One guess at the biggest reason is that T-Mobile and Sprint are the two players most likely to consider pushing the FCC to create reasonable, open, broadband roaming requirements. All the smaller cellular operators would like that, but only two have deep enough pockets to fund a campaign, and clearly T-Mobile is one of them. Remember that the appeals of FCC orders on unbundling were funded by the IXCs until the RBOCs bought them? The same dynamic could be at work here.

As a related point, healthy competition is key to regulators in the U.S. wireless market. It may be that Verizon reasons that neither Sprint nor T-Mobile can make an effective go of competing. Problems with the financial position of the second-tier players could then spur regulators to act. Obviously T-Mobile’s stability and endurance wouldn’t be in question if AT&T bought them. Could Sprint then capitalize on the new dynamic? Would a cable company, or even Verizon, buy them? Could the FCC accept a duopoly instead of its cherished notion of three key players?

Or could Verizon just be bluffing? That’s the second point here. By asserting they think the deal could go through, Verizon might hope to marshal public policy groups’ opposition to the deal. Regulators are certainly uneasy about this kind of consolidation. Which brings both issues to the same point; competition. 

There’s a fundamental problem here in that telecom is very expensive and has a relatively low rate of return on investment. That makes it an industry that isn’t naturally competitive. To demand that there be three or four major competitors isn’t realistic if that number can’t be sustained by the available revenues or by the trends in return on infrastructure. The FCC may now have to face reality: Multiple parallel wireless networks are always going to be more costly than one single network, or two.

For the equipment vendors, this should be a stark warning. The investment in wireless or wireline infrastructure depends on making a profit on that investment, not on the “traffic demands” of the network. Consolidation is a signal that ROIs are falling, that network equipment sales will likely be impacted by the ROI trends, and that differentiation is moving elsewhere.

However the tablet goes, the big news will be the network and the impact of tablets on user behavior. Movement to tablets on a large scale means movement to ubiquitous wireless, but we’ll need to look hard at just what “ubiquitous” means. As I’ve noted, there’s an opportunity for hospitality-Fi networks to play an enormous role in future tablet networking. I think wireless providers and equipment vendors realize that and are trying to figure out how to promote a truly compelling case for 3G/4G wireless versus Wi-Fi. The problem is that it’s going to be an uphill battle, because device vendors have everything to gain by pushing Wi-Fi versions of their devices to get a larger near-term market share.

Behavior, mobility and devices all create interdependence. Consumers aren’t set on tablet use, wireless models or behavioral patterns at this point. That means giving them support for a specific usage model can condition them to consume that model, whatever form that support may take. An explosion in tablet competition could empower a host of competitors, create a hospitality-Fi wave and erode the business model for 4G. It could foster a different model for mobility that focuses on roaming data sessions between Wi-Fi hot spots, independent of traditional mobility tools of the past and of IMS. It could even erode the operators’ positions in the service layer, because Wi-Fi is traditionally an over-the-top framework tied to no operator in a technical sense.

Alcatel-Lucent, whose quarter showed some real promise for growth, seems to recognize that. They announced a program with Eurozone provider KPN that demonstrates the exposure of provider network assets through Alcatel-Lucent’s Application Enablement and Open API program. This is the first large-scale success of a provider API program to deliver premium network features up the stack to the service layer. The application itself is still a bit simplistic, focusing again on QoS and bandwidth rather than on the more complex areas of identity, federation, content delivery networks and application-service feature creation, but it’s a convincing demonstration that operators do have a path to monetize their underlying network assets either by offering high-level services that exploit them or by wholesaling them to somebody else. This kind of capability may be critical if things like tablets and hospitality-Fi start to erode the traditional mobile opportunity.

We’re reluctant to brand this particular rumor as truth — this sort of story has been “leaked” before and has proven incorrect — but the story about a massive network upgrade appears to be accurate. We still hear that the upgrade is due to traffic generated by the iPhone, and while congestion could in fact be a point of competition with Verizon, it seems to us that AT&T needs the upgrades, Verizon iPhone or not. It also seems that Verizon would be smarter to go with a 4G iPhone, which would likely mean that competition with AT&T over the gadget wouldn’t develop until 2011.

The Verizon moves are, we think, are calculated to make things complicated for AT&T and Apple with the iPhone for the holidays. A multiplicity of models at various sizes and price points makes sense at this stage in the market, but there is no question Apple still has the cachet that other smartphones have so far been unable to match.

We think all of these smartphone wars are a signal that whatever the FCC might do with wireless net neutrality, operators are committed to the mobile web.

But our current data suggests providers will spend between 18% and 40% more in the second half of the year than the first, that spending will be balanced so wireless gets about 35% more than wireline, and that edge and metro networks will get a bigger boost than deeper core (in large part because the former groups were cut more in 1H09). As we’ve noted before, we expect most of the money to be spent between mid-September and the end of the year.