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Wall Street Investors Suckered By Broadband, Wireless Myths on Usage Pricing, Network Investment

verizon-protestBig Telecom companies like Verizon and AT&T use phony numbers and perpetuate myths about broadband traffic and network investments that have conned investors out of at least $1 trillion in unnecessary investments and consolidation.

Alexander Goldman, former chief analyst for CTI’s American Recovery and Reinvestment Act grants, is warning Wall Street and investors they are at risk of losing millions more because some of the largest telecom companies in the country are engaged in disseminating bad math and conventional wisdom that relies more on repetition of their talking points than actual facts.

Goldman’s editorial, published by Broadband Breakfast, believes the campaign of misinformation is perpetuated by a media that accepts industry claims without examining the underlying facts and a pervasive echo chamber that delivers credibility only by the number of voices saying then same thing.

Goldman takes Verizon Communications CEO Lowell McAdam to task for an editorial published in 2013 in Verizon’s effort to beat back calls on regulators to oversee the broadband industry and correct some of its anti-competitive behavior.

McAdam claimed the U.S. built a global lead in broadband on investments of $1.2 trillion over 17 years to deploy “next generation broadband networks” because networks were deregulated.

Setting aside the fact the United States is not a broadband leader and continues to be outpaced by Europe and Asia, Goldman called McAdam’s impressive-sounding dollar figures meaningless, considering over the span of that 17 years, the United States progressed from dial-up to fiber broadband. Wired networks have been through a generational change that required infrastructure to be replaced and wireless networks have been through at least two significant generations of change over that time — mandatory investments that would have occurred with or without deregulation.

Over the past 17 years, the industry has gotten more of its numbers wrong than right. An explosion of fiber construction in the late 1990s based on predictions of data tsunamis turned out to be catastrophically wrong. University of Minnesota professor Andrew Odlyzko, the worst enemy of the telecom industry talking point, has been debunking claims of broadband traffic jams and the need to implement usage-based pricing and speed throttling for years. In 1998, when Wall Street was listening intently to forecasts produced by self-interested telecom companies like Worldcom that declared broadband traffic was going to double every 100 days, Odlyzko was telling his then-employer AT&T is was all a lot of nonsense. The broadband traffic emperor had no clothes, and statistics from rival telecom companies suggested Worldcom was telling tall tales. But AT&T executives didn’t listen.

fat cat att“We just have to try harder to match those growth rates and catch up with WorldCom,” AT&T executives told Odlyzko and his colleagues, believing the problem was simply ineffective sales, not real broadband demand. When sales couldn’t generate those traffic numbers and Wall Street analysts began asking why, companies like Global Crossing and Qwest resorted to “hollow swaps” and other dubious tricks to fool analysts, prop up the stock price and executive bonuses, and invent sales.

Nobody bothered to ask for an independent analysis of the traffic boom that wasn’t. Wall Street and investors saw dollars waiting to be made, if only providers had the networks to handle the traffic. This began the fiber boom of the late 1990s, “an orgy of construction” as The Economist called it, all to prepare for a tidal wave of Internet traffic that never arrived.

After companies like Global Crossing and Worldcom failed in the biggest bankruptcies the country had ever seen at the time, Odlyzko believes important lessons were never learned. He blames Worldcom executives for inflating the Internet bubble more than anyone.

A bubble of another kind is forming today in America’s wireless industry, fueled by pernicious predictions of a growing spectrum crisis to anyone in DC willing to listen and hurry up spectrum auctions. Both AT&T and Verizon try to stun investors and politicians with enormous dollar numbers they claim are being spent to hurry upgraded wireless networks ready to handle an onslaught of high bandwidth wireless video. Both Verizon’s McAdam and AT&T’s Randall Stephenson intimidate Washington politicians with subtle threats that any enactment of industry reforms by the FCC or Congress will threaten the next $1.2 trillion in network investments, jobs, and America’s vital telecom infrastructure.

Odlyzko has seen this parade before, and he is not impressed. Streaming video on wireless networks is effectively constrained by miserly usage caps, not network capacity, and to Odlyzko, the more interesting story is Americans are abandoning voice calling for instant messages and texting.

8-4WorldcomCartoonThat isn’t a problem for wireless carriers because texting is where the real money is made. Odlyzko notes that wireless carriers profit an average of $1,000 per megabyte for text messages, usually charged per-message or through subscription plan add ons or as part of a bundle. Cellular voice calling is much less profitable, earning about $1 per megabyte of digitized traffic.

Wireless carriers in the United States, particularly Verizon and AT&T, are immensely profitable and the industry as a whole haven’t invested more than 27% of their yearly revenue on network upgrades in over a decade. In fact, in 2011 carriers invested just 14.9% of their revenue, rising slightly to 16.3 percent in 2012 when companies collectively invested $30 billion on network improvements, but earned $185 billion along the way.

While Verizon preached “spectrum crisis” to the FCC and Congress and claimed it was urgently prioritizing network upgrades, company executives won approval of a plan to pay Vodafone, then a part owner of Verizon Wireless, $130 billion to buy them out. That represents the collective investment of every wireless provider in the country in network upgrades from 2005-2012. Verizon Wireless cannot find the money to upgrade their wireless networks to deliver customers a more generous data allowance (or an unlimited plan), but it had no trouble approving $130 billion to buy out its partner so it could keep future profits to itself.

Odlyzko concludes the obvious: “modern telecom is less about high capital investments and far more a game of territorial control, strategic alliances, services, and marketing, than of building a fixed infrastructure.”

That is why there is no money for Verizon FiOS expansion but there was plenty to pay Vodafone, and its executives who walked away with executive bonuses totaling $89.6 million.

As long as American wireless service remains largely in the hands of AT&T and Verizon Wireless, competition isn’t likely to seriously dent prices or profits. At least investors who are buying Verizon’s debt hope so.

Goldman again called attention to Odlyzko’s latest warning that the industry has its numbers (and priorities) wrong, and the last time Odlyzko had the numbers right and the telecommunications industry got its numbers wrong, telecommunications investors lost $1 trillion in the telecommunications dot.com bust.

As the drumbeat continues for further wireless consolidation and spectrum acquisition, investors have been told high network costs necessitate combining operations to improve efficiency and control expenses. Except the biggest costs faced by wireless carriers like Verizon are to implement strategic consolidation opportunities like the Vodafone deal, not maintain and grow their wireless network. AT&T is putting much of its spending in a proposed acquisition of DirecTV this year as well — at a cost of $48.5 billion. That could buy a lot of new cell towers and a much more consumer-friendly data plan.

Voice to text substitution (US)

year voice minutes billions texts billions
2005 1,495 81
2006 1,798 159
2007 2,119 363
2008 2,203 1,005
2009 2,275 1,563
2010 2,241 2,052
2011 2,296 2,304
2012 2,300 2,190

Cell phone network companies (if you can believe their SEC filings) are incredibly profitable, and are spending relatively little on infrastructure:

year revenues in $ billions capex in $ billions capex/revenues
2004 102.1 27.9 27.3%
2005 113.5 25.2 22.2
2006 125.5 24.4 19.4
2007 138.9 21.1 15.2
2008 148.1 20.2 13.6
2009 152.6 20.4 13.3
2010 159.9 24.9 15.6
2011 169.8 25.3 14.9
2012 185.0 30.1 16.3

Killing Off Affordable Rural Internet: BMI Loses $99 Sprint Unlimited, Gains 10GB Verizon Plan for $100

bmi.net-logoRural Americans who cannot get cable broadband or DSL will now pay more money for less service as wireless carriers continue to cancel affordable mobile broadband plans with a generous usage allowance in favor of premium-priced, stingy usage-capped wireless Internet.

Two weeks after Millenicom was forced to drop affordable Verizon wireless broadband service, Blue Mountain Internet received word its unlimited Sprint broadband reseller agreement was being terminated the following day, forcing the company to hurry out cancellation notices to affected customers.

“We received notification yesterday from our upline provider that our mobile broadband accounts utilizing the Sprint network (Net2) will all be cancelled on Friday, Oct. 31st, 2014,” the company wrote in an email to customers. “We apologize for the short notice but we just received notice yesterday.”

BMI had offered customers an unlimited use mobile broadband plan from Sprint for $99 a month. It has been replaced with a Verizon plan that costs a dollar more and comes with a 10GB monthly data allowance with a steep $20/GB overlimit fee. “Heavy users” can pay $120 a month for a monthly allowance of 20GB. Affected customers intending to switch to Verizon get a discount off the monthly plan price if they pay quarterly: $85 (10GB) or $100 (20GB).

Blue Mountain Internet Mobile Broadband Rental Prices & Plans

Package Network Traffic Traffic Email AV Optimizer Best Price Monthly Quarterly
      Optimized Accts Licenses Software paying quarterly 3 months
VMBB-HalfGig 1 1/2Gb 1.5Gb 1 1 Yes $19.99/Mo $24.95 $59.97
VMBB-1GB 1 1Gb 3Gb 1 2 Yes $34.95/Mo $39.99 $104.85
VMBB-3GB 1 3Gb 9Gb 1 2 Yes $52.95/Mo $59.99 $158.85
VMBB-5GB 1 5Gb 15Gb 1 2 Yes $69.99/Mo $79.99 $209.97
VMBB-10GB 1 10Gb 30Gb 1 2 Yes $84.95/Mo $99.99 $254.85
VMBB-20GB 1 20Gb 60Gb 1 2 Yes $99.99/Mo $119.99 $299.97
Plan Details: Network 1 Overages are charged at a rate of $20/Gigabyte – regardless of plan. Hardware options available or you can bring your own device (BYOD). Traffic optimizer software is free for Windows & Macintosh. Optimizer does not compress video or already compressed files.

EVDOinfo notes that with Millenicom and BMI losing their relationships with Verizon and Sprint respectively over the course of just one month, “it seems unlikely that we’ll see another [reseller] emerge with a no-contract, high-data plan using one of the major carriers’ networks.”

Millenicom customers were being offered a slightly different plan if they agreed to switch to a Verizon Wireless account: 20GB a month for $99 with a $15/GB overlimit fee. Customers signing up for a “More Everything” plan will pay considerably more. A 30GB plan with a mobile hotspot device costs $150 a month, not including fees and taxes. A one-year contract commitment usually applies.

Commentary: Verizon’s New Tech News Website Censors Out Net Neutrality, Electronic Spying, Credibility

“Verizon’s treatment of the news is a testament to the need for strong Net Neutrality protections.”

Sugarstring's logo is as twisty as its editorial policies.

Sugarstring’s logo is as twisty as its editorial policies.

Verizon Wireless’ launch of Sugarstring, a high-budget tech news website targeting millennial 20-somethings with tech and lifestyle news they can use seemed innocent enough until its editor revealed in a private e-mail Verizon considers reporting on electronic spying and Net Neutrality issues “verboten.

Verizon is deeply embroiled in both issues and evidently has no interest spending money enlightening the masses, so it has told its staff (but not you) both topics are forbidden.

The Daily Dot reported the revelation straight from Cole Stryker, Sugarstring’s editor.

“I’ve been hired to edit SugarString.com,” writes Stryker in a recruiting email to Daily Dot’s Patrick Howell O’Neill. “Downside is there are two verboten topics (spying and net neutrality), but I’ve been given wide berth to cover pretty much all other topics that touch tech in some way.”

Verizon’s cavalier censorship policies say a lot about the company’s interest in controlling the messages that people see and read online. The news site is intended to be a high-profile destination for Verizon Wireless’ mobile customers and will logically get significant exposure from the company bankrolling it.

Verizon might argue that since it pays the bills, it has a right to decide what information should pass through its websites. It is hardly a big stretch for them to argue that if they own the wires over which you receive Internet service, they should have a say in what travels across those as well.

Censorship need not be crude and obvious as it often was on foreign propaganda broadcasts during the Cold War. Today’s “news management” is much more subtle and more insidious.

Take RT (formerly Russia Today), the Moscow-based 24/7 English-language news network. Although dropped by many major cable systems including Time Warner Cable after Russian troops invaded eastern Ukraine, the network is still growing and finding more places on the air around the world.

Radio Moscow during the Cold War represented a more overt form of propaganda. Corporations like Verizon have learned to be more subtle.

Radio Moscow during the Cold War represented a more overt form of propaganda. Corporations like Verizon have learned to be more subtle.

RT is nothing like what shortwave listeners used to endure from English-language Radio Moscow World Service during the Communist years. You couldn’t miss that station. Broadcasting on up to 47 frequencies simultaneously, 24 hours a day, it was easily the most commonly encountered signal on the shortwave dial. Plodding features like, “On the Occasion of the 45th Anniversary of the Stunning Achievements of World Socialism,” or “The Voices of Soviet Public Opinion Demand Peace and Progress for the Non-Aligned World” (Part 36) were everything you might expect and less.

Radio Moscow boldly told listeners in its series, “The History of the Soviet Union, the Socialist Revolution, and Its Aims and Results,” that elections in the USSR were superior to those in other countries because the government took the money out of politics. Only by putting national infrastructure entirely in the hands of the people, along with public ownership of the means of production, can a nation achieve true democracy. They didn’t bother to mention the USSR was a one-party state, which made elections pro-forma, or that the entire Soviet economy was a basket case since the days of Leonid Brezhnev. (10:01) You must remain on this page to hear the clip, or you can download the clip and listen later.

Radio Moscow has been replaced by RT Television, which in the post-Soviet era now exists primarily to boost all-things Putin. The propaganda has been sharpened up by employing U.S. reporters and moving to the far more subtle practice of “self-censorship.” A former RT reporter fed up with increasingly strident propaganda over the matter of Russia, Crimea and the Ukraine quit live on the air. In a later interview on CNN, Liz Wahl told Anderson Cooper that RT’s staff was made up mostly of impressionable young people eager to win favor from RT’s management. They quickly learned and accepted that certain points of view or story subjects were either frowned upon or outright verboten. Instead of being sent to a gulag for disobedience, those straying from Putin’s party line were taken off stories, reassigned to menial work, or shunned. Who wants that?

Avoiding certain topics or points of view at the behest of corporate management (or the state) is just as insidious as directly slanting the news to one’s favor. Few real journalists would accept a job (or stay) at a news organization that was compromised by coverage limits or editorial interference that came from conflict with a corporate or political agenda.

That Verizon chooses to ban stories that embarrass Verizon, such as Edward Snowden’s revelations that Verizon voluntarily provided the National Security Agency (NSA) the phone records of all of its customers and is still actively engaged in tracking its customers’ web activities, does not mean it is going to block you from visiting CNN.com tomorrow. That Verizon doesn’t want to fuel the public consciousness of Net Neutrality is understanding considering the company has paid its lawyers plenty to fight the principle in court, openly admitting it favors paid fast lanes for traffic. But Verizon is clearly on a road that, if unchecked, eventually leads to content and traffic manipulation.

Verizon steps far over the line of jounalistic integrity informing editors to avoid both issues while saying nothing to readers and it isn’t the first time Verizon has crossed the line.

censorshipTim Karr from Free Press reminds us Verizon has a very different view about the First Amendment that the rest of us:

In a 2012 legal brief to the U.S. Court of Appeals for the D.C. Circuit, Verizon mangled the intent of the First Amendment to claim that the Constitution gives the phone company the right to control everyone’s online information. In the brief, which was part of the company’s successful bid to overturn the FCC’s Open Internet Order — Verizon argued that the First Amendment gives it the right to serve as the Internet’s editor-in-chief. The company’s attorneys claimed that “broadband providers possess ‘editorial discretion.'” even when they are “transmitting the speech of others.”

Verizon continued in this vein, asserting that “Just as a newspaper is entitled to decide which content to publish and where, broadband providers may feature some content over others.” And that means that Verizon could privilege its SugarString version of the news over the content of real news sites, because the company believes it should be able to “give differential pricing or priority access” to its own content.

What Verizon cannot “manage,” it wants the right to censor:

When it comes to a question of customer freedom vs. profits, Verizon follows the money every time:

In 2011, Free Press and others caught Verizon Wireless blocking people from using tethering applications on their phones. Verizon had asked Google to remove 11 free tethering applications from the Android marketplace. These applications allowed users to circumvent Verizon’s $20 tethering fee and turn their smartphones into Wi-Fi hotspots on their own. By blocking those applications, Verizon violated a Net Neutrality pledge it made to the FCC as a condition of the 2008 airwaves auction.

All of these examples challenge Verizon’s ongoing assertion it has no incentive to censor, block, or interfere with online content, making Net Neutrality unnecessary. You have just seen another example of why Net Neutrality is urgently needed. Verizon has demonstrated repeatedly it puts its own interests above its customers, so regulators should respond with a clear, unambiguous, and robustly enforced policy of Net Neutrality that protects the interests of you and I.

FCC Delays Wireless Spectrum Auction; Hires Investment Banker to Pitch Stations to Sell and Sign-Off

fcc2The Federal Communications Commission announced Friday it will postpone an important spectrum auction until 2016 after broadcasters filed suit against the regulator challenging its proposed format.

The FCC wants your free, over-the-air television dial to be a lot smaller with a deal that will pay broadcasters to sign-off their channels for good to benefit the wireless industry. Remaining stations will be moved to VHF channels 2-13 and UHF channels 14-30. The spectrum covering UHF channels 31-51 would likely then be sold in pieces to major wireless carriers including AT&T, Verizon Wireless, Sprint, and/or T-Mobile.

To entice broadcasters to voluntarily switch off their transmitters, the FCC has designed a spectrum auction that would provide tens of millions in proceeds to smaller stations and up to $570 million for a UHF station in Los Angeles to get off the air. Technically, stations giving up their channels don’t have to sign-off — they can move to low/lower-powered broadcasting, share channel space with another television station on a digital subchannel, or move to cable television exclusively.

To sell stations on the deal, FCC Chairman Tom Wheeler hired Greenhill, a Wall Street investment bank, to prepare a presentation sent to every eligible television station in the country, encouraging them to sell their channels for some eye-popping proceeds:

(These numbers refer to full-power stations; in some markets there are also Class A stations, low-power stations that meet certain programming requirements. The estimated value of their spectrum is lower.)

In millions of dollars
MARKET Full-Power Stations
Maximum Median
New York $490 $410
Los Angeles $570 $340
Chicago $130 $120
Philadelphia $400 $230
Dallas-Fort Worth $67 $53
San Francisco-Oakland-San Jose $140 $110
Boston $140 $93
Washington, D.C. $140 $130
Atlanta $91 $65
Houston $52 $45
West Palm Beach $100 $93
Providence, R.I. $160 $110
Flint, Mich. $100 $45
Burlington, Vt. $58 $17
Youngstown, Ohio $95 $90
Palm Springs, Calif. $180 $100
Wilkes-Barre-Scranton $150 $140

Source: The FCC

 

getoffThere is so much money to be made buying and selling the public airwaves — at least twice as much as broadcasters originally anticipated– spectrum speculators have also jumped on board, snapping up low power television station construction permits and existing stations with hopes of selling them off the air in return for millions in compensation. Wireless customers are effectively footing the bill for the auction as wireless companies bid for the additional spectrum. Television stations will receive 85% of the proceeds, the FCC will keep 15%.

take the moneyMajor network-affiliated or owned stations in major cities are unlikely to take the deal. But in medium and smaller-sized markets where conglomerates own and operate most television stations, there is a greater chance some will be closed down, moved to a lower channel, or transferred to a digital sub-channel of a co-owned-and-operated station in the same city. The most  likely targets for shutdown will be independent, CW and MyNetworkTV affiliates. In smaller cities, multiple network affiliates owned by one company could be combined, relinquishing one or more channels in return for tens of millions in cash compensation.

In Los Angeles, the stakes are especially high with auction prices estimated at up to $570 million for a high-powered UHF station like KDOC-TV.

“There is some real money to be had,” Bert Ellis, chief executive of Ellis Communications, which owns KDOC-TV, told the Wall Street Journal. “I think every broadcaster should take a very close look at this.”

Estimates show at least 80 significant U.S. cities will likely lose one or more channels, especially when the bid price well exceeds the value of an independent, ethnic or religious station. Many of these will go dark, move to cable or a less desirable lower power VHF channel, or sign an agreement with a remaining station to carry its programming on a sub-channel.

The National Association of Broadcasters filed suit against the FCC’s auction in August. The NAB wants the FCC to guarantee that stations that wish to stay on the air will not have their coverage area reduced or forced to pay to move to a new channel number assigned by the FCC as the regulator “repacks” a much smaller UHF band.

“We’ve said from day one, if stations want to volunteer to go out of business, that’s their prerogative. But for those stations that choose to remain in business, they should be held harmless,” NAB spokesman Dennis Wharton said.

The spectrum auction is designed to address the wireless industry’s claim of a spectrum crisis, warning that if more frequencies are not found, wireless users will eventually see their service degraded.

T-Mobile: AT&T Gouges Us With Data Roaming Rates 150% Higher Than Average

bill shockT-Mobile has asked the Federal Communications Commission to investigate AT&T’s “artificially high roaming rates” charged when its customers travel outside of T-Mobile’s home service area.

T-Mobile is heavily reliant on AT&T for roaming service outside of major cities and the country’s smallest national wireless carrier complains AT&T is using their market power to put it at a major disadvantage, which could force new limits on roaming access in some areas.

T-Mobile provided examples of the damage already done by AT&T’s roaming rates:

“Limitless Mobile has severely restricted its customers’ access to AT&T’s network ‘for the sole reason that AT&T’s data roaming rates are too high and by continuing roaming access, Limitless could not maintain a commercially competitive retail wireless data offering to the general public,’” T-Mobile told the FCC.

The Rural Wireless Association noted that competing carriers “cannot sustain the provision of data roaming services if [they] must provide that service at a loss.”

The problem of data roaming rates is getting larger as carrier agreements are due for renewal at many mobile providers. Independent cellular companies are finding AT&T unwilling to renew at prices and terms comparable to their existing contracts. Instead, they face renewal rates that average a minimum of 10 and as much as 33 times higher than the national carriers’ retail rates.

For example, T-Mobile’s agreement with AT&T includes a data roaming rate that is now 150 percent higher than the average domestic rate that T-Mobile pays for data roaming.

This is one thousand percent higher than the data roaming rate negotiated between Leap Wireless and MetroPCS prior to their respective acquisitions, wrote T-Mobile.

With the stark price increases, carriers have begun imposing limits, including speed throttling and data caps, on customers when roaming on AT&T’s network.

t-mobile-set-recordBecause of AT&T’s artificially high roaming rates, T-Mobile wireless customers roaming in South Africa have a better user experience than customers roaming on AT&T’s network in South Dakota, argues T-Mobile. Their speed is twice as fast, and their data usage is unlimited.

T-Mobile is asking the FCC to intervene by establishing some type of standard about what constitutes “commercially reasonable” roaming rates as part of its 2011 Data Roaming Order, designed to protect competition.

This year, carriers dependent on Verizon Wireless or AT&T to help deliver “nationwide coverage” are negotiating roaming access to the companies’ 4G LTE networks for the first time. Most roaming agreements used to only cover 3G service, delivered at a slower speed.

If carriers like Sprint and T-Mobile are unable to negotiate fair terms, both companies will be at a major competitive disadvantage, relegated to providing only regional coverage or charging higher prices for roaming service.

AT&T vice president of regulatory affairs Joan Marsh said T-Mobile’s request bordered on being illegal, in direct violation of the Telecommunications Act. Marsh argued T-Mobile and other carriers should be incentivized to build their own networks instead of relying on cheap roaming access from companies like AT&T. Marsh added any move by the FCC to set rates or benchmarks would be beyond the FCC’s mandate. Wireless carrier rates are deregulated and not subject to common carrier regulation.

Rural America: Welcome to Verizon LTE Broadband – $120/Mo for 5-12Mbps With 30GB Cap

They are coming.

With both AT&T and Verizon petitioning various state regulators for permission to switch off rural landline phone and broadband customers and force customers to use wireless alternatives, getting affordable broadband in the countryside is becoming increasingly difficult.

Last week, Millenicom — a reseller of wireless broadband service specializing in serving rural, long-haul truckers, and recreational vehicle users notified customers it was transferring their accounts directly to Verizon Wireless and will no longer have any role selling discounted Verizon Wireless broadband service.

Reports indicate that Millenicom’s contract renewal negotiations with Verizon did not go as expected and as a result customers are facing potential price increases and long-term contracts to continue their wireless broadband service.

Both AT&T and Verizon have told regulators they can satisfactorily serve rural customers with wireless LTE broadband service as an alternative to maintaining rural landline infrastructure. Neither company likes to talk about the price rural customers will pay if they want to keep broadband in their homes or businesses.

Some Millenicom customers have been invited to preview Verizon Wireless’ Home LTE Installed Internet plans (formerly known as HomeFusion) and many are not too pleased with their options:

lte1

lte2

Verizon’s overlimit fee is $10/GB for those that exceed their plan limit. According to several Amazon.com reviews of the service (it received 1.5 stars), customers are quickly introduced to “Verizon’s shady usage meter” that consistently measures phantom usage. Bills of $400-500 a month are not uncommon. One customer was billed for 18GB ($180) in extra usage despite following Verizon’s suggestion to stop using the service when it reported he reached 29GB of usage.

verizon bill

This bill includes more than $3,000 in data overlimit fees.

“The bill came with the bogus data charges, and it was twice as much as the meter detected,” the customer reported.

In fact, the phantom usage has become so pervasive, Verizon customers have dubbed the phenomenon “ghost data,” but the overlimit fees Verizon expects customers to pay are very real.

“[It] went out more than my DSL and my first bill from Verizon was $1300+,” reported Jill Kloberdanz. “I want this demon out of my house.”

“According to [Verizon], I used over 65GB in just one week,” reported Aron Fox. “And they want almost $800 for it. My wife and I are two 60-somethings that never game and rarely stream.”

“Definitely stay away […] unless you like to see your data charges skyrocket (in my case more than doubling) when your use doesn’t,” reported Richard Thompson. “I’ve pulled the plug on it — literally.”

“We have the same problem – huge data overages, meter does not match our usage,” writes Heather Comer. “We turn the router off at night and when we check the next morning, it is still accumulating data.”

There are close to a dozen more complaints about Verizon’s usage meter, all stating they were charged for usage even when the equipment was switched off.

While both Verizon and AT&T stand to save millions disconnecting rural landline customers, they stand to earn even more switching rural customers to their more costly (and profitable) wireless alternatives.

Verizon Wireless Cancels Its LTE 4G “Network Optimization” (Speed Throttling) Plan Before It Launches

throttleVerizon Wireless, facing scrutiny from FCC chairman Thomas Wheeler, today announced it has canceled plans to introduce a new “network optimization” policy that would have significantly throttled down speeds for heavy users still on grandfathered, unlimited use data plans.

Stop the Cap! received a statement from Verizon Wireless this afternoon announcing a sudden change of heart:

Verizon is committed to providing its customers with an unparalleled mobile network experience.  At a time of ever-increasing mobile broadband data usage, we not only take pride in the way we manage our network resources, but also take seriously our responsibility to deliver exceptional mobile service to every customer.  We’ve greatly valued the ongoing dialogue over the past several months concerning network optimization and we’ve decided not to move forward with the planned implementation of network optimization for 4G LTE customers on unlimited plans.  Exceptional network service will always be our priority and we remain committed to working closely with industry stakeholders to manage broadband issues so that American consumers get the world-class mobile service they expect and value.

Chairman Wheeler questioned Verizon’s strategy almost immediately after the company announced its “network optimization” strategy in July.

Wheeler

Wheeler

“‘Reasonable network management’ concerns the technical management of your network; it is not a loophole designed to enhance your revenue streams,” Wheeler wrote in a July 30 letter to Verizon Wireless CEO Dan Mead. “It is disturbing to me that Verizon Wireless would base its ‘network management’ on distinctions among its customers’ data plans, rather than on network architecture or technology.”

Wheeler reminded Mead the FCC defined network management practices to be reasonable “if it is appropriate and tailored to achieving a legitimate network management purpose, taking into account the particular network architecture and technology of the broadband Internet access service.”

Wheeler told Mead Verizon’s plans didn’t qualify.

“I know of no past FCC statement that would treat as ‘reasonable network management’ a decision to slow traffic to a user who has paid, after all, for ‘unlimited” service,'” Wheeler wrote.

everybody does itWheeler also questioned how Verizon could justify its planned speed throttling under the conditions it agreed to after winning the 700MHz “C Block.” That spectrum was accompanied by a special FCC mandate – open platform rules which prohibits Verizon Wireless from denying, limiting, or restricting the ability of end users to download and use applications of their choosing on the C Block networks. A speed throttle would make using some applications impossible.

In August, Wheeler hammered home his opposition to Verizon’s plans at a news conference.

“My concern in this instance–and it’s not just with Verizon, by the way, we’ve written to all the carriers–is that [network management] is moving from a technology and engineering issue to a business issue, such as choosing between different subscribers based on your economic relationship with them.”

Wheeler has expressed irritation that Verizon’s justification for congestion management only applied to its unlimited customers, while those paying on a per-gigabyte basis could use (and spend) as much as they like.

Verizon responded that other providers — notably AT&T — already have a similar network management policy in place, throttling speeds of grandfathered unlimited customers who consume more than 3GB of wireless traffic on its 3G network or 5GB on its 4G network a month.

“‘All the kids do it’ was never something that worked with me when I was growing up and didn’t work with my kids,” Wheeler responded, noting Verizon was trying to reframe the issue instead of justifying the need for speed throttles for some customers, while giving others unlimited access as long as they pay.

Los Angeles Public TV Station Gives Up Its Channel So AT&T/Verizon Can Have More Spectrum

Two educational public broadcasting stations in Los Angeles will soon share the same channel to make room for AT&T and Verizon Wireless’ growing needs for wireless spectrum.

KCET, a charter member of the Public Broadcasting Service (PBS) that left the network to become the nation’s largest independent TV station in 2010 will share the transmitter of KLCS, an educational PBS TV station owned by the Los Angeles Unified School District Board of Education. The move will turn back a 6MHz UHF channel to the Federal Communications Commission, to be auctioned off to the highest wireless carrier bidder in a future spectrum auction.

The two stations will share a single UHF channel, multiplexed into up to eight digital over-the-air sub-channels, equally divided between the two.

The time-sharing agreement is nothing new for KLCS, which had shared one of its digital sub-channels with Spanish language KJLA-TV earlier this year in a trial in partnership with the biggest wireless lobbying organization in the country – CTIA and the Association of Public Television Stations. The trial was designed to see how well two stations could use the H.264 compression video codec for simultaneous shared digital television transmissions. The multiplexing test, completed in March, found generally good results as long as the stations avoided concurrent HD broadcasts on the same channel. There is simply not enough bandwidth in a single 6MHz channel to handle multiple HD feeds showing complex content.

KJLA’s primary transmitter already multiplexes 10 low resolution digital sub-channels of its own, primarily in Vietnamese, Mandarin and Spanish.

When KCET and KLCS begin the channel sharing arrangement, one is unlikely to air its programming in HD. Instead, the channel space will be divided into up to eight 480i channels airing both stations’ programming lineups. For some, it will be a viewing quality downgrade. KCET was one of the first stations in Los Angeles to air HD programming, but that will be unlikely in the future.

KCET’s Channel Lineup

Channel Video Aspect PSIP Short Name Programming
28.1 720p 16:9 KCET-HD Main KCET programming
28.2 480i 4:3 KCET-LN KCET Link
28.3 KCET-Vm V-me
28.4 N H K NHK World Japan

KLCS’ Channel Lineup (No HD programming)

Channel Video Aspect PSIP Short Name Programming
58.1 480i 4:3 KLCS-1 Main KLCS programming/PBS
58.2 KLCS-2 PBS Kids
58.3 KLCS-3 Create
58.4 KLCS-4 MHz WorldView

KCET is the financially weaker of the two stations, having given up its membership in PBS four years ago and seeing a dramatic decline in viewer pledges ever since. KCET sold its studio complex to the Church of Scientology in 2011 and moved its operations to smaller facilities in Burbank. KOCE-TV in Huntington Beach is now the primary PBS station in greater Los Angeles.

The Federal Communications Commission will hold its voluntary spectrum incentive auction in mid-2015, allowing stations to bid on surrendering their licenses, moving their UHF channel to an open VHF channel or sharing their channel with another station — all in exchange for cash payments. AT&T and Verizon Wireless are widely expected to be the two largest bidders for the valuable spectrum.

Wi-Fi is Threatening AT&T and Verizon Wireless’ 4G Data Money Party; Wi-Fi Usage Conquers 4G

att verizonVerizon Wireless and AT&T have invested billions expanding and improving their wireless networks, telling investors that revenue from exploding wireless data usage would more than recoup their investments, but the growing availability of low-cost and free Wi-Fi is threatening to derail those plans.

Business Week reports that as carriers have dropped unlimited use data plans in favor of costly, restricted-usage offers, savvy customers have learned to conserve their data allowance by switching to Wi-Fi wherever possible. Adobe Systems reported this week that more than half of all wireless data traffic from smartphones occurs over Wi-Fi, not 3G or 4G networks. Total Wi-Fi traffic passed mobile data networks more than a year earlier.

AT&T and Verizon’s business plans depend on smartphone users accessing faster 4G LTE networks to consume high bandwidth online applications like video streaming, but that isn’t happening at the rate they expected. Instead, customers are waiting to connect to a Wi-Fi hotspot before watching.

The carriers are partly to blame for the Wi-Fi habit by encouraging customers to switch to Wi-Fi to reduce congestion on their 3G and 4G networks while they were upgraded and expanded. But after carriers completed those upgrades, customers are sticking with Wi-Fi.

“There’s a flavor of too much of a good thing here, where Wi-Fi offloads start to really impinge on the prospects of monetizing all that additional usage,” says industry analyst Craig Moffett. “All the carriers have put their eggs in the basket of incremental usage as the source of revenue growth. It isn’t going according to plan.”

wifiAT&T and Verizon hoped customers would face upgrades to more costly plans with more generous usage allowances as data usage increased. Early efforts to monetize data usage seemed encouraging. Both carriers reported surprising success from in-store marketing efforts to push families to upgrade to deluxe 10GB+ usage plans in larger numbers than anticipated. But customers are now increasingly trying to stay within their budget and current usage allowance, with the help of Wi-Fi.

‘As customers become more aware of the limits on their data plans, they’re more careful about moving to Wi-Fi as often as possible,’ says Tamara Gaffney, an analyst with Adobe’s Digital Index.

Wi-Fi hotspots are easier to find as cable companies provide them for their customers. Major shopping, dining and entertainment venues often offer free access to draw and keep customers.

As carriers began to realize smartphones would not be the data sucking vampires they were expecting, both AT&T and Verizon eagerly dove into the tablet business, hoping to convince customers to buy mobile-ready versions of the devices that would more likely be used for data allowance-killing online video.

But customers outsmarted them again, preferring tablets equipped only with Wi-Fi. Carriers responded by slashing prices, to no avail. Even those who splurged on 3G and 4G-ready tablets rarely use them on AT&T and Verizon’s wireless networks. More than 93% of tablet traffic is done over Wi-Fi, derailing a potential wireless data money train.

onstarTheir latest plan is to push the “Internet of Things” — machine to machine communications. Both AT&T and Verizon have invested heavily in wireless utility meter technology and are pushing manufacturers to add 4G capability to all sorts of home appliances from refrigerators, ovens, and dishwashers to home laundry centers, alarm systems, and even pet-webcams. But early efforts have not been promising. Reception in fixed indoor locations, especially basements, is often very poor to non-existent, and manufacturers don’t see much benefit adding mobile network connectivity when traditional Wi-Fi is cheaper and much more reliable.

That hasn’t stopped AT&T, which won a lucrative contract to offer 4G LTE and/or HSPA+ support inside Audi and GM vehicles. To them, the “connected car” is a cash cow waiting to be milked.

“Five or six years ago when we talked to car OEMs, it was about safety and embedded modules and cheap rates,” said Glenn Lurie, CEO of AT&T Mobility.

That was the era of OnStar and other competing telematics systems that can monitor vehicle performance and notify emergency responders in the event of an accident. Verizon Wireless has supported GM’s OnStar system for years and until GM’s bankruptcy reorganization offered Verizon customers the option of adding their OnStar speakerphone to a Verizon Wireless family plan for $9.99 a month, sharing that plan’s voice calling minutes. Starting this year, AT&T has the contract.

AT&T is celebrating the end of cheap rates and see big dollar signs selling in-car connectivity, which will be available in dozens of car models.

Mary Chan from GM committed to offer AT&T 4G access on 33 GM model vehicles by the end of this year.

Customers will get a free sample of the service in promotions lasting from 30-90 days. After that, customers will need to pay:

  • OnStar’s data plan (doesn’t include voice calling/emergency response) will cost $10 a month to add the car as a device on your AT&T Mobile Share plan and $10 a month for 200MB of data; $30 a month for 3GB of data, or $50 a month for 5GB;
  • Applicable taxes and federal/state universal service charges, regulatory cost recovery charge (up to $1.25), gross receipts surcharge, administrative fees and other government assessments which are not taxes or government required charges are not included in the above-stated prices;
  • A $5 day pass will be available for occasional users providing 250MB of access for up to 24 hours;
  • All payments must be made in advance of receiving service and will be automatically renewed month-by-month until the customer cancels;
  • The built-in Wi-Fi hotspot will support up to seven devices;
  • Excessive roaming may result in service termination.

“The connected car will change the entire wireless industry,” said AT&T Mobility’s Ralph de la Vega. AT&T expects as many as 10 million connected cars will be signed up for service in just a few years.

But at AT&T’s prices, Moffett suspects the ingenuity of Silicon Valley and other entrepreneurs will eventually find a much cheaper solution, potentially robbing AT&T of yet another expected cash coup.

FCC Chairman Complains About State of U.S. Broadband But Offers Few Meaningful Solutions

FCC chairman Thomas Wheeler doesn’t like what he sees when looks at the state of American broadband.

At a speech today given to the 1776 community in Washington, Wheeler complained about the lack of broadband competition in the United States.

“The underpinning of broadband policy today is that competition is the most effective tool for driving innovation, investment, and consumer and economic benefits,” Wheeler said. “Unfortunately, the reality we face today is that as bandwidth increases, competitive choice decreases.”

faster speed fewer competitors

“The lighter the blue, the fewer the options,” Wheeler said, gesturing towards his chart. “You get the point. The bar on the left reflects the availability of wired broadband using the FCC’s current broadband definition of 4Mbps. But let’s be clear, this is ‘yesterday’s broadband.’ Four megabits per second isn’t adequate when a single HD video delivered to home or classroom requires 5Mbps of capacity. This is why we have proposed updating the broadband speed required for universal service support to 10Mbps.”

But Wheeler added that even 10Mbps was insufficient as households increasingly add more connected devices — often six or more — to a single broadband connection.  When used concurrently, especially for online video, it is easy to consume all available bandwidth at lower broadband speeds.

Wheeler

Wheeler

Wheeler’s new informal benchmark is 25Mbps — “table stakes” in 21st century communications. About 80 percent of Americans can get 25Mbps today or better, but typically only from one provider. Wheeler wants even faster speeds than that, stating it is unacceptable that more than 40% of the country cannot get 100Mbps service. Wheeler seemed to fear that phone companies have largely given up on competing for faster broadband connections, handing a de facto monopoly to cable operators the government has left deregulated.

“It was the absence of competition that historically forced the imposition of strict government regulation in telecommunications,” Wheeler explained. “One of the consequences of such a regulated monopoly was the thwarting of the kind of innovation that competition stimulates. Today, we are buffeted by constant innovation precisely because of the policy decisions to promote competition made by the FCC and Justice Department since the 1970s and 1980s.”

Wheeler said competition between phone and cable companies used to keep broadband speeds and capacity rising.

“In order to meet the competitive threat of satellite services, cable TV companies upgraded their facilities,” Wheeler said. “When the Internet went mainstream, they found themselves in the enviable position of having greater network capacity than telephone companies. Confronted by such competition, the telcos upgraded to DSL, and in some places deployed all fiber, or fiber-and-copper networks. Cable companies further responded to this competition by improving their own broadband performance. All this investment was a very good thing. The simple lesson of history is that competition drives deployment and network innovation. That was true yesterday and it will be true tomorrow. Our challenge is to keep that competition alive and growing.”

But Wheeler admits the current state of broadband in the United States no longer reflects the fierce competition of a decade or more ago.

“Today, cable companies provide the overwhelming percentage of high-speed broadband connections in America,” Wheeler noted. “Industry observers believe cable’s advantage over DSL technologies will continue for the foreseeable future. The question with which we as Americans must wrestle is whether broadband will continue to be responsive to competitive forces in order to produce the advances that consumers and our economy increasingly demand. Looking across the broadband landscape, we can only conclude that, while competition has driven broadband deployment, it has not yet done so a way that necessarily provides competitive choices for most Americans.”

Wheeler recognized what most broadband customers have dealt with for years — a broadband duopoly for most Americans.

antimonopoly“Take a look at the chart again,” Wheeler said. “At the low end of throughput, 4Mbps and 10Mbps, the majority of Americans have a choice of only two providers. That is what economists call a “duopoly”, a marketplace that is typically characterized by less than vibrant competition. But even two “competitors” overstates the case. Counting the number of choices the consumer has on the day before their Internet service is installed does not measure their competitive alternatives the day after. Once consumers choose a broadband provider, they face high switching costs that include early termination fees, and equipment rental fees. And, if those disincentives to competition weren’t enough, the media is full of stories of consumers’ struggles to get ISPs to allow them to drop service.”

Wheeler emphasized that true competition would allow customers to change providers monthly, if a vibrant marketplace forced competitors to outdo one another. That market does not exist in American broadband today.

“At 25Mbps, there is simply no competitive choice for most Americans,” Wheeler added. “Stop and let that sink in…three-quarters of American homes have no competitive choice for the essential infrastructure for 21st century economics and democracy. Included in that is almost 20 percent who have no service at all. Things only get worse as you move to 50Mbps where 82 percent of consumers lack a choice. It’s important to understand the technical limitations of the twisted-pair copper plant on which telephone companies have relied for DSL connections. Traditional DSL is just not keeping up, and new DSL technologies, while helpful, are limited to short distances. Increasing copper’s capacity may help in clustered business parks and downtown buildings, but the signal’s rapid degradation over distance may limit the improvement’s practical applicability to change the overall competitive landscape.”

Wheeler finds little chance wireless providers will deliver any meaningful competition to wired broadband because of pricing levels and miserly data caps. Such statements are in direct conflict with a traditional industry talking point.

In a remarkable admission, Wheeler added that the only hope of competing with cable operators comes from a technology phone companies have become reluctant to deploy.

“In the end, at this moment, only fiber gives the local cable company a competitive run for its money,” Wheeler said. “Once fiber is in place, its beauty is that throughput increases are largely a matter of upgrading the electronics at both ends, something that costs much less than laying new connections.”

Wheeler also continued to recognize the urban-rural divide in broadband service and availability, but said little about how he planned to address it.

Wheeler’s answer to the broadband dilemma fell firmly in the camp of promoting competition and avoiding regulation, a policy that has been in place during the last two administrations with little success and more industry consolidation. Most of Wheeler’s specific commitments to protect and enhance competition apply to the wireless marketplace, not fixed wired broadband:

1. comcast highwayWhere competition exists, the Commission will protect it. Our effort opposing shrinking the number of nationwide wireless providers from four to three is an example. As applied to fixed networks, the Commission’s Order on tech transition experiments similarly starts with the belief that changes in network technology should not be a license to limit competition.

In short, don’t expect anymore efforts to combine T-Mobile and Sprint into a single entity. Wheeler only mentioned “nationwide wireless providers” which suggests it remains open season to acquire the dwindling number of smaller, regional carriers. Wheeler offers no meaningful benchmarks to protect consumers or prevent further consolidation in the cable and telephone business.

2. Where greater competition can exist, we will encourage it. Again, a good example comes from wireless broadband. The “reserve” spectrum in the Broadcast Incentive Auction will provide opportunities for wireless providers to gain access to important low-band spectrum that could enhance their ability to compete. Similarly, the entire Open Internet proceeding is about ensuring that the Internet remains free from barriers erected by last-mile providers. Third, where meaningful competition is not available, the Commission will work to create it. For instance, our efforts to expand the amount of unlicensed spectrum creates alternative competitive pathways. And we understand the petitions from two communities asking us to pre-empt state laws against citizen-driven broadband expansion to be in the same category, which is why we are looking at that question so closely.

Again, the specifics Wheeler offered pertain almost entirely to the wireless business. Spectrum auctions are designed to attract new competition, but the biggest buyers will almost certainly be the four current national carriers, particularly AT&T and Verizon Wireless. Although low-band spectrum will help Sprint and T-Mobile deliver better indoor service, it is unlikely to drive new market share for either. Wheeler offered no specifics on the issues of Net Neutrality or municipal broadband beyond acknowledging they are issues.

3. Incentivizing competition is a job for governments at every level. We must build on and expand the creative thinking that has gone into facilitating advanced broadband builds around the country. For example, Google Fiber’s “City Checklist” highlights the importance of timely and accurate information about and access to infrastructure, such as poles and conduit. Working together, we can implement policies at the federal, state, and local level that serve consumers by facilitating construction and encouraging competition in the broadband marketplace.

competitionMost of the policies Wheeler seeks to influence exist on the state and local level, where he has considerably less influence. Based on the overwhelming interest shown by cities clamoring to attract Google Fiber, the problems of access to utility poles and conduit are likely overstated. The bigger issue is the lack of interest by new providers to enter entrenched monopoly/duopoly markets where they face crushing capital investment costs and catcalls from incumbent providers demanding they be forced to serve every possible customer, not selectively choose individual neighborhoods to serve. Both incumbent cable and phone companies originally entered communities free from significant competition, often guaranteed a monopoly, making the burden of wired universal service more acceptable to investors. When new entrants are anticipated to capture only 14-40 percent competitive market share at best, it is much harder to convince lenders to support infrastructure and construction expenses. That is why new providers seek primarily to serve areas where there is demonstrated demand for the service.

4. Where competition cannot be expected to exist, we must shoulder the responsibility of promoting the deployment of broadband. One thing we already know is the fact that something works in New York City doesn’t mean it works in rural South Dakota. We cannot allow rural America to be behind the broadband curve. Our universal service efforts are focused on bringing better broadband to rural America by whomever steps up to the challenge – not the highest speeds all at once, but steadily to prevent the creation of a new digital divide.

Again, Wheeler offers few specifics. Current efforts by the FCC include the Connect America Fund, which is nearly entirely devoted to subsidizing rural telephone companies to build traditional DSL service into high-cost areas. Cable is rarely a competitor in these markets, but Wireless ISPs often are, and they are usually privately funded and consider government subsidized DSL expansion an unwelcome and unfair intrusion in their business.

“Since my first day as Chairman of the FCC my mantra has been consistent and concise: ‘Competition, Competition, Competition,'” said Wheeler. “As we have seen today, there is an inverse relationship between competition and the kind of broadband performance that consumers are increasingly demanding. This is not tolerable.”

Under Wheeler’s leadership, Comcast has filed a petition to assume control of Time Warner Cable, AT&T is seeking permission to buy DirecTV, Frontier Communications is acquiring the wired facilities of AT&T in Connecticut, and wireless consolidation continues. A forthcoming test of Wheeler’s willingness to back his rhetoric with action is whether he will support or reject these industry consolidating mergers and acquisitions. Wheeler’s FCC has also said little to nothing about the consumer-unfriendly practice of usage caps and usage-based billing — both growing among wired networks even as they upgrade to much-faster speeds and raise prices.

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