Robert F. McDowell

Two Republicans serving on the Federal Communications Commission told attendees at Saturday’s Tech Policy Summit that “usage-based pricing” for wireless broadband could be a solution to congested cell phone data networks.

“Pricing freedom has to be essential, because a small number of users take up the majority of bandwidth. So charging some of the heavy users for that bandwidth makes sense,” Commissioner Robert McDowell said during a panel discussion at the 2010 Consumer Electronics Show.

“I think it’s time to let that happen,” he added. “Net neutrality proponents say it should be an all-you-can-eat price. But that will lead to gridlock.”

The discussion, Inside the FCC’s Communications Agenda, focused on the FCC’s agenda in light of the Obama Administration’s new policy initiatives and the current the impact technology has on regulatory policy.

McDowell was responding to industry reports that Verizon was prepared to abandon all-you-can-eat pricing for wireless data on its forthcoming 4G LTE wireless network, even though it doesn’t actually have such a plan in place at the time the panel discussion was held.

McDowell believes that since private money is constructing the networks capable of delivering LTE service, the company has a right to charge what it pleases for service, reducing demand with a correspondingly higher price for those who use the network more than others.

Meredith Atwell Baker

Consumer advocates argue that current profits in the wireless industry provide ample resources to build and upgrade networks without overcharging consumers with expensive usage based pricing designed to make customers think twice before using the service they pay good money to receive.  Unlimited use pricing is favored by consumers as well.  Most providers abandoned “all you can eat” plans at least a year ago.  Every wireless broadband plan carries some limitations somewhere in the fine print, particularly for plans that are designed for mobile netbooks or laptops.  Virtually all of them either limit usage to 5GB per month or throttle the user who exceeds that amount down to dial-up speeds for the rest of the month.

Meredith Attwell Baker, the newest Republican FCC Commissioner, seemed slightly out of her element in discussing the issue of consumption billing.

As panel moderator Kim Hart reported for The Hill newspaper, Baker has some novel ideas for easing congestion on wireless broadband networks.

“Maybe we move back to a world where people pay for roaming,” she said.

Verizon Wireless is expected to unveil three new data plans on January 18th, including a new smartphone-mandatory “unlimited broadband” 3G plan priced at $29.99 per month, according to documents obtained by Broadband Reports.

The documents, provided by a Verizon Wireless employee, show the company is moving towards mandating all of their customers select some sort of data plan as part of their monthly service.  But unlike some wireless providers that leave options open to customers, Verizon wants to herd customers into data plans based on the types of phones they use:

• Simple Phones: Basic handsets that are designed for making and receiving phone calls and sending quick text messages from a numeric keypad, typically at older network standard speeds;
• 3G Multimedia: 3G-capable phones that may include a simple keyboard, and are designed for simpler text messaging and occasional data access;
• 3G Smartphones: Blackberry, Android, Windows-capable, and eventually the iPhone all qualify for this classification.

Verizon Wireless formerly offered a paltry 25MB package for $9.99 with a 50 cents per megabyte overlimit fee and a stingy 75MB package for $19.99 per month with a 30 cents per megabyte overlimit fee.  These might be suitable for someone trying to navigate a mobile web browser on an older generation phone from a numeric keyboard, but were priced unattractively for those with more advanced phones.

The 75MB package appears to be history after January 18th, but the 25MB package will remain with a reduced overlimit fee of 20 cents per megabyte (that’s an incredible $200 per gigabyte) .  Customers who don’t want -any- data plan for their basic wireless phone will be forced onto Verizon’s “pay as you go” plan, which charges $1.99 per megabyte.  It’s this plan that subjects customers to those $1.99 mysterious “data charges” on their bill, caused when a customer invokes the phone’s web browser (intentionally or otherwise, if you believe customers.)

Customers who don’t own smartphones and don’t use their phones to access many data services will find themselves being corralled into one of Verizon’s new data plans, whether they like it or not, once they try and renew their contract or make “certain account changes” under their existing contract.  If you’re a smartphone user, your choice will be the $29.99 unlimited data plan or the $29.99 unlimited data plan.  In other words, smartphone customers don’t get a choice.  Only owners of more basic phones will be able to choose from overpriced “pay as you go” service, a paltry 25MB offering, or what the company will upsell as the “best value” — the $29.99 unlimited plan.

“Even some basic phones such as the LG VX8360 will require data plans starting the 18th,” says Broadband Reports‘ tipster. Some examples of 3G Multimedia phones: LG Chocolate Touch, LG enV3, LG enV Touch, LG VX8360, Motorola Entice, Motorola Rival, Samsung Rogue, Samsung Alias2 and Nokia Twist.

The launch of an unlimited data plan on Verizon Wireless’ 3G network will make Apple happy.  The iPhone manufacturer has reportedly advocated generous data plans for iPhone customers who find themselves required to purchase plans for both voice calling and data with AT&T.  If the iPhone’s arrival on Verizon Wireless’ network is imminent this summer, having an unlimited data plan available to customers would make sense.

Although the fine print isn’t available to us, Karl Bode at Broadband Reports notes the documents he’s seen indicate no hidden usage cap, like AT&T’s formerly advertised “unlimited” plans that were limited to 5GB in the fine print.

Broadband Reports ran an exclusive story this morning breaking the news about Verizon's new data plans.

Still, for customers pushed into purchasing a data plan they may not want, it’s another case of Internet Overcharging.  That’s particularly true with Verizon, which claims to be a proponent of “paying for what you use,” yet still doesn’t offer all of their customers that option.  Instead, customers who don’t want to pony up $29.99 a month (or don’t have to because they don’t own a smartphone) are stuck paying for overpriced “pay as you go” plans or a paltry 25MB plan priced not to sell.  Even their “unlimited” plan may not last for long.  As Verizon Wireless works towards their 4G network launch, unlimited pricing may never be a part of it.

The Verizon Wireless documents explain what’s really happening here when it instructs employees pushing data plans to up-sell customers: “think of how dissatisfied they would be if they received their bill with excessive Pay As You Go charges!”  That is a powerful tool to motivate customers to choose a more expensive plan they may not need or want, just to protect themselves from the nasty surprise of an enormous bill at the end of the month.

With the evolving wireless phone marketplace now opening up new options for consumers to bypass the wireless company’s own products and services, overcharging consumers for accessing competitors’ products on their network guarantees a nice payday for Verizon Wireless no matter how you use your phone.

It’s why year after year, despite an increasing number of minutes thrown into your plan’s bucket, your cell phone bill never seems to actually decrease.  After all of the additional add-ons, surcharges, and fees attached to the bill, it has become easier than ever to approach $100 a month for cell phone service in the United States.

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