Adam Bender

A Verizon FiOS mechanism that forwards customers who mistype domains to a Verizon search page is raising hackles among some net neutrality supporters but shrugs from others. The forwarding lets Verizon exploit typos financially and represents another example of a network operator abusing its power, said Art Brodsky of Public Knowledge. “It’s not in itself a major offense,” but gains significance when added to other “itty-bitty things” like Verizon’s banning a NARAL Pro- Choice America text messaging program (CD Sept 28 p2) and Comcast’s blocking of BitTorrent traffic (CD Oct 22 p13), he said. Other net neutrality advocates seemed less upset. “I can see why Public Knowledge is concerned,” but it’s not a “major deal” to the Center for Democracy & Technology, because Verizon is only forwarding users who are already its customers, said Ari Schwartz, CDT deputy director. The Electronic Frontier Foundation has heard about the matter but hasn’t looked into it, a spokeswoman said. A Verizon spokeswoman defended the program, introduced in June. “The service simply helps customers better find what they are looking for when they mistype a URL,” she said. “Instead of getting an error page, they get a page that asks if they meant to type something else, and a list of possible URLs that may lead them where they really wanted to go.” Customers can opt out of the service, she added. But Verizon has had “an extremely low opt out rate and we have received very few complaints from customers about the service,” she said.

Broadcom will not seek a new trial with Qualcomm after a Santa Ana court killed an order that Qualcomm pay double damages and attorney fees to the semiconductor rival, Broadcom said Friday. It “instead will accept the $19.6 million in compensatory damages as originally awarded by the jury and will immediately pursue an injunction against Qualcomm’s infringing products.”

A majority of Leap lenders agreed to waive credit agreement defaults that arose when Leap said it needed to restate financial statements for fiscal year 2004 through Q2 2007 (CD Nov 13 p10), delaying its third quarter Securities Exchange Commission filing. “We are very close to getting agreement from all lenders involved,” a spokesman told us. Leap paid a 25 basis point fee to waiving lenders, agreeing to increase the interest rate 75 basis points. Lenders choosing not to waive “do not share in the fee,” the spokesman said. Leap has an $890 million senior secured term loan and a $200 million revolving credit facility. If Leap cannot get waivers from all lenders, loan amounts will not change, nor will there be any other effect to Leap’s cash or business, the spokesman said. Lenders approved a Leap- proposed amendment saying an “agreement leading to a change of control” doesn’t “constitute an event of default, unless and until the change of control occurs.” The phrase “change of control” means “ownership of the company,” not an executive’s resignation or other management change, the spokesman said. The amendment is “no doubt” part of Leap’s preparation for a merger with MetroPCS happening in the long term, Stanford Group analyst Michael Nelson told us. However, the Leap spokesman said “it would be a stretch to say we're giving greater consideration to potential mergers/acquisitions,” he said. “No more, no less consideration than before.”

A Turkish family found guilty of massive fraud against Motorola and Nokia must pay the device makers $1 billion in punitive damages, the 2nd U.S. Circuit Court of Appeals ruled. The U.S. District Court for Southern New York had ordered the Uzan family to pay $2.13 billion in compensation and $2.13 billion in punitive damages in a case related to fraudulent loan arrangements the Uzans set up between the manufacturers and Uzan-backed Turkish wireless operator Telsim. On appeal, however, the 2nd Circuit ruled punitive award too high to “be squared with federal or Illinois law” and sent the case back to the lower court to recalculate. The district court ordered additional evidence discovery and reduced the award to $1 billion. The Uzans appealed again, arguing that the punitive damages assessed still equaled “an economic death sentence that neither Illinois law nor the Constitution permit.” But the award is acceptable under Illinois law because the district court “properly considered the best available evidence of defendants’ financial status” and the Uzans “have made no showing that the district court’s award was the product of passion, partiality, or corruption,” the appeals court said. The award also complies with federal law, because of a Supreme Court ruling that “only when an award can fairly be categorized as ‘grossly excessive’… does it enter the zone of arbitrariness that violates the Due Process Clause,” the 2nd Circuit said: “The award in this case, despite its size, cannot be deemed grossly excessive.” Motorola said it was pleased with the decision. Nokia didn’t comment right away.

Buying 700 MHz spectrum would be financially “immaterial” to Google, the Stanford Group said, responding to a Wall Street Journal report that the company will make a “serious run” in the auction. “If Google pays $5 billion for spectrum, that represents 2.5 percent of its market value and less than 40 percent of its cash,” the analyst firm said. But Google may not be as bold as some expect, it said. “Google will either not bid aggressively or will partner to build and operate a network,” it said. “Google is trying to drive carriers to open their networks to its Web services. Google’s lobbying efforts and spectrum bidding preparation are, at least in part, a ploy to drive better deals with existing wireless carriers.” Tower companies will be the winners if Google gets spectrum, because “a new network would require site deployment nationally,” it said. If Google is “going it alone, that’s a lot better than them working with Verizon,” said Txtbl CEO Amol Sarva, a member of Frontline Wireless’s Open Access Advisory Council. However, it’s too early to tell what a Google bid would mean for open access, he said. “It would mean more for open access if they were actually saying anything at all about how they intend to offer the service.”

Vonage must pay $120 million to settle Verizon patent claims, Vonage and Verizon confirmed Thursday. The Federal Circuit U.S. Appeals Court denied Vonage’s petition to rehear, according to the court’s weekly disposition sheet. “We were not surprised, but disappointed that the court denied our request for a rehearing of the case,” Vonage said. “We are pleased to continue putting litigation behind us and keep focusing on our core business.” Vonage will pay Verizon $117.5 million plus $2.5 million to Verizon-chosen charities. Had Vonage won a rehearing or the court revoked the injunction, the company would have paid Verizon $80 million. The court’s denial isn’t surprising and strengthens fears that Vonage soon may face a liquidity crisis, said Stanford Group analyst Clayton Moran. Vonage must pay off $250 million debt by Dec. 2008, but has “zero” working capital, he said. Vonage will have $154 million cash after paying Verizon, most of it needed for business costs, he said. Vonage likely is “exploring [funding] alternatives,” Moran said, predicting the VoIP firm will address the debt issue next summer. The Verizon deal won’t affect terms of Vonage’s $80 million settlement with Sprint Nextel, said Stifel Nicolaus’s Rebecca Arbogast. A provision in the Sprint settlement said Sprint could get more money if the terms in a future Vonage patent settlement were “more favorable,” she said. But the Verizon settlement is structured so as to “nullify” that provision, she said.

A Netherlands court dismissed a Nokia complaint seeking to bar Qualcomm from enforcing European Union patents. In March, Nokia filed in courts in The Hague, Netherlands, and Mannheim, Germany, claiming Qualcomm’s intellectual property claims were “exhausted” because its patents were licensed to Texas Instruments. Dismissing its case Oct. 23, the Mannheim court cited Nokia’s lack of “legal interest” to pursue claims. This week, The Hague followed suit, ruling that the complaint failed to specify instances of exhaustion. The rulings prove “one should view Nokia’s fundamental theory of exhaustion with a significant degree of skepticism,” Qualcomm General Counsel Dan Rosenberg said. Nokia has until month’s end to appeal in Mannheim and three months to appeal in The Hague. The Hague ruling “was based on the scope of the relief Nokia requested, rather than the principle of patent exhaustion,” and Nokia remains “confident that our substantive claim is well founded,” said a Nokia spokeswoman. Nokia is “considering if we will appeal” the decisions, she added.

MetroPCS announced its schedule for market launches n Las Vegas and the Northeast along with strong Q3 earnings in a Wednesday analyst call. The company expects to launch in Las Vegas Q2 2008, Philadelphia Q4 2008, Boston Q1 2009 and New York the first half of 2009, said Thomas Keys, chief operating officer. The dates could change and launches may happen “in phases,” but designs are done, with construction underway and “key staff” in place, Keys said. Advanced Wireless Services auction spectrum will be cleared in time for the launches, avoiding a problem that T-Mobile faces, he added. In Los Angeles, MetroPCS has penetrated 0.5 percent of its covered population since the network’s mid-September launch, Keys said. The California fires spared the network and service wasn’t affected, he added. MetroPCS income is growing with the network. In the third quarter, Metro total revenue rose 41 percent year over year to $557 million and net income 81 percent to $53 million. It posted $184 million in EBITDA, a 70 percent increase year-over-year and the highest quarterly figure in company history. Meanwhile, CEO Roger Linquist updated investors on 700 MHz plans and Leap Wireless talks. “A lot of factors,” such as new rules, make the 700 MHz auction “not totally stable,” but “you should probably still assume” MetroPCS will register, Linquist said. “There are some issues regarding the spectrum and the interference from adjacent bands,” he said. “So we're cautious, interested but cautious.” Concerning Leap, Linquist essentially repeated a company statement released when MetroPCS withdrew its merger proposal this month, adding that “the ball is… in their court.” The CEO declined to comment on Leap Wireless’s recent restatement of previous financial results (CD Nov 13 p10). “I would rather not speculate on information that’s rapidly coming to the forefront,” he said. Neither a U.S. economic slowdown nor competition from Sprint Nextel threatens MetroPCS’s business, said Braxton Carter, chief financial officer. “MetroPCS is a phenomenal company to own if there’s a sustained economic slowdown,” he said. “Our very low cost structure and no bad debt exposure positions us extremely well for aggressive customer acquisition during these periods as opposed to our competitors.” Boost Mobile, Sprint’s prepaid mobile virtual network operator, is no threat to MetroPCS because it won’t expand nationwide, Carter said. Sprint’s fear of cannibalization limits Boost and could make the MVNO unsustainable long term, he said: “If you make it too compelling, you're going to start bleeding off all those postpaid customers that are Sprint’s bread and butter.”

Carriers will emphasize “customer-friendly” policies to compete next year, analysts told Communications Daily. Recent news that AT&T, T-Mobile and Sprint Nextel will introduce progressive early termination fees in 2008 arrived a year after Verizon Wireless decided to prorate its own ETFs. The Verizon rivals hesitated due to higher churn, but have been “forced into” prorating “given Verizon’s leadership,” said Current Analysis’s William Ho. In 2008, relaxed fees will be a “sign of [carrier] strength and confidence,” said ThinkEquity’s Anton Wahlman. “The guy who wins will be the one… not scared of letting you go.”

Shifting business directions killed Sprint Nextel and Clearwire’s planned WiMAX collaboration, Clearwire CEO Ben Wolff told investors in the company’s Q3 earnings call. “Sprint is going through a period of significant change with the focus on simplifying its business” while “Clearwire needs to move forward with its business and strategies,” he said. However, the companies are still talking and a Sprint acquisition or WiMAX spinoff is still possible in the long term, Jefferies analyst Jonathan Schildkraut said in an interview.