In a desperate bid to inflate subscriber numbers, dealer commissions, and attract additional investors, some Clearwire retailers slashed credit standards resulting in widespread approval of customers who would later skip out on paying the bill.  At least one dealer offered to override any failed credit check for even the most credit risky customers, according to a Bloomberg News investigation.

Those charges, made by three former dealers and distributors, bring additional controversy to a wireless venture already facing lawsuits for false advertising and misleading business practices.

From late 2009 until earlier this year, Clearwire dealers were strongly encouraged to sign up new customers for its wireless services, which include a home broadband replacement offering “unlimited wireless broadband” to customers.  In many markets, scores of would-be customers in urban and poor areas failed the company’s credit checks.  One former salesman told Bloomberg as many as 60 percent of his would-be customers couldn’t pass the credit check without a manual override, often done with a copy of a driver’s license and evidence of residence in the area, such as two consecutive utility bills.

Millions of new Clearwire customers were signed up for service during 2010, with dealers and salesmen earning significant sign-up commissions and parent company Clear winning favorable media coverage for its high subscriber growth, used to attract new investment.

One distributor called the lax credit standards “a time bomb,” one that began going off as customers reneged on their contracts, didn’t bother to pay the bills, or simply canceled service while ignoring collection efforts.  But the credit standards remained surprisingly loose for an industry that routinely profiles potential customers before signing them up to service.

By mid-2010, Clearwire dealers were no longer even required to pull a hard credit report with a Social Security number.  Scores of immigrants, many without documentation, could now sign up for Clearwire service showing proof they had managed to make at least one rent payment on time.  Even customers with no credit experience were signed up for service, some who paid exclusively in cash.

One Texas dealer reported as many as 80 percent of his customers were approved with credit overrides.

Much of Clear’s dealer network is independently owned and operated, especially now that the company faces financial challenges.  The company provides dealers with strong financial incentives, including bonuses, for new customer signups.  Several former salespeople report distributors and dealers routinely pressured salespeople to sign up new customers at all costs.

“I always hear from reps ‘I’m not selling because no one can pass credit checks’,” one manager wrote. “The time has come for you to call BS and on your reps (and yourself if needed!) and for the credit excuse to END now! I will personally enter in the credit overrides under your dealer code.”

“PS, you can thank me later for DOUBLING YOUR COMMISSIONS!” the e-mail dated March 2010 read.

Some customers even managed to skip out paying on one Clearwire account while establishing another.  The runaway growth propelled network traffic for Clearwire, leading the company to implement “fair use” policies that restricted the use of the service, despite being pitched as “unlimited.”  In addition to customers who simply refused to pay their bills, some creditworthy customers signing up for service were gone within weeks after finding the service unusable.

Bloomberg notes Clear’s own numbers suggest the company had 688,000 customers at the end of 2009.  As of the end of the first quarter of 2011, that number is now 6.15 million.  But Clear’s numbers show the churn rate — customers coming and going — is high for the wireless industry at 3 percent or higher for the past seven quarters.  Verizon Wireless, in contrast, has a churn rate of 1.33 percent.

A high churn rate is a major problem because it requires Clear to spend more in marketing and sign up promotions to entice a steady supply of new customers replacing those who have left or been shut off.

Most providers who find a would-be customer saddled with sub-prime credit scores ask for a substantial deposit for service, or encourage a prepaid calling plan instead.  But Clear shows no indications of moving in either direction.

The company has managed to protect itself from financial losses from the customer merry-go-round, often at the expense of dealers who over-enthusiastically signed up deadbeat customers.  If a customer leaves or is shut off within the first six months, the dealer commission is forfeited back to Clear.

For some, this has meant the end of their business.  One dealer lost more than $500,000 in “chargebacks,” while others owe tens of thousands in repayments to Clear.

Clear’s business depends on more than just its own Clearwire customers.  Several cable companies, including Time Warner Cable and Comcast, resell Clearwire service under their respective brand names.  So does Best Buy.

Gov. Purdue: I Was for More Competition Before I Was Against It

Democratic Gov. Bev Purdue from North Carolina has managed to twist her logic into quite a pretzel over two statements from her office in the past two weeks.  On the community broadband front, Purdue protested legislation to reduce competitive choices in broadband in her state (all underlining ours):

May 20, 2011:

“My concern with House Bill 129 is that the restrictions the General Assembly has imposed on cities and towns who want to offer broadband services may have the effect of decreasing the number of choices available to their citizens. For these reasons, I will neither sign nor veto this bill. Instead, I call on the General Assembly to revisit this issue and adopt rules that not only promote fairness but also allow for the greatest number of high quality and affordable broadband options for consumers.”

Just 11 days later, Purdue inferred the exact opposite in her letter of support for the merger of AT&T and T-Mobile, which will reduce most of North Carolina to choosing among AT&T, Verizon, and in some cases Sprint.  One of her reasons?  The city of Raleigh is getting a new area code:

May 31, 2011:

The proposed merger of AT&T and T-Mobile presents another development in the marketplace which can benefit the people of my state.

The communications market in North Carolina, particularly in the wireless arena, is dynamic. Recently, the NC Utilities Commission announced the Raleigh area will soon implement a new area code, the eighth in the state, due primarily to the tremendous growth in wireless service.

In North Carolina we are committed to stimulating investments in advanced technology, and encourage quality service for the public. We look forward to working closely with AT&T to foster these important goals.

On behalf of the people of North Carolina, I appreciate your strong consideration in favor of the proposed merger of AT&T and T-Mobile.

Allow AT&T and T-Mobile to merge because Raleigh needs a new area code, proving wireless growth.  That may account among the most novel of all reasons to support a merger that will further reduce competition in the wireless market.

Sharing your Netflix account with your spouse or your son at college? Under a new Tennessee law, both you and the other party could spend up to a year in jail for “theft of entertainment services” if Netflix, or any other entertainment service says that is not okay.

Eyebrows were raised in Tennessee this week as Republican Gov. Bill Haslam admitted he signed the new copyright protection bill into law while telling reporters “he wasn’t familiar with the details of the legislation.”

Rep. Gerald McCormick (R-Chattanooga), who worked last summer to completely deregulate AT&T’s phone service in Tennessee spent this spring pushing for adoption of a bill sponsored by Nashville record labels to up-end state copyright law in favor of content producers.

The entertainment industry, having failed to win wholesale support of its copyright protection agenda in Congress has now taken to lobbying individual statehouses for new state copyright laws.  Tennessee is the first among 50 states to extend its long-standing cable-TV theft statute to include content over the Internet.

Under the law, anyone other than the account owner who uses their account name and password, even with permission, is a violator and subject to a criminal misdemeanor charge punishable by up to a year in jail and a fine of $2,500. If the username and password opens access to content collectively worth more than $500, the charge becomes a felony with correspondingly harsher penalites and fines.

Some reporters questioned whether the law could mean sharing your Netflix, iTunes or Rhapsody account with an immediate family member meant you were breaking the law.  The answer is, you might, although bill supporters doubt it would be prosecuted.

“What becomes not legal is if you send your user name and password to all your friends so they can get free subscriptions,” McCormick told the Associated Press.

Currently, most online content providers don’t have a problem with immediate family members sharing accounts.  Netflix allows at least two concurrent video streams of its online content.  Music services often recognize three or more “authorized devices” on which content can be shared and accessed.

But if attitudes change, content providers can file complaints when they realize their service is being accessed by multiple parties at the same time or in multiple places.

"Gerald McCormick will support anything if you staple a big check to your cover letter."

The music industry in Nashville openly admits it strongly advocated for passage of the bill, claiming the music business loses millions from account sharing.  But critics of the new law attack it as overly broad.  One defense lawyer suggested it is so broad, it could be used to prosecute people who share magazines.

Proving a case to hard-working law enforcement officials could also present a problem says Jeff Polock, a Knoxville-based law enforcement and consumer advocate.

“We have enough trouble fighting crime on the streets,” Polock tells Stop the Cap! “While law enforcement officials appreciate the dilemma of copyright theft, many officers are not going to be technically skilled in building a case over who shared what password in the dorms at the University of Tennessee.”

Polock suspects the new law will be wielded against larger wholesale copyright offenses, if only to avoid the threat of negative publicity.

“Can you imagine what the local evening news would do if they arrested some father in Chattanooga for sharing his iTunes account with his daughter at school here in Knoxville?,” Polock wonders.  “It’s not like these people are downloading stolen copies of content they are not paying for — they are running a single iTunes account so the parents can monitor what their kids are buying, watching, or listening to while away from home.”

As for McCormick, Polock has choice words.

“Gerald McCormick will support anything if you staple a big check to your cover letter,” Polock says. “The man is never too far away from corporate interests trying to win favorable legislation in the state legislature.”

The $49 "cap" plan isn't your maximum monthly fee, it's the MINIMUM monthly fee. The company selling it was fined for misleading advertising.

Banking on the fact most consumers do not understand what a “gigabyte” represents, much less know how many they use per month on usage-capped broadband plans, large telecommunications companies enjoy a growth industry collecting enormous overlimit fees that bear no relation to their actual costs of delivering the service.

The social implications of “usage cap and tier” pricing are enormous, according to Australia’s Communications & Media Authority.  Australia remains one of the most usage-capped countries in the world, and broadband providers have taken full advantage of the situation to run what the ACMA calls a broadband Confusopoly.

As a growing number of mobile broadband customers in the United States and Canada approach the allowance limits on their mobile data plans, Australia’s long experience with Internet Overcharging foreshadows a North American future of widespread bill shock, $1000+ telecom bills, and families torn apart by finger-pointing and traded recriminations over “excessive use” of the Internet.

Not helping matters are providers themselves, some who distort and occasionally openly lie about their plans.  In Australia, Optus was fined $200,000 for advertising a “Max Cap $49” plan that led many to believe their maximum bill would amount to $49.  But not so fast.  Optus turned the meaning of the word “cap,” typically a usage limit, upside down to mean a capped minimum charge.  Indeed, the lowest bill an Optus customer could receive was $49.  Using data services cost extra.  The company also claimed customers could use accompanying call credits “to call anyone,” another fact not in evidence.

Another common marketing misconception is the “unlimited mobile broadband” plan — the one that actually comes with significant limits. In most cases, providers want “unlimited” to mean there are no overlimit fees — they simply throttle the speed of the service down to a dial-up-like experience once a customer exceeds a certain amount of usage.  Companies like Cricket disclose their usage triggers.  Others, like Clearwire, do not — and they are applied arbitrarily based on customer usage profiles and congestion at the transmission tower.  While annoying, at least these plans do not impose overlimit fees which lead to the growing problem of “bill shock.”

Bill Shock

North Americans getting enormous mobile data bills remains rare enough to warrant attention by the TV news.  Often the result of not understanding the implications of international roaming, customers can quickly run up thousands of dollars in mobile bills while touring Europe, cruising, or even just living along the Canadian-American border, where accidental roaming is a frequent problem.

But as Americans only now become acquainted with usage-capped mobile data plans with overlimit fees, bill shock may become much more common.

In Australia, which has had a head start with usage-capped mobile data, an incredible 58 percent of customers exceeded their usage allowances at least once in a calendar year, and this statistic comes from April 2009.  The bill shock problem has now become so pervasive in Australia, in 2010 the office of the Telecom Ombudsman received more than 167,955 consumer complaints about the practice.

In the United States, one in six have already experienced surprise data charges on their bills — that’s 30 million Americans.  The Federal Communications Commission found 84 percent of those overcharged said their cell phone carrier did not contact them when they were about to exceed their allowed service limits. In about one-in-four cases, the overlimit fee was greater than $100.

Sen. Tom Udall (D-N.M.) proposed legislation that would require a customer to consent to overlimit fees before extra charges accrue for voice, data, and text usage.

The Cell Phone Bill Shock Act of 2011 would also require carriers to send free text messages when a customer reaches 80 percent of their plan’s allowance.

“Sending an automatic text or email notification to a person’s phone is a simple, cost-effective solution that should not place a burden on cell phone companies and will go a long way toward reducing the pain of bill shock by customers,” said Udall, a member of the Senate Commerce Committee. “As more and more cell phone companies drop their unlimited data plans, this problem only stands to get worse. I am proud to stand up for cell phone consumers and reintroduce this important legislation.”

In Australia and North America, legislation to warn consumers of impending overlimit fees has been vociferously fought by the telecommunications industry.

Udall

The CTIA-Wireless Association in Washington said such measures were completely unnecessary because consumers can already check their usage by logging into providers’ websites.  Even worse, they claim, bills like Udall’s threaten to destroy innovation and harm the industry by locking a single warning standard into place.  CTIA claims that wouldn’t help consumers.

But Australian regulators, who have years of experience dealing with unregulated carriers’ usage limit schemes say otherwise, noting industry efforts to self-regulate have been spectacular successes for the industry’s bottom line, just as much as they are a failure for consumers who end up footing the bill.

Even worse, unregulated providers taking liberties with marketing claims can have profound social implications when customers find they can’t pay the enormous charges that often result.

The Brotherhood of St. Laurence, a charity, reported one instance of an elderly client who received a $1,200 broadband bill he couldn’t pay outright.  Even as he negotiated a monthly payment plan with the provider, the company shut off his home phone line without warning.

“His telephone service was particularly important because he used a personal alarm call system, which entailed wearing a small electronic device that he could activate in the event of a medical emergency,” noted a report on the incident.

The Australian Competition and Consumer Commission found a long-standing competitive feud by two large mobile providers in Australia — Telecom and Optus — has only brought more instances of marketing excesses that ultimately don’t benefit consumers.  The Commission increasingly finds it lacks the resources to keep up with the slew of questionable advertising.

Some industry critics suspect providers treat ACCC’s fines as simply a cost of doing business, and some like Optus have been rebuked more than once by the regulator for false advertising.

The ACMA says the longer government waits to protect citizens from provider abuses, the more consumers will be financially harmed, especially as data usage grows while usage caps traditionally do not.

Verizon Communications is a study in contrasts.  It runs one of the most advanced wired broadband services in the country that wins rave reviews from consumers and businesses, is on the verge of ending its unlimited use data plans for smartphone customers on the wireless side, and has launched a major “police action” against individuals that are using their smartphones as wireless hotspots without paying an additional $20 a month for the privilege.

Verizon Says No to Data Caps and Consumption Billing

When you run an advanced fiber to the home network like FiOS, the concept of data caps is as silly as charging for each glass of water collected from Niagara Falls.  That’s a point recognized by Joseph Ambeault, director of media and entertainment services for Verizon.  Talking with GigaOm’s Stacey Higginbotham, Verizon continues to insist their network was built to handle both today and tomorrow’s network demands.

“Our network is always engineered for big amounts of data and right now there are no plans [to implement caps], but of course you never want to say never because things could change.”

However, in the same conversation he talked about how the FiOS service has gone from offering a maximum of 622 Mbps shared among 24 homes in the beginning to tests of 10-gigabit-per-second connections in individual homes that Ambeault mentioned. For now, Verizon is testing 10-gigabit-per-second-shared connections and offering up to 150 Mbps home connections. This kind of relish for massive bandwidth is not evident in conversations with folks at AT&T or even those cable firms deploying DOCSIS 3.0. Which is why when Ambeault added, “We don’t want to take the gleam off of FiOS,” as his final say on caps, I tend to believe that Verizon may be the last holdout as other ISPs such as AT&T, Charter and Comcast implement caps.

Verizon Says Yes to Ending Unlimited Smartphone Data Plans

Verizon is among the last holdouts still offering unlimited data plans for smartphone customers.  Priced at $30 a month per phone, these plans have proved very profitable for Verizon in the past, in part because they are mandatory whether you use a little data or a lot.  But now as data consumption grows, Verizon’s profits are not as luxurious as they once were, so the “unlimited plan” must and will go, probably within the next three months.

Verizon has always been hesitant about following AT&T’s lead for wireless data pricing, which delivers a paltry 2GB for $25 a month.  AT&T still sells its legacy unlimited plan, grandfathered for existing customers, for just $4 more per month.  So while AT&T can claim they’ve reduced the price for their data plans, they’ve also introduced a usage allowance.  Those exceeding it will find a much higher bill than the one they would have received under the old unlimited plan.

Verizon will probably echo AT&T’s tiered data plans, perhaps with slightly more generous allowances, but the real excitement came from Verizon CFO Fran Shammo, who told attendees at the Reuters Global Technology Summit it was prepared to finally introduce the much-wanted “family data plan,” which would allow every family member to share data on a single plan.  That’s a potential smartphone breakthrough as customers resistant to paying up to $30 a month per phone for each individual data plan might see their way clear to buying smartphones for everyone in the family if they all shared a single family-use data plan.

“I think it’s safe to assume that at some point you are going to have megaplans and people are going to share that megaplan based on the number of devices within their family. That’s just a logical progression,” Shammo said.

Of course, the devil is in the details, starting with how much the plan will cost and what kind of shared allowance it will offer.

Verizon Says ‘Oh No You Didn’t Tether Your Phone Without Our $20 Add-On’

Phandroid posted this copy of a message Verizon customers are receiving if they are using unauthorized third party tethering apps. (Click to enlarge.)

Earlier today, Verizon Wireless customers using popular third-party tethering apps to share their smartphone’s built-in Wi-Fi Hotspot with other nearby wireless devices began receiving the first of what is expected to be a series of warnings that the jig is up.

Tethering allows anything from a tablet computer to a netbook or laptop to share a Verizon Wireless data connection without having to pay for individual data plans for each device.  Third party software applications bypass Verizon’s own built-in app, the 3G Mobile Hotspot, which involves paying an additional $20 a month for a secondary data plan delivering a 2GB monthly usage allowance.

Just as AT&T hated to see the possibility of lost revenue passing them by, Verizon has begun ferreting out customers using these apps and sending them friendly reminders that tethering requires an official Verizon Wireless add-on plan.  While the third party apps are not yet being blocked, most expect Verizon to gradually crack down on their use if customers persist in using them.  Verizon can also block the sale of the apps from the Android Market and can also insert roadblocks to prevent their use.  Or they can follow AT&T’s lead and threaten (perhaps illegally) to automatically enroll customers caught using tethering apps in their paid tethering plans.