UPDATED: Today the Federal Communications Commission opened up the wireless communications market with its approval of a plan to allow independent devices to operate in the spectrum between digital TV channels. It also approved the merger of spectrum between Sprint and Clearwire that will create a nationwide WiMAX network. During that same meeting, it threw the existing operators a bone, and approved Verizon’s $28.1 billion deal to buy Alltel. This creates two new wireless networks backed, in part, by Google.

But first the Alltel deal, which held up the commission for four hours debating concessions. Once that deal closes, Verizon will be the largest wireless carrier in the U.S. with more than 80 million subscribers. Verizon will have to divest 100 markets in 22 states as part of a deal with the Department of Justice and the FCC, but the merger between Verizon Wireless and Alltel consolidates more power in the hands of the largest wireless players. It will likely lead to greater expenses for businesses as many of the roaming agreements between Alltel and other large carriers come up for negotiation.

Michael Voellinger, SVP of enterprise mobility at Telwares, estimates that as Verizon has to negotiate those roaming contracts with AT&T, T-Mobile and Sprint, it’s likely to end up with higher rates, leading to the potential for higher costs for enterprise (and consumer) customers of telecommunications services. However, as part of its approval, the FCC requires Verizon to keep roaming rates the same for the next four years.

The approval for allowing broadband-enabled devices to operate in the white spaces between the digital television spectrum was a bit more nuanced. The acceptance of the white spaces broadband is significant, but the FCC will impose a certification process and limits on the “loudness” of wireless devices operating in that spectrum for the time being. That means those gadgets may be hard to deploy quickly and in urban areas. That could drive up costs associated with such devices by lengthening time to market and limiting the market share.

Still, it’s a big win for for the large technology companies such as Google, Dell, Motorola and Microsoft, whcih have all backed white spaces. With the cable companies and Google also getting a win through their involvement in the Clearwire merger, it remains to be seen if the consumer will win, but Google certainly has. UPDATE: As Larry Page, co-founder and president of products, writes on the Google blog of the white spaces decision:

This is a clear victory for Internet users and anyone who wants good wireless communications…Google has worked hard on this matter with other tech companies and public interest groups because we think that this spectrum will help put better and faster Internet connections in the hands of the public.

The Financial Times is reporting that UK ISP Orange will not use an advertising product from Phorm because of concerns about user privacy. This would make Orange the odd man out in the country. BT, Virgin Media and TalkTalk are all still on board with Phorm, although their resolve may be weakening, judging by the fact that none of them have put Phorm’s product in commercial use yet. Phorm uses deep packet inspection to serve ads based on the sites a consumer visits. A similar company, NebuAd, caused an uproar earlier this year, after Charter Communications said it would deploy the service. Charter quickly backed off.

Paul-François Fournier, senior vice-president of Orange’s online advertising division, expressed interest in using customer data for advertising, but says he recognized that privacy was a key issue. He told the FT, “Privacy is in our DNA, so we need to be honest and clear about what we are doing. We have decided not to be in Phorm because of that … The way it was proposed, the privacy issue was too strong.”

Privacy issues may have stopped Orange in this case, but ISPs are increasingly looking for a revenue boost, and the detailed stream of data passing through their pipes is like a vein of gold they can’t wait to mine. Earlier this year at a Congressional hearing on privacy, the major U.S. carriers sought to regulate themselves on privacy issues, while also trying to figure out a way to get consumers to buy into the practice through lower rates or promising a better surfing experience.

Given that Time Warner Cable is able to market a bandwidth cap to people in Beaumont, Texas, under the guise of a lower-priced bundle, I’m sure cable and telecommunications companies will figure out the right incentive for most people to give up their privacy.

Today on the Verizon Policy blog Link Hoewing writes about the results of an academic research paper that looks at the effectiveness of “shaming” corporations into behaving properly. The research examines how companies respond to social pressure related to environmental causes, and shows that companies tend to improve their behavior after receiving poor rankings from independent social ratings agencies.

Hoewing uses that research to argue that self-regulation works, because it is in the best interest of the company to listen to its customers. He brings up the current issues of online privacy, where ISPs have turned to firms such as Phorm or NebuAd to profit by selling advertisements served up based on where a customer surfs:

Interestingly, a couple of years back during the debate on net neutrality, I made the argument that industry leadership through some form of oversight/self-regulatory model, coupled with competition and the extensive oversight provided by literally hundreds of thousands of sophisticated online users would help ensure effective enforcement of good practices and protect consumers.

So far that really hasn’t worked out. There are two problems with this argument for ISP self regulation. The first is that there’s little competition, meaning customers can’t vote with their feet if an ISP is abusing their privacy. Second, there’s no real transparency into who’s using such services, unless an independent agency is able to find out about it.

So, as the ISPs want to offer up their own regulations for handling your privacy online, beware of this line of thinking that says industry self-regulation will work. If carriers could be shamed into doing the right thing, AT&T wouldn’t be helping the government listen in on our phone calls.

Will personal cell towers replace the giant monstrosities currently sitting on rooftops and beside highways? Manish Singh, a VP with Continuous Computing, says that may be the case with the 4G buildout. He spoke with me about the company’s new line of software and hardware for carriers deploying LTE networks, noting that those in North America and Europe are asking whether they should deploy citywide — or one consumer at a time, using femtocells.

He said two things are driving this, one being the huge capital expenditure associated with building out a wireless network and the second being the length of time it has taken for widespread use of the 3G data networks. Verizon started deploying its EVDO networks in 2003, but only in the last few months — thanks to better pricing and the iPhone — has 3G data been used by many customers. When it comes to 4G provided by LTE, a controlled femtocell deployment ensures that customers could get LTE speeds of up to 150 Mbps (in theory) while at home or in coffee shops and use the existing 3G network while out and about.

The femtocell strategy will be used in another 4G rollout — this time for WiMAX — as part of the Clearwire joint venture involving Clearwire, Sprint, Google and several cable companies. Earlier this year Dave Williams, a former wireless executive and now SVP with Comcast, told Light Reading the cable ISP will use femtocells to build out a network. Using femtocells will bypass wholesale network costs and eliminate some of the problems of backhaul that can stymie 4G networks, Williams said.

I doubt that wireless carriers will abandon towers altogether, but using femtocells to deploy 4G to customers who want to sign up for the service before a citywide deployment sounds like it could make sense. It could also lead to big returns for investors in femtocell companies such as ip.access, Ubiquisys, or the recently funded Percello.

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I happened across a post on Verizon’s Policy Blog this afternoon and had to chuckle. The entire post is an effort to refute statistics used by organizations that claim the U.S. is falling behind in speed or has really pricey broadband compared with other nations. We all know that statistics can lie, but this particular diatribe is hilarious coming from a company that has stood in the way of collecting meaningful broadband data for years, most recently by suggesting the government pay a nonprofit to collect it. From the Verizon post:

The statistics cited regarding broadband speed, penetration and pricing are confusing, often compare apples and oranges, and in most cases don’t measure really important factors such as who is deploying next generation technologies most rapidly. Mark Twain had a very earthy saying about statistics - “There are lies, damn lies, and statistics”. He meant this as a humorous observation about how easy it is to assume numbers are always right. But it is not the numbers per se but rather how they are used and how comparisons are made that is key.

So while the post knocks the numbers and reports available, Verizon, AT&T and other carriers know the penetration, costs and speeds of most of the broadband users in the nation — and continue to fight giving out those numbers. So, to Mark Twain’s “earthy” aphorism I would add, yes, there are lies, damned lies and spin.

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.

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.