Some of the rationale for hating the Telco have been repeated so often that it has become conventional wisdom for too many people.  Will Smith at tested.com is angry that AT&T is going charge $150 (some customers can get up to $100 rebate) for their “MicroCell” router which is a femtocell technology that gives you great cell coverage inside your home.  Smith writes:

“So, here’s my problem. A femtocell is a device whose sole purpose is to help fill gaps in wireless networks.”

Not exactly Mr. Smith.  A femtocell gives you better coverage in your own home or building which might be made of materials that block cell phone reception.  The coverage outside of your home works fine and as you note, it even works in your bathroom which doesn’t block the signal as much.  Depending on the material of the walls and the insulation, wireless signals can easily drop 10-fold in signal strength or more.  I have been in plenty of buildings where there are 4 to 5 “bars” of signal coverage outside only to have the signal drop to something unusable inside the building.  It is simply not practical to pierce every home with a sufficient signal with the standard cellular base stations and femtocells are the only realistic option.

Some cell phones also have weaker performance in weak coverage areas, and people like these phones because they’ve been needlessly scared into buying phones with very low SAR ratings.  The other problem is that many local governments often make it nearly impossible to build additional cell tower which ironically exposes people to more cell phone power levels because the phones have to “yell” to be heard by the base station.

Smith goes on to say:

“you have been investing in 4G, right? You sure as hell aren’t spending anything keeping 3G awesome”

But AT&T spent $17 billion in 2009 improving their wireless infrastructure and they are likely to increase infrastructure spending to $19B in 2010.  It seems that Mr. Smith doesn’t want to let the facts get in the way of his “hate”.  By comparison, all the dotcoms (including Google, Ebay, Yahoo, and the other dotcoms that signed a letter demanding more ISP regulation in 2009) that are supposedly more important to the Internet economy than the ISPs spent a mere $9.2 billion in 2007 combined!

The myth that Telcos are neglecting to invest in their infrastructure seems to be perpetuated at every level.  Free Press made the same arguments to the FCC (which I’ve rebutted) with even more deceptive claims where they stated.

“It is important to put this data into perspective. Cable modem companies who have already deployed to over 92 percent of U.S. homes only incur $7 per month in costs to sign up a new customer. This means, if they were really serious about impacting the digital divide, they could offer targeted introductory broadband service in low-income ZIP codes, charging as little as $10 per month, and still reap a profit margin above 40 percent! Yet the industry has not pursued this path.”

“But this “discrimination leads to lower prices” argument is also questionable. It ignores the underlying financial fundamentals of the high-speed Internet Access service business. Right now, ISPs are making so much money, and their costs are declining so rapidly, that they could invest in next-generation networks and lower their prices and still remain one of the most profitable sectors of our economy.”

“But as stated before, ISPs are much more concerned with reducing capital expenditures, laying off workers, and increasing already healthy profits. Following their economic incentives, they will continue to ignore the needs of the low-income and other marginalized communities, and will look for every opportunity to raise prices, regardless of what their underlying costs actually are.”

Free Press is essentially calling the ISPs evil greedy corporations that are some of the most profitable sector of our economy but their data is badly misleading.  What Free Press is most likely quoting is an ISP’s “gross profit margin”.  AT&T for example has a 5-year average gross profit margin of roughly 59%.  The problem with the gross profit margin is that it is a relatively meaningless number in terms of the overall cost of operating a business.  The net profit margin accounts for all the costs that a company has to incur and AT&T’s 5-year average is 10.5%.  A company that has a positive gross profit margin but a consistently negative net profit margin will not remain in business for long.  The argument that ISPs should slash their prices in half but still have healthy gross profit margins is simply unsustainable and it would put ISPs out of business.

Free Press’ argument that ISPs are greedy job and investment killers with unreasonably high profit levels is nothing short of a fantasy.  What they are describing is far more applicable to the dotcoms like Google which has a 24.7% net profit margin; far better than the 10.5% margin AT&T gets.  Google is like other typical dotcoms which are far more stingy about capex and jobs than the ISPs.