Our-verse

Last week, Stop the Cap! reported AT&T customers in Connecticut were being told to dump their long-standing DSL service in favor of a forced upgrade to AT&T U-verse. Now some Texans are in the same boat, only that “free upgrade” AT&T offered ended up costing one angry customer $337.

The Star-Telegram found Judith Hedges, who reports she was bullied and intimidated by AT&T’s increasingly threatening letters warning if she did not upgrade her Internet connection to AT&T U-verse, her DSL service will be summarily disconnected.

AT&T pulled the plug last week, leaving Hedges without Internet service.

Consumer reporter Dave Lieber writes, “AT&T has found a new way to lure customers to its supposedly faster U-verse service: Force them to take it.”

As AT&T installs U-verse fiber to the neighborhood service, the company has decided to stop investing in its older DSL technology, and when conditions are right, the company sends letters to their existing DSL customers imposing an “upgrade” to U-verse.

Hedges suspected the threatening letters were part of a high-pressure sales pitch to add TV and phone service, services she did not want, so she tossed the letter away. Big mistake.

AT&T is giving out different answers as to when and why they are forcing DSL customers to switch to U-verse. One told Lieber the company is now introducing forced upgrades wherever U-verse becomes established, another told the reporter the choice remains with the customer as long as the company does not decommission its DSL service in a particular exchange.

AT&T told the newspaper “the large majority of existing customers we’re reaching out to can upgrade to the same-speed package on U-verse without an increase to their broadband bill.”

But that does not always turn out to be true. Hedges signed up for the “free upgrade” to get her service back and promptly found it was more expensive than what she had. In fact, the company loaded her first bill with add-on equipment fees, installation charges, surcharges, taxes, and fees:

• AT&T U-verse temporary promotional rate: $29.95
• Internet Gateway fee: $100
• Installation: $149
• Taxes, fees, and surcharges

The total price for Hedges “free upgrade?” $337. AT&T will reserves the right to bill her a late fee if her check is not forthcoming.

“Apparently, this is the world we live in,” Hedges says. “And AT&T reigns supreme.”

Consolidation of the wireless industry into two or three mega-carriers is a dream come true… if you are one of those carriers (or Wall Street). But for everyone else, it’s a competition wasteland, where innovation and disruptive marketing wane into comfortable and predictable businesses where participants learn not to rock the boat. If they did, a lot of their accumulated money could fall overboard.

AT&T believes consolidation is already upon us, despite their setback in failing to acquire T-Mobile USA.

John Stephens, AT&T’s chief financial officer, tried to calm Wall Street’s fears that the government has signaled its intent to preserve robust competition.  At yesterday’s Nomura investment conference, Stephens said a reduction in the number of wireless companies in the United States is part of the natural order:

I think it is just logical that the industry is going to consolidate in some form or fashion. I think the marketplace has spoken to that with what it has done to pricing in the valuations on some of the companies. From an economic perspective and a highly CapEx-intensive business, I think it is logical to assume you’re going to have two or three and certainly not six and seven competitors in any marketplace. So I think consolidation is logical.

We’ve heard this argument before. It is commonly trotted out in opposition to community broadband initiatives when existing phone and cable companies fear a third player will ruin the market for everyone. AT&T joins the chorus with the same old excuses: the costs to build and run networks are too high for several players to comfortably compete. Consolidation reduces that pressure as customers are forced to choose among one or two providers, giving each a larger market share and healthier revenue to cover upgrades.

What companies like AT&T always obscure to their customers is the resulting pricing power, where price increases from one often lead to price increases from others. But Stephens has no trouble letting his investors know:

We are going to grow margins year-over-year. Last year’s margins were about 38.5% in wireless and our guidance says we are going to grow. I have said publicly, and some of my peers and coworkers have said publicly we expect we are going to have north of 40% margins this year in our wireless business and still believe that.

Margins = profits. In the absence of aggressive competition which forces companies to invest more in their networks, provide more value in their service offerings, or reduce pricing, increased profits are always the result.

Unfortunately, ZDNet’s editor in chief Larry Dignan seems to buy AT&T’s arguments and talking points, telling readers:

[…] It’s hard to argue against the idea. All industries boil down to two or three players eventually. The big question for wireless consolidation is timing. When will get to two or three carriers? And if so will this consolidation lead to price increases or will the mergers occur after wireless services is commoditized?

Stephens

It is actually very easy to argue against the idea, and the evidence is plainly visible if Dignan would take a look.

First, there is no evidence “all industries boil down to two or three players eventually.” Auto companies, banks, retailers of all kinds — even cell phone manufacturers all compete with more than just one or two other players in the market. A germinating monopoly or duopoly in any market is a signal federal regulators have failed to do the job assigned to them since the days of trust-busting railroads, oil, steel, and the securities business.

The drive to consolidation can be found first on Wall Street, where every industry is under pressure to cut costs, reduce profit-eroding competition, and return higher profits. The drumbeat for consolidation in the wireless industry starts there, is echoed in the executive offices of the cell phone companies themselves, and results in powerhouse deals that have picked off one competitor after another. That is why Cingular, Alltel, Cellular One, and Centennial Communications are no longer familiar names in wireless. They have all been swallowed nearly whole by AT&T or Verizon Wireless.

AT&T would argue that consolidation is a good thing, because through their willingness to sell, those companies indicated they wanted to exit the business. AT&T’s buyout of T-Mobile would have done everyone a favor because the company had lost interest in competing in the United States and wanted out.

The industry has held all of the cards of wireless consolidation until recently, primarily because supine regulators refused to provide a critical “check and balance” on industry pressure, accepting just about any premise to approve whatever wireless carriers wanted. Sure, a few companies had to divest certain assets, as Verizon Wireless did in certain Alltel markets. But AT&T ended up acquiring the majority of those divested territories. When AT&T bought Centennial Wireless, it had to divest a few markets in the southern United States. Verizon Wireless bought most of them. Customers were left in the middle, as always.

A remarkable thing happened when the federal government said no to AT&T over T-Mobile. Predictions of the smaller carrier’s imminent demise and its slow bleed to irrelevance has not happened. In fact, Deutsche Telekom picked its American asset up, shook the dust off, and is now investing in upgrades to keep the competition coming. At least $4 billion in improvements and some major network upgrades are on the way, and the company has even refreshed its marketing in a new, get-tough campaign against AT&T, Verizon Wireless, and Sprint. Now all three of those companies are watching to see what T-Mobile pulls next.

That is exactly the point.

The wireless world and Wall Street wants you to believe that consolidation is the only way the mobile phone marketplace of 2012 can work. Dignan has thrown in the towel, conceding they are likely right. But T-Mobile is proving they are exactly wrong. Instead of abandoning its asset, which DT still sees as valuable, it is investing in it to compete. Had the merger been approved, AT&T would never answer T-Mobile’s disruptive competition again. Rural America would still be waiting for better service. AT&T would have less pressure to keep prices down and upgrades up, and Wall Street would have turned its attention to the next targeted carrier ripe for the picking by AT&T or Verizon Wireless’ emerging duopoly.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WRC Washington Bitten by Gigabytes 5-21-12.flv[/flv]

WRC-TV decided to visit with local Washington, D.C. consumers and ask them if they knew what a “gigabyte” was and how many they were using on their cell phone data plan.  Few knew, and even fewer wanted to know, preferring to pay a flat price for worry-free, unlimited data service. Unfortunately, AT&T and Verizon have discontinued their unlimited data plans (Verizon is preparing to throw people off of grandfathered plans when customers upgrade their phones), and T-Mobile throttles customer speeds to near-dial-up after their monthly allowance is reached. Only Sprint sells truly unlimited data, but many customers find Sprint’s data speeds lacking. Consumer reporter Liz Crenshaw visits with Public Knowledge to help educate consumers about what the average 2GB plan really buys.  (3 minutes)

Stephenson: Payback time.

Six weeks after AT&T’s colossal $39 billion dollar merger with T-Mobile USA fell apart, AT&T CEO Randall Stephenson opened his checkbook and donated $30,800 (the maximum allowed under federal law) to the Republican National Committee.

That contribution dwarfs Stephenson’s largest previous donation over the past twenty years: $5,000, according to the Center for Responsive Politics.

Bloomberg reports that Stephenson took a credibility and pay hit from the merger debacle, forcing AT&T to turn over $4 billion in deal penalties to its rival, T-Mobile, including precious wireless spectrum. The deal’s collapse personally cost Stephenson more than $2 million in bonus pay.

Although AT&T is not commenting, Wall Street analysts are, and they suspect Stephenson is sending the Obama Administration a clear message that he is upset with the decision to challenge the merger. The rest of AT&T appears to be following suit, with nearly two-thirds of political contributions, mostly from company executives, going to the Republican party which has traditionally maintained a much more friendly relationship with the communications giant.

Several Republicans criticized the Justice Department and Federal Communications Commission for interfering with the merger deal which consumer advocates argued would reduce competition and raise prices for wireless services. Republicans have also expressed near-universal support for AT&T’s policy positions on Net Neutrality, community broadband, usage-based pricing, spectrum and price deregulation, removal of state oversight of telecommunications services, and marketplace consolidation.

AT&T is a major sponsor of this summer’s Republican National Convention in Tampa, Fla. Several former lobbyists for AT&T are now working with the Romney campaign and its money bundling operations on behalf of the Republican presidential candidate.

The center reports no personal political contributions from the heads of either Verizon Wireless or Sprint.

Roger Entner, an analyst with Recon Analytics in Dedham, Massachusetts, notes AT&T was still trying to make nice with Obama Administration officials as late as last December, sending ornate cupcakes to various administration officials, including those at the FCC.

Entner noted it didn’t work.

Upgrade or else.

AT&T is now forcing some of their customers relying on the company’s traditional DSL service to upgrade to AT&T U-verse or face service suspension.

The latest customers impacted by AT&T’s forced upgrade are in parts of Connecticut.

“This is a reminder that within the next 30 days, your current service will change to AT&T U-verse High Speed Internet,” reads the letter mailed to customers facing the mandatory transition. Unfortunately, customers have to call AT&T to arrange for new equipment if they want their service to continue uninterrupted — existing DSL modems don’t work with U-verse.

Callers who dial the toll-free number in the letter get to order the U-verse equipment for free, but they routinely endure a hard sales pitch selling U-verse video and phone service as well, at a corresponding higher price. Customers are sent self-install kits at no charge and are offered the same rate they currently pay for DSL, sometimes with faster speeds on the U-verse network. But after one year, regular U-verse prices apply, and they are often significantly more expensive than traditional DSL service.

A Broadband Reports reader in Conn. shared a copy of the AT&T U-verse upgrade letter posted on that site's AT&T forum.

The promotional prices offered to Stop the Cap! reader Ralph were not as good as what he was currently paying for basic DSL on a promotion he purchased earlier.

“I am now paying $14.95 a month under the promotion I am on now and AT&T first tried to sell me a plan that cost $5 more,” Ralph writes. “They quickly agreed to keep my current promotional price after I told them about it, but what they will not tell me is what I will pay after the one year is up, nor can I find U-verse regular pricing on AT&T’s website.”

This special offer bundle comes with a surprise after the promotion ends -- a much higher bill.

AT&T is currently promoting Internet-only promotional pricing as follows: Basic Internet: $19.95, Express Internet: $19.95, Pro Internet: $19.95, Elite Internet: $24.95, Max Internet: $29.95, Max Plus Internet: $34.95, Max Turbo Internet: $44.95. We could not find a disclosure of what the regular prices would be after the one-year contract expired, and that bothers Ralph.

“I realize they are going to match my 3Mbps service on U-verse, but somehow I suspect the regular U-verse price is going to come higher than the DSL service I have been using,” he says.

Ralph’s intuition is correct. Stop the Cap! called AT&T at the number provided on the letter and spoke with a customer service representative at the AT&T Web Sales Center. Although AT&T will ship the required equipment (a wireless router/modem combo) at no charge, AT&T will eventually make that money back charging customers higher prices for Internet service.

Current regular pricing for Ralph’s DSL service after his promotion ends will cost him $24 a month for 3Mbps service.  U-verse charges $38 a month (off promotion) for the same speed service — a $14 monthly difference.

“That sucks,” Ralph said after we shared the news. “Why should I have to change what works fine right now?”

AT&T says keeping DSL in certain U-verse upgrade areas is not possible. In fact, AT&T’s letter warns, if customers do not call to arrange for the U-verse “upgrade” by a certain date, their broadband service will be suspended. That could be a problem for customers who also use their broadband account with an Internet-based phone line.

“There goes 911 or any other emergency calling,” Ralph reminds us. “Thanks, AT&T.”

Some customers who have completed their U-verse upgrade report AT&T messed up their subsequent billing, charging full price instead of an agreed-upon promotion. Slickdeals members report AT&T often requires constant reminding to fix billing errors that generally hand customers higher bills than they expected.

“I am trying real hard to figure out how this represents the ‘next evolution of communications’ AT&T writes about in their letter,” Ralph concludes. “All I am going to eventually get is a much higher bill for a service I don’t want or need. I guess it’s time to call the cable company again.”