It’s Cell Company Customer Crackdown-month for AT&T and Verizon Wireless as the two carriers increasingly engage in aggressive “management” of their wireless data networks.  Days after AT&T announced it would throw customers off legacy unlimited data plans if caught using “unofficial” tethering applications, Verizon has reportedly locked out customers from accessing web pages over jailbreak apps like MyWi, redirecting requests to a Verizon Wireless $20 Mobile Hotspot offer instead.

Mobiledia reports Verizon now requires users have a hotspot-capable data plan if they want to tether data from their smartphones to other devices.  At regular prices, those plans start at $20 for 2GB of usage, with a $10/GB overlimit fee.  Certain LTE/4G customers have fared better, being offered unlimited tethering for $30 a month — an option not available to 3G phone owners.

The Federal Communications Commission’s Net Neutrality policy exempted wireless providers from observing its core principles, giving carriers carte blanche to block websites and third party applications from their networks, and Verizon has put the green light to good use.

AT&T has favored direct punitive measures against customers who don’t respond to their demands to upgrade by auto-enrolling customers in $45 tethering plans or threatening legacy customers with the loss of their unlimited data plan.

Some media reports — including those from Mobiledia — have declared third party tethering applications “illegal,” which is inaccurate.  While carriers may not like these applications and declare use of them contrary to their respective acceptable use policies, they do not violate any laws.

U.S. Cellular Monday told investors the company plans to abandon unlimited data service sometime in the next two or three quarters in favor of tiered data plans similar to what is on offer from AT&T and Verizon Wireless.

U.S. Cellular president and CEO Mary Dillon told investors the company is changing pricing as a result of “significant changes in pricing strategies” at their larger competitors, who have moved away from unlimited data plans over the last year.  Dillon applauded the adoption of tiered data pricing, but noted increasing pricing pressure in the market.

For the nation’s sixth largest wireless carrier, best known in the midwest, northern New England, the Carolinas, and northern California, being a regional provider in an increasingly concentrated wireless marketplace has some on Wall Street concerned about the long term viability of smaller cell phone companies.

Blaming the continuing challenges of “an extremely competitive market and a sluggish economy in which carriers continue to fight for a dwindling pool of new subscribers and the cost of acquiring switchers are significant,” the company reported a net loss of 41,000 customers during the last quarter.  Only 226,000 new customers signed up, down from 307,000 in the prior year quarter.  Another 17,000 prepaid customers dropped U.S. Cellular last quarter as well.  U.S. Cellular now has just under six million customers in all.

Adrian Mill from Eagle Capital noted the customer losses — presumably to larger AT&T or Verizon Wireless, and pondered how long the company can continue to exist on its own in a market increasingly dominated by those two larger carriers:

“I know you guys did a lot of work a couple years ago on whether our regional cellular company could still be relevant and looked at ways in other industries and had some good data from it.

I’m just curious if after the past couple quarters of results where we’ve now seen everybody lose share to AT&T and Verizon if that was something you thought might happen in short term or if it’s been surprising?

If its been surprising, how long would you guys potentially consider losing subs before you do a strategic transaction or consider a sale?”

U.S. Cellular executives didn’t directly answer the question, but acknowledged the wireless carrier does have challenges in the marketplace its larger competitors don’t have.  They include:

• Access to coveted smartphones, particularly Apple’s iPhone, which continues to be unavailable from smaller, regional wireless carriers;
• Access to sufficient wireless spectrum to deploy robust data networks to meet customer demand;
• Capital requirements to build and expand the next 4G generation of wireless;
• The downward pressure on smartphone equipment pricing due to competition and expensive equipment subsidies;
• Roaming agreements to ensure nationwide coverage for voice and data services.

U.S. Cellular's primary service areas

Company officials told investors U.S. Cellular intends to continue to compete for new customers, leveraging its top consumer ratings for reliable service and satisfaction with the deployment of its own 4G LTE wireless network.  But first it intends to re-align pricing to reduce costs.

Alan Ferber, U.S. Cellular’s executive vice-president, sales operations, notes U.S. Cellular wants to see more of its customers upgrade to smartphones, which guarantee higher revenues per customer from the higher-priced service plans that accompany the phones.  The company needs less expensive phones from manufacturers, because consumers typically won’t pay more than $200 for a smartphone that comes with a 2-year service agreement.

Ken Meyers, chief financial officer for the company, has been crunching the numbers on smartphone equipment costs and is grateful for the presence of Android phones in the marketplace, which are starting to drive phone prices downwards.

“[It’s] exciting to me is to see what’s happening with the Android phone cost that will allow carriers to start to recapture some of the economics needed to support LTE [4G] investment and the subsidization of those smartphones, whereas that works on a $200 smartphone but if I’m subsidizing $400 or $500 suddenly most of that revenue isn’t going to pay for the network,” Meyers said.

Ferber expects to deliver new smartphones to U.S. Cellular customers for less than $200 by the holiday season, so customers will find the initial cost for phones lower than ever.  But Ferber admits the company’s forthcoming tiered data pricing means increased revenue and “better cost controls” over the life of a customer’s 2-year contract.

“We have also talked about things like tier data pricing on a going forward basis,” Ferber said. “We do believe that has at least two major benefits. The first is to align data revenue with data cost better and the second is to, in combination with the lower cost smartphones, enable more customers to get into a smartphone.”

But Ferber also acknowledges the company’s move to LTE 4G technology will actually cut the company’s costs to deliver that data — great news to investors, but potentially higher cell phone bills for consumers.

“Over the long turn it’ll certainly make the economics much more attractive,” Ferber said.

Other highlights from Monday’s conference call:

• U.S. Cellular will not acquire other providers not within or adjacent to its current operations, but is stockpiling cash for the potential purchase of any T-Mobile territories the federal government requires AT&T to divest as part of any merger agreement.  T-Mobile is not a major competitor in most of U.S. Cellular’s more-rural/suburban markets, but if U.S. Cellular does acquire any of these customers, they will have to convert them from T-Mobile’s GSM network to the company’s CDMA network;
• Data roaming from Verizon and Sprint customers traveling through U.S. Cellular’s service areas have brought increased traffic to the company’s data network, and roaming revenue with it;
• System operations expenses of $228 million were up $14 million or 7% year-over-year. This was due primarily to higher usage and roaming expenses as customers use more data services both on and off U.S. Cellular’s network. Through June of this year, total data of network usage increased nearly 400% over the same period last year.

Customers who flee Bell Canada’s products and services for lower prices and less abusive Internet Overcharging are being encouraged to visit what Bell internally calls its “customer winback” website.  It’s Bell Canada’s place to extend special pricing and promotional offers to those considering a return to the telephone company.  But Stop the Cap! found the offers less than compelling and some of the company’s claims a real stretch:

There are many reasons to switch to Bell.

Switch to Bell for the most reliable home phone service¹. We’ve made many enhancements and are so confident you’ll enjoy our services, they come with a complete 30-day satisfaction guarantee, or your money back².  Switching is easy.  You can keep your existing home phone number³ and we’ll take care of the details with your current service provider.

With Bell Home phone you’ll enjoy:

• The most reliable service
• No reconnection fees

Plus, take advantage of savings on more great Bell services for your home.

Bell Internet – Perfect for sharing

• The largest fibre optic network in Canada
• Upload speeds up to 3x faster than cable⁴
• Free Wireless Home Network

Bell Satellite TV- Over 100 HD channels

• Stunning HD picture quality – 10x better than regular cable
• Canada’s best HD PVR⁵ – set and manage recordings from anywhere
• On Demand movies in 1080p HD – the highest quality of any provider

With Bell Install, you get a complete and customized installation at no charge⁶. Sit back, relax and we’ll set everything up for you.

Join the thousands of customers switching to Bell every week and start saving.

With six footnotes to the fine print in as many paragraphs, warning bells begin to ring almost immediately.  Those footnotes can cost customers some real money:

1. Applies to traditional copper-based (excluding fibre-based) wireline telephony; compared to cable telephony and based on continued service during extended power outages at customer’s home.

In other words, Bell phone service is more reliable because it works when the power goes out, unless it’s from Bell’s Fibe TV.  When power drops, your Bell Fibe phone line goes with it.  But if your phone lines are rotten, nothing will save you from a phone service outage, whether you are a wireline or “fibre-based” customer.  By the way, although Fibe is fibre part of the way, it ultimately arrives for most customers on the same copper wire phone line technology you’ve had for decades.

2. Credit offered on service fees for TV, Internet, Home phone (excluding Mobility), and applicable installation, activation or equipment fees; does not apply to usage fees (such as long distance, additional Internet usage capacity, On Demand TV programming). Client must call within 30 days of activation. Conditions apply, see bell.ca/satisfaction.

Among the other terms and conditions not immediately disclosed:

• No refunds will be issued to customers modifying or upgrading any existing Eligible Services;
• Prior to issuing a refund for equipment purchased directly from Bell, the equipment must be returned to Bell in the same condition as when it was purchased, with all original packing materials, manuals, accessories and associated equipment, along with proof of purchase;
• You may claim no more than one (1) refund under the Bell Satisfaction Guarantee in any 12 month period;
• You must be fully compliant with the terms and conditions applicable to your Eligible Services, and
• All accounts for Bell services must be in good standing.

3. Within same local calling area

A no-brainer.

4. Current as of May 1, 2011. Comparison between Bell Fibe Internet 25 (upload up to 7 Mbps) and Rogers Ultimate Internet (upload up to 2 Mbps).

Bell apparently doesn’t think Quebec’s Videotron is worth mentioning.  They upgraded to 3Mbps upload speeds for their highest tiers last February.  Like AT&T’s U-verse, “fiber to the neighborhood” networks simply cannot deliver the fastest download Internet experience that fiber to the home or cable DOCSIS 3 providers can deliver, although the upload speed for Fibe (when you actually achieve 7Mbps) is a nice change from the neutered speeds cable companies provide for “the up side.”  But Bell counts your upload traffic against the usage allowance.

5. Based on a combination of 30-second skip function, 9-day programming guide, expandable recording capacity and remote PVR feature. Additional equipment required.

Additional equipment costs additional money.

6. Conditions apply; see bell.ca/fullinstall for Bell Internet and bell.ca/installationincluded for Bell TV. For Home Phone, available to customers with Home Phone Choice or Complete, or with Unlimited Canada/US long distance plan, or the Bell Bundle; one-time activation fee (up to $55/line) applies, credited on the account before taxes, and additional charges may apply for installation of a new phone jack.

A complete and customized installation “at no charge,” except for that pesky $55 “activation fee” eventually credited on the account (but you still pay GST/PST on the ‘rebated’ amount).  Some of our readers have complained to us that they’ve had to call Bell, sometimes repeatedly, to get that activation fee credited back.  Bell sometimes forgets.

Unfortunately, for too many in suburban and rural Canada, it’s Bell telephone infrastructure or nothing — no cable provider exists to offer a competitive alternative.  They are the company that charges more for less.

Considering Bell is Canada’s number one advocate for Internet Overcharging, you can do better with almost any other provider.  Let Bell know they can “win you back” when they deliver scheme-free service at a fair and reasonable price.  Until then, tell them they can swing alone.

AT&T is keeping the pressure on their grandfathered unlimited data plan customers.  Earlier today, AT&T confirmed rumors they are prepared to revoke customers’ unlimited usage plans if they are caught tethering their phones without an authorized tethering and mobile hotspot plan purchased directly from the company.  BGR quotes an AT&T spokesperson:

Earlier this year, we began sending letters, emails, and text messages to a small number of smartphone customers who use their devices for tethering but aren’t on our required tethering plan. Our goal here is fairness for all of our customers. (This impacts a only small percentage of our smartphone customer base.)

The letters outline three choices:

1. Stop tethering and keep their current plan (including grandfathered unlimited plan)
2. Proactively call AT&T or visit our stores and move to the required tethering plan
3. Do nothing and we’ll go ahead and add the tethering plan on their behalf — after the date noted in their customer notification.

An AT&T customer told 9to5 Mac he was threatened with the unilateral loss of his unlimited data plan if he was still unofficially tethering his phone after Aug. 11th, a date AT&T has since said may not be everyone’s “cutoff date”:

I was just informed that as of Thursday, August 11th, if you use MyWi or any tethering on the phone or using the phone as a modem, AT&T will automatically change your unlimited plan to a 2GB tethering plan for 45 dollars without the customer’s consent. This is for those who received emails or texts about the use of tethering without an AT&T tethering plan.

It’s clear AT&T is going hard line on their unlimited data plan customers, first sending notice they will throttle the speeds of any customer on an unlimited plan deemed a “heavy user,” and now threatening to terminate unlimited usage plans for customers who violate the company’s tethering terms and conditions.

Leap Wireless is trying to save face on less-than-impressive second quarter financial results showing the company is losing its mobile broadband customers who are increasingly weary of Cricket’s price increases and speed throttles.

The company lost at least 132,000 broadband customers since the first quarter, mostly due to price increases, reduced usage allowances and “network management” practices, which reduce speeds to near dial-up for customers who are deemed to be “using too much.”

“On broadband, we tightened our focus to more profitable customers while shedding less profitable ones,” said Leap Wireless CEO Douglas Hutcheson.

Internet Overcharging Facts of Life: What 'Network Management' tools are really used for. (Courtesy: Cricket's Second Quarter Results Investor Presentation)

Cricket recently announced increased pricing on their usage limited plans: $45/month for 2.5GB, $55/month for 5GB, or $65/month for 7.5GB.

With a less-than-robust regional 3G network and higher pricing, broadband customers have decided to take their business elsewhere, despite the company’s recently announced expanded data roaming agreement with Sprint.

Cricket acknowledges their “increased network management initiatives” are partly to blame for the loss, but the company also says increased prices for mobile broadband devices, which used to be available for free after rebate, are also responsible.  Cricket’s least expensive mobile broadband modem now runs just under $90.

Company officials told investors the losses “were expected,” and that the company has been trying to make up the difference with higher value smartphone data plans.  Mobile broadband customers tend to consume more data than smartphone users, so the company’s emphasis on smartphone data users, who use less, will deliver increased revenue at a reduced cost.

Cricket’s CEO explains the company’s renewed focus on keeping highly-profitable mobile broadband customers while effectively getting rid of “heavy users” who have been targeted with aggressive speed throttling over the past year, and now face higher prices for lower usage allowances. Also explored: Cricket’s future 4G LTE network buildout.  August 3, 2011.  (4 minutes)
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Cricket's declining mobile broadband business

In fact, the company’s presentation to investors credits network management tools for driving away “higher usage customers,” allowing Cricket to reap the benefit of “improved revenue yield per gigabyte.”  In short, that means Cricket profits handsomely from data plans they hope customers will only occasionally use.

One of Cricket’s biggest product priorities this year is pitching its Muve Music service, bundled into an all-inclusive $55 wireless prepaid phone plan.  It gives Muve phone customers unlimited access to an enormous downloadable music library accessed on the phone.  Since the service does not allow customers to transfer the music to other devices, record companies are happy to participate.

The biggest downside for some is that the Muve phone becomes your music player — a phone many customers consider a work in progress.  Some critics have labeled the service a “total fail” because of sound quality and DRM restrictions. But since the service is already bundled into the wireless plan at no additional cost, more than 100,000 customers are using it, downloading at least 130 million songs since it was first introduced in January.

Muve Music is another way Cricket is trying to differentiate itself from other wireless providers, and the company may try to expand the Muve Music service to much-more-profitable smartphones in the near future. Cricket hopes to begin selling no-contract smartphones at prices below $100 by Christmas.

Cricket executives answer questions from Wall Street about how the company intends to deal with a decline in mobile broadband customers, and explains their use of network speed throttles. Cricket plans to “follow industry trends” and experiment with “session-based” throttles sometime next year. These allow customers to pay an extra charge to temporarily remove the speed throttle when they need additional bandwidth. It’s just one more source of lucrative revenue from conjured up network management schemes.  August 3, 2011.  (4 minutes)
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Cricket is also planning further expansion of its ‘welfare wireless’ plan — a Universal Service Fund-backed home phone replacement for customers receiving public assistance.  The Lifeline USF subsidy is designed to provide affordable home telephone service to the most income-challenged among us.  Many landline providers charge around $1 a month for the service (before fees), and then charge for every call made.

Cricket’s implementation of this subsidy could draw some controversy because it delivers a $13.50 monthly discount off -any- of their rate plans.  That means qualified customers could pay just over $40 a month for a high end smartphone service plan, subsidized by every telephone ratepayer in the country.

Cricket also plans to launch LTE 4G service starting in early 2012.

Cricket plans to introduce 4G LTE service in 2012.