, content largely traveled via telephone line, and the rule survived by default.

In August 2005, amid a deregulatory environment, the FCC weakened network neutrality to a set of four "guiding principles." The step had the effect of making the FCC's power to enforce network neutrality subject to interpretation, emboldening those looking for ways around it. Major phone companies including AT&T and Verizon announced they intended to create new fast lanes on the Internet -- and would charge content companies a toll to use it. They claimed Internet companies had been getting a free ride. That unleashed a firestorm of criticism. A diverse group including Internet companies Google, Microsoft and Amazon joined the likes of the Christian Coalition, the National Rifle Association and singer Moby in what they characterized as a fight to "save the Internet."

Advocates of network neutrality also claimed that dismantling the rule would be the first step toward distributors gaining control over content, since they could dictate traffic according to fees charged to content providers. The fortunes of a certain Website might depend on how much it could pay network providers, rather than on its popularity. That concern would grow if the carriers themselves offer content, which some have tried.

Some telecom experts say that broadband is the most profitable service offered by phone and cable companies, and they are simply trying to offset declining revenue from their traditional phone business.

In the two years since Google, Microsoft, Amazon and other Internet companies lined up in favor of network neutrality, the landscape has changed. The Internet companies have formed partnerships with phone and cable companies, making them more dependent on one another.

Microsoft, which appealed to Congress to save network neutrality just two years ago, has changed its position completely. The company now favors legislation to allow network operators to offer different tiers of service to content companies. Microsoft has a deal to provide software for AT&T's Internet television service. A Microsoft spokesman declined to comment whether this arrangement affected the company's position on network neutrality.

Amazon's Kindle digital-reading device offers a dedicated, faster download service, an arrangement Amazon has with Sprint. That has prompted questions in the blogosphere about whether the service violates network neutrality. Amazon had withdrawn from the coalition of companies supporting net neutrality, but it recently was listed once again on the group's Website. Yahoo now has a digital subscriber-line partnership with AT&T. Some have speculated that the deal has caused Yahoo to go silent on the network-neutrality issue.

An AT&T spokesman said the company should be able to strike any deal it sees fit with content companies. Yahoo said in a statement that carriers and content companies "should find a consensus on how best to ensure that Americans have access to a world-class Internet."

Google, with its dominant market position and its perceived ties to the Obama team, may hold the most sway. One of Obama's most visible supporters during the campaign was Eric Schmidt, Google's chief executive officer, who is an adviser during the transition.

Google's proposed arrangement with network providers, internally called OpenEdge, would place Google servers directly within the network of the service providers. The setup would accelerate Google's service for users. Asked about OpenEdge, Google said only that other companies such as Yahoo and Microsoft could strike similar deals if they desired. But Google's move, if successful, would give it an advantage available to very few.

The matter could come to a head quickly. In approving AT&T's 2006 acquisition of Bell South, the FCC made AT&T agree to shelve plans for a fast lane for 30 months. That moratorium expires in the middle of next year. A Democratic lawmaker has already promised new network-neutrality legislation early in 2009. And a new chairman of the FCC could take a stricter position on forcing companies to comply with network neutrality. (info from The Wall Street Journal)

Friday, December 12, 2008

Australia wants to censor the Web

The Australian government plans to test a nationwide Web filtering system that would force Internet service providers to block access to thousands of sites containing questionable or illegal content, prompting cries of censorship from advocacy groups.

The proposed filter is part of a “cybersafety plan” started in May with the goals of protecting children online and stopping adults from downloading content that is illegal to possess in Australia, like child pornography or materials related to terrorism. But the plan has ignited opposition from online advocacy groups and industry specialists who say it would slow browsing speeds and do little to block undesirable content.

Last month, the minister of communications, Stephen Conroy, invited Internet service providers and mobile phone operators to participate in a live trial of the program, which is set to begin this year.

The proposed system consists of two tiers. Under the first, all Australian service providers must block access to around 10,000 Websites on a list maintained by the Australian Communications and Media Authority, the federal monitor that oversees film classifications. The second tier would require service providers to provide an optional filter that individuals could use to block material deemed unsuitable for children.

The government says the list, which is not available to the public, includes only illegal content, mostly child pornography. But critics worry about the lack of transparency and say the filter could be used to block a range of morally hazy topics, like gambling or euthanasia.

“Even if the scheme is introduced with the best of intentions, there will be enormous political pressure on the government to expand the list,” said Colin Jacobs, the vice chairman of Electronic Frontiers Australia, a technology advocacy group. “We worry that the scope of the list would expand at a very rapid rate.” “Our view is there are some serious shortfalls in what is being proposed,” said Mark White, the chief operating officer at iiNet, Australia’s third-largest service provider, which has applied to take part in the trial.

White said the mandatory filter was unlikely to work because it would not monitor illegal activity on peer-to-peer or file-sharing networks, where most child pornography and other illegal content is exchanged. The filter would also slow Internet browsing speeds for all regardless of whether they were trying to access forbidden sites, he said.

This concern has been affirmed by the government’s own research. According to a July report by the communications and media authority, the best filter in tests of six unidentified Internet filtering programs slowed browsing speeds by 2 percent; the other five made the Internet run between 22 and 87 percent slower.

The study found that filtering programs were effective at blocking illicit material around 92 percent of the time, but around 3 percent of legitimate sites were mistakenly caught up in the filters.

Australia’s largest service provider, Telstra, has also expressed doubts about the plan. The firm’s chief operating officer, Greg Winn, said last week that using service provider filters to stop illicit content was “like trying to boil the ocean.” As soon as the filter was applied, he said, someone would find a way to break it.

The children’s welfare group, ChildWise, has defended the plan, saying filtering of child pornography would be “a victory for common sense.” (info from The New York Times)

Thursday, December 11, 2008

Bell Canada buyout deal falls apart

A year and a half after it was struck, then the largest private-equity deal in history, the $41 billion leveraged buyout of BCE, the Canadian telephone company collapsed Wednesday when a valuation expert at auditing firm KPMG issued a final opinion that the transaction would create an insolvent entity.

The takeover had been teetering since last month, when KPMG delivered a preliminary opinion that it couldn't provide a certificate of solvency. That assurance was an express condition needed to complete the deal. KPMG issued a final opinion that the BCE buyout would create an insolvent entity.

As the merger agreement expired Thursday at 12:01 a.m., buying group Ontario Teachers' Pension Plan, Providence Equity Partners LLC, Madison Dearborn Partners LLC and Merrill Lynch Global Private Equity issued a joint announcement that the deal was terminated, citing the failure to fulfill the contract's terms. The four private-equity firms said they aren't responsible for a $1.2 billion breakup fee.

BCE is expected to take issue and sue the private-equity group over the breakup fee. Such a lawsuit would add to the litigation wave resulting from boom-era deals that have since fallen apart.

While BCE and the private-equity firms will likely head to court, four financing banks are in position to walk away with an early Christmas present. Citigroup, Deutsche Bank, Royal Bank of Scotland and Toronto Dominion Bank won't have to provide $34 billion in debt to fund the deal. Had the buyout deal closed, the banks would have absorbed as much as $12 billion in losses from selling the debt package at steep markdowns or by holding the debt on their books.

While the buyers have maintained that they want to own BCE, private-equity watchers suspect that they also will take some measure of relief from the deal's collapse. The economic climate and valuation of telecom companies has changed since the agreement was struck in July 2007.

The biggest losers are BCE holders, who were expecting to be bought out at about $34 a share. In 4 p.m. New York Stock Exchange trading Wednesday, BCE's shares rose 48 cents, or 2.7%, to $18.29.

KPMG's analysis surprised Wall Street. Unlike the targets in many other failed buyouts, BCE has seen its operating performance remain solid. The company also has an investment-grade credit rating and almost $3 billion of cash on its balance sheet. KPMG expressed concern over BCE's financial condition, partly because falling telecom valuations in recent months have raised doubts about whether BCE's assets would cover its liabilities after the deal's closing. In addition, the market's declines likely increased the company's pension liabilities, creating a further strain on its balance sheet.

Ironically, it was BCE which pushed to insert the solvency-certificate condition in the merger agreement. It is unusual for a merger pact to require a solvency certificate as a condition of closing, but BCE wanted the condition in order to protect itself from lawsuits by existing BCE bondholders over the companys new, debt-laden capital structure.

"BCE has hoisted itself on its own petard," said an executive involved in the deal.

After KPMG issued its preliminary view, BCE executives tried in vain to persuade the auditing firm to change its opinion. BCE engaged PricewaterhouseCoopers, which delivered a positive solvency opinion, countering KPMG's view. The four private-equity buyers also scrambled for a solution, last week floating a restructured deal in which they would've acquired a minority stake in BCE. The banks rejected that proposal. (info from The Wall Street Journal)

Wednesday, December 10, 2008

Nortel seeking bankruptcy advice

Nortel Networks Corp has sought legal counsel to explore bankruptcy-court protection from creditors in the event that its restructuring plan fails. The move comes as the company grapples with plummeting sales for its wireless gear and as the credit crunch hobbles the sale of key assets.

Ronald Alepian, a spokesman for Nortel, said that "no bankruptcy filing is imminent," but added that the company has engaged several advisers to help it chart a way forward. "We remain focused on carrying out the restructuring we outlined on Nov. 10 to cut costs," he said. Alepian said Standard & Poor's in November reaffirmed Nortel's ratings, saying the company "should be able to sustain adequate levels of liquidity in the next 12-18 months" despite difficult market conditions.

Nortel also has been exploring potential assistance from the Canadian government, but the disarray within the government is clouding those prospects. Last week, Prime Minister Stephen Harper shut down Parliament until late January to avoid attempts by opposition legislators to topple his government.

Nortel was once Canada's largest company. Its market value topped $250 billion in 2000, but has since shriveled to $275 million. The company's stock has been trading below the $1 minimum on the New York Stock Exchange for a month.

Chief Executive Mike Zafirovski joined Nortel three years ago after helping to revive the cellphone division of Motorola. He swelled profits from selling Nortel's wireless equipment to US carriers and used the money to fund new businesses. But a sudden drop in contracts by US carriers, themselves seeking to cut spending, choked the company. Nortel burned through $478 million during the first nine months of this year, as sales of the company's CDMA technology atrophied.

In September, Zafirovski decided Nortel should sell assets to cut expenses and raise cash. It said it would sell an unprofitable new business called Metro Ethernet, which makes gear to transmit Internet and video feeds.

Until the announcement, many Wall Street analysts believed that Nortel still had time: It had an estimated $2.6 billion in cash and no payment on its $4.5 billion in debt until July 2011. But $500 million of Nortel's cash was tied up in overseas joint ventures and it needed $1 billion cash for daily working capital.

Nearly a dozen companies and investment firms looked at the Metro Ethernet business, and bankers encouraged suitors to consider buying the entire company. But no deal to sell the business has emerged. In hopes of finding better prices, Nortel recently hired new investment bankers. Suitors for all of Nortel have been waiting on the sidelines, betting that its assets can be picked up without at least $6 billion in liabilities if the company seeks protection from creditors.

Uncertainty surrounding Nortel's finances has limited its ability to find new business, as its customers seek safety in contracts with better-financed rivals. (info from The Wall Street Journal)

Monday, December 08, 2008

Send a money order from your cellphone

Vodafone plans to announce a partnership today with Western Union to allow international money transfers via cellphones. The companies are initially launching a pilot program that will allow residents of Reading in the United Kingdom to send money to family members and friends in Kenya, where Vodafone is the 40% owner of local wireless operator Safaricom. If that program is successful, the companies will expand it to other countries.

There is growing interest in using cellphones as a conduit for money transfers, with financial institutions such as Citigroup and Visa taking steps into the business, along with Silicon Valley start-up Obopay Inc. Wireless carriers in the US and in emerging markets such as India and the Philippines are having some success with programs that let users transfer money domestically via cellphones.

Now UK-based Vodafone and other wireless operators have set their sights on cross-border remittances. Research firm Aite Group expects that by 2010 global workers' remittances will amount to $465 billion, up from $369 billion last year. Remittances are a big contributor to gross domestic product in many emerging markets as workers migrate around the globe, maintaining ties to family in their native countries. Most of these transfers are in the range of $300 to $350 and happen a few times a month, but Vodafone wants to encourage much smaller and more frequent money transfers via cellphone.

Vodafone, which owns or has stakes in wireless operators in Africa, the Middle East and India, sees mobile money transfers as an attractive add-on service in markets where users generally just buy prepaid phone minutes.

The company's international remittance service builds on its domestic money-transfer business, which it started in Kenya last year and has since expanded to Tanzania and Afghanistan. That service, known as M-Pesa ("cash" in Swahili), has signed up more than four million customers -- often urban workers who use it to ship money to relatives in rural areas. Senders can visit any of 4,000 locations, including Safaricom retail outlets and gas stations, to hand over cash that gets deposited into their phone accounts, and then send it via text message. Recipients go to another M-Pesa location to pick up the cash.

Expanding the service to allow cross-border transfers through Western Union agents allows Vodafone to not only increase the volume of cash it is handling, but also move into a higher-margin business: It charges only 18 US cents for domestic money transfers in Kenya, but the charge for international remittances from the UK will be $7.22 or more.

Western Union, which processed $64 billion in cross-border remittances last year and has 365,000 agent locations in 200 countries, is hoping to expand its reach through cellphones. Western Union is partnering with other carriers for international money transfers, including Globe Telecom and Smart Communications in the Philippines, Cairo-based Orascom Telecom Holding, and Bharti Airtel of India.

Obopay, based in Redwood City, Calif., offers domestic money-transfer services in the US and India. Users set up a PayPal-like account online, and then send money via text message, mobile Web browser or specialized software applications they download onto their phone. They can withdraw money from their cellphone accounts using special Obopay debit cards at automatic-teller machines. Obopay is trying out a service with Citibank that allows users to link their existing bank accounts directly to their cellphones, so it is easier to send and withdraw money.

In India, Obopay plans to link mobile money transfers to electronic-payment services, so consumers can refill their prepaid phone minutes or pay their utility bills. (info from The Wall Street Journal)

Friday, December 05, 2008

AT&T disconnecting 12,000 employees

AT&T said it will cut about 12,000 jobs, or 4% of its work force, as it deals with a slowing economy and increased competition in the residential market from cable companies. The layoffs will begin in December and run through next year. The company will take a charge of approximately $600 million in the fourth quarter to pay severance for affected employees. The company cut 4,600 jobs earlier this year.

Though AT&T did not specify which business units would lose jobs, the side of the company that provides landline service has been most impacted by the economic downturn.

That trend has exacerbated the ongoing challenges AT&T and rival Verizon face as consumers drop landline service in favor of wireless or switch to competing services from cable providers. Other companies in the telecom industry are feeling the pinch, including Sprint Nextel, which recently began offering voluntary buyouts to employees in non-customer facing jobs.

AT&T said it would also continue to hire in areas that are seeing faster growth, such as wireless and TV service. AT&T also said it plans to reduce its capital expenditures next year.

Telecom Italia said Thursday it would cut 4,000 more jobs, on top of 5,000 cuts it announced in June. Nortel said last month it would cut 1,300 jobs. Nokia Siemens Network, a joint venture between Nokia and Siemens, said last month it is nearly finished cutting between 10% and 15% of its global workforce. (info from The Wall Street Journal)

Thursday, December 04, 2008

Less lobster fra diavolo, more pasta.
Telecom Italia fires 4,000 more

Facing falling margins and stiffening competition at home and abroad, Telecom Italia Wednesday unveiled a business plan that would allow the company to reduce its debt and trim costs through an additional 4,000 job cuts and disposal of noncore assets valued at as much as $3.8 billion.

The 4,000 job cuts come on top of the 5,000 announced in June. Together, the moves will reduce Telecom Italia's work force by 14%, to 55,000 from 64,000. "The conditions that have emerged on the market and in the real economy mean it is necessary to be even more incisive in our priority of debt reduction," Chief Executive Franco Bernabè said.

Telecom Italia. the former telecommunications monopoly, pledged to reduce its ratio of debt to earnings before interest, taxes, depreciation and amortization to 2.9 times by the end of next year and to 2.3 times by the end of 2011, from about three times at the end of 2008.

Bernabè said the company's growth will come from Italy and Brazil. German broadband unit HanseNet is among the assets earmarked for a possible sale, he said. Telecom Italia said it has received expressions of interests in some of its assets but said it was too early to talk about prices.

The company also said it intends to expand its presence in Argentina by exercising its call option to increase its shareholding in Sofora SA, with the support of a local partner.

The new business plan has been anticipated for months, as Telecom Italia shares have halved in value from a year earlier. At the same time, the Italian communications regulator wants the company to open further its fixed-line network to rivals. Its recent third-quarter results, however, beat expectations and the company confirmed its forecasts in a sign that the new management's cost-cutting strategy has started to pay off. (info from The Wall Street Journal)

Wednesday, December 03, 2008

More bullshitting at Broadcom:
exec lied about college degrees

Broadcom is a big American supplier of integrated circuits for broadband communications, founded in 1991 by Henry Samueli and Henry Nicholas III.

Last Spring the Securities and Exchange Commission charged Samueli and Nicholas with falsifying the company's reported income, leading to what is believed to be the largest accounting restatement yet because of backdating stock options. Broadcom previously agreed to pay $12 million to settle similar charges without admitting or denying the allegations.

Backdating stock options involves retroactively setting the exercise price to a low point in the stock's value to increase profits for an executive or employee when shares are sold. If companies backdate options without properly disclosing and accounting for the move, it can cause profits to be overstated and taxes to be underpaid.

Broadcom's proxy statements say Vahid Manian, senior vice president of global manufacturing operations, earned a bachelor of science in electrical engineering and a master's degree in business administration from the University of California, Irvine.

However, the university says Manian didn't earn the degrees. UCal says Manian studied electrical engineering between 1979 and 1983, but never graduated.

Manian is at least the 11th senior executive or director to surface recently in a search for business leaders with inflated academic credentials, by San Diego fraud investigator and short seller Barry Minkow. (info from The Wall Sttreet Journal & Wikipedia)

Tuesday, December 02, 2008

Trouble in paradise: Hawaiian telco goes bust

Hawaiian Telcom Communications Inc. filed for bankruptcy protection Monday, a black eye for buyout firm Carlyle Group and for private-equity investing.

Carlyle bought Hawaii's largest telephone carrier from Verizon in 2005 for $1.6 billion. Before it was absorbed by Verizon, the phone company was part of GTE.

Carlyle put up $425 million in equity and used debt to finance the rest. Carlyle filled the board with telecom experts, but Carlyle faced problems from the start. State utility regulators delayed the deal's closing. Billing and customer-service issues plagued Hawaiian Telcom as it created back-office systems from scratch. That spurred customers to drop service for wireless and cable providers.

In the third quarter, Hawaiian Telcom's revenue declined 6.7% to $112.3 million, and its loss widened to $34.7 million, the company's third consecutive quarterly loss.

Of the 109 U.S. companies that have filed for bankruptcy this year with assets of $1 million or more, 67 have been owned by buyout shops or been spun off by them.
From 2005 through the third quarter of 2008, private-equity firms added $741 billion of debt on company balance sheets. In stable economic times, that debt load may have been manageable. But in the midst of a brutal economic downturn, many firms can't withstand the added expense.

Such was the case of Hawaiian Telecom, which in the nine months ended in September paid $68.2 million in interest expenses, on top of a $35.7 million operating loss. (info from The Wall Street Journal)

Monday, December 01, 2008

Overwhelmed retail websites crashed on Black Friday

Several retail websites experienced technical problems Friday, the latest reminder of one of the Internet’s oldest rules: If you encourage people to visit your site, make sure it can handle the extra traffic.

While the spotlight was on the hassles experienced by shoppers taking advantage of post-Thanksgiving sales at stores, those who decided to shop from home ran into troubles too. Several sites, including Amazon.com, and Saksfifthavenue.com, experienced some slowdowns, and Sears.com was down for large chunks of the day.

What’s happening to these websites is the online version of the gridlock that happens at many malls: So many people are trying to get through the sites’ front doors at the same time that the lines back up, slow down, and stop altogether in some cases.

It shouldn’t come as a surprise that people are shopping online Friday. This year, retailers have been promoting online sales more heavily than in the past. In the case of Sears.com, the promotions seem to have worked too well: The site was unavailable for many visitors. A spokesman for Sears said that traffic was “higher than anticipated” and that the company was taking steps to ensure the site would be available today (Cyber Monday) —- another popular online-shopping day.

The history of the commercial Web is filled with examples of companies that have promoted an online event only to have the sites crash from the increase in traffic the promotion generated. Often, these incidents involve scantily-clad women -— a Victoria’s Secret online fashion show that almost crashed the entire Internet in 1999 is the iconic example; and New York Magazine crashed its Web site in February when it published pictures of actress Lindsey Lohan sans clothes. But that’s not always the case: Oprah’s Web site experienced technical problems in March after Oprah promoted a video interview posted there. (info from The Wall Street Journal)