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In its second-quarter earnings call this morning, AT&T highlighted the awesome growth of its wireless business, which surged 14.8 percent to $11 billion and accounted for roughly a third of its $30.9 billion in revenue for the period. The company also said that the 3G iPhone was selling twice as fast as the first one, which given the price cut, isn’t too surprising.

Equally unsurprising was the 10 percent rise in the number of smartphone subscribers over the second quarter of 2007 (AT&T is the sole carrier of the iPhone in the U.S.). And those users are surfing the web, pushing AT&T’s data revenue up 52 percent from the same period a year ago, to $2.5 billion. After adding 1.3 million wireless subscribers during the quarter, AT&T is still the largest cell phone carrier with 72.9 million subscribers. However, Verizon said yesterday it had added 1.5 million subscribers, so the iPhone exclusivity can only do so much.

The tethered world was a little less rosy, however. AT&T did add 170,000 new U-verse subscribers, bringing that total to 549,000; it also reiterated its goal of having a million subscribers by year-end. But triple-play services were down and broadband growth is slowing. Subscribers to voice, data and TV fell to 48.4 million from 49.5 million at the end of the second quarter of 2007. And AT&T’s total broadband connections now number 14.7 million, up 1.4 million over the same quarter last year but a mere 46,000 higher than the first quarter of the year.

Verizon President and Chief Operating Officer Dennis Strigl made a big splash at NXTcomm 08 yesterday when he announced that the entire Verizon FiOS footprint could now get speeds of 50 megabits per second. Typically such bandwidth news wouldn’t cause that much of a furor, but there wasn’t much to write home about from the show, which was held in Las Vegas this week.

In his speech, Strigl pointed out that the U.S. has the highest number of broadband users when compared with other countries, in particular that broadband is available in every U.S. zip code. Good point — and one that I’ve made in the past myself — except that it’s no longer true. By that metric, China now leads. Yes, the FCC used to defined broadband as a service that offered, at a minimum, 200 kbps downloads, but it’s since changed that requirement to 768 kbps.

But where Strigl went too far was when he suggested that three-quarters of American households have two providers to choose from — aka a duopoly, which is not my idea of a competitive marketplace. If you factor in wireless and satellite, he said, there are actually six or seven competitors. Talk about twisting the facts to fit one version of the truth! This part of his speech, however, had me choking on my breakfast cereal.

“Massachusetts and New Jersey have similar population density to Korea and Japan and similar broadband penetration. Unlike other countries, what we have accomplished has come not through [government] policy but through private investment.

How telling. So subverting government policy via lobbyists and highly biased friends at the FCC to ensure a future monopoly is all part of good, capitalistic, private investment theory? Maybe Harvard can include that in its future MBA curriculum.

Regardless, I thought it would be fun to see how Massachusetts and New Jersey really square up against South Korea and Japan when it comes to the price of a broadband connection:

Average broadband speeds in South Korea and Japan are 49.5 megabits per second and 63.6 megabits per second, respectively. The average U.S. speed is about 4.9 megabits per second, making it the 14th-fastest country in the world. The average price in South Korea and Japan is about 83 cents per megabit. In the U.S, it’s about $2.83.

But since it would be unfair to use average U.S. stats, I went with Verizon’s prices, the ones it’s going to offer in Massachusetts and New Jersey. On Verizon’s FiOS network, a 50 Mbps connection costs $140 a month — or about $2.80 a megabit. In fact, if you went with Verizon’s 20 Mbps service, you would be paying $3.25 per megabit. (To be fair, Verizon’s price-per-megabit is still cheaper than the $5.25 Qwest charges for its 20 Mbps connection, which costs $105 a month.)

In other words, not until Verizon starts selling a 50 Mbps connection for $41.50 a month and 20 Mbps fiber connection for $16.60 a month can Strigl get away with comparing U.S. broadband with that of the rest of the world.

In what looks like yet another blow to Sprint, Qwest said today it will resell/re-offer Verizon Wireless’ services to its customers in a four-play package. Residential customers will be able to choose wireless only and be billed directly by Verizon Wireless, or include Verizon Wireless service as part of a Qwest bundle with their home phone, Internet and video services and receive one bill from Qwest for all of them.

When I asked Qwest CEO Ed Mueller back in March if they would buy a wireless operator like Sprint, his answer was no. “All we want to do is partner with a national wireless player where we can rebrand and remarket their service to our customer base. We are ambivalent about the technology but we want a partner with retail presence,” he had added. The quid pro quo of the deal: Verizon and Qwest will partner up and bid for government contracts, a very lucrative business indeed.

Verizon reported its first-quarter earnings this morning, with most things going as expected. Wireless is booming (1.5 million net additions, 13 percent revenue growth), FiOS TV’s demand seems to be picking up (263,000 new subscribers, putting the total at 1.2 million), and not surprisingly, the company saw accelerated decline in the number of wireline customers. During the quarter, the company lost 762,000 residential lines and about 186,000 lines.

In other words, there is a renewed urgency around FiOS offerings. The fiber broadband and TV offerings can help overcome some of the line losses. During the quarter, the company added 266,000 new broadband connections — 262,000 of which came from FiOS Internet service. The company had a total of 8.5 million connections: 6.7 million DSL-based Verizon High Speed Internet connections and 1.8 million FiOS Internet connections.

What that means is that Verizon’s DSL growth is all but over. At the end of 2007, the company had 8.2 million subscribers. Of the 300,000 new subscribers Verizon added in the first quarter of 2008, 262,000 are FiOS fiber subscribers. That leaves 38,000 DSL subscribers — or roughly 12,600 new additions per month. At present, FiOS Internet is available for sale to 7.9 million premises. Penetration for the service averaged 22.9 percent across all markets.

Verizon, like many other carriers, is in a race against time: It is critical for the phone companies to keep people talking on their lines if they want to sell them broadband and video services in the future.

With the clock ticking on FCC Chairman Kevin Martin’s tenure, his special friends in the phone business are asking him to give them the moon, the stars and the sun: In other words, a cable TV version of number portability.

Verizon today asked the Federal Communications Commission to require the cable industry to make it as easy for consumers to choose a new video provider as it already is for them to switch voice providers. The process to switch video providers is more cumbersome for consumers…Cable incumbents do not accept disconnect orders from the new provider; instead, they require the customer to contact them directly to cancel service after choosing a new video provider and to return equipment. (press release)

Verizon’s arguments and press release may seem consumer-friendly, but one has to take all of it with a barrel of salt. Now, as you well know, I am no fan of cable companies — who apparently want to watch what you are doing inside your living room — but it’s hard to believe Verizon.

Even despite all the legal and other hassles, the satellite guys have been competing with cable companies for video customers — and they didn’t need a sugar daddy (aka the FCC) to help them out. Verizon should learn to compete in the open market.

Must I remind you that Verizon is the same company that rips out copper cables in favor of its own fiber, thereby taking away your ability to switch your broadband or voice service to another provider? Verizon itself delayed the switching of “broadband” service when customers wanted to buy DSL from another company, thus driving many of them out of business. In fact, incumbent phone companies indulge in such delays even now.

I think both incumbents — the cable and phone operators — are waging a war of words, and none of them, including the newly “open” Verizon, have consumers’ best interests in mind.

The P2P arguments, open networks, and now video portability all seem to be part of a calculated image makeover for Verizon. But as my granddaddy used to say: Just because you paint stripes on a donkey, it doesn’t make it a zebra.

This past week I got a chance to catch up with Edward Mueller, CEO & Chairman of Qwest, the smallest of the Baby Bells, which competes with its bigger brethren, AT&T and Verizon, in the long-distance, business and government markets.

Mueller, who at one time was CEO and president of Ameritech (now part of AT&T), replaced Richard Notebaert in August 2007.

Since then he has been quietly trying to shore up the Mountain Bells, forging alliances with the likes of DirecTV and making plans for a broadband future. My overall impression from our conversation was that Mueller is being very cautious and is loathe to making sudden moves.

From expanding data center capacity to adding new business lines, Qwest is staying true to its financial realities. The company, which posted $13.8 billion in sales for the full-year 2007 period wants to be “nimble & efficient,” Mueller explained. Here are edited excerpts from our conversation:

Om Malik: Your first few months at Qwest have been awfully quiet. What have you guys been up to?

Edward Mueller: We have laid out a plan and are finally putting meat on the bones. We want to be nimble and efficient. We are focused on our three core businesses — wholesale, small business and consumer. We are now one of the three picks for the government network (Networx), so I like our position. If we can get a wireless partner, we can do well.

OM: Why partner when you can buy yourself a wireless company? Sprint and Alltel are two that come to mind.

MUELLER: We are not looking to buy a wireless company at this time, and frankly buying Alltel and Sprint will be a reach for us. All we want to do is partner with a national wireless player where we can rebrand and remarket their service to our customer base. We are ambivalent about the technology but we want a partner with retail presence.

OM: What are your thoughts on wireless broadband? Also why not buy or build your own wireless broadband network?

MUELLER: Wireless broadband is going to be the biggest part of wireless and voice will ride on this network. I think it is going to be a robust network. But to play in this business your network has to be national and that is very expensive for us. We are a good partner for others for providing access to customers. That is what we are good at.

OM: What are your broadband plans? Any fiber-to-the-home plans?

MUELLER: We are expanding our FTTN network, and will soon offer 20 Megabits/second and eventually 40 Megabits per second using pair bonding. We are building this out and spending $300 million on it. The trial we are running in Colorado Springs has had a good uptake and customers are paying for the higher speed service. (Editor’s note: At a meeting with Wall Street analysts, Mueller said Qwest can make a billion dollars from broadband.)

OM: What are your video plans?

MUELLER: We are not going to offer broadcast television, but instead will offer video on demand and Internet video. We have a partnership with DirecTV and it is our desire that we provide uplink service for their video-on-demand service.

OM: What do you make of the current housing downturn? Qwest’s geographical footprint was where there was a housing bubble — Phoenix and Colorado, for example. Is this impacting your business?

MUELLER: We don’t comment on the financials. I think the economy is cyclical and I don’t think we have to change too much. We have a plan and we are going to execute against that.

Ding! The second round of the Net Neutrality battle officially started today, with Massachusetts Rep. Ed Markey’s introduction of H.R. 5353, a bill supporters are calling the “Internet Freedom Preservation Act of 2008.” Detractors, of course, will call it many other things, including a revival of 2006-era attempts to write Net Neutrality concepts into law. But a quick read-through of the official document shows a few twists, including some provisions for easing of video franchising laws, that may win some previous detractors over to the Net Neutrality side.

In addition to the video-franchising language, perhaps the most surprising thing about the bill is its timing — most telecom policy insiders doubt that any such legislation will pass until after the presidential election, since there doesn’t seem to be a wide consensus or support for the ideas it contains. But Markey’s somewhat expected bill — co-sponsored by Republican Chip Pickering of Mississippi — rolls the Net Neutrality ball back onto the court after basically being sidelined since the fall of 2006.

There have been many big changes since then, when the original Net Neutrality battle ended in a draw. (To recap, Net Neutrality proponents failed to get their ideas added to telecom reform bills; those bills went on to die in the Senate without every coming to a full vote.) Markey, who led the failed 2006 Net Neutrality efforts, is now the chair of the House Subcommittee on Telecommunication and the Internet, following the Dem’s takeover of Congress. With control of the Senate as well — and with Google now a very committed backer of Net Neutrality ideas — Markey and pro-Net Neutrality Dems have apparently guessed they now have the political strength to push their ideas into law.

The new Markey bill seems to attempt to preserve much of the Four Freedom ideas that make up the basis of the original Net Neutrality argument, which basically say that carriers should not block services and that consumers should be allowed to attach whatever devices they wish. But there seems to be some new language surrounding the question of preferential pricing and preferential treatment of traffic, including a caveat that asks “whether the need for enforceable rules governing openness, consumer rights, and consumer protections or prohibiting unreasonable discrimination is lessened if a broadband network provider provides significantly high bandwidth speeds to consumers.” In other words, if there are enough fat pipes built, the need for regulation may disappear.

There is also a section asking whether broadband providers are offering “parental control protection tools,” which, like the video-franchising language, looks like a bit of a sop to make such a law more palatable to right-leaning legislators. And there is a call for the FCC to conduct eight public regional broadband summits, which if nothing else should lead to good theater.

On the opposition side, expect AT&T and Verizon (as well as their paid mouthpieces) to renew their “don’t regulate the Internet” argument, which combines some very real concerns about return-on-investment for infrastructure buildouts with traditional telco attempts to protect their monopoly advantages. One new ally on the telco side of the argument is the Federal Trade Commission, which has been actively campaigning over the past two years for a seat at the telecom-regulation table, even though its jurisdiction in such matters is openly questioned (especially by those at the FCC, who see the FTC’s actions as nothing more than a turf war). Don’t forget there is also the specter of a presidential veto hanging over any Net Neutrality legislation, from a commander-in-chief who is more than ready to stick his neck out for his deep-pocketed telco supporters, like he did in the current debate over telecom immunity in FISA lawsuits.

With recent Net Neutrality-like incidents involving Verizon, AT&T and most recently Comcast, it might be harder this time around for the carriers to claim supervision isn’t necessary. Expect the biggest battle to revolve around the concept of whether or not it makes sense to protect against such actions pre-emptively — as in an FCC-enforced law — or instead rely on the courts or the FTC to punish transgressions after they occur, via existing antitrust or consumer protection laws.

Either way, game on. Again.

Paul Kapustka, former managing editor for GigaOM, now has his own blog at Sidecut Reports.

Two months after saying it would open up its network to other devices, Verizon Wireless is inviting developers to a mid-March conference where they can learn more about building software and devices that will run on its network. It’s an important step, because without people to build devices on Verizon’s CDMA wireless networks, the commitment to openness is just whitewash. And just in case you like your walled garden, the last paragraph of the Verizon release, which touts both the conference and the company’s commitment to openness, is quick to assure folks that it will continue to offer Verizon-approved devices in company stores. Talk about a mixed message.

Ever since Verizon announced that it was going “open,” OPEN has become the new buzzword. For instance, this morning USA Today ran a story on AT&T being open, with extensive commentary from AT&T Wireless CEO & President Ralph de la Vega. The headline, “AT&T flings cellphone network wide open,” made it seem that AT&T was doing something new.

It isn’t a pretty sight to get up in the morning and find such a major development on your beat and not know a thing about it. But after reading through the piece, it was much ado about nothing. After all even today, once your contract expires, you can continue to use the AT&T network on a month-to-month basis. You can use any unlocked device which you can buy from anywhere, as long as it’s a GSM device and supports the frequencies used by AT&T. The phone can use any operating system — Windows Mobile, Symbian, Linux or whatever.

When I spoke with de la Vega following the Google Android announcement , he made precisely the same statements and said that AT&T (T) was already doing what Verizon (VZ) was announcing. He said pretty much the same thing in an interview with Ryan Block of Engadget a few weeks ago. I think the most recent story overstates the case. Just to make sure that I wasn’t missing something, I spoke to an AT&T spokesperson, and basically was told what de la Vega had said previously.

I think the bigger issue here is that we really need to get companies to define what they mean by OPEN. Open handsets, open networks, open applications, open operating systems — some combination of those, or all of them? Otherwise, I might have to start translating OPEN to “We’re Scared of Google.”

Its been almost eleven years when the Telecom Act of 1996 was announced with much fanfare. It promised a telecom revolution, and instead it got a Bubble, Broadbandits and a battle of the lobbyists. And as they years passed, incumbents neutered it beyond recognition, leaving it toothless and lifeless, much like the royal family of a fallen colonial power. Sure there were some things that microscopically-tilted in favor of the small, independent carriers, but even those are at risk now.

Verizon has petitioned FCC to give it forbearance relief in six major markets from certain wholesale requirements, specifically “unbundled network element” (UNE) discounts it must still provide to competitive local exchange carriers (CLECs). What this means is that Verizon wants to stop selling high-capacity DS-1 and DS-3 connections because it feels competitors are using Verizon’s infrastructure to compete for the enterprise customers.

According to FCC, under the Telecom Act of 1996, “the Commission is required to forbear from any statutory provision or regulation if it determines that the regulation is not needed to protect consumers or to ensure just and reasonable rates and practices by carriers.” Verizon wants FCC to stop applying UNE rules in major metros like New York, Philadelphia and Boston. Verizon has been fighting UNE for sometime. UNE allows competitors to buy “network elements” on a cost-basis. FCC is supposed to decide on this on December 5th.

If FCC approves Verizon’s petition, then basically the competition in local loop in those six regions is going to be decline sharply and that is bad news for smaller CLECs such as Covad and XO Communications. These companies rely on UNE to provide alternative broadband and phone service options.

CLECs are worried that Verizon is going to use any gains from this petition and stamp out competition in other regions such as California and Texas. CLECs have set-up a website, FreeToCompete. Blair Levin, an analyst with Stifel Nicolaus, an investment bank, and an expert on FCC doesn’t believe that Verizon is going to get what it is wishing for and only small parts of Verizon’s petitions might be granted.