Phillip Dampier

Verizon Wireless’s next generation LTE wireless broadband network threatens to bring expensive “usage-based billing” to millions of Americans using technology products that depend on wireless networking to communicate  — from the handheld tablet you use to enjoy USA Today over morning coffee, the car that delivers news, weather and traffic reports to and from work, to the portable television you use to catch up with the game while running around town.

At the Consumer Electronics Show, Verizon chief technology officer Dick Lynch warned that Verizon is likely to abandon any notion of flat rate usage pricing, particularly when Verizon doesn’t get a piece of the action from the sale of the devices that connect to their network.

Instead, Verizon Wireless will adopt a wireless version of Internet Overcharging — usage-based billing that isn’t entirely “usage-based.”

A true consumption billing system charges consumers only for what they use — don’t use the service that month and customers would pay little or nothing for service that billing period.  Instead, providers maximize revenue with arbitrary “usage allowances” which are part of the steep monthly service fee.  The unused portion of the allowance typically does not roll over, in effect lost at the end of the month.  That means you pay for not using their network.  Imagine if your electric company charged you for leaving the lights on 24/7, but you were out of town that month.  If you exceed your allowance, the overlimit penalty kicks in, and most providers set those prices high enough to sting you while rewarding them.

“The problem we have today with flat-based usage is that you are trying to encourage customers to be efficient in use and applications but you are getting some people who are bandwidth hogs using gigabytes a month and they are paying something like megabytes a month,” Lynch said. “That isn’t long-term sustainable. Why should customers using an average amount of bandwidth be subsidizing bandwidth hogs?”

Lynch

The first step to broadband pricing enlightenment is to recognize the only true “hog” here is the broadband provider with an endless appetite for your money.  Usage-based pricing schemes carry the one-two punch for consumers, with no pain for providers:

1. They discourage usage, as consumers fear using up their monthly allowance and getting socked with an enormous bill filled with penalties and overlimit fees;
2. The corresponding reduction in usage lowers the providers’ capital spending requirements to meet consumer demand, and increase profits dramatically from those who find allowances too limiting and are willing to pay the exorbitant pricing providers charge those who exceed them.

Does Verizon actually believe that $60 a month for their wireless broadband service represents a fair price for someone using “something like megabytes a month?”  Can Verizon show it is losing money on its wireless broadband service?  I think not.

Predictably, Lynch provides a “between-the-lines” slap at government intervention to force open wireless networks to additional competition in the equipment marketplace:

“The whole paradigm of how we sell devices into the public is changing,” Lynch said. “At the same time that we announced LTE, we announced an open development initiative where we encouraged third-party developers to deploy devices on our network.”

That initiative was hardly the result of a sudden change of heart from Verizon.  It came from pressure Washington applied over the “closed network” practices the American wireless industry has followed for years.  Handsets and the applications that run on them have traditionally been closely controlled by providers.  Features built into smartphones and other handsets were disabled or limited by providers before the phones were sold to the public.  Usually, this forced customers to use the services either provided directly by their wireless company, or one of their “affiliated partners.”

Verizon Wireless is signaling the consequence of a more competitive, open market for wireless products and services: usage limits and a higher bill. That’s because you didn’t buy that device at a Verizon store at their asking price, and you’ve been using it too much.

Consumers would make a grave mistake in blaming a more activist watchdog role by the federal government to force open the wireless industry to competition and innovation by third parties.  Despite Verizon’s hints that those pesky regulators in Washington are to blame for your usage being limited and your bill being higher, the blame really belongs with the carriers pocketing those proceeds.

Since regulators will get the blame regardless, isn’t it time to go all out for American consumers by transforming the wireless provider marketplace?  Here are our suggestions:

1. An end to the ongoing consolidation of existing wireless players into a shrinking number of what will soon be two or three “too big to fail” national providers;
2. Insistence on additional competition coming from new, independent players, not simply those directly affiliated with the dominant four carriers (Verizon, AT&T, Sprint, and T-Mobile);
3. Justification for confiscatory data pricing made possible from the highly concentrated wireless marketplace, particularly in smaller cities and communities.

Verizon and AT&T have both engaged in a lot of scare talk about usage and their costs to manage it.  We’d believe them, except we read their financial reports and neither company is hurting.  We’d even be willing to meet them halfway and advocate additional allocations of spectrum to provide the bandwidth an increasingly wireless world will demand, but not at their asking price with those pesky terms and conditions that ration service to consumers at top dollar prices.

The considerable annoyance among subscribers facing rate increases from Time Warner Cable notwithstanding, the Wall Street press is celebrating the company’s increased earnings power for 2010, with the stock now being rated as a “compelling bet” by Barron’s.

Despite producing “copious amounts of cash,” Time Warner Cable stock is rated underpriced, and set to move higher in the new year as the company improves its earnings with price increases for its 14.6 million subscribers nationwide.

Price increases could help to power a sharp recovery in Time Warner Cable’s earnings, which probably slumped 15% in 2009, to $1.1 billion, or $3.03 a share. This year, net income could rise 21%, to $1.3 billion, or $3.60 a share, due to higher revenue and improving operating margins. The company earned $1.2 billion, or $3.57 a share, in 2008, on revenue of $17 billion.

Subscriber growth has slowed at Time Warner and other cable concerns, mainly because of the housing recession. The company lost 84,000 basic-video subscribers in last year’s third quarter, reducing the total to just under 13 million, and analysts see basic subs dropping 2.5% this year, to around 12.5 million. Still, revenue rose 3.6% in the third quarter, to $4.5 billion, putting Time Warner Cable on track to generate $18 billion of revenue for the full year, and $19 billion in 2010. Analysts expect some recovery in advertising revenue, and additional growth from the further penetration of bundled residential high-speed data and digital phone products.

Barron’s points out Time Warner Cable’s capital spending has continued to decline dramatically, falling 13 percent in the third quarter.  The company had free cash flow of $465 million in the period.

Despite the company’s falling broadband costs, falling capital spending, and increasing prices, some Time Warner Cable executives still approve of taking earnings to an even higher level with Internet Overcharging schemes that would change the “pricing model” for broadband service.  Despite company claims such changes would save customers’ money, relentless price increases in many communities — even higher for those on Road Runner’s economy tiers, prove otherwise.

What is Time Warner Cable doing with all of the money?  Paying down some debt and returning cash to shareholders, perhaps via an ordinary dividend or share buyback, according to Barron’s.

What allows for a company to increase pricing on broadband service and subject customers to a potential Internet Overcharging scheme down the road?

“At a time when demand for broadband is going through the roof, Time Warner is the only game in town in a lot of its footprint,” says Craig Moffett, an analyst at Bernstein Research.

Stop the Cap! reader John writes to let us know Teresa Dixon Murray from The Plain Dealer in Cleveland, who broke the story about Verizon’s mysterious $1.99 data usage charge is back again with an update.

In a column last summer, I chronicled my battle with Verizon after I discovered Verizon had been concocting $1.99 monthly charges for supposed Web use by my family plan numbers. Verizon’s ruse ended the month that my son’s phone was dead and locked away for weeks.

Verizon responded directly to me in a meeting with several top executives, and they promised to investigate the problems suffered by thousands of customers nationwide. The company in August also promised to change its policy of charging customers if they accidentally hit their phone’s “mobile Web” button. The new policy: To get charged, customers now supposedly have to type in a Web address.

Dixon Murray

But Murray considers Verizon’s response more clever than truthful.  And the charges just keep on coming.  So are the comments piling up below Murray’s article on The Plain Dealer website reporting more mysterious charges.

Verizon’s response to the Federal Communications Commission claimed Verizon doesn’t charge customers who accidentally hit the mobile web button on their phones, because Verizon exempts the home page those phones first reach.  Murray points out Verizon forgot to tell the Commission that’s the policy now, after the bad press, but wasn’t the policy earlier when thousands of others were being billed as well.

But no matter, because Murray suggests Verizon has found all-new ways to sock those $1.99 fees on unsuspecting consumers.

Take my case. I got a new phone the first week of November and within 24 hours after I activated it, Verizon said I had incurred a $1.99 data usage charge. Never mind that I hadn’t actually used the phone yet.

Verizon said it accidentally eliminated the mobile Web blocks I had when it activated the new phone. Puh-leez.

So Verizon re-blocked my phone lines. Yet, the company says it recorded online access on Nov. 8, Nov. 14 and Nov. 21. Chris, a supervisor from Pittsburgh, is dumbfounded. He confirmed my phones are blocked. He doesn’t know how this is happening. He’s supposed to get back to me.

While I’m waiting, I’m making a few notes, actually a lot of notes, to give to the FCC.

Amazing that these billing errors always seem to work out in Verizon’s favor.  Maybe the cat has been using the phone to browse when you weren’t looking.  Maybe Verizon can continue to reap the rewards of collecting $1.99 from subscribers who feel it’s not worth the time and effort to protest the charges with a customer service representative.

This is ripe for one of those class action lawsuits where the lawyers make the big money and you get a coupon for a free cell phone case with your next purchase at a Verizon store.  Before that happens, Murray suggests you file a complaint with the FCC yourself.  Also, please do take the time to make the call to Verizon Wireless and demand credit if you’ve been hit with this charge.  It will cost them more than $1.99 just to handle your call, and you’ll probably get something more tangible than the outcome of a class action lawsuit.  It never hurts to ask them for additional discounts or free features to keep you a satisfied customer.

File A Complaint With the Federal Communications Commission

For nearly 100 years, D&E Communications has served the people of eastern and central Pennsylvania from its headquarters in Lancaster.  But the company founded in 1911 by William F. Brossman, an area farmer and fertilizer distributor, never saw its centennial after being snapped up by Windstream Communications in a $333 million dollar deal.

What Brossman planted so long ago brings a bountiful crop of benefits for the top five former executives of D&E and the plowing under of 70 percent of D&E’s other employees, who are being shown the door between today and April 9th.

The Winners

Four high-ranking executives had provisions in their contracts with D&E that required the company to pay six-figure payments should the company be sold.   Thomas E. Morell, Albert H. Kramer, Stuart L. Kirkwood and Leonard J. Beurer are offered the stacks of cash as an incentive to get them to stay with the company, even as hundreds of others don’t get that choice.

Former D&E CEO James W. Morozzi gets a consolation prize of $942,000, not including benefits.

The Losers

D&E employees will be let go with considerably less (perhaps a cardboard box to hold their possessions as they are escorted from D&E buildings.)

Windstream filed papers months ago with the state Department of Labor and Industry detailing the slashing of D&E’s workforce, declaring most redundant and no longer needed, providing some of the “cost savings” that fuel these telecommunications deals.

For Lancaster County, as many as 270 of D&E’s 340 workers will be abandoned.  For eastern and central Pennsylvania as a whole, 500 jobs will be reduced to 200 or less in Ephrata and Birdsboro.  What made D&E “local” to Lancaster County and this part of Pennsylvania will be no more.  Local customer service and support call centers are also being eliminated — transferred to existing Windstream centers in Cornelia, Georgia and Charlotte, North Carolina.  Customers who have paid their D&E bills in person at the company’s Birdsboro office will have to make other arrangements — they are weeding out that service as well.

Back in 1992, when cable pricing enjoyed unfettered rate hikes only a health insurance company could appreciate, sufficient anger among the American people helped push passage of a cable re-regulation bill to control the cable industry’s insatiable Ca$h Quest.  The legislation recognized that most consumers had little choice in pay television providers.  Although approximately three million Americans, mostly residing in rural areas, owned satellite dishes at the time, the vast majority of people stayed with cable.  The 1992 Cable Act covered broadcast basic service, usually local channels and a handful of home shopping and local public access channels, as well as enhanced basic service, usually called “standard service” these days, which included popular basic cable networks like CNN, The Weather Channel, and ESPN.  Your cable company could not raise prices on these services willy-nilly without authorization from regulators, which helped keep the price of cable down.  It also guaranteed that competitors could buy access to popular cable networks, many of which were owned or controlled by cable operators themselves.

But the Cable Act also provided a way out of rate regulation — when a local community enjoyed competitive choice among pay television providers, and when a certain percentage of local residents subscribed to that competitor.  For the remainder of the 1990s and early 2000s, that competition largely came from satellite providers DirecTV and DISH Network.  Unfortunately for cable, most communities didn’t have enough residents subscribing to satellite service to lift rate regulation, so the cable industry sent in the lawyers to sue over the Act’s constitutionality (they claimed it violated their freedom of speech) and the lobbyists to convince Washington to deregulate them once again.

The Clinton Administration presided over the wholesale deregulation of the industry once again in 1996, proof that lobbyist influence and big campaign contributions are about as bi-partisan as Washington gets.  But the revised law left in place access rights to cable programming, and rate regulation of the broadcast basic service.  It was open season for rate increases on standard service, and cable didn’t disappoint.  In most areas, the basic package quickly rose to nearly $50 after 1996.

Since only a small percentage of cable customers choose broadcast basic service, one might wonder why cable companies remain intent on bugging the FCC to get those rates deregulated as well, especially when the industry claims it won’t be dramatically raising prices on service post-deregulation.

Yet companies like Cablevision have employees who sit around and file “waiver requests” with the Commission to get rates deregulated across their service area.  Recently, they managed to get a waiver for service across Westchester County and Long Island, New York.  The FCC has determined Verizon FiOS provides sufficient competition for Cablevision, so the rate brakes are off.

Cablevision files for competition waivers routinely and does not expect the change to affect prices, a Cablevision spokesperson said.

“This is a routine acknowledgment by the FCC that Cablevision operates in a highly competitive marketplace, and we have received hundreds of these certifications across our service area over the last several decades,” the company said in a statement.

That leaves only one major point of contention between Cablevision and Verizon – access to the MSG Network, a regional sports channel.  Cablevision owns it and has it, Verizon wants it but Cablevision won’t let them have it.  Verizon contends that’s illegal under the program access provisions of the Cable Act, and the dispute is ongoing.

[Clarification: Cablevision will sell MSG in standard definition to Verizon, but refuses to provide the HD feed for FiOS customers, although it happily does so for some of its cable industry friends — Comcast and Time Warner Cable among them.  Further details in the comments.]