6 Sep 2011
The Wedding Crashers
Nobody expected AT&T (NYSE: T) to have an especially easy time convincing regulators to allow it to buy up rival wireless carrier T-Mobile. AT&T announced its intentions last Spring to purchase the fourth-largest U.S. carrier from parent company Deutsche Telekom (NYSE: DT) for US$39 billion, and critics from all corners wasted no time expressing why they thought that would be a very bad idea.
But that’s not to say everyone thought it would be impossible. If the prevailing winds of antitrust regulation weren’t strong enough to knock Comcast’s (Nasdaq: CMCSK) bid for Universal off course, then who’s to say AT&T’s deal wouldn’t eventually fly too?
Now, though, it looks like the proposal has encountered its biggest blow yet, and it may end up crushing the merger completely. The U.S. Department of Justice has filed a civil antitrust suit to block the buyout, claiming such a deal would significantly hurt competition in the U.S. wireless market. If allowed to go through, the purchase would end up hurting consumers through higher prices, diminished service quality, fewer choices and slowed innovation, according to the DoJ.
Just as the suit was announced, the U.S. Federal Communications Commission chimed in with a message of support for the Justice Department’s action.
Over the last few months, AT&T has taken every opportunity it could get to convince regulators, watchdogs, consumers, you, me and every other living thing on the planet that the merger was a great idea. Just as the suit was announced, AT&T was busy publicizing a new reason everyone should get behind the deal: jobs. Letting the company buy up T-Mobile would enable it to bring 5,000 outsourced jobs back to the U.S., the company claimed. It’s still not clear how many existing U.S. jobs the merger would have eliminated, though.
The news of the DoJ’s lawsuit comes as a stroke of vindication for groups opposed to the buyout, of which there are many. Sprint (NYSE: S) would probably have been the carrier with the most to lose from such a deal, and it’s been loudly critical almost since Day 1. Consumer groups have also expressed concern. Verizon hasn’t exactly been at the forefront of the opposition, even though a combined AT&T/T-Mobile would have knocked it off its perch as the biggest carrier in the U.S. by several million customers.
Meanwhile, it’s probably the worst-case scenario for AT&T, which seemed more or less suckerpunched by the DoJ’s lawsuit. Wayne Watts, a top AT&T lawyer, said that his company sensed no indication that the department was even considering doing something like that despite multiple meetings with DoJ representatives. He said AT&T plans to fight the suit in court.
Investors were smacked hard too. The morning the news came out, AT&T shares dipped as much as 5.5 percent. And losing the deal could cost AT&T a lot more than a bit of dignity and a few months worth of lawyer fees. Back when it was negotiating the deal, the carrier reportedly agreed to pay Deutsche Telekom $3 billion for its trouble if the purchase were somehow scuttled. With that kind of money on the line, AT&T will no doubt fight tooth and nail in court, but it also might mean it ends up agreeing to some unusually large concessions if the DoJ offers to cut it a deal.
A compromise may not be what the DoJ has in mind, though. Given the unexpected arrival of this lawsuit, it looks like the department wants this deal dead, plain and simple.
If it turns out AT&T simply cannot get what it wants, though, it’s not all doom and gloom. The carrier insisted in the past that buying T-Mobile was the only reasonable way it could expand its 4G services to cover most of the U.S., but that’s open to debate. A leaked memo from a few weeks ago almost made it look like the real reason it wanted to buy T-Mobile was to keep it out of Sprint’s hands.
As for Deutsche Telekom, if the deal dies, it’ll likely never find another buyer willing to take T-Mobile off its hands for anywhere near $39 billion. It might go crawling back to Sprint, though even a merger between those two smaller networks might still agitate antitrust regulators. Without some kind of outward assistance, though, it’s unlikely T-Mobile will be able to be a competitor in the 4G arena. It could perhaps start buying even smaller carriers to expand its reach, but that definitely does not play into Deutsche’s plans to exit the U.S. market ASAP.
Leak, Spill and Dribble
WikiLeaks is no stranger to informational security disasters, but usually it’s the one doing the tattling. This time, though, the leaker has become the leakee. Sort of.
The information relates to CableGate, that mountain of diplomatic cables WikiLeaks distributed last year. What’s different this time is that those same cables can now be viewed in unredacted form — the names and identities of confidential sources are left visible. As leak-happy as WikiLeaks is, it never intended to let the world see the uncensored versions of those files.
In a way, this unredacted version of CableGate has been freely floating around the Internet for some time, but all locked up with encryption. You could get the files easily enough, but in order to unscramble and make any sense of them, you’d need to have the encryption key — in other words, a long, complex password.
That key is what’s been exposed, and according to WikiLeaks, it was all the fault of a nosy little newspaper. Several months ago, a writer associated with the UK’s The Guardian was putting together a book on WikiLeaks, and in the process he was given a password from WikiLeaks officials to decrypt those unredacted files. That password was printed verbatim in the book, and now it seems anyone who can grab that original encrypted data from a file-sharing network can apply the key, get access, and find out exactly who blabbed what.
But The Guardian has its own version of events. It claims that the reporter used that key to access the encrypted files over a secure server, access to which was tightly limited. He was made to believe that the data would be removed from the server in a matter of hours, at which point the encryption key would be worthless. He thought WikiLeaks would just shut down access and change the code after he was finished having a look, so no big deal if it was published in the book.
What that reporter didn’t know, according to The Guardian, was that the same file, protected with the same key, was floating around all over the Internet, being traded around by various WikiLeaks aficionados who just wanted to keep the data alive, even if it was inaccessible to them. So when that key was published, it still applied to a very much alive and very dangerous file, one that could get some people in deep, dark trouble.
Oddly enough, the tension on this has been brewing for weeks. Only now has WikiLeaks publicly commented on it because it believed the story was gaining so much traction that there was no longer any point in ignoring it. Now it’s getting ready to sue The Guardian as well as an individual in Germany.
Aside from the harm this may cause for people identified in the data dump, it’s also put WikiLeaks’ credibility at risk. The site depends on its reputation for being a place where whistleblowers can go to anonymously leak information that they think should be out there. Whether they’re right or wrong, they could have serious reservations about contacting the site if a simple misunderstanding like this is all it might take to out them.
This Is Your Company on Drugs
Google (Nasdaq: GOOG) may not be much of a drug dealer itself, but it certainly will take ad dollars from drug dealers. Mostly that means legal online pharmacies. Look hard enough and you may even find a few ads from oddball vendors dealing in strange potions and herbs that are strong enough to get you plenty blasted but aren’t quite on the other side of legal — not yet, anyway.
But for a while there, Google was carrying on some ad activities that the U.S. Department of Justice said were very much against the law. According to the DoJ, Google’s AdWords program was running ads from Canadian pharmacies that targeted U.S. buyers, which is a serious foul. The investigation lasted for years, but Google settled the problem in August by paying an enormous amount — half a billion dollars, which was the estimated revenue from all that shady advertising.
That settlement wasn’t the end of the headaches for Google, though. It’s paid off the DoJ, but now a shareholder wants a pound of flesh too. The Google stock owner reportedly claims the company breached its fiduciary duty by facilitating illegal drug imports and filed false annual reports over a period of six years by not disclosing the revenues earned in doing so.
If the suit takes root, it could soon be joined by lots of other shareholders as a class action.
But at first glance, the case doesn’t appear to be an easy win. For one thing, Google’s fine. That revelation of the whole problem and the amount of the settlement were barely a blip on the radar as far as the company’s stock value was concerned. Shareholders who complain they lost money because of any sort of malfeasance on Google’s part might have a hard time connecting any substantial losses to this one particular affair.
Also, the argument that Google falsified records looks like it could be pretty flimsy. I guess it’s possible there’s some smoking gun that hasn’t been revealed yet, but fudging a public company’s official balance sheet is a serious infraction. Maybe some companies do it once in a while, even ones as prominent as Google. But would the CFO of the Internet’s most powerful company really put it all on the line just to hide a few piddly little drugstore ads, the profits on which hardly amount to a drop in Google’s massive ocean of money? Hard to believe it happened — it just sounds too stupid.
Changing the Channel
It eliminated 99-cent TV show rentals. This was where you could pay a buck, download a TV show, watch it, and then forget about it, because it would delete itself automatically from your hard drive in a few days. For anyone who isn’t into watching reruns on purpose, it was a pretty good deal. It came out right around the time the revamped Apple TV arrived on the scene, and TV show rentals were one of the device’s big selling points.
But no more of that. Movies can still be rented, but TV shows must be purchased for $2 to $3 per. They stay on your hard drive until you delete them. A dollar or two difference may not be that big a deal, depending on your entertainment budget, but this was a simple, customer-friendly offering that Apple promoted pretty hard in its short existence. So why yank it after only about a year?
Apple said it was all about customer demand. According to them, TV show rentals never really caught on. And who knows, maybe the TV networks applied a little pressure themselves. Apple’s entertainment delivery model is going through some big changes soon, and it’s not so much of a stretch to think maybe Apple had to do a little give and take to get what it wanted.
The change that’s coming is iCloud, the Apple syncing service that’ll let you share data across Apple devices in new ways. And users of Apple TV have noticed recently they can start actually streaming TV shows they’ve purchased in the past — even ones they bought so long ago they can’t remember buying them. It used to be you could just stream rentals and stuff saved somewhere on the local network.
So it looks like iTunes TV is coming to a point at which everything you ever buy will be accessible anywhere through your iDevices — it’s just that when it comes to TV, you’ll have to buy it, not rent it. You’ll be paying more, perhaps, but at least you’ll have a nice, big library of reruns.
One More Time
HP’s (NYSE: HPQ) TouchPad tablet burned out quickly, but that’s not because it burned all that brightly. It was a lousy seller from Day 1. Mega-retailer Best Buy (NYSE: BBY) reportedly complained about mountains of unsold units. And it’s entirely possible that the TouchPad would have withered away over many slow and painful months had it been allowed to live.
We’ll never know for sure, though, because HP put it to sleep just six weeks out of the gate.
But then HP pulled another odd move: It says it’s going to go in for one more round of TouchPad production. It’s still a dead tablet — HP really is killing its webOS device lineup. But the company’s going to press out another batch of them, even after that discontinuation has been publicly announced — a sort of anti-victory lap, I guess.
HP says this last hurrah is due to the incredible spike in popularity the TouchPad experienced after its death warrant was publicized. Suddenly TouchPads were hot, and it wasn’t because people wanted them as museum pieces or cheese plates. It was because prices took a nosedive to $99 — and this was for a tablet you used to have to pay $500 to get. Sure, it’s been dead-ended by its manufacturer, and webOS might fade into oblivion soon too, but that doesn’t make the tablet worthless, and $100 was apparently an attractive price for a lot of buyers.
If HP was desperately trying to rid itself of a dead product, then that price drop was definitely a very effective distribution laxative. But if clearing its house of TouchPads really was what HP was trying to do, why make even more of them? HP says it’s going to sell this next batch of TouchPads for an MSRP of $99, and it’s a big stretch to believe that could be anywhere close to profitable.
Factors like scarcity and uncertainty may have combined with price to drive the TouchPad’s postmortem popularity, and it looks like HP’s trying to keep that alive for this last production run too. It says it doesn’t know when they’ll come in or how many there will be.
Perhaps the company has a bunch of unassembled TouchPad components lying around. That wouldn’t be surprising given how suddenly and unexpected it axed the TouchPad in the first place. Maybe putting them together and selling more TouchPads for an almost embarrassingly low price is actually the least-costly option.