ToddTool could have been forced into bankruptcy, taking its 14 employees straight to the unemployment line, had AT&T followed through on its threat to collect a million dollar fraudulent phone bill.

Michael Smith and his 14 employees can now sleep again after AT&T dropped a $1.15 million lawsuit against Smith’s small manufacturing company after the story went viral.

The lawsuit was filed over fraudulent long distance calls placed through Smith’s PBX phone system to the war-torn nation of Somalia over a four day period in 2009.

Smith discovered the fraud after getting long distance bills totaling $891,470 the following month.

More than $260,000 of additional charges were billed by Verizon, Smith’s landline phone company, and Verizon forgave those charges a few months after Smith filed a billing dispute. Verizon noticed the unusual calling activity and temporarily suspended Smith’s international long distance service. The phone hackers then simply used a “dial-around” long distance access code for AT&T to keep the calls going through, resulting in a huge bill from AT&T, which charged $22 a minute for the calls.

Unlike Verizon, AT&T wanted its money and despite multiple attempts to get credit for the fraudulent long distance calls, AT&T refused to relent, filing suit against Smith for the full cost of the fraudulent calls, plus interest.

Smith told a Salem, Mass. newspaper if he paid the bill, it would force his company into bankruptcy and put his 14 employees on the unemployment line.

The company claims in its lawsuit Smith should have known better — securing his PBX system more effectively against international long distance fraud and that under Federal Communications Commission regulations, AT&T is entitled to collect from the owner of the phone line, regardless of who actually made the call.

Smith told The Salem News he’s tried to resolve the matter, even reaching out to the CEO of AT&T, but a secretary at the company called and said that once AT&T refers a case to outside counsel, they are done talking.

AT&T later offered to waive the accumulating interest charges on the unpaid balance (now $197,000 and growing) if Smith paid the company $891,470 for the phone calls to Somalia.

Smith filed a countersuit instead, claiming AT&T is abusing the legal process and violating Massachusetts consumer protection laws. A judge was pushing the case to mediation.

Smith’s interview with the Salem newspaper came at additional risk: AT&T’s lawyers threatened they would take action if he “disparaged” the company’s name in the media.

After the story ran nationwide this morning on the Associated Press wire service, the company suddenly dropped the case.

In a statement sent to the media, AT&T writes it is no longer pursuing its claims against Michael Smith, of Ipswich, “though we are entitled by law to collect the amounts owed.”

History repeats itself. In 1889, it was railroads, steel, iron, and energy. Today it is telecommunications.

My first introduction to the concept of corporate doublespeak — designed to cushion the blow of bad news behind a wall of barely-comprehensible babble came in October 1987 when I heard one Wall Street analyst refer to the great stock market crash that had just befallen the financial district as a “fourth quarter equity retreat.”

Holy euphemism, Batman!

You weren’t fired — you were “made redundant.”  The bankruptcy of Detroit automakers and the layoffs that followed were not as bad as they looked. It was merely “a career-alternative enhancement program.”

And, no, Verizon and AT&T are not engaged in should-be-illegal marketplace collusion on pricing and services. They are just practicing some harmless “price signaling.”

That’s the awe-struck view of management consultant Rags Srinivasan, who just gushes over the marketing “stroke of genius” that threatens to give customers a stroke when they open their monthly bill.

Srinivasan’s piece, worthy of the Wall Street Journal editorial page, turns up instead on GigaOm, where it gets some pretty harsh treatment from tech-lovers who hate the rising prices of wireless service.

Price signaling has always existed between the number one and number two players in any market. Agreeing to not engage in a price war is truly a win-win for the market leaders. Since outright price fixing is illegal, market leaders resorted to signaling to tell the other company their intentions or send a threat about their cost advantages.

But traditionally, it was more like flirting — ambiguous enough that the underlying intentions could be denied. Why are these two not shy about admitting to flirting now? The simple answer is the iPhone.

Not too long ago we worried about running out of talk minutes and paying overage. Service providers offered us tiered plans that offered more minutes for a higher price and unlimited minutes for an even higher price. With the additional revenue flowing directly to their bottom line, these higher priced plans were real cash cows.

For those who have any doubt about the profits from unlimited plans, I’d point out that the costs of a mobile service provider are sunk with zero marginal cost for additional minutes. And texts don’t even consume traffic channels — they piggyback on control channels.

[…] In another genius pricing move, Verizon Wireless is presenting this $100 mobile service plan to customers in a bundle — talk minutes plus data. In the past, around $70 was allocated to talk because consumers valued it more. Now subscribers pay only $40, but they still pay the same $100 total price. This is nothing short of pricing excellence, protecting customer margin while also using strong price signaling to make sure that the next biggest market share leader follows suit.

What Srinivasan calls “business at its best” and “pricing excellence” we call collusion at its most obvious. The GigaOm author says he does not want the government tinkering with this kind of marketplace “signaling,” and it does not appear likely he has much to worry about. AT&T and Verizon executives have grown increasingly brazen (and obvious) with their near-identical pricing and “me-too” plans which leave little to differentiate the two carriers from a pricing perspective. The likely result will be at least 100 million cell phone customers eventually stuck paying for unlimited voice and texting services they neither want or need.

Wireless Wonder Twins Powers Activate: Shape of anti-competitive marketplace for consumers; form of collusion.

True, AT&T charges Cadillac prices but has the customer service image of a used 1995 Kia… but they did have the original exclusive rights to the Apple iPhone and Apple devotees proved they will endure a lot. Verizon Wireless has a better network and has always charged accordingly.

Unfortunately for consumers, the also-rans Sprint and T-Mobile (and the smaller still) depend on AT&T and Verizon for roaming off the city highway and into the countryside, and they are often stuck with devices that are a step down from what the bigger two can offer.

Srinivasan would have a better argument if the wireless marketplace had not become so consolidated. Had AT&T had its way with T-Mobile, America would have just a single national GSM network — AT&T. Verizon does not consider its CDMA competitor much of a bother either, and Sprint Nextel CEO Dan Hesse has to divide his time between fighting with Wall Street over why the company has not already sold out to the highest bidder (and now wants to spend a fortune upgrading its network) and customers who consider Sprint too much of a trade-off in coverage and its dismal “4G” Clearwire WiMAX network too slow for 2012.

Srinivasan is probably too young to understand AT&T and Verizon never invented “price signaling.” A century ago, the railroad robber barons did much the same, leveraging their anti-competitive networks-of-a-different-kind to maximize prices in places that had few alternatives. Where competitors did arrive, they were typically bought out to “maximize savings and eliminate market inefficiencies.” The same was true in the steel and energy sector of the early 20th century.

The result is that consumers were turned upside down to shake out the last loose change from their pockets. Eventually, government stepped in and called it marketplace collusion and passed antitrust laws that began a new era for true competition.

How soon some forget.

Stop the Cap! has suddenly started receiving a larger number of complaints about AT&T’s Internet Overcharging scheme in the past two weeks, indicating to us the company has started cracking down more forcefully on usage cap “violators.”

Those who purchased AT&T U-verse in an effort to avoid usage caps from their local cable company are particularly upset, because the phone company still markets its U-verse service as being ‘bandwidth-limit-free.’

AT&T advertises its U-verse service to this day as bandwidth limit free.

“We don’t limit your bandwidth to a particular amount,” promises AT&T in prominent language on its website. The fine print says something very different — AT&T limits the amount of usage customers get before being exposed to overlimit fees — 150GB for DSL, 250GB for U-verse. It is part of what the company calls wired “data plans.”

AT&T U-verse has a 250GB usage cap hidden in the fine print.

“It’s false advertising,” counters AT&T customer Don Brown. “Anyone who reads their promise of ‘no bandwidth limitations’ is going to assume that means no limits, but when I questioned company representatives about the promise, they pull out every trick in the book.”

Brown says one customer service representative told him ‘bandwidth limits’ refer to broadband speed — AT&T does not throttle its customers. Another said the ad claim meant that customers could keep paying AT&T additional money for as much usage as they want or need. But Brown believes AT&T knows better than that.

“When I signed up for service, I asked the salesperson who took my order if there were limits and they said there were none, period,” Brown says. “Not a word was spoken about 250GB limits or overlimit fees. I’m not buying their excuses — what wired ISP throttles customer speeds?”

In fact, AT&T itself defines “bandwidth” much the same way Brown does (underlining ours):

The term bandwidth can take on many meanings. In the case of AT&T U-verse products and services, the term bandwidth is commonly used when referring to computer networking and measuring Internet usage.

The amount of Internet usage is displayed in upload and download amounts. This would commonly be known as the amount of bandwidth the User used during a particular time.

Brown also has no access to any usage monitor or measurement tool, and AT&T told him he “can relax” because the company would send warnings when it noticed his usage was coming perilously close to the limit. But that makes planning around monthly usage limits difficult, because he has no idea what his usage is from day to day.

A week ago, he received his first warning in an e-mail message from AT&T, which was the first indication he was living under a usage cap.

“They are in a real hurry to collect more money from me but they don’t have their ducks in a row on an accurate meter I can depend on,” Brown says. “Would the local power, water, or gas company get away with that? I don’t think so.”

Brown decided AT&T’s “dishonesty,” as he puts it, made him cancel his service. He does not trust the phone company to accurately measure anything.

“At least I know the cable company is a pocket-picking crook so I can be on guard for their next move,” Brown says. “AT&T is more like the thief in the night that robs you blind while you are upstairs, asleep in bed.”

Chris Savage discovered AT&T’s “stealthy” 150GB usage cap on his DSL account when he received an e-mail warning of his own. He gets one more, after which AT&T will “bill shock” him with overlimit fees.

You have exceeded 150GB this billing period.

[…] The next time you exceed 150GB you’ll be notified, but not billed. However if you go over your data plan in any subsequent billing period, we’ll provide you with an additional 50GB of data for $10. You’ll be charged $10 for every incremental 50GB of usage beyond your plan.

AT&T DSL service has a sneaky 150GB usage cap in the fine print.

AT&T really isn’t interested in hearing questions or concerns about their “data plan,” telling customers at the bottom of the message:

Please do not reply to this email. This address is automated, unattended and cannot help with questions or requests.

Savage never knew AT&T implemented an Internet Overcharging scheme:

“This e-mail seemed to say to me, ‘We changed the rules on you without telling you and now you’ve broken them, so we’ll let you off this time, but consider yourself warned!'”

Savage has already cut cable’s cord and watches his television shows online, exactly what big phone and cable companies do not want their customers doing.

The bottom line is that 150GB is not enough for people like me who work at home, rely on Netflix for any kind of TV/Movies (since I don’t have cable or any other TV), have gamers in the house and run a website. What this means for me is that, once again I will have to cancel Netflix because watching just one movie or show per day would mean I would reach my cap about 2/3 of the way into the month. And that is if nobody else in the house watches anything on it, plays any online games or downloads anything.

In the end, it appears AT&T won and Netflix lost. Savage reports after going over AT&T’s limit two months in a row, he canceled his Netflix account — the only television service he had. AT&T DSL cannot even support one movie a night and one or two streamed cooking shows here and there without pushing the family over the limit AT&T imposes.

Lowering the bar on customers by increasing the maximum overlimit fee. It’s another example of Rogers’ Broadband Limbo Dance.

Rogers Communications is quietly notifying its broadband customers it is doubling the overlimit fee for excessive use of its broadband service from $50 to $100, effective Aug. 16, 2012.

The company characterizes the new maximum fee as “protecting you from unexpected high charges,” but of course does nothing of the sort. Rogers’ charges eastern Canada some of the continent’s most expensive prices around for usage-limited broadband. Its Internet Overcharging scheme has relied on all of the classic tricks of the trade to get consumers to pay higher and higher prices for broadband service, while assuring investors the company can rake in additional profits at will just by adjusting your allowance and overlimit fee.

Companies that introduce usage caps and consumption billing are monetizing broadband usage. By adjusting prices upwards and reducing usage allowances, customers can find themselves paying confiscatory overlimit fees. But until recently companies in Canada capped the maximum overlimit penalties. Over the last three years, those maximum fees have increased dramatically, and some companies like Cogeco have removed the maximum limit altogether.

While Rogers’ cost to deliver service continues to decline, these kinds of policy changes can cause broadband bills to soar, especially when customers are in overlimit territory.

Rogers (with thanks to Broadband Reports readers who shared the text):

“To protect you from unexpected high charges, we currently cap the maximum monthly amount you can be charged for additional internet usage at $50 in addition to your Hi-Speed Internet plan’s monthly service fee, modem rental fee (if applicable) and taxes. Effective August 16, 2012 this monthly limit will be increased to $100 in addition to your plan’s monthly service fee, modem rental fee (if applicable) and taxes. If you exceed the monthly usage allowance included in your Hi-Speed Internet plan you will begin to see charges up to the new limit beginning on your first invoice on or after September 16, 2012. All other aspects of your Rogers service(s) will remain the same. Remember, you can track your internet usage online by signing into My Rogers at rogers.com/myinternetusage. For more information or questions please contact us in any of the ways listed on page 2 of this invoice. Thank you.”

Customers can use the occasion of Rogers’ contract changes to potentially switch providers without paying early cancellation fees. This process is more straightforward in Quebec, according to the company’s terms and conditions.

Quebec Residents Only

Unless otherwise specified in the Service Agreement, we may change, at any time, but upon no less than 30 days’ prior written notice to you:

• a) with respect to a  plan or Service not subscribed to for a Commitment Period (as defined below), any charges, features, content, functionality, structure or any other aspects of the plan or Service, as well as any term or provision of the Service Agreement, and
• b) with respect to a plan or Service subscribed to for a Commitment Period, any aspect of the plan or Service, as well as any term or provision of the Service Agreement, other than essential elements of the plan, Service or Service Agreement.

If the change entails an increase in your obligations or a decrease in our obligations and if you do not accept such a change, you may terminate your Services without an ECF (as defined below) by sending us a notice to that effect no later than 30 days after the amendment takes effect.

Rogers’ Customers Elsewhere in Canada

Unless otherwise specified in the Service Agreement, we may change, at any time, any charges, features, content, functionality, structure or any other aspects of the Services, as well as any term or provision of the Service Agreement, upon notice to you. If you do not accept a change to the affected Services, your sole remedy is to terminate the affected Services provided under the Service Agreement, within 30 days of your receipt of our notice of change to the Services (unless we specify a different notice period), by providing us with advance notice of termination pursuant to Section 34. If you do not accept a change to these Terms, your sole remedy is to retain these Terms unchanged for the duration of the Commitment Period (as defined below), upon notice to us within 30 days of your receipt of our notice of change to these Terms.

While Quebec residents have a clear path to avoid Rogers’ ECF, customers elsewhere may be subject to an early cancellation fee because of Section 9 of Rogers’ agreement:

Unless otherwise set out in the Materials, if you agree to subscribe to one of our plans or Services for a committed period of time (the “Commitment Period”), you may be subject to an early cancellation fee (“ECF”) for each Service. Any decrease in your Commitment Period may be subject to a fee. If your Service is terminated prior to the end of the Commitment Period, you will pay us an ECF as specified in the Service Agreement, plus taxes.

Customers outside of Quebec may want to check with Rogers directly to determine if an early cancellation fee will apply when canceling service because of the change in maximum overlimit fees.

Customers leaving Rogers can find better deals for broadband services from independent ISPs like TekSavvy or Start.

Shaw Communications executives last week announced, to the relief of Wall Street, the cable company is pulling back on great deals for cable TV, Internet and phone service this summer.

In an effort to appease Wall Street analysts like Phillip Huang, a researcher for UBS Investment Bank — who fear lower prices could “spiral into a price war, which obviously would be a lose, lose situation,” Shaw has made it clear it intends to stop some of its most aggressive promotions this summer.

“When you talk about promotions in the market, we’ve been very disciplined in that regard,” Shaw executives told analysts on last week’s quarterly results conference call. “It’s a highly competitive environment and will continue to be that way and we’re going to operate in a certain fashion.”

That “certain fashion” has cost them at least 21,500 subscribers who have already left Shaw this past quarter, most headed to Shaw’s biggest competitor Telus.

But some Wall Street analysts remain unsatisfied, noting there are major differences in telecommunications pricing in Canada. Western Canadians pay substantially less for phone, cable, and broadband service than their counterparts in Ontario and Quebec. Shaw and Telus customers also have much larger usage allowances for broadband service, and Telus so far has not enforced what limits they have.

Analysts peppered Shaw executives about why they are not raising prices to match what Bell, Rogers, and Vidéotron customers further east are paying.

Jay Mehr, Shaw’s senior vice president of operations told investors to hang in there.

“We still believe that we have some good pricing power when discipline really comes back into this market,” Mehr said on the call with investors. That signals Shaw is prepared to raise prices when aggressive deals end.

Wall Street also questioned why the company does not use long-term contracts to lock customers in place:

Mehr

Glen Campbell – BofA Merrill Lynch, Research Division: […] On service contracts: You’ve been pretty firm in not using them. Your competitor clearly does. […] Can you talk about the reasons for not going down the service contract road and whether you might reconsider that position?

Bradley S. Shaw – Shaw Communications: Well, there’s arguments for contracts as you — I guess, it’s really what these contracts do. As you said, we have equipment. Our [indiscernible] space — our Easy Own plan certainly is a very consumer-friendly plan as customers are getting something, and they’re agreeing to pay for it over time. And that creates kind of a natural kind of a relationship. What we don’t want to have happen is having customers, who are feeling confined by a contract, who otherwise would like to do something else. We don’t think that’s consumer-friendly. And so we’re looking at ways that we’d have more consumer-friendly kind of relationships but that still create some kind of a longer-term relationship that you can count on. But we don’t want to have the ball and chain kind of contracts that others have adopted.

[…] From a customer point of view. But also, the nature of contracts is there needs to be an enticement to get the customer sign a contract, and that enticement tends to be what we’re seeing in the market, which is fairly significant giveaways of hardware and other devices to be able to incent that. And so it will have has an impact on your cost of acquisition, and we’re trying to manage that. As Peter said, our Easy Own program is a very customer-friendly way for people to come on and make a commitment to us. And at the end of the period, they own their equipment. They haven’t had to pay upfront, and so it’s a nice way to manage that without being heavy-handed.

Shaw’s Exo Wi-Fi service is coming soon across western Canada.

Some other developments at Shaw, reported during the conference call:

• Spending on upgrades will continue to be on the aggressive side as the company builds out its new Exo Wi-Fi network and converts cable systems to digital service, creating additional space for broadband speed increases and other services;
• Broadband delivers the highest profit margins of all of Shaw’s services, so it remains a very important part of Shaw’s package;
• Customers are gravitating towards higher speed broadband packages, delivering extra revenue;
• The company has re-priced some of its plans and offers to be more friendly to broadband-only customers;
• Shaw is working to gain approval from communities across western Canada to deploy its Wi-Fi network, with plans to begin limited promotion of the new service by late fall or early 2013. Shaw expects its Wi-Fi network to have substantial coverage across the region within three years;
• Shaw plans to work with U.S. cable operators to participate in a Wi-Fi roaming network that will allow its customers access to the Wi-Fi networks being built in the United States;
• Shaw’s “TV Everywhere” project is being designed to protect existing video revenue. Rights are being acquired across the board for broadband, tablets and other mobile devices for a robust on-demand service. But live streaming is secondary.