Hultquist

Hank Hultquist, AT&T’s federal regulatory vice president, is taking questions on broadband Internet policy in an upcoming Washington Post piece.

Here is your chance to question AT&T about broadband issues ranging from Internet Overcharging schemes like usage caps and rationing experiments, Net Neutrality, U-verse and DSL broadband expansion, and AT&T’s involvement in the public policy arena.

AT&T is currently seeking major changes to the $8 billion Universal Service Fund that helps subsidize phone service for rural Americans.  AT&T wants to see that fund expanded to subsidize broadband improvements, which will directly benefit AT&T as it is among the top recipients of USF funds.  With 16 million current broadband customers and a service area that extends into the often-rural midwest and southern parts of the country, AT&T could receive a windfall in federal funds to pay for broadband service it doesn’t provide many areas today.

But what kind of broadband service will AT&T offer?  The company recently concluded a trial limiting use of its AT&T DSL service to customers in Beaumont, Tex., and Reno, Nev.  AT&T claims it is currently analyzing the results of that trial, and could bring usage limits on all of its customers.  Feel free to pose your own questions in the comments section of the Washington Post article (reg required) or sending an e-mail to Cecilia Kang (kangc@washpost.com) no later than Friday morning.

Scott Cleland, who runs the dollar-a-holler, broadband-industry funded astroturf group Net Competition already has his question in:

Shouldn’t those broadband Internet users (consumers or big businesses), who use the most bandwidth and benefit the most from faster more ubiquitous broadband, contribute relatively more to the Universal Service fund than those consumers and businesses that use much less bandwidth? Isn’t that the basic fairness principle that has long undergirded the current Universal Service fund, which is based on long distance usage/minutes?

Scott Cleland
Chairman, NetCompetition.org an eforum supported by broadband interests

Do you want to pay the higher broadband bills that Cleland advocates?

Kang promises to include as many of your questions as possible and post the Q&A early next week.

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Tim Conway's "Old Man" character from the Carol Burnett Show would be right at home using the Internet in these areas.

Nick Saint at the Business Insider has been sifting through some of the raw data released last week by the Federal Communications Commission regarding broadband service in the United States.  He’s managed to identify the 10 worst counties in America for broadband service based on statistics from 2008.  But two of those probably should have never been on the list.  More on that later.

Harrison County, Mississippi — A single pond in Harrison County is the only known habitat of the critically endangered dusky gopher frog.  It doesn’t have broadband, and neither do most of the residents of this beleaguered part of southern Mississippi.  The cities of Gulfport and Biloxi are in Harrison County, an area torn up by hurricanes from Camille to Katrina.  Now, the beaches are coated in BP oil.  Harrison County can’t get a break. Cable One and AT&T are the primary providers.  Cable One’s dreadful service only reaches well-populated areas and AT&T has taken its sweet time expanding DSL service in the area.

Imperial County, California — The nation’s lettuce basket, Imperial County communities live on a very low fiber-optic diet.  While the soil is rich for crops, the people who plant and harvest them are not.  El Centro, the biggest city, has some broadband available, but with the city having the nation’s highest unemployment rate (27.3 percent), many can’t afford it.  Once in farm country, cable doesn’t offer service and DSL is hard to come by.

Corson County, South Dakota — Representative of the pervasive problem of broadband unavailability on Native American lands, a large part of Corson County includes the Standing Rock Indian Reservation.  Saint notes the FCC found just 12.5 percent of Native Americans subscribe to broadband service, compared to 56 percent of the rest of us.

Ector County, Texas — Odessa’s hometown America-charm was put on display for all to see on NBC’s Friday Night Lights, which celebrated small town high school football.  The reality is less exciting.  Like Harrison County, Ector residents are stuck with Cable One, which loves Internet Overcharging schemes and spied on its Alabama broadband customers.  Good ole AT&T grudgingly provided DSL, if you could get it, until mid-2009 when U-verse finally started to show up.  Now large parts of the county outside of Odessa can’t get that either.

San Juan, Puerto Rico — Usually considered an afterthought by American telecommunications companies, Puerto Rico has long suffered with low quality service.  Caribbean Net News: “Puerto Rico’s broadband penetration rate is unacceptable, with less than 40% of households subscribing to broadband services”, said Carlo Marazzi, President of Critical Hub Networks. “While there are many factors at play, broadband in Puerto Rico is simply too expensive and too slow, when compared to the rest of the nation.  Broadband Internet service in Puerto Rico is 60% more expensive and 78% slower than the United States national median. In a report published this year by the Communication Workers of America (CWA) which ranked broadband speeds in the 50 states, Puerto Rico and the District of Columbia, Puerto Rico was ranked in last place (52nd place).

Jasper County, Missouri — Saint noted 18 percent of Jasper County lives below the poverty line, which is not exactly attractive to broadband investment.  Jasper County’s broadband needs are barely met by a cable provider, AT&T, and for some, an electric utility operating a Wireless ISP, providing service where cable and DSL don’t go.  For Jasper County residents, the challenge can be cost as much as access.

Appomattox County, Virginia — Every student known Appomattox was the last stand of Confederate leader Robert E. Lee during the Civil War.  Today, residents there are worked to their last nerve because they can’t easily obtain high speed Internet.  There is no DSL service from the phone company and only limited cable service.  But at least the county is trying.  Let’s let John Spencer, assistant county administrator, tell you in his own words what Appomattox County is doing to deliver broadband for its 14,000 residents:

Bristol Bay Borough, Alaska — The epitome of rural America, large swaths of Alaska are dependent on subsidies paid from the Universal Service Fund for basic telephone service.  Outside of large cities, cable television is a theory.  Telephone company DSL service and wireless are the predominate broadband technologies in rural, expansive Alaska.  For many areas, both are awful.  Bristol Bay Borough is known as the “Red Salmon Capital of the World,” if only because there are far more salmon than there are fishermen to catch them.  Internet access for many of the area’s 953 residents means a trip to the Martin Monsen Library, which offers free Wi-Fi for limited access. If you want Internet at home, it will cost you plenty:

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AT&T’s idea of “unlimited service” has its limits.  Five gigabytes to be exact, as some customers are now learning.

Weeks after promising AT&T customers enrolled in unlimited smartphone data plans that they could keep them, AT&T is now calling some subscribers of an earlier unlimited plan, telling them they need to limit their use of the “unlimited service.”

AT&T’s Data Connect Unlimited plan was discontinued by AT&T back in 2008, but the company promised current customers they could keep their unlimited plan.  But now, the company has started calling customers when they exceed 5GB of usage during a month.

The Washington Post reports AT&T has been sending mixed messages to customers, and is cracking down on those customers exceeding the company’s arbitrary limits.

“We’ve had a small group of customers on a DataConnect 5GB plan who were not being charged for overage when they went beyond that limit,” she wrote. “We’re now working to bring their accounts in line with the policy for the other DataConnect 5GB plan subscribers.”

Clark added that users who had signed up for AT&T’s earlier Data Connect Unlimited plans (which it stopped selling in 2008) could keep using them, but if they made “certain changes to their account” — for instance, transferring it to a new line — they would have to sign up for a new $60 plan with a 5-gigabyte usage cap.

That comes as news to several AT&T customers who have been in touch with the Post, who were switched, without permission, to limited service plans when they made minor changes to their account or were told AT&T was going to end unlimited service for all AT&T customers.

Rob Pegoraro, who writes the Fast Forward column for the Post, notes AT&T’s customer-care staff seems a little confused about these matters. He advises users with old, unlimited-data plans should be prepared for lengthy calls to customer service — and keep careful records of their interactions with the company.

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Verizon hopes to herd its smartphone owners onto limited use data plans

Engadget is speculating Verizon Wireless is planning to end its unlimited data plan for smartphone customers July 29th.  In a brief story published last night, the site claimed it had heard rumors of the impending demise of unlimited at the nation’s largest cell phone company:

We’re hearing that Big Red intends to move to some sort of tiered bucket strategy on July 29. We don’t have details on whether the pricing will be identical to AT&T’s ($25 for 2GB, $15 for 200MB), but we imagine it’ll be within shouting distance if not. Of course, Verizon has been sending this message for a long time — even before AT&T was — so it shouldn’t come as a surprise to anyone that this is going down. You might say that Droid Does Caps, eh?

Verizon and AT&T have followed each others’ relentless price increases, tricks and traps for the last few years — forcing customers to accept mandatory service “add-ons” when buying the latest phones, paying higher costs to terminate contracts early, and driving customers onto higher priced service plans bundling services and features many customers do not want.

It therefore comes as no surprise Verizon would follow AT&T’s lead on severely restricting customers’ data use, even though Verizon does not suffer from the level of congestion AT&T has.

We expect Verizon will announce data pricing identical to that offered by AT&T.

However, existing customers can be grandfathered into today’s unlimited plans, so if you think you’ll need unlimited data on Verizon’s network, you have until the end of the month to sign up for a plan should Engadget’s report turn out to be true.

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"Without limits" is ironic from Time Warner Cable, whose CEO still believes in Internet Overcharging schemes, even if customers don't.

Time Warner Cable has stopped promoting three different service plans for its Road Runner Mobile wireless broadband service.  The company’s new promotional literature and website now promotes just one mobile plan  — National Elite, with three different prices depending on what kind of business you do with the cable company.  It also does away with Internet Overcharging schemes, promoting an “unlimited data allowance” regardless of whether you access the service over 3G or 4G networks.  That’s ironic, because Time Warner Cable’s CEO Glenn Britt is still a big believer in consumption billing schemes and usage limits.  Should Time Warner Cable ever return with new overcharging schemes, we’ll be sure to remind them about the implications of providing unlimited wireless service while trying to restrict the much larger wired pipeline Road Runner’s cable-based network provides.

As we reported last year, when Time Warner Cable introduced Road Runner Mobile last winter in North Carolina, the company offered three different service plans for customers considering signing up:

• National Elite: Unlimited access to Clear WiMax and Sprint’s 3G EVDO Rev. A network for $79.95 per month to customers who also take the Road Runner Standard or Turbo cable modem service. Time Warner promises further discounts if customers subscribe to the cable provider’s double or triple-play cable service bundle which includes cable internet access and digital phone service.
• Mobile Elite: Unlimited access to mobile WiMax for $49.95 per month and pricing also applies when bundled with the Standard or Turbo cable modem service with an additional bundle discount available.
• Mobile 4G Choice: Caps mobile WiMax use at 2 gigabytes per month and will sell for $39.95 per month if customers add at least one other Time Warner cable service.

Now, as the company introduces the service in upstate New York, customers are getting promotions online and off for only one plan – National Elite.

Pricing appears to be standardized in most regions of the country, depending on what kinds of services you already receive from Time Warner Cable:

• Current Road Runner subscribers will pay $54.99 per month for National Elite;
• Current Time Warner Cable subscribers and those without cable or broadband service will pay up to $69.99 per month.

(Several cities in Texas can obtain special pricing promotions reducing the cost to $49.99 per month for 12 months.  Ask about special promotional pricing if you intend to sign up.)

Customers can select a plan that includes a two year service agreement with a $175 early termination fee (reduced by $7.50 for each month you remain a customer) and receive a substantial discount on a wireless modem and get the $35 activation charge waived.  Non-contract customers will have to buy their equipment at full price and pay the activation fee.  4G network speeds are up to 6 Mbps for downloads, and up to 1 Mbps for uploads. 3G network speeds are up to 1400 Kbps for downloads, and up to 500 Kbps for uploads, according to the Time Warner Cable website.

Plans directly available from Clear, which actually provides the Road Runner Mobile service are different:

• Clear On-the-Go provides 4G-only service for $40 a month.  No 3G service.
• Clear On-the-Go 3G Upgrade includes unlimited 4G service and up to 5GB of 3G usage for $55 a month.
• Get Two: Home + On-the-Go includes service for one home computer and one portable computer, with no 6Mbps download speed cap, for $55 a month (add $15 for 3G service)
• Get Two: On-the-Go includes service for two portable computers, with no download speed cap, for $65 a month (add $15 for 3G service for one computer, $30 for two)

A $35 activation fee applies to non-contract customers.  If you agree to a two-year contract, you can lease your equipment from Clear starting at around $5 per month and have the activation fee waived.

Now the fine print.

Although Clear markets its 4G service as “unlimited,” the fine print suggests they can make life difficult for customers they consider “disrupting or degrading” the service for others (underlining ours):

Excessive Utilization of Network Resources. Wireless networks have capacity limits and all customers can suffer from degraded or denied service when one or a small group of users consumes disproportionate amounts of a wireless network’s resources. Clearwire, therefore, will monitor both overall network performance and individual resource consumption to determine if any user is consuming a disproportionate amount of available resources and creating the potential to disrupt or degrade the Clearwire network or network usage by others. This process of monitoring both overall network performance and individual resource consumption is consistent with the description of the nature of the Service previously described in this AUP. Clearwire reserves the right to engage in reasonable network management to protect the overall network, including analyzing traffic patterns and preventing the distribution of viruses or other malicious code.

During periods of congestion, Clearwire uses various techniques such as reducing the data rate of individual bandwidth intensive users whose use is negatively impacting other users. This temporarily limits the amount of bandwidth available to the bandwidth intensive users until the congestion has diminished, at which point Clearwire will endeavor to lift any limits it may have imposed on bandwidth intensive users during the period of congestion. Clearwire may also consider historical usage patterns when temporarily reducing the data rate of bandwidth intensive users during periods of congestion. When feasible, upon observation of an excessive use pattern, Clearwire will attempt to contact you by telephone at the telephone number you gave to us or otherwise to alert you to your excessive use of bandwidth and to help you determine the cause. Clearwire representatives also are available to explain this AUP and to help you avoid excessive use incidents. If you are unavailable or do not respond to Clearwire’s attempt to contact you regarding excessive use, or if excessive use is ongoing or recurring and repeatedly having negative effects on other subscribers of the Service, Clearwire reserves the right to immediately restrict, suspend or terminate your Service without further notice in order to protect the network and minimize congestion caused by the excessive use. While the determination of what constitutes excessive use depends on the specific state of the network at any given time, excessive use is determined by resource consumption relative to that of a typical individual user of the Service and not by the use of any particular application.

Unlimited Use Plans.If you subscribe to a service plan that does not impose limits on the amount of data you may download or upload during a month, you should be aware that such “unlimited” plans are nevertheless subject to the provisions of this AUP. What this means is that all of the provisions described in this AUP, including those that describe how Clearwire may perform reasonable network management such as reducing the data rate of bandwidth intensive users during periods of congestion, will apply to your use of the Service. The term “unlimited” means that we will not place a limit on how much data you upload or download during a month or other particular period, however, it does not mean that we will not take steps to reduce your data rate during periods of congestion or take other actions described in this AUP when your usage is negatively impacting other subscribers to our Service.

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Craig E. Moffett joined Sanford C. Bernstein & Co. as the Senior Analyst for U.S. Cable and Satellite Broadcasting in 2002.

Craig Moffett, a Wall Street analyst with Sanford Bernstein, is sounding the warning bells that if AT&T and Verizon assign usage caps to their forthcoming LTE wireless broadband services, they will never provide suitable competition for American consumers.

The implications of Internet Overcharging schemes in wireless broadband go well beyond the two companies’ broadband offerings.  Investors expect either AT&T or Verizon to attempt a buyout of DirecTV in the coming months, hoping to pair the satellite service with broadband packages delivered by DSL, fiber, or wireless broadband.  Because many DirecTV subscribers are located in rural areas where even DSL service is often not available, wireless broadband networks would be the most likely means of reaching customers, but not with onerous usage caps.

“If LTE networks are going to be usage-capped, then the last pretense that LTE networks can be positioned as a substitute for terrestrial broadband would seem to be gone,” Bernstein told his clients. “And if LTE can’t be offered as a replacement for wired broadband, then the notion of an out-of-region bundle of DirecTV and LTE is no more.”

Unlike earlier broadband technologies, WiMax, LTE, and other 4G broadband platforms can deliver far more data to subscribers at reduced costs.  With the increased efficiencies offered by the faster networks, carriers can provide customers with considerably more wireless broadband service, unlike heavily capped 3G networks, most of which are limited to 2-5GB of monthly usage before the penalty rates or speed throttles kick in.  While completely unlimited service is unlikely until capacity increases, there is plenty of room to allow customers to access 4G networks without thinking twice about everything they do on them.

Sprint is betting its comeback on its virtually-unlimited Clear WiMax 4G service, now becoming available in an increasing number of cities across the country.  Marketed as a replacement for wired broadband, Sprint is hoping customers will flock back to the carrier, especially if AT&T and Verizon’s 4G LTE offerings are capped.

But AT&T and Verizon have both made noises about usage capping their LTE offerings, if only to increase revenue.  These profit raising Internet Overcharging schemes come despite efforts by the Obama Administration to dramatically increase wireless spectrum available for wireless broadband services.  Dave Burstein from DSL Prime says Federal Communications Commission chairman Julius Genachowski is betting the farm on wireless broadband being the best chance for increased broadband competition.

“The heart of the U.S. broadband plan is to release more spectrum – enough for 10-20 networks like Verizon’s LTE now building – and pray that will be enough competition in five to seven years to check price increases,” Burstein writes.

Making wireless an important substitute for DSL requires raising bandwidth caps from today’s typical 5-10 gigabytes to several times as high as LTE makes the cost reasonable. If Verizon follows AT&T with an abusively low cap of 2-5 gigabytes and Sprint etc. don’t clobber them, the whole broadband plan falls apart because that’s not enough for competition in the future.

I doubt Julius understands this, because he would be doing everything in his power to avoid low caps. It’s just one more strike against “affordable” broadband, like the recent Comcast and Verizon price increases. People need to laugh out loud when Genachowski says “affordable” while tolerating continuous price increases.

Dave Burstein, DSL Prime

While wireless broadband can deliver access to many Americans who have never had broadband service before, it’s not well-positioned to compete for customers seeking to use the next generation of high bandwidth Internet applications.

None of the current wireless services are suitable for high quality video streaming of HD TV shows and movies, a crucial application for many broadband users. Burstein also notes large uploads are painfully slow on Clear’s WiMax network because of limited upstream speeds, but he expects improvements in time, assuming carriers expand with demand.  If not, as more users pile on the next generation wireless networks, their suitability for high bandwidth services becomes even more questionable.

“How much wireless could compete with landlines, especially as all cable connections are moving to 50 meg, was a crucial question for the broadband plan,” Burstein writes. “The consensus of several good engineers is that 4G competes fine with DSL if not many people expect video or other high-bandwidth apps. Wireless certainly can’t keep up if many people want to watch their TV over the net, so it’s only a partial substitute.”

As for AT&T and Verizon, Moffett suspects both may have to take a pass on DirecTV, consumed with fighting against broadband reclassification and Net Neutrality policies in Washington.  Taking on a second battle to run another dog and pony circus to gain regulatory approval for a buyout of DirecTV may be more than they’re willing to deal with at the moment.

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Rural Alltel wireless broadband customers are getting the axe as the company’s new owners have started pulling the plug on customers caught roaming too much with their service.

Not all of Alltel customers have become Verizon Wireless customers after Verizon bought Alltel in 2008.  In areas where Verizon Wireless already provided service, FCC rules required Alltel to sell its assets to other cell phone companies like AT&T or several regional providers.  One such company, Allied Wireless, bought the rights to use the Alltel name for its service.  But it’s not the same Alltel customers in southern Illinois remember.

Scott Sneddon, who lives near Benton, discovered that for himself when trying to log in using his Alltel Aircard.  When the service wouldn’t work, he called Alltel to learn they had unilaterally canceled his wireless broadband service because he was roaming off Alltel’s original network too often.  For the Sneddon family, that meant the Internet itself would no longer be available to them as they have no access to DSL or cable broadband service.  Sneddon received no warning and no second chance.

Sneddon is concerned because Alltel’s unlimited service plan did not carry the typical 5GB monthly usage allowance other providers enforce.  Despite having a two year contract, Alltel was able to pull the rug out from under his service because the company wanted to cut its roaming costs.  Although the Sneddon initially faced a $400 early cancellation penalty to switch providers, the media attention Alltel received made them relent — Alltel customers in similar positions who find themselves out in the wireless broadband cold will not have to pay a penalty to cancel all of their Alltel services.  Additionally, the company has promised to refund one month of service and refund all wireless broadband equipment charges incurred by dropped customers.

For rural America, incumbent wireless providers disconnecting service for customers they don’t want to serve is just another broken broadband promise.

Click here to view the embedded video.

WSIL-TV in Harrisburg, Ill., shares the stories of two Illinois families left without Internet service when Alltel suddenly canceled their service “for roaming too much.”  (4 minutes)

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Alltel's logo, in use before 2006

Alltel Wireless is back.  Two years after Alltel was bought by Verizon Wireless, some 900,000 customers in Georgia, Illinois, North and South Carolina, Ohio and Idaho not included in the transition to Verizon will remain Alltel customers under new management.

For many customers, that suits them just fine.  In fact, with an increasing number of complaints from the 13.2 million former Alltel customers forced into a shotgun cellular wedding with Verizon or AT&T, many wish they could have the choice to return to Alltel themselves.

The demise of Alltel is another classic example of a telecommunications deal that made sense (and dollars) for Wall Street and a handful of Alltel executives, but left thousands of employees out in the cold in the unemployment line and customers coping with broken promises and higher bills.

It’s a story familiar to most of our readers, because the game plan for most telecom mergers and acquisitions delivers all of the benefits to a select few and ends up costing consumers plenty.  That these deals get almost routine approval from the Federal Communications Commission is ironic, considering that same agency commissioned studies that unsurprisingly found increased consolidation and lack of competition in the wireless marketplace.

The end of Alltel is a great example of what happens when an industry achieves near-total deregulation. Lobbyists sell deregulation as directly benefiting consumers with increased competition, more innovation, and lower prices.  In reality, from broadcasting to broadband, deregulation sparks escalating rounds of mergers, acquisitions, and buyouts.  Wall Street doesn’t want increased competition — it wants fewer options, less costly innovation, and higher prices to sustain profits.  When Wall Street speaks, most of these companies listen.

Since 1996, when the Telecommunications Act was passed, more than two dozen telecommunications companies have been swallowed up in mergers and buyouts.  Consumers find themselves with new providers and higher bills.  But not everyone is hurting from laissez-faire tele-economics.  For a handful of top executives, the result has been riches beyond their wildest dreams.  Even when they are forced out through merger deals, the golden parachutes that follow brings tears of joy.  Just ask Alltel’s last CEO — Scott T. Ford — he said goodbye to Alltel in 2007 with a parting bonus of nearly $150 million dollars.

Alltel’s History — Keeping It In the Family

Alltel’s history in the telephone business traces all the way back to 1943, with the formation of the Allied Telephone Company of Little Rock, Arkansas.  Back then, telephone service in the U.S. was mostly a monopoly of AT&T and several smaller independent phone companies. Allied’s business began as a pole and wiring provider for those phone companies.  In 1983, Alltel – the traditional phone company – was created from a merger between Allied Telephone and Mid-Continent Telephone.  In 1985, Alltel Wireless service began from its first cellular system in Charlotte, N.C.  In less than a decade, the wireless division would expand service in smaller cities and towns across mid-America and the south, often where larger carriers didn’t want to provide service.

Just about everything in the telecommunications industry changed with the passage of the 1996 Telecommunications Act, signed into law by President Bill Clinton.  The law that promised to open the doors to better service and more competition actually deregulated most of the industry into an “anything-goes” circus of money-fueled mergers, buyouts, and consolidation.  Important consumer protections were discarded along the way.

The implications of the Act were well understood by corporate executives in the industry, and companies spent millions to lobby for its passage.  They considered it a down-payment for better days to come.  The biography of Alltel’s then-CEO Joe T. Ford noted the passage of the law changed everything, even leading to a violation of an agreement he made with his son when he was only 12 years old:

Scott T. Ford, the president and chief executive officer of the Alltel Corporation, made his first business deal at the age of 12 with his father, Joe T. Ford. The two agreed that Scott would never work at Alltel. Joe wanted to spare his son what he himself had endured since coming to work for his father-inlaw, Hugh Wilbourne Jr., in 1959. After the passage of the Telecommunications Act of 1996, however, the Fords rethought their agreement, and, at age 35, Scott Ford became executive vice president of Alltel. Within two years he was appointed CEO, following in the footsteps of his grandfather Wilbourne, who formed Allied Telephone Company in 1943 in Little Rock, Arkansas.

All that hard work by earlier generations was about to pay some serious dividends in a laissez-faire telecommunications world.

Beebe literally drew his own road map depicting his idea of success - remaining on top after a flurry of mergers and ongoing industry consolidation

The Dot.com Boom… for Some

At the end of the 20th century, the telecommunications industry was in the middle of the dot.com boom.

The impact of the 1996 Telecom Act did fuel change among traditional telecom companies.  While some new players were wildly upgrading networks and building fiber optic networks to sustain the dot.com book, most of the traditional phone and cable companies were spending their time and attention on mergers and leveraged buyouts.  The Baby Bell-AT&T empire that was broken up in the mid-1980s was nearly restored to its former glory with super-sized Verizon and AT&T.  Independent phone companies which operated for a century were suddenly the targets of buyouts, now consolidated by regional players like CenturyTel, Embarq, Alltel and Citizens.

Alltel didn’t just buy up other independent phone companies.  It also bought wireless providers and soon merged its landline and wireless divisions into a single company.  This was the era when the “full service phone company” was trendy — capable of delivering local, long distance, and wireless service all from one company, usually on one bill.

Alltel’s executives, like then-Alltel group president Kevin Beebe, delivered presentations to Wall Street bankers like Credit Suisse/First Boston promoting Alltel and its made-for-consolidation balance sheet.  He literally drew his own road map showing his route to success, depicting himself on top after successive mergers with smaller players.

Unfortunately, the high-powered, cash rich days of the dot.com deal were about to end.  By the start of the new century, it was all over.  An oversupply of infrastructure was built to support web-based businesses that would never launch.  Many of those already in business shuttered their virtual doors.  Venture capital for telecommunications projects dried up.  But there was still plenty of money to be made in wireless, and Alltel did obtain financing to launch mergers and buyouts with as many small cell phone providers as possible.  By the early 2000s, the mentality in the telecommunications business was “small is bad.”  The only path to success was to buy your competition, or be bought by them.

The business of mergers and acquisitions earned countless millions for Wall Street banks, who charged fees to help structure the deals and usually helped finance them.  Executives always won, even if a merger brought an end to their career at the company.  Golden parachutes kept the top floor happy.  The only losers were the soon-to-be-ex-employees and middle management declared redundant and escorted from the building.  They were the “cost savings” promoted as a benefit of the merger months earlier.  Meanwhile, customers were stuck dealing with the transition changes, service interruptions, and the eventually higher bill that always result from reduced competition.

During the first half of this decade, it was Alltel doing the acquiring — spending fortunes to acquire other regional wireless phone companies:

• 2002: Alltel acquires 700,000 wireless customers from CenturyTel Inc. in Arkansas, Louisiana, Michigan, Mississippi, Texas and Wisconsin for $1.5 billion.
• 2003: Alltel purchases wireless properties in Mississippi from Cellular XL.
• 2004: Alltel acquires wireless properties from MobileTel, U.S. Cellular and TDS Telecom.
• 2005: Alltel merges with Western Wireless Corp., acquires wireless properties from Public Service Cellular, certain wireless assets from Cingular and exchanges properties with U.S. Cellular of Chicago to meet divestiture requirements related to Alltel’s merger with Western Wireless Corp. Alltel agrees to purchase Midwest Wireless for $1 billion in cash.

Despite the shopping spree, Alltel’s executives like Beebe continued to let it be known Alltel itself was “well-positioned for wireless consolidation” — available for a buyout… for the right price.  By 2006, Alltel had become the fifth largest telecommunications company in the country, with operations in 34 states.  Thanks to lengthy roaming agreements with Sprint and Verizon Wireless, Alltel could deliver national service even from a regional network.

Alltel also enjoyed a satisfied customer base, thanks to innovative calling plans and services that were unheard of from other cell companies.  In 2006, it introduced the popular My Circle calling plan, which allowed customers to make unlimited wireless calls to up to ten numbers, regardless of whether they were landlines or other Alltel wireless customers.  That same year, U Prepaid was introduced, which included unlimited calling and text messaging to a pre-designated number — perfect for those needing to call home.  Alltel prepaid customers could also roam on many other carrier’s networks without paying enormous roaming fees.

Alltel Sells Out Its Landlines

Until the 1996 Telecom Act, most publicly-owned telephone companies were considered a safe utility stock.  In rural communities, many of the phone companies that established service where AT&T’s Bell System did not have been around since the 1890s.  Often owned by a family or cooperative, these independent phone companies popped up when Alexander Graham Bell’s telephone patents expired.  The companies were hardly growth hotbeds, traditionally serving communities that saw little growth and lots of expenses from the wide-open country they had to wire.

After deregulation, venture capital moved aggressively into the wireless and cable sectors.  For the first time, many rural phone companies faced competition from rural cellular providers and cable companies experimenting with “digital phone” service delivered over cable television lines.  But unlike the phone company, these providers were not required to deliver service to everyone.  Most of these services would only challenge the phone company in population centers within towns and villages, that also happened to be where most of their customers lived and worked.

The business model was changing.  As rural phone companies began losing customers to cable and wireless providers, some of them looked to mergers and acquisitions to reduce costs and improve revenues to keep revenue stable, even as customers disconnected.  To maintain interest and  investment from stockholders, many traditional publicly-held phone companies began paying shareholders increased dividends, which attracted attention from Wall Street.

On July 11, 2004, one independent phone company set a new bar for dividends and probably changed the long term business models of rural phone companies for years to come.  Citizens Communications Corporation, as part of a corporate re-shuffle, announced the resignation of its then-CEO Leonard Tow, changed its name to Frontier Communications, and announced an incredible one-time payout of a $2 dividend for every share of common stock, and an ongoing annual $1 dividend, payable every quarter.

With a payout like that, investors began demanding increasing dividends from other phone companies, Alltel included.  To pay that kind of dividend, you need revenue, and slow-growth rural phone companies cannot just generate millions in new revenue selling voicemail, long distance plans, and caller-ID.  That kind of money comes from new lines of business, such as broadband, or from cash-generating mergers and buyouts.

Broadband required millions of dollars in new investments, increasing short term costs and having to wait several years to see a return.  Mergers and acquisitions delivered fast cash and instant results — short term benefits Wall Street loves to see.

So while phone companies continued to lose landline customers at rates up to 7 percent per year, another round of frenzied consolidation through mergers and buyouts erupted.

For Alltel, already established with a strong wireless division, seeing the long term prospects of trying to sustain its landline business as it lost customers seemed pointless.  In December 2005, Alltel announced it was dumping its 3,000,000 landline customers, combining them with another 500,000 customers of Irving, Texas-based Valor Communications in a $9.1 billion dollar tax-free deal to create a new independent landline company — Windstream Communications.

Alltel would henceforth be a wireless phone company-only, and a much richer one at that.  Unfortunately, despite its ranking as America’s fifth largest wireless provider, Alltel still remained a regional player, far behind its fourth largest rival T-Mobile.  With a dwindling number of wireless companies to acquire, speculation grew Alltel itself would soon become a takeover target.

Click here to view the embedded video.

KLRT-TV in Little Rock covered the announced acquisition of Alltel by Goldman Sachs on May 20, 2007 in these three reports.  (15 minutes)

Goldman Sachs Moves In

Within two years, Alltel’s independence would come to an end.  In 2007, Alltel formally opened an auction to sell the company’s wireless assets to the highest bidder.  But in a surprise move, company executives suddenly canceled the auction and accepted a $26 billion leveraged buyout takeover offer from TPG Capital and the buyout arm of Goldman Sachs.  Now, Wall Street investment bankers would own and control Alltel outright.

Speculation in the financial press about why Alltel canceled the auction and didn’t even entertain other bidders for the company raised eyebrows at the time.  The windfall payouts to Alltel’s executives disclosed in later Securities & Exchange Commission filings may have had something to do with it.  Company executives won the equivalent of the Powerball Lotto:

• CEO Scott T. Ford received nearly $150 million dollars.
• Richard Massey, former chief strategy officer and general counsel walked away with almost $50 million.
• Alltel Chief Operating Officer Jeff Fox cleared more than $70 million.
• C.J. Duvall, who was EVP of human resources earned nearly $10 million.
• Kevin Beebe, group president of operations went home with more than $60 million.

That’s quite a haul for the top floor executives at Alltel heading for the exits.

But Goldman Sachs had no intention of running its own phone company for long.  Analysts predicted the investment bank would hold onto Alltel for a year or two in hopes of selling it at a premium to one of the other wireless carriers, probably AT&T or Verizon.

That’s exactly what happened, except it only took seven months.

Click here to view the embedded video.

Bloomberg News took an in-depth look at the 2007 Alltel acquisition by Goldman Sachs and ongoing wireless consolidation. (Corrected Video) (5 minutes)

Verizon Takes Over – The Dog & Pony Approval Circus

With the collapse of the banking sector in 2007 and 2008, Goldman Sachs needed to get rid of assets to raise money.  The subprime mortgage mess left banks with $386 billion in asset writedowns and credit losses.  By putting Alltel up for sale, Goldman would earn $28.1 billion, enough to pay off the loans financing Alltel’s buyout months earlier, and even come out ahead.

The buyer, Verizon Wireless, sought to combine Alltel’s rural cell tower network with its own to expand coverage and pick up a stronger presence in middle America.

In the high stakes, high cost consolidation of telecommunications in the United States, what few regulatory hurdles Verizon would face getting the deal approved meant bringing forth the dog and pony show from Verizon’s lobbyists.  The Federal Communications Commission could alter or even kill its deal.  To make sure that didn’t happen, Verizon counted on the usual assortment of “dollar a holler” advocacy groups, heavy lobbying in Congress, and other friendly allies to help get the deal approved.

Unsurprisingly, Verizon can always count on help from free market allies and alleged community service groups with whom it has a financial relationship or contributes executive talent to serve on their boards.  Most of these have no involvement in telecommunications matters, except when it interests or impacts Verizon.  Suddenly they spring to action, conveniently submitting similar comments supporting whatever Verizon had on the agenda before the FCC.

Click here to view the embedded video.

KLRT and KTHV-TV in Little Rock, Ark., where Alltel was headquartered, ran a series of reports explaining the impact the Verizon-Alltel merger would have on Alltel’s service and jobs in Little Rock. (23 minutes)

Selected Members of the Verizon Friendship Crew Filing Comments Supporting the Verizon Purchase of Alltel (click the names to read their letters to the FCC):

• Institute for Policy Innovation
• Communications Consumers United
• Native American Television
• ASPIRA Association
• Organization of Rural Education
• The Free State Foundation (Political)
• U.S. Hispanic Chamber of Commerce
• U.S. Pan Asian American Chamber of Commerce
• Pacific Research Institute
• Small Business and Entrepreneurship Council
• National Hispanic Council on Aging
• Women Impacting Public Policy
• American GI Forum
• U.S.-Mexico Chamber of Commerce
• Hispanic Alliance for Prosperity Institute
• Latino Coalition
• Consumers for Competitive Choice (Astroturf)
• Dominican American National Roundtable
• National Black Chamber of Commerce
• National Indian Council on Age
• Freedom Works Foundation (Political and Associated With Corporate Lobbying)
• American Association of Peoples with Disabilities
• U.S. Cattlemen’s Association
• League of United Latin American Citizens

Alltel's service areas were carved up between three major providers - Verizon, AT&T, and ATN

Click here to view the embedded video.

Bloomberg News considered the business/industry implications of the Verizon-Alltel merger in these reports. (9 minutes)

Consumers Get Broken Promises & More Expensive Service

The benefits list of what Verizon promised to bring Alltel customers was heavily redacted in FCC filings as “highly confidential.”  What was promised, in public, was that Verizon would deliver improved service to Alltel customers who could continue with their existing service plans..

What consumers really got were major headaches, bad service, and much higher bills.  Former Alltel customers continue to tear up Verizon Wireless’ support forums with page after page of complaints.  As one former Alltel customer puts it, “we are the abandoned children of the redheaded stepchild.”

Some readers of Stop the Cap! shared their own experiences with the Alltel sale. Penny writes:

I first had Midwest Wireless that was bought out by Alltel which was just bought out by Verizon. With each switch I had to change my phone because something on the new system would not work on my old “previous provider” cell phone. Verizon has yet again said that for the “data charges” I can not block anything as my cell phone is too old and that I need to get a “Verizon” phone. My phone is not even a year old.

Enough about phones, data charges, rude customer service. You want to talk about dishonesty and unfair practices…just say Verizon.

In May I called and asked what I should do about leaving for a trip in which I would go out of my phone zone. The customer assistant that I talked to informed me that to avoid roaming charges I should temporarily switch to a national plan. I asked several times if I would be able to go back to my previous plan and was promised that I could set the start and end date for the new national plan. Well can you guess what they did? Yep they did the old bait and switch and from what I know about law….or what I thought about law was that this practice is illegal. Verizon started the new plan almost after I got back from my trip and plus would not set me back to my old plan. So now I had over 2 times the old bill plus roaming charges and less minutes. All I can say is my last call to Verizon was asking when my contract was up and what the termination fee is. By the way the $200 might be well spent.

Penny was switched away from her grandfathered Alltel plan to a new Verizon service plan, and potentially also ended up with a brand new two year contract, without new phones to accompany it.  Any Verizon customer on a grandfathered service plan should never consider allowing a customer service representative to make substantial plan changes — you could lose your old plan.  Grandfathered customers can make certain changes from the Verizon website (adding text plans, changing calling features on phones, etc.) without terminating their existing plan, but be cautious.  Once you lose an old plan, you may never get it back.

Steve, another Stop the Cap! reader, writes:

I was with Alltel for 15 to 20 years and a very happy customer — never a problem. Then Verizon took over and it has been a problem ever since. First off let me tell you that we are truck drivers and travel all over the US. We were in Texas when our laptop died so we went and bought a new one.  Our Alltel air card would not work in the new computer. This was at the time when Verizon was taking over, so we had to go to Verizon and get a new air card. By the way we had unlimited with Alltel. The sales person in Verizon sold us a new card and got us on the road again. From that day forward we have had to visit a Verizon store about our bill every month. Last month was the final straw. We did not like the 5 gig limit to begin with and did not trust it so we were watching it closely so we thought. When the MB’s got up near 4100 we called Verizon and they said you are no where near your 5 gig. Well when the bill came in it said we used over 8 gig and instead of our bill being 200.00 it was over 400.00 for the month . Since this has happened we have already dropped their phone service and may have to drop the Internet and pay the penalties.

Verizon's wireless modem

Steve ran into the problem former Alltel customers frequently encounter when traveling or moving outside of their old Alltel service area.  Many Verizon representatives are not well trained about their new Alltel customers.  Until the transition is complete, many Alltel customers still use equipment that gives priority to Alltel’s network first.  If not correctly provisioned, equipment may not work properly outside of areas where Alltel had service.

Click here to view the embedded video.

Alltel and Verizon were accused of bill cramming in the state of Florida — subjecting customers to monthly charges for “free” ringtones and other services.  The Florida Attorney General’s office ordered refunds for all affected Floridians.  Cell phone companies have an incentive to allow these services to get away with loading up customers’ bills with unauthorized charges — they receive a cut of the action.  WTVT-TV in Tampa reports.  (3 minutes)

Verizon’s 5GB usage cap also includes a steep overlimit penalty.  We’ve seen reports that customers who use service around the country do not immediately see correct numbers for data usage.  That can cause a sudden traffic spike as usage from other areas finally shows up on one’s account.  Verizon customers should have the ability to opt-out from overlimit penalties.  When their 5GB is used up, they should be presented with a screen that requires them to acknowledge they wish to continue using the service and face the consequences on their bill.

Verizon’s tricks and traps for Alltel customers always pay off for Verizon, almost never for customers:

1. Verizon is doing everything possible to get Alltel customers to “upgrade” their service to Verizon plans so they can get them away from Alltel’s legacy plans offering more features for less money.  Once a customer renews a contract with a new Verizon phone or makes a significant change to their service plan, they are switched to a new Verizon plan… often including tricks and traps.  Unlimited texting costs extra on Verizon, as do many other features.  Customers who mistakenly buy what they thought was a comparable service plan learn the errors of their ways when the $1,100 Verizon bill arrives a month later.  Forgetting to add text and data plans can be an expensive mistake on Verizon’s network.
2. Dangling a free or discounted phone upgrade for former Alltel customers often also requires an “upgraded” service plan… from Verizon.  If you want a new subsidized phone, you may lose your old Alltel plan.
3. In many areas, Alltel phones gravitate towards Alltel’s legacy cell network.  That means the phone will choose a weaker cell tower formerly operated by Alltel instead of a closer Verizon cell site.  A roaming/software upgrade normally would correct this and help route calls to the best possible cell site, but customers overwhelmingly complain that doesn’t happen with Alltel-provided phones.  Customers are encouraged to choose a new Verizon phone instead… with a new Verizon service plan.

Click here to view the embedded video.

This former Alltel customer in North Carolina was charged $400 for an unjustified early termination fee when his service switched to Verizon Wireless as part of the merger.  Despite repeated calls, Verizon-owned Alltel turned his account over to a collection agency. Verizon told him to pay off the Alltel collection agency account and they’d credit him $400.  He paid and then Verizon refused to credit his account and turned him over to their collection agency who started calling him at work.  They also ruined his credit.  It took WTKR-TV in Hampton Roads, Virginia airing this story on the 6 o’clock news to get Verizon’s attention after seven months.  (2 minutes)

Things are even more complicated in areas where the FCC has forced Alltel to divest its wireless assets and not transfer them to Verizon.  In most areas, those customers will shortly discover they are becoming part of AT&T’s wireless family, as AT&T bought the majority of those divested markets.  AT&T, however, does not operate with the same wireless standard Alltel and Verizon do.  AT&T phones work on the GSM standard while Alltel and Verizon work on CDMA.  For the time being, AT&T will simply operate the existing CDMA network Alltel used to own, but eventually every affected customer will get a free upgrade to a new GSM phone.  That upgrade better come quick for frequent travelers who are former Alltel customers switched to AT&T.  They’ll find getting service from AT&T outside of their home areas difficult on a network that uses an entirely different standard.  AT&T will likely have to maintain roaming agreements with Verizon for former Alltel customers until conversion is complete.

Click here to view the embedded video.

KELO and KSFY-TV, both in Sioux Falls, South Dakota, informed South Dakota’s former Alltel customers they’d soon have AT&T as their cell phone company, making Apple’s iPod available in stores in the state for the first time. (3 minutes)

A handful of customers won’t end up with either Verizon or AT&T.  In parts of Wisconsin, Element Mobile will take control of their Alltel account. But nearly a million customers will find their former Alltel service is now provided by… Alltel?

The Return of Alltel Wireless

McGill

Allied Wireless Communications Corp., which is staffed by former Alltel employees, has acquired the remaining leftover pieces of Alltel’s network, including its name, for $223 million dollars.  The all-new Alltel will have the same logo and calling plan features the old Alltel offered, and for 900,000 customers, it will be as if they never left.

“We feel like it’s putting the bank back together here in Little Rock,” Wade McGill, chief administrative officer for Alltel Wireless and AWCC told RCR Wireless. The original Alltel Corp. was headquartered in Little Rock, Ark., before being acquired by Verizon Wireless for $28 billion in early 2009. As part of the acquisition, Verizon Wireless was forced to divest some markets, a majority of which were acquired by AT&T Mobility for $3 billion, with most of the rest picked up by what will remain Alltel.

The company will have extensive roaming agreements for nationwide coverage and will focus on maintaining high quality customer care.

“The ability to retain the brand was key in these markets and you can’t underestimate the value of that,” McGill noted, adding that more than 50% of its current customer base have been Alltel customers for more than six years.

“We need to have a laser focus on the customer experience and being local,” McGill explained, citing a common mantra of rural carriers forced to compete against large, nationwide operators. “That’s how we want to think about our plans moving forward. … I think our plan is to grow organically at first and just focus on providing excellent customer service and support.”

But that doesn’t preclude Alltel from starting to expand operations to other parts of the country, perhaps even in areas now taken over by Verizon.

The new Alltel will remain a CDMA provider with plans to move to the LTE standard, which will deliver a 4G-like experience.

Going Back to the Future

In the end, many of the 13 million former Alltel customers probably wish they could have their old Alltel back, too.

Instead, they got wheeled and dealed away, first by an investment bank/casino that later used taxpayer dollars to bail itself out of its own greed, then by Verizon and AT&T who promise a future of higher bills and poorer service for many trapped in two year contracts. Too often, what’s in the best interests of consumers are an afterthought in these kinds of transactions, even today. Despite the FCC’s own findings that wireless competition is shrinking in a consolidating wireless world, they still found a way to green light deals like this that reduce competition even further.

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I’d like to hear your impressions of Clear’s 4G wireless broadband service, which is also known as Road Runner Mobile in Time Warner Cable territories or Comcast High Speed 2Go where Comcast provides cable service.

I am specifically looking for speed results, coverage impressions — whether the coverage maps reflect reality or not, and what type of wireless modem you’ve chosen with the service.  Also, customer service impressions are welcomed.  Feel free to leave your comments in our comment section or use the Contact Us link above if you’d prefer to remain anonymous.  Please remember to include your city and state.

YouTube is littered with negative reviews and complaints about the service, but I’d like to hear from our readers.

Here is one annoyed customer who literally attached her USB modem to a broom handle and mounted it halfway up the side of her home and still could not connect. (Warning: Profanity) (3 minutes)

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We have received a copy of AT&T’s statement in response to yesterday’s report about slowed upload speeds impacting customers in several cities around the United States:

AT&T and Alcatel-Lucent jointly identified a software defect — triggered under certain conditions – that impacted uplink performance for Laptop Connect and smartphone customers using 3G HSUPA-capable wireless devices in markets with Alcatel-Lucent equipment. This impacts less than two percent of our wireless customer base. While Alcatel-Lucent develops the appropriate software fix, we are providing normal 3G uplink speeds and consistent performance for affected customers with HSUPA-capable devices.

That two percent figure seems low considering the sheer number of reports received, but it’s not unprecedented.  Equipment and software glitches can create major slowdowns and outages.  While the problem is being fixed, affected customers are falling back to older and slower upload protocols.  AT&T didn’t apologize for the slowed upload speed, nor provide an estimate for when repairs would be complete.  As of the time of writing (3pm ET), problems are still being noted by some customers.

Customers annoyed by the glitch might be able to obtain some credit for the reduced level of service by contacting AT&T customer service and asking for it.

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A full page ad from Verizon mocks Apple's iPhone reception problems (click to enlarge)

Apple wants customers to believe it’s not a head-slapping design flaw that is bringing iPhone reception to its knees when holding the phone, it’s the software that is telling you AT&T’s reception quality is better than it really is. Change the formula to calculate how many bars of signal strength AT&T is not delivering to its customers, problem solved.

But just how will Apple make its fan base believe those dropped calls and lousy data transmission rates, made worse when holding the phone “the wrong way” are just the result of some software bug?

In a statement released Friday, Apple told worried customers the latest version of the phone remained the best it had ever produced, and the lack of signal shown on the display is a software problem (inferring AT&T’s usual network issues), not a fundamental design flaw:

Upon investigation, we were stunned to find that the formula we use to calculate how many bars of signal strength to display is totally wrong. Our formula, in many instances, mistakenly displays 2 more bars than it should for a given signal strength. For example, we sometimes display 4 bars when we should be displaying as few as 2 bars. Users observing a drop of several bars when they grip their iPhone in a certain way are most likely in an area with very weak signal strength, but they don’t know it because we are erroneously displaying 4 or 5 bars. Their big drop in bars is because their high bars were never real in the first place.

To fix this, we are adopting AT&T’s recently recommended formula for calculating how many bars to display for a given signal strength. The real signal strength remains the same, but the iPhone’s bars will report it far more accurately, providing users a much better indication of the reception they will get in a given area. We are also making bars 1, 2 and 3 a bit taller so they will be easier to see.

We will issue a free software update within a few weeks that incorporates the corrected formula. Since this mistake has been present since the original iPhone, this software update will also be available for the iPhone 3GS and iPhone 3G.

In other words, Apple is banking that its fans are so enamored with the company and its products that just making a software change will convince customers the phone isn’t the problem. Will AT&T’s already lousy customer rating take an even bigger hit when Apple passes the buck for its design flaws to the cell phone provider?

The ongoing revelations of the flaws in the latest iteration of the Apple iPhone are stunning, if only because they were completely missed during beta testing by company employees. As we learned several weeks ago from the Apple employee who left his phone behind in a California bar, some prototype phones didn’t use the “innovative” case design now implicated in the “grip of death.”  Perhaps other Bay Area testers just assumed the bouncing signal strength meter was simply AT&T-as-usual.

Now that the signal issue, among others, has been made the star of the iPhone show on YouTube, Apple has launched into damage control mode.  What Apple does to regain your trust depends on what type of customer you are:

Tech-minded, Informed Consumers: Apple will have the most trouble convincing these customers to sign-on the iPhone bandwagon, especially now.  Many have refused to hop on board all-along, unwilling to sacrifice their wireless phone service to AT&T.  While many of these customers would happily buy an iPhone… from Verizon, news of technical defects and design faults will not inspire confidence.

Tech-minded Early-Adopters: Apple will need to fix its problems with the iPhone to keep these customers happy.  They are the first to buy new products and are more forgiving of early manufacturing faults (and are among those who probably first documented and reported them), but they won’t forgive intransigence and PR nonsense.  These customers want honest answers, a schedule for a solution, and mitigation — a few free iPhone case bumpers as a consolation would probably make many of these customers happy.

Non-technical Apple Devotees: If it’s from Apple, these people will buy it.  They don’t have the first clue about the technical mumbo-jumbo that explains the design flawed antenna on the newest phone, and probably don’t care.  They are loyal Apple customers, but they’ll happily slam AT&T for dropping their calls.  Most of these customers are probably blaming any reception issues exclusively on AT&T already.

The Fanboys & Fashion-Minded: These are the folks who perennially set up the lawn chairs in front of Apple stores 15 hours before the launch of every version of the iPhone.  A criticism of Apple is a personal affront, and they’ve probably already bought the company explanation for the issue.  The fashion-minded treat the iPhone as a must-have personal accessory.  Nothing short of a total failure of the phone will pry them loose from grabbing the latest version of the phone they need to be seen with.

For those without (or who don’t care about) iPhones, watching customers wait in long lines, proclaiming all things from Apple to be good — quickly followed by torch-bearing complaints when they are not so good brings  rolling eyes and mutterings about why someone would punish themselves over a phone.

Potentially the most irritating of all is the fact Apple could make money from its design failure — by advocating consumers spend a ludicrous $30 on what is little more than a rubber band to protect the rim of the phone from your hand.  Apple is selling their “bumper” case one to a package in multiple colors.  For that amount of money, consumers should get one of every color.  A company memo underscored the fact Apple was not about to give these out for free to aggravated customers.  Why lose an opportunity to extract even more cash from devoted customers?

Click here to view the embedded video.

MSNBC’s ‘Morning Joe’ was unimpressed with customers who first lauded and then “whined” about their iPhone purchases, after revelations of inherent design flaws and other quality control issues threaten to turn the product sensation into the Toyota of telephones. (3 minutes)

Class action law firms are salivating at the prospects, and attorneys claim no “software fix” is going to suddenly make the iPhone’s antenna design issues go away:

• One suit filed on behalf of Steve Tietze and others in the U.S. District Court for the Northern District of California seeks class action status. Tietze accuses Apple of unfair competition, false and misleading advertising, breach of warranty, and violation of the Consumer Legal Remedies Act.
• A second was filed in the U.S. District Court for the District of Maryland on behalf of Kevin McCaffrey, Linda Wrinn, and others accusing Apple and AT&T of knowingly distributing a phone with a malfunctioning antenna. The suit charges general negligence, defect in design, manufacture, and assembly, breach of warranty, deceptive trade practices, intentional and negligent misrepresentation, and fraud by concealment.
• Two others: Alan Benvenisty v. Apple, 10-2885, and Christopher Dydyk v. Apple, 10-2897, U.S. District Court, Northern District of California (San Francisco).  “Apple’s sale of the iPhone with this unannounced defect, assuming Apple’s prior knowledge of the defect, constitutes misrepresentation and fraud,” said Christopher Dydyk of Cambridge, Massachusetts in his complaint. “In omitting to disclose the defect in the iPhone 4, Apple perpetrated a massive fraud upon hundreds of thousands of unsuspecting customers.”  Dydyk wants Apple to hand out free “bumper” cases that cover the antenna in rubber to prevent signal issues.

Click here to view the embedded video.

WJZ-TV in Baltimore covers the Maryland lawsuit seeking class action status.  Baltimore area residents filed the suit against both AT&T and Apple.  (1 minute)

Other phone manufacturers are laughing themselves silly at Apple’s declaration that all smartphones lose reception and drop calls based on how you hold the phone. Nokia is having a field day at Apple’s expense, promoting the fact you can hold their phones anyway you like and won’t suffer signal degradation:

One of the main things we’ve found about the 1 billion plus Nokia devices that are in use today is that when making a phone call, people generally tend to hold their phone like a…. well, like a phone. Providing a wide range of methods and grips for people to hold their phones, without interfering with the antennae, has been an essential feature of every device Nokia has built.

Of course, feel free to ignore all of the above because realistically, you’re free to hold your Nokia device any way you like. And you won’t suffer any signal loss. Cool, huh?

Click here to view the embedded video.

WTTG-TV in Washington spoke with Washington Post Tech Reporter Rob Pegoraro who discussed the signal ‘death grip’ and characterized AT&T’s service quality: “we have terrible coverage and we were lying to you [about it] all along.” The report also seriously questions Apple’s claims of a “software glitch” asking why a software problem would cause calls to drop when holding the phone “the wrong way.”  (4 minutes)

Apple’s public relations problem continued to grow this week when it declared earlier reports of terse e-mails purporting to be from Steve Jobs as fakes.  Boy Genius Report, who compensated one recipient of the e-mails, posted e-mail headers that they represent proves the messages did, in fact, come from Apple.

Apple also was caught in a case of bad timing when blogs discovered the company posting help wanted ads seeking antenna engineers, which seemed ironic coming after the release of the much-anticipated iPhone 4.

One biochemist offered his advice for free:

Subject: HowToFix for minimal cost — hydrophobic organic thin film layer

Hi,

In truth, Apple’s explanation for iPhone 4 signal reception problem is inaccurate at best and disingenuous at worst. iPhone users are in some of the hottest and most humid parts of the country this summer and have salty, damp hands especially at events such as baseball games, barbecues, or other outdoor activities. having bare metal antennae purposely handled will absolutely short the signal. This problem will be difficult to reproduce in Apple’s labs because the engineers are required to wash their hands before touching devices, which also strips off the natural hand electrolytes that are ever-present in the field on a hot day.

Anyway, the solution is not a redesign of the phone, but rather an electrically insulating organic hydrophobic layer atop the bare metal. a variety of plastics will work, such as polyethers, polystyrenes, or nylons. you could even use the plastic labels ever-present on aluminum soda cans, which likewise have an electrically insulating effect when holding said cans. these plastic coatings can be very very thin films which do not ruin the aesthetics of the device, and would require a minimal change of your production line. More importantly, this coating in no way affects the ability to recycle the aluminum — the organic thin film layer will burn away cleanly during the aluminum remelt process. Phones that have already shipped could easily be coated with this new layer at any Apple retail store or with a simple kit you could send to your customers.

In summary, this is a problem of electrochemistry, and certainly NOT a problem of software design, nor one that can possibly be solved by a software update.

Apple needs to hire some chemists.

Best regards,
XXXXXXXXXX, Ph.D.

KWGN-TV in Denver noted job postings from Apple seeking the help of experienced antenna engineers to help with their iPhone product line.  (3 minutes)

Several additional videos detailing the saga of the iPhone 4′s bugs are included below the jump.

Click here to view the embedded video.

NBC News covered the reception problems, quoting one customer: “It’s a great phone when left on the table, but the moment you pick it up, it’s a paperweight.”  (2 minutes)

Click here to view the embedded video.

CNBC covered Apple’s apology over the iPhone reception problems and starts asking questions about how this will impact the company and its sales.  (3 minutes)

Click here to view the embedded video.

CNBC has watched the iPhone 4 issues develop since the day of its release.  In these three reports, the network examines initial complaints about reception and then takes a longer view about whether this will actually do any long term damage to Apple’s reputation. (10 minutes)

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The classic one-two punch of Internet Overcharging is to limit your broadband usage -and- throttle speeds downwards.  AT&T wireless customers in several major cities across the United States are experiencing that for themselves over the long holiday weekend, reporting upload speeds have been throttled down to 100kbps or less (one-tenth of the speed most customers enjoyed as late as last week).

Speedtest.net has shown AT&T network throttling in many parts of Baltimore, Boston, Cincinnati, Cleveland, Columbus, Denver, Des Moines, Detroit, Fairfax, Houston, Kansas City, Las Vegas, New York, Orlando, Phoenix, St. Paul,  Salt Lake City, and Washington, D.C.

The speeds are so noticeably slow, it has become a national story as irate customers find their wireless broadband service first usage capped at just 2GB per month, and now upload speed throttled to the point of unusability.  AT&T promised a statement explaining the issue, but one has not yet been forthcoming.  Some speculated the throttles were designed to reduce congestion on AT&T’s network over the holiday, while others suspect a technical fault.

Reducing your wireless speed reduces the impact on AT&T’s backhaul network, which in turn reduces congestion and the number of dropped wireless calls.

The introduction of speed throttles for “heavy users” is a favorite in countries where overcharging schemes predominate.  Most permit a preset amount of traffic to pass at normal speeds, but once customers exceed an arbitrary allowance, a temporary speed throttle gets applied to dramatically reduce speeds and discourage further use.  Some limit customers to a selected amount of traffic per day, others per month.  Once the window expires, the throttle is automatically removed.

While there is no indication AT&T is applying such a throttle at this point, the company has strongly opposed efforts to ban such schemes.  AT&T has a history of antagonizing its wireless customers with poor network performance, and has been judged the least favorite provider by Consumer Reports.

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The sequel to this story could be written from a jail cell.

The guilty pleas just keep on coming in a two-year old prosecution of a wireless broadband scheme that never delivered much service, but ripped off taxpayers to the tune of more than two million dollars.  This week, the president of Mountain State College, who has been employed there for more than 35 years, owned up to hiding facts from prosecutors in his role as chairman of the board of the now-defunct Sequelle Communications Alliance, Inc.

Alan Michael McPeek of Parkersburg, 63, plead guilty Wednesday to obstruction of justice charges in federal court, admitting he misled a criminal investigation reviewing fraud allegations against the company.

Sequelle, a publicly funded project to establish wireless Internet service in the mid-Ohio Valley region, received a $3.295 million loan in 2002 from the U.S. Department of Agriculture, a $600,000 grant from West Virginia’s Development Office and another $400,000 in loans from the Mid-Ohio Valley Regional Council and a bank.

For that funding windfall, the mid-Ohio Valley got several towers ready for wireless antennas, a website that didn’t get updated much beyond the fall of 2000, some software to administer the project, and nothing else.

Instead, federal prosecutors charged some of Sequelle’s officers and several Ohio-based subcontractors of laundering loan and grant funds as seed money and salaries for a new for-profit venture designed to market an “Internet in a box” concept to other rural areas seeking wireless Internet service.

Prosecutors particularly focused on the USDA loan, which required the money “to be used solely for the project specifically described in the application to furnish or improve broadband services in rural areas … in the states of Ohio and West Virginia.”

Like many federal grants and loans, this one prohibited using the money to pay salaries, utilities, and basic office expenses.  Prosecutors would later learn Sequelle’s principal founder and former CEO Heidi Ditchendorf Caroline Laughery laundered loan money through a sub-contractor who kicked back at least $250,000 she used as a salary. McPeek’s guilty plea came in part because he knew about it.

Another grant from Ohio was paid on the promise Sequelle would provide at least 45 high paying jobs within three years.  That never happened.

Laughery

Worst of all, many of the grant and loan applications asked whether any officer in the company had been convicted of a felony or was a defendant in any criminal case.  Laughery answered no to both.  Had government officials verified that information they would have discovered Laughery was previously convicted in 1987 on two counts of felony wire fraud — based on her embezzlement of more than $130,000 of customer funds and securities during her employment at Merrill Lynch.

Laughery didn’t want to bring up those bad memories, so she left her Merrill Lynch years off Sequelle’s website documenting her prior experience.

Prosecutors have been successful in bringing those responsible for this caper to justice:

• Laughery was sentenced in April to 18 months in prison and ordered to pay $850,000 in restitution.
• Sub-contractor R. Scott Truslow plead guilty to conspiring to commit money laundering and is now spending six months under home confinement and ordered to pay nearly $550,000 in restitution.
• Charges are still pending against a second sub-contractor.

McPeek faces up to five years in prison when sentenced in October.  He was released on a $10,000 unsecured bond pending sentencing.

Laughery’s attorney, Michael Callaghan, claimed in 2008 that the project failed because technology marched ahead of the project.

“All the money that the government is alleging was stolen actually went into the development of Internet (infrastructure),” he told a West Virginia reporter. “My client worked for a year-and-a-half without pay because she believed in this project. The concept was great, but the technology developed faster than the project did. Technology moves fast. Technology businesses fail every day.”

Tapdancing your way around money laundering charges can move fast as well.

Click here to view the embedded video.

WTAP-TV Parkersburg has this report on McPeek’s plea.  (1 minute)

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[The article was updated at 10:30am to include promotional and coverage information not available when the article was published late last night]

Clearwire today announced the launch of its 4G mobile broadband service for businesses and consumers in Rochester and Syracuse, New York.  Designed to deliver the Internet at speeds four times faster than 3G, CLEAR is priced comparably to many wireless broadband plans, but has no usage caps.

Pricing from their website offers customers stay-at-home and mobile service plans (or both).  Customers choosing month-to-month service have to buy the equipment up front, starting at $70 and pay a $35 activation fee.  Those who commit to a two-year service contract can lease the equipment for $4-6 a month and skip start-up fees.  Packages start at $40 a month for 6/1Mbps service.  At $55 a month, they take the speed limit off, providing occasional bursts of wireless speed up to 10Mbps.  Another $15 on top of that buys you nationwide 3G roaming.  Sales tax is not included.  Customers get a 14 day trial period to evaluate the service and can cancel within that window with no obligation, although our Jay Ovittore reports they’ll drag you through the cancellation process.

At $40 for unlimited use, CLEAR’s 4G service beats Cricket, which charges the same price for 3G speeds, but limits consumption to 5GB per month before they start throttling your speed to dial-up.  Other mobile broadband services typically charge up to $60 for 5GB of usage at 3G speeds.  Ironically, while 4G service from Clearwire is unlimited, the slower 3G speed service is not — there is a usage limit of 5GB per month on the 3G network, and then overlimit fees of five cents per megabyte kick in.

A statement from the company released early this morning talks up the fact CLEAR does not burden their 4G customers with Internet Overcharging schemes like other wireless broadband providers.

“Our residents now have a fast Internet connection that’s as mobile as they are,” said Jerry Brown, regional general manager for CLEAR. “And we’re thrilled to offer affordable rate plans with no limits on the amount of data customers use. No caps on usage, no penalties – our customers just use the Web as much as they want wherever they go – it’s that simple.”

Clearwire's coverage area in Rochester & Syracuse

In Rochester, CLEAR covers approximately 560 square miles and more than 600,000 people with service extending as far north as Lake Ontario, as far south as Canandaigua and Geneva (Ontario County), as far west as Spencerport, and as far east as Webster.

In Syracuse, CLEAR covers nearly 230 square miles and more than 265,000 people with service extending as far north as Brewerton, as far south as Nedrow, Auburn, and Cortland; as far west as Village Green, and as far east as Fayetteville and Manlius.

However, the company’s 4G coverage area is spotty in many areas in both cities.  Verifying coverage from their website is essential before considering CLEAR.  Anecdotal reports from some of our readers and others suggest 4G service from Clearwire is not nearly as robust as 3G service from some other providers, and dead zones and slow speeds have caused some to cancel service.  Here’s an example of their coverage in my part of the town of Brighton, just southeast of Rochester:

Clearwire's coverage of the 12 Corners/Elmwood Avenue area of Brighton, N.Y.

Some minor gaps in coverage are apparent near Commonwealth Drive, and if you were getting gas at the 12 Corners Mobil station or visiting Citizens Bank behind it, you’d be out of luck, but otherwise coverage looks fairly good to the west of Interstate 590.  However, a very strange gap pops up between Valley Road and South Grosvenor Road, also impacting a few apartment buildings at Elmwood Court Apartments, 3100 Elmwood Avenue.  That’s odd because although that part of Elmwood slopes slightly downwards, it’s still much higher than the homes on Valley Road or the apartments further back in the complex.  A major service gap opens up on Elmwood at Clovercrest Drive and extends into the very tony neighborhoods around Ambassador Drive and Clover Street.  But the country club set will do fine browsing away on the golf course at the Rochester Country Club further east.

In short, service can vary dramatically street by street, block by block, from nothing at all to full speed ahead.  Be sure to check your area before you commit to keeping the service, much less sign a two year contract for it.

For the rest of Rochester, if you live in the city or an inner-ring suburb, coverage is generally available.  Those further out in towns like Henrietta, North Chili, southern Pittsford, Honeoye Falls, Avon, Scottsville, Churchville, Brockport, Penfield and Perinton face significant gaps or no coverage at all.  Things improve dramatically in Ontario County in towns like Farmington and Victor and the cities of Canandaigua and Geneva.

For the greater Syracuse area, coverage pops up in Auburn and then disappears eastward until reaching Camillus.  Generally, coverage in Syracuse is not nearly as dense as in Rochester, with large gaps opening between suburbs and the city itself.  Mattydale is solidly covered, for instance, while Minoa isn’t.

Now that CLEAR has launched 4G service in Rochester and Syracuse, Road Runner Mobile, which is simply CLEAR rebranded as a Time Warner Cable service (they partly own Clearwire) will also soon be on the way.  Pricing in other Time Warner Cable cities wasn’t much different than from Clearwire direct, and some cable plans really push service contracts, which you really do not want on a service this new.  Do not commit to one unless you are satisfied with the service where you plan on using it.

Clearwire’s 4G Network in 2010

CLEAR 4G service is currently available in 44 markets across the United States, including: Syracuse and Rochester, N.Y.; Atlanta and Milledgeville, Ga.; Baltimore, Md.; Boise, Idaho; Chicago, Ill.; Las Vegas, Nev.; St. Louis and Kansas City, Mo.; Philadelphia, Harrisburg, Reading, Lancaster and York, Pa.; Charlotte, Raleigh, and Greensboro, NC; Honolulu and Maui, Hawaii; Seattle, Tri-Cities, Yakima and Bellingham, Wash.; Salem, Portland and Eugene, Ore.; Merced and Visalia; Calif.; Dallas/Ft. Worth, Houston, San Antonio, Austin, Abilene, Amarillo, Corpus Christi, Killeen/Temple, Lubbock, Midland/Odessa, Waco and Wichita Falls, Texas; central Washington, D.C.; Richmond, Va.; and Salt Lake City, Utah.

In the summer of 2010, CLEAR 4G will launch in Tampa, Orlando and Daytona, Fla.; Nashville, Tenn.; Modesto and Stockton, Calif.; Wilmington, Del.; and Grand Rapids, Mich. By the end of 2010, CLEAR 4G will also be available in major metropolitan areas such as New York City, Los Angeles, the San Francisco Bay Area, Boston, Denver, Minneapolis, Miami, Cincinnati, Cleveland and Pittsburgh.

You can read a company-provided tutorial about the service below the jump.

(The following information comes direct from Clearwire)

A CLEAR Difference

The CLEAR experience is similar to Wi-Fi but without the short-range limitations. CLEAR uses WiMAX, a wireless 4G technology that differs from Wi-Fi because it provides service areas measured in miles, not feet. CLEAR also offers average mobile download speeds of 3 to 6 mbps with bursts over 10 mbps.* Outside the CLEAR 4G service area, dual-mode 4G/3G modems keep users continually connected by leveraging Sprint’s 3G data network.

With CLEAR, people stay better connected and more productive. For example:

• A travelling business executive no longer needs to seek out Wi-Fi hotspots or be constrained by the speeds and limitations of 3G modem cards;
• A college student can now have affordable Internet service whether at home, on campus or on-the-go;
• A commuter can now work on large files or stream their favorite shows while riding the bus or train;
• A busy parent can now keep kids occupied studying or playing games in the back of the family minivan.

Unlike service plans from traditional wireless carriers which cap data usage, CLEAR offers unlimited 4G usage plans that do not require long-term service contracts. In most markets unlimited 4G coverage from CLEAR starts at $30 for the home while unlimited mobile plans start as low as $40. Bundled services such as Home and On-The-Go and Home and Voice plans start at $55 per month.

Simply Plug-In and Go

Clearwire offers several ways to connect to CLEAR 4G service – via a modem, mobile device, or a 4G-embedded laptop or netbook.

CLEAR 4G Mobile Hotspots: The CLEAR Spot 4G is a personal mobile hotspot allowing users to easily and securely share unlimited super fast Internet access anywhere CLEAR has coverage simultaneously with up to eight Wi-Fi-enabled devices including laptops, smartphones, and portable gaming devices. The CLEAR Spot 4G+ allows power users and road warriors to stay connected across the U.S. by automatically switching from 4G and connecting to Sprint’s 3G nationwide network outside the 4G coverage area. The CLEAR Spot 4G+ enables users to securely share the connection with up to five Wi-Fi-enabled devices at the same time. The CLEAR Spot 4G costs $99.99 or can be leased for $4.99 a month. The CLEAR Spot 4G+ costs $224.99 or can be leased for $5.99 per month. The CLEAR Spot products can be preordered at www.clear.com/spot and will available nationwide at CLEAR stores and authorized dealers later this month.

CLEAR 4G+ Mobile USB: Mobile users simply plug-in the compact CLEAR 4G+ Mobile USB into their laptop to get online. This dual-mode 4G/3G modem gives users access to the 4G network in the CLEAR coverage area and to 3G coverage nationwide. The CLEAR 4G+ Mobile USB costs $114.99 or can be leased monthly for $5.99.

Home Modems: For residential service, CLEAR offers customers a wireless high-speed modem, about the size of a small book. Customers simply plug the modem into a power outlet anywhere in their home or office and connect the modem to their PC or wireless router. This enables consumers and businesses to install high-speed Internet service without the need to schedule an appointment, drill holes in their walls, or otherwise disrupt their day. The CLEAR Home Modem can be purchased for $84.99 or leased for $4.99 monthly.

Embedded 4G WiMAX Laptops: CLEAR customers can also select from one of 32 different 4G-ready laptops and netbooks with Intel® CoreTM or AtomTM processors and the embedded Intel® wireless module Advanced-N + WiMAX from leading manufacturers including Dell, Lenovo, Samsung, and Toshiba. A detailed list of 4G-ready laptops and netbooks is available at www.clear.com. 4G-ready laptops can also be purchased at Best Buy stores nationwide.

CLEAR 4G products and services are available for purchase by going online at www.clear.com/new-york, calling 1-877-499-6681, or visiting a CLEAR retail store or other authorized CLEAR dealer. CLEAR service is also available from other outlets including Best Buy and Radio Shack.

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Obama

President Obama signed a memorandum this morning that will free up 500Mhz of government and privately-owned spectrum over the next decade to double the amount of wireless broadband capacity in the United States.

The Obama Administration claims the newly available spectrum will throw a rescue line to overburdened wireless networks that are facing a spectrum crunch.  The White House estimates wireless data usage will explode — growing between 20 and 45 times in the next five years.

President Obama:

Few technological developments hold as much potential to enhance America’s economic competitiveness, create jobs, and improve the quality of our lives as wireless high-speed access to the Internet.  Innovative new mobile technologies hold the promise for a virtuous cycle — millions of consumers gain faster access to more services at less cost, spurring innovation, and then a new round of consumers benefit from new services.  The wireless revolution has already begun with millions of Americans taking advantage of wireless access to the Internet.

Expanded wireless broadband access will trigger the creation of innovative new businesses, provide cost-effective connections in rural areas, increase productivity, improve public safety, and allow for the development of mobile telemedicine, telework, distance learning, and other new applications that will transform Americans’ lives.

In practical terms, the reallocation of spectrum could spark a battle between the current spectrum holders — often government agencies and private UHF television stations — and the government.  Parts of the plan will require Congressional approval, a sure-fire guarantee that wireless providers will have to write some more checks to their astroturf and sock puppet friends to help sell the benefits of the plan to a wary Congress.

Since most of the spectrum would likely be sold at auction, the proceeds could deliver the administration a tidy sum to either reduce the federal budget deficit and/or fund broadband initiatives.

But what might seem at first like a win-win might not turn out that way in the end.

We have the following concerns:

Past spectrum auctions have largely benefited incumbent wireless carriers, especially companies like AT&T and Verizon who have the deep pockets that guarantee successful bids at auctions.  Both wireless carriers are not actually using all of the spectrum they already acquired in earlier auctions and have essentially warehoused those frequencies, particularly in rural areas, to keep them out of the hands of other companies that could deliver service.  FCC requirements that auction winners actually utilize their acquired spectrum have been so lax as to be laughable.  Carriers can easily satisfy FCC requirements building only in urban areas and leaving large swaths of the countryside unserved. The FCC must set rules that auction winners use their allotments in both rural and urban areas, or face fines or forfeiture.

Setting aside some frequency blocks for smaller providers and would-be competitors is critical.  In today’s mobile wireless marketplace two companies are superpowers and then there is everyone else.  Both AT&T and Verizon have the resources to outbid virtually anyone.  Allowing blocks of frequencies to be reserved exclusively for new competitors would bolster competition and give consumers more choices.  Those frequencies must be sold in a block that is identical nationwide — not leftover spectrum running through several frequency bands.

Providing additional spectrum for wireless broadband isn’t a problem, but with complaints about wireless service providers growing, along with consumers’ bills, now is the time to reform wireless for the benefit of consumers.  Let’s make it a “win” for everyone.

Click here to view the embedded video.

Bloomberg News explains the controversy behind the transfer of spectrum from the government and broadcasters to the mobile broadband industry.  (2 minutes)

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Mark Lowenstein was a vice president of strategy at Verizon Wireless, where helped set pricing for the carrier.

The key to turning America into a haven for Internet Overcharging schemes is Re-educating customers to accept that unlimited ‘isn’t fair,’ especially in wireless mobile broadband.

Mark Lowenstein, an industry analyst and commentator, has given his prescription to Internet providers just itching to slap usage limits and overlimit fees on consumers enjoying unlimited broadband service:  you have to Re-educate consumers to accept Internet Overcharging schemes as a “positive” rather than a “punitive” development.

Fierce Wireless, where Lowenstein’s ideas were published, left out the fact he was also a senior executive at Verizon Wireless.

Despite the billions in profits earned from today’s broadband marketplace, some in the industry want to banish “unlimited” from subscribers’ lexicons.  Sure it’s true that many companies’ investments in broadband expansion and upgrades have actually declined in the last few years, right along with the costs to provide the service.  But in a world where revenues in other parts of the business are drying up, someone has to make up the difference — you.

For AT&T, the decision was easy.  If you want the raging-popular iPhone, you’re going to need a two-year service contract and a data plan limited to 2 GB of usage per month.  Exceed that at your financial peril (or use a Wi-Fi hotspot and stay off our 3G network).  Don’t like it?  Too bad for you.  Where else will you find a subsidized iPhone?

Now that AT&T has thrown down the smartphone cap gauntlet, Lowenstein is ready to offer carriers advice on how to make their abusive pricing schemes go down better with consumers.  He wants everyone to take a crash course in computer science. Grandparents everywhere will come to understand the meaning of megabyte and get into the habit of contemplating how many of those will be eaten from usage allowances everytime they use their phones.

A key part of the transition to usage-based pricing is going to be educating users and the app development community about what a “megabyte” is, as well as developing more advanced tools and the right early warning systems to ensure wireless operators don’t end up testifying before Congress for Bill Shock, Part 2. U.S. consumers are accustomed to flat-rate pricing in all other aspects of their connected life: landline phone, wireless voice (increasingly), cable, broadband and so on.

Lowenstein considers AT&T Usage Estimator to be “nifty,” missing the irony of his own declaration that AT&T’s nasty cap means “moderate usage of anything multimedia gets you to 2 GB pretty fast.”  AT&T, he notes, also helpfully notifies customers they are about to bust through AT&T’s subjective definition of an appropriate usage allowance.

He concedes there are some “gray areas” — mere minutiae in AT&T’s greater scheme for fatter profits:

• New generation multitasking smartphones can run apps and other bandwidth-consuming features in the background, sometimes simultaneously, leading to exponential increases in data usage;
• The model of the “constant connection” means apps in the background exchanging data over the mobile network 24/7 could consume plenty of data, or perhaps not.  Few know for sure;
• Consumers are forced to pay for spam, advertising, unwanted file transfers and attachments, and other data not specifically requested;
• Family plan users now need to track something else on AT&T’s website — how much data their kids are using.  Remember the wars over cell phone voice calling plan overages and text messaging?  Wait.

In Lowenstein’s world-view, this all represents opportunity.

Among his suggestions:

1. Add special ratings to apps that are highly consumptive of content.
2. Provide notification before certain content downloads or heavy usage apps.
3. Provide a view into other family plan users.
4. Provide the option for sponsored content and value exchange.

That last one may prove to be the most controversial at all.  It assumes the Kindle model — where the content producer builds in the price of network consumption.  That would make AT&T’s day — forcing content producers to cough up money to deliver content over the same network AT&T already charges customers to access.  Who would turn down being paid twice for the same thing?  Lowenstein’s model allows for advertisers to defray part of the costs:

An advertiser or sponsor could pick up some of the network cost. Or the content publisher could bundle the price of data into the app. Users are comfortable with the “choice” model in the TV world: view it for free on broadcast or Hulu, with commercials; pay a monthly fee for the DVR service and skip the ads; or pay a premium to view that content on-demand, commercial-free.

That suggestion benefits AT&T enormously, but does nothing for content producers who can’t even sustain themselves with advertising.  Lowenstein suggests they should now seek out advertisers to remunerate AT&T?  The implications of wireless carriers deciding who gets the usage-cap-exempt content deal and who doesn’t opens a whole new Pandora’s Box.  It effectively allows a handful of companies to pick the winners and losers in the mobile broadband marketplace.  After all, if AT&T offered free videos on its own video portal but didn’t exempt other websites with the same video content, guess where users will choose to watch.

Lowenstein believes taking these kinds of steps will somehow insulate the wireless industry from charges it’s barely competitive, restricts too much, and charges even more.  Yet usage limits like AT&T’s, coming even as carriers enrich themselves with gotcha add-on plans and extra fees will speak far louder than AT&T providing customers a guide on how to be abused by the wireless carrier just a little less.

I also think how usage-based pricing is handled in wireless will be closely watched in the wired broadband world. Consumers have become accustomed to flat-rate pricing for unlimited data from their broadband provider. But with the exponential growth of video consumption, and the notion of more TV and movie programming being downloaded from or streamed via the Internet, usage-based pricing for certain types of content or highly consumptive customers might be coming to a broadband neighborhood near you.

The “unlimited” ride might be coming to an end, but there’s an opportunity to implement it in a positive, rather than a punitive, manner.

In spite of Lowenstein’s love of telecom industry talking points (hardly a surprise considering he works for that industry), his notions that consumers will accept increasing broadband bills even as the level of service provided is reduced makes him not only wrong, but hopelessly out of touch.

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AT&T's Activity Chart ignores the realities of today's higher-definition streaming videos, which will really eat into your allowance.

AT&T claims that 98 percent of its customers will save money under its new lower-priced usage-limited data plans, but an analyst predicts those savings will vanish for half of AT&T’s customers by 2013, exposing them to steep overlimit penalties.

Independent analyst Chetan Sharma crunched the numbers:

The average customer will consume more than 2 gigabytes of data a month within three years, up from 150 megabytes in 2009. Though AT&T could change its rates in the future, the cost of such data use at current rates is $35 a month. That would make it more costly than the $30 AT&T previously charged for unlimited data use.

“The devices are getting much, much better so the opportunities to multitask are more attractive,” said Sharma, who has written five books on mobile technologies and consulted for companies such as Motorola Inc. and Qualcomm Inc.

It’s not only heavy data users who may be affected, Sharma said. By year’s end, the average AT&T customer will have doubled their data consumption from 2009 to 320 megabytes, according to his estimates. Only 35 percent of AT&T’s smartphone customers use 200 megabytes of data or more, the company said.

Sharma’s forecast that half of AT&T’s smartphone customers will use more than 2 gigabytes of data is “not unreasonable,” said Christopher King, a Stifel Nicolaus & Co. analyst in Baltimore, though he said it’s difficult to predict such trends because they depend on the introduction of new phones, applications and wireless technologies.

AT&T’s new Internet Overcharging scheme has built-in profits as customers increasingly bump into the subjective limits the company imposes on its wireless customers.  Many customers have complained the 200 megabyte plan is too small to accommodate anyone but the most casual data user, while others find 2 GB too small to make video viewing more than an occasional treat.  Customers who exceed either limit face higher bills:

• Customers exceeding 200 MB in a monthly billing cycle face a $15 overlimit penalty, which nets them another 200 megabytes of service;
• Users who exceed the 2-gigabyte level will be forced to pay an additional $10 per month for an additional 1 gigabyte of service.

Even King believes AT&T’s limits are too low.

“There’s no way that AT&T is going to maintain their tiered pricing as they do today,” he said. “They’ll have to raise the caps on data usage.”

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Verizon Wireless is contemplating the end of flat rate, unlimited data plans as it introduces fourth generation data networks this year.

“We will probably need to change the design of our pricing where it will not be totally unlimited, flat rate,” John Killian, chief financial officer of Verizon Communications Inc., the wireless unit’s parent, said in an interview at Bloomberg’s headquarters in New York.

Verizon expects “explosions in data traffic” as the company introduces customers to its 4G network, potentially ten times faster than older mobile broadband technology.  Verizon Wireless, already capturing enormous sums of revenue from consumers forced into mandatory, expensive data plans when they upgrade to smartphones, will soon discover some serious limits on those plans.

The irony is, Verizon’s 4G upgrade will bring wireless broadband speeds to consumers they realistically cannot use for much more than web browsing, e-mail, and low-bandwidth apps.  Video downloads will burn through data limits imposed at the level AT&T introduced for its customers earlier this month.

Killian

Wall Street wants consumers re-educated to believe broadband can never be unlimited and must be treated as a precious, limited resource.

“The more bandwidth that you make available, the faster it will be consumed,” said Craig Moffett, analyst at Sanford C. Bernstein & Co. in New York. “From Verizon’s perspective, the last thing you want is for another generation of consumers to be conditioned to the idea that data is always going to be uncapped.”

Moffett’s clients hope that is true because usage limits will control costs and make customers think twice about using their data features on their phones.  Reduced demand equals increased revenue, just what Wall Street ordered.

Verizon Wireless has already set the stage for that increased revenue with mandatory add-on plans that boost customer bills, especially for those buying smartphones.  Although just 17 percent of Americans own smartphones today, Verizon predicts 70-80 percent of customers will upgrade to smartphones in the next few years.  That guarantees an “upgraded” bill as well.

Estimates about current average data usage from smartphone customers ranges from 200-600 megabytes per month, but that was before the arrival of video-friendly 4G network technology and the newest generation of phones optimized for video, which can easily consume ten times as much.

Verizon recognizes the “video threat,” and press reports suggest the limits will only be imposed on the 4G network.  Current generation 3G networks make viewing video tedious, a natural barrier for customers planning to “use too much.”

Verizon’s widely anticipated limits, almost certainly to be equivalent to AT&T’s with respect to allowances and pricing, may dampen enthusiasm for the iPhone on Verizon’s network.  Any existing AT&T customer is grandfathered into unlimited data plans for their smartphones.  If those customers leave AT&T, they will be forced to take a usage-capped data plan from Verizon with no looking back.  AT&T won’t provide unlimited plans for customers returning to their fold.

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AT&T 3G MicroCell

If you are an AT&T customer with a 3G MicroCell, AT&T’s home-based “cell tower”, take note: your 3G data usage, even while at home, counts against your monthly usage cap.

AT&T’s MicroCell ($150) does not use AT&T’s mobile network — it instead relies on your home broadband connection — but AT&T charges customers as if they were.

For customers who assume MicroCell traffic should be exempt because they provide and pay for the connectivity, AT&T’s overlimit fees await.

The company’s pricing and policies make owning a MicroCell increasingly pointless, particularly for data applications.  That’s because AT&T does not meter Wi-Fi usage, even when using AT&T’s own Wi-Fi network.

The disparity between femtocell traffic (the industry name for devices like the MicroCell) and Wi-Fi doesn’t make much sense to Dean Bubley, writing for his Disruptive Wireless-Disruptive Analysis blog:

Given that the RAN generally costs much more than the core network for most operators, there should clearly be differential (or zero-rated) pricing for traffic using femtocell offload. Either that, or there should be a mechanism for customers to charge AT&T for using THE USER’S broadband pipes for backhaul.

It is critical that any policy management and charging infrastruture is capable of discerning bearer type (which could also be UMA WiFi tunneled via the core on some other networks). Otherwise it makes a total mockery of the concept that policy is intended to align pricing with the underlying costs of service delivery.

It also makes a mockery of the femtocell concept as a mass proposition, if the end-user has to pay more than using their own WiFi. If I was a femto vendor today, I’d be spitting feathers about this, as it completely undermines the positioning vs. WiFi as an offload tool.

AT&T doesn’t care.

“The 3G MicroCell complements Wi-Fi by providing enhanced in-home voice coverage and reliable data when Wi-Fi may not be available — but it is primarily intended for voice calls,” an AT&T spokeswoman wrote in an email to Light Reading Mobile.

As the website notes, for consumers, the femto price model means that they will pay AT&T for the Microcell to get better indoor 3G coverage, pay for the backhaul connection to AT&T’s core network, and pay AT&T to use that indoor 3G base station.  What a great deal — for AT&T.

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AirRunner Wireless serves a small portion of central Wisconsin from its headquarters in Marathon.

A wireless Internet provider serving central Wisconsin has banned online video streaming from its wireless Internet service, telling its customers WISPs are not designed for it.  To drive home the point, the service is jumping on the bandwagon of AT&T’s mobile network 2 GB usage limit with some stringent limits of its own.

Bill Flood, owner of AirRunner Networks LLC dispatched e-mail to every one of its central Wisconsin customers informing them some are violating the company’s use policies by streaming online video on its service, which it cannot accommodate.  Flood blamed companies like Netflix for forcing him to carry the costs of transporting movies and TV shows to his customers:

Hello! Over the past month we have been seeing an increasing issue on the network during peak times. From our investigation we have determined these problems stem from customers who are streaming Netflix or other ‘instant movie or movie on demand’ type services.

These types of products should not be used on the network for these reasons:

First, a wireless network uses access points, those by design do not handle continuous connections without affecting the other customers of that access point. Because the movie stays connected for a longer period of time, eventually other customers simply get less access and as a result see a severe network degradation.

Our Acceptable Use Policy over the years has grown as a result of new technology.

Not all new technology works well on every type of Internet platform. Although some customers have told me they have been using this type of service in the past, the increased usage spurred on by recent Netflix advertising, a CD for Wii devices and now by one of the satellite TV companies has brought this issue to the forefront.

These companies see the Internet as a means to save their resources and push the load onto the Internet.

Welcome to the Internet circa 2010.  The days of a voice declaring “You’ve got mail” from your AOL account are long gone.  Customers are demanding access to a much richer multimedia experience available online today.  That demand is beginning to regularly collide with the limitations some networks have to deliver the service.

To make sure his customers understand the implications of streaming video, Flood is also introducing one of the most punitive Internet Overcharging schemes we’ve yet to encounter, starting with a monthly usage limit of 5 GB accompanied by some vicious overlimit fees:

All non-business customers will be allotted 5 GB of total aggregate usage.

If the customer exceeds 5GB of total aggregate usage on any given monthly billing cycle, they will be assessed an additional $30.00 to cover their bandwidth use.

If any customer exceeds 10GB of total aggregate usage on any given monthly billing cycle, they will be assessed an additional $60.00 to cover their bandwidth use.

If any customer exceeds 15GB of total aggregate usage on any given monthly billing cycle, they will be assessed an additional $90.00 to cover their bandwidth use.

Although these additional charges seem excessive, we are not alone on making such changes as the rest of the ISP’s [Internet service providers as well as cellular providers] are also implementing similar programs on their networks to deal with network congestion issues caused by ‘on demand’ type products. The good news is, the typical Internet customer never exceeds 5GB of aggregate usage. Only a small percentage of our customers are involved in this ‘on demand streaming activity’. Here is what can be done by the typical customer while not exceeding the 5GB threshold: Our basic residential Internet packages will offer 5GB of usage — that’s the equivalent of 500,000 basic text e-mails, 2,500 photos, 40,000 web pages, over 300 hours of Online game time, 1,250 downloaded songs, or a mixture of the above! 1,000 megabyte (MB) = 1 gigabyte (GB) We will send out a notice to everyone again when we are ready to implement these changes.

Flood’s e-mail doesn’t tell the whole story to his customers, however.

First, his imposed overlimit fees are ludicrously high.  A customer using 16 GB for the month would face an overlimit penalty of $90.  Considering AirRunner’s pricing, that’s a potentially enormous bill:

AirRunner offers six rate plans for residential and small business:

• $15.00 256K/256K, tiered access. New accounts only

The below programs require a contract.

• $19.00 1.0 Mbps/768K, tiered access. New accounts only
• $45.00 2Mbps/1Mbps, tiered access
• $55.00 2Mbps/2Mbps, tiered access Bi-direction connection; useful for working from home.
• $65.00 3Mbps/1Mbps, tiered access
• $75.00 5Mbps/1Mbps, tiered access

Second, “the rest of the ISPs” are not in fact imposing similar programs.  AT&T just abandoned theirs for DSL customers in two cities.  Attempts to ration broadband access typically meets resistance from consumers, if not an outright revolt.  As soon as customers get a bill with a $90 overlimit penalty on it, they will revolt as well.

It is true that wireless providers do face bandwidth challenges, but that’s not always disclosed to customers until after they sign up for service.  In 2010, would you sign a two year contract for a broadband service that banned online video?  Of course, if Flood offers the only service in town, for all practical purposes he can dictate the terms of the service provided.  But many customers have long memories and when another provider does arrive, they’ll take their business elsewhere.

Therein lies a potential problem for Flood.  A considerable part of central Wisconsin has been served by Verizon North, one of the divisions Verizon has sold to Frontier Communications.  Verizon dramatically cut investment in Wisconsin broadband expansion as soon as it became apparent they were leaving.  Frontier Communications is betting its long-term survival on bringing at least 1-3 Mbps DSL service to areas just like central Wisconsin.  It’s a safe assumption at least some parts of Flood’s service area will be challenged by Frontier DSL within the next year.

At that point, perhaps Flood will adopt a less hostile attitude towards his own customers.  Some of those who departed didn’t appreciate Flood’s tone or actions and shared some of his hostile communications on the subject.  Taking an adversarial stance even with former, paying customers never works well.  Among the thoughts Flood has shared:

• If you don’t like his caps, move to the city;
• One customer was told his service was canceled because he just doesn’t get it — besides, Flood wrote, he can do whatever he wants;
• Customers who are caught streaming are gone;
• If you complain too much, watch out.

Third, Flood follows the discredited playbook of trying to convince customers a 5 GB usage limit for the Internet in 2010 is reasonable with generous-sounding e-mail and web page browsing allowances.  Flood himself exposes the real issue — customers want to watch YouTube, Netflix, and Hulu and his network can’t handle it.  Of course, his marketing materials never bother to mention any of this.  Only after customers sign up, many under a two-year contract, does the truth come out (underlined emphasis ours):

In the case of ‘streaming video/movies or on demand type products or services’ recent weeks shows exactly what happens when these types of products are used. Everyone who uses ‘on demand or streaming products or services’ also knows there is an alternative which does not have an affect on any other user. We suggest the alternative as the best solution. We would appreciate everyone’s cooperation in resolving this current issue. If you are streaming movies you are making everyone mad!! Someday you may want to use the Internet and your neighbor will be streaming, then you won’t work. Wireless Internet was not designed to watch TV or movies.

If you are a ‘on demand user’ you may want to look at other options in lieu of streaming movies over the Internet. A basic resolution movie is typically 700Mb of data. So 1000Mb is equal to 1GB. So roughly 3-6 on demand or streamed movies will draw and additional charge to your account. All paying customers have the right to access their Internet connection, however any customer cannot deny any other customer access as the result of their usage. When this occurs policy is made to correct such actions. We make every effort to provide the best service we can, sometimes new Internet based programs and products do not work well on this type of network, that is not the fault of AirRunner Networks LLC and we cannot guarantee that any type of program or product will work properly or as advertised.

At least Flood was finally honest about the implications of watching online video from a provider with a low monthly usage allowance.  Just watching 3-6 online movies blows right through it, even fewer if it’s an HD title.

Unfortunately for Flood and other WISPs with similar network constraints, the evolution of the Internet and its online resources will increasingly place pressure on many networks that were built for a 1990s-era Internet.  As advanced video game streaming technology, online movies and television, online file backup, and other high bandwidth innovations not yet envisioned become increasingly popular, companies like AirRunner will be forced to upgrade their network or add new applications to the ban list, eventually facing obsolescence if a better provider arrives in town.

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Sprint will not limit use or throttle speeds for users of its 3G or mobile WiMax networks, despite a report from Engadget claiming the company was on the verge of applying speed throttles on its users exceeding 5 GB per month of usage.

A Sprint spokesman told Dow Jones Newswires any limits would apply only for Sprint mobile broadband data users roaming on other companies’ data networks using modems attached to laptops or personal computers.  Smartphone users are not affected.

“Sprint does not, nor plan to limit speeds, nor change a customer’s ability to use any particular application or Internet site,” said Sprint spokesman Mark Elliott.

However, the company has made it clear it can temporarily suspend a customer’s ability to roam on Sprint’s data network if “excessive usage” is detected.  Current plans provide up to 300 megabytes of service while roaming.  Higher allowances are available for purchase.  Customers will receive text messages notifying them when they reach 75 percent and 90 percent of their allowance.  After that, Sprint can cut off service until the next bill cycle begins.

Sprint has to pay higher fees when customers roam on non-Sprint networks, hence the usage limit.

Sprint, America’s third largest wireless carrier behind Verizon Wireless and AT&T, is trying to position itself as the competitive choice for customers who do not want to worry about usage allowances and overlimit fees.  The company hopes customers who are tired of escalating wireless bills will once again look beyond the two largest providers.

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Beaumont, Texas

AT&T has distributed an internal memo to customer service representatives that informs them AT&T’s Internet Overcharging experiment in Reno, Nevada and Beaumont, Texas has ended.  Stop the Cap! reader Scott Eslinger was able to get an AT&T representative to read from the official memo that many AT&T customers have yet to hear about themselves.  Stop the Cap! had word in February the usage limit test was set to end April 1st, but actually getting official word that declared it dead and buried took much longer.

With no official notification to customers in the two impacted cities, many may be under the impression that usage limits remain.

AT&T representatives notoriously provided inaccurate information to customers about the experiment, with several customers signing up for “unlimited” service only to be notified days later they were actually facing limits ranging from 20-150 GB per month depending on their service plan.

Eslinger, who lives in Beaumont, notes representatives regularly mislead him into believing his service was unlimited even during the trial, except it was not.

“Every time I talked to AT&T no matter what I called about I always asked if the rep knew the status of the ‘broadband usage trial’ as I wanted to know when it would be over. No one ever had any idea what I was talking about,” Scott writes.  “They regularly told me that my AT&T broadband account included ‘unlimited’ use.”

But when Scott ran over his allowance, a nasty letter arrived in the mail saying otherwise.  Even then, AT&T customer service representatives kept telling him the letter must be a mistake.

“The first time I got the letter stating that I had gone over and would be charged the next time I went over I called AT&T and the rep actually had me fax in the letter so they could ‘fix’ it as that just ‘didn’t seem right.’”

We agree.  Internet Overcharging schemes are not right.  They represent little more than transparent rationing of broadband usage to reduce their costs while potentially earning $1.00 per gigabyte in overlimit fees for those who broke their allowance.

Although AT&T told Scott he couldn’t get a copy of the memo officially terminating the usage limit experiment, because it was a confidential, “proprietary AT&T document,” the rep read it out loud to Eslinger over the phone anyway.

“Reminder, the broadband usage trial in the Reno, Nevada and Beaumont, Texas market areas ended on April 1, 2010. Remember customers outside of the Reno and Beaumont are not impacted.”

Reno, Nevada: One of the communities chosen for AT&T's Internet Overcharging experiment

Scott noted it was news to him.

“I never recall receiving this via email or snail mail; you would think they would have told everyone they ended it,” he writes. “Hopefully it will NEVER come back!”

One can hope.  Unfortunately, AT&T is the company that ended its unlimited wireless data plan for smartphone customers, now limiting them to just 2 GB of wireless usage per month, with a steep overlimit penalty for those that exceed it.

For millions of AT&T DSL and U-verse customers, an Internet rationing plan that limits consumption could prove costly, especially for those in rural areas where alternative providers simply are not available.

The best ways to deliver the message AT&T’s usage limits are not acceptable:

• Inform the company you are not happy with usage limits or so-called consumption billing that seeks to consume all of the money in your wallet;
• Don’t buy service from AT&T and tell them why.  Existing customers can be grandfathered on their existing unlimited plans, but new customers should shop elsewhere for service.

For many AT&T representatives, complaints about usage limits will be news to them, too.  Scott closes his note with word that even AT&T’s executive office customer service department, the one reserved for customers complaining to senior management, had never heard of the usage cap trials either.

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Spangler

While the mainstream media and some of AT&T’s apologists tell consumers AT&T’s 2 GB monthly usage limit will impact only a handful of “abusers,” the cable trade press is telling its readers the industry insider’s secret — consumers will blow right through those caps.

Todd Spangler, who is an Internet Overcharging advocate and columnist for Multichannel News, a cable industry trade magazine, writes the implications of AT&T’s usage cap couldn’t be clearer to him.

The new iPhone 4, introduced yesterday to the predictable media crush, provides 10 hours of battery life for playing video, among other features.

But now that AT&T has eliminated its all-you-can-eat plan for smartphones, you will blow through the maximum 3G usage for the entry-level 200 MB plan if you watched just 4 minutes of streaming video per day. That would include commercials.

Even AT&T’s more generous DataPro 2-GB plan would allow just 35 minutes per day of streaming video (assuming you used your iPhone for nothing else), according to the carrier’s online data calculator.

Like a stopped watch, at least he’s right twice a day.

Spangler celebrates the opportunity AT&T’s overcharging scheme provides the cable industry to “grease the skids” for data caps and overpriced consumption billing on cable modem service.

In Spangler’s “Cable companies pay my salary”-world-view, it wasn’t that Time Warner Cable did the wrong thing when it tried to triple broadband pricing — to $150 a month — for the exact same level of service customers previously enjoyed.  It was all about its execution.

Spangler characterizes Time Warner Cable CEO Glenn Britt as a victim, burned over the company’s failed overcharging experiment in 2009.  When one plays with matches, is it any surprise there are consequences?

Consumers will respond to more overcharging schemes the same way they did a year before — with overwhelming condemnation and opposition.  It’s hard to convince consumers to pay a higher price for limits on usage while telling shareholders you’ve invested less to expand your network, charged more to access it, all while the costs to provide the service have dropped dramatically.  Consumers call that out for what it is: greed.

Make no mistake, consumers hate usage caps and overpriced consumption billing and Time Warner Cable has no justification to introduce either.

Click here to view the embedded video.

Normally business-friendly CNBC covers the introduction of the 2 GB usage cap on AT&T smartphone data usage.  Then the CNBC anchor got skeptical about AT&T’s claims this was good news for consumers, admitting she hates overcharging schemes that deliver a surprise on the bill at the end of the month.  Lance Ulanoff, editor of PC Magazine expressed some doubts himself.  (8 minutes)

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Apple's iPhone 4

As expected, Steve Jobs introduced America to the new Apple iPhone 4 today at Apple’s Worldwide Developer Conference in San Francisco.  Karl Bode at Broadband Reports did a great summary on what’s new, so I won’t reinvent the wheel:

As everyone had expected, Apple just announced the long-awaited iPhone 4. According to his Jobsness, the phone is 24% thinner than the iPhone 3GS and as expected has a more powerful primary 5MP camera with flash — and a new camera on the front that will be used primarily for video chat. The phone’s stainless steel frame (sandwiched by glass) is being partially used as an antenna, something that may prove helpful for connectivity issues.

Other specs: Dual mics, 802.11n WiFi, GPS, compass, accelerometer, Quad band HSDPA (7.2Mbps), gyroscope (perfect for gaming, insists Jobs). The company says they’ve also improved the device’s battery. It can now handle 7 hours of 3G talk, 6 hours of 3G browsing, 10 hours of Wi-Fi browsing, 10 hours of video, or 40 hours of music. The phone also records HD video (720p at 30fps, insists Steve), and the new flash will stay on during video recording.

Amusingly, Apple ran into network connectivity issues while trying to demonstrate the phone’s higher resolution screen (join the club, Jobs). According to Apple, the phone comes in white or black, with the 16GB version costing $199 and the 32GB version costing $299. The phone will be available on June 24, with pre-orders beginning on June 15.

Karl also notes, as others have confirmed with us, AT&T is so eager to get this new phone into your hands (along with a new two-year contract), they are waiving the usual two-year waiting period before customers can upgrade their phones.  If your contract expires anytime this year, you can obtain the phone at the subsidized price.

But should you?

For many, the iPhone 4 will represent an incremental upgrade, especially if you aren’t a power user.  In this economy, is it worth $200-300 for a new phone and a new service commitment?

The upgrade for current customers, who can keep their unlimited data plan, may make sense -if- you receive tolerable service from AT&T and feel the latest phone would directly benefit you.  You should consider, however, that signing a new contract will lock you into another two year marriage with the company that drove more Americans crazy with bad service, dropped calls, slow data, and irritating customer service than any other.  A divorce will cost you up to $325 per phone. Their 3G coverage isn’t all that, either.

It also gives the company that loves to cap more of your money.

Unfortunately, waiting for the iPhone to arrive at Verizon Wireless is increasingly less likely to be a panacea for AT&T’s Internet Overchargitis.  That’s because AT&T and Verizon are the Mary Had a Little Lamb of big telecom:

Everywhere that AT&T went,
AT&T went, AT&T went,
Everywhere that AT&T went
Verizon was sure to go.

It’s a safe bet that by the time Verizon brings forth the coveted iPhone, it will have an Internet Overcharging scheme matching AT&T’s.

If you are seeking to upgrade to a smartphone, it’s increasingly likely you’ll find a better deal with Sprint or T-Mobile, both of which have no plans for AT&T’s pricing schemes.

The best way to get a company like Verizon or AT&T to pay attention is to avoid their products when they charge too much.  A dramatic reduction in demand for AT&T’s iPhone among new customers, for example, would send a clear message to Wall Street that their love of usage caps is hurting shareholder value in a big way.  They follow the money.  If existing customers hang on to their $30 unlimited plans while other customers head elsewhere to avoid AT&T’s Internet rationing, you’ll see an overnight conversion among many industry players suddenly demanding a return to the unlimited buffet.

Or better yet, how about giving every customer a choice of both types of plans — pay less for limited service or pay today’s prices for unlimited.

Click here to view the embedded video.

Apple proclaims the arrival of iPhone 4, calling it a revolutionary upgrade.  Apple released this video showcasing iPhone 4′s video capabilities that AT&T has now effectively hobbled with a wireless Internet rationing plan that punishes customers who try to use the phone’s new features.  (6 minutes)

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AT&T’s hurry to end unlimited wireless data plans for its customers, many of which are using popular Apple iPhone and iPad devices, signals AT&T’s overburdened network can no longer handle customer demand.  With the threat of even higher data usage from today’s release of the next generation iPhone, which will highlight bandwidth-intensive video conferencing and streaming, AT&T put the brakes on before new customers even activate their new phone.

With a penalization program in place, AT&T is sending a message to customers contemplating owning the newest generation of smartphones that its network is in no position to actually provide service to those devices, particularly bandwidth-heavy video streaming.

Customers who dare use these video streaming services face the prospect of paying an overlimit fee up to $15 for just 200 megabytes of data.  That’s a compelling reason to think twice about every high bandwidth application. And that may be exactly the point for a network that suffers from congestion problems in several major American cities.

AT&T has consistently ranked at the bottom of consumer surveys done by credible organizations like Consumer Reports, typically because of network capacity issues.  Yet the carrier also charges, on average, the highest out-the-door price among the four major carriers — an average of $134 a month for a two-phone plan with a data package.  That’s $20 higher than either T-Mobile or Sprint, eight dollars more than Verizon Wireless.

Ranked rock-bottom for voice quality, downright lousy for customer service, and only average for its other services, AT&T has simply not kept up.  Yet AT&T raked in more than 13 billion dollars in profits in wireless last year.  The New York Times reports AT&T has at least 33 million smartphone customers, many committed to AT&T’s required $30 data plan.  That represents more than $900 million dollars per month in revenue — $10.8 billion dollars annually, and that’s for data services alone.

Yet the percentage of the company’s investments committed to expanding its network, measured under AT&T’s 2009 annual financial report, has not kept up with its enormous iPhone customer base, on AT&T’s network since 2007.

Source: AT&T's 2009 Annual Report -- AT&T's capital investments in its network and service don't keep up with the enormous increase in its Apple iPhone customer base introduced to AT&T service. Last year showed a dramatic reduction in investment when compared with 2008. AT&T is not exactly plowing all of its wireless profits back into its wireless business.

According to TownHall Investment Research, between January 2006 and September 2009, AT&T spent about $21.6 billion, or $308 per subscriber, on its wireless network. During that same period, Verizon Wireless spent about $25.4 billion, or nearly $353 per subscriber.  Verizon has outspent AT&T each of the past three years on service upgrades without the revenue benefits a stampede of iPhone-owning customers brings.  That gap has now grown into a nearly $4 billion dollars difference between the two providers in infrastructure upgrades.

“This is the story of a wireless carrier that is determined not to invest enough to meet the demand of users, but has decided to manage its network as a scarce resource,” says Chris Riley, policy counsel for Free Press. “This is what Wall Street loves: Reduce your expenditures and increase your revenues.”

In a barely competitive wireless marketplace, AT&T can afford to force customers to pay dramatically higher data costs in the months and years ahead, especially for iPhone customers who must use AT&T if they want a subsidized phone.  Even if a customer leaves, AT&T will earn up to $325 in cancellation penalties.

That iPhone exclusivity agreement with Apple has been an unlimited goldmine for AT&T. AT&T’s wireless business drives AT&T’s overall profitability, generating 57 percent of its operating income according to Gerard Hallaren, director of research at TownHall.

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