Craig E. Moffett joined Sanford C. Bernstein & Co. as the Senior Analyst for U.S. Cable and Satellite Broadcasting in 2002.

Craig Moffett, a Wall Street analyst with Sanford Bernstein, is sounding the warning bells that if AT&T and Verizon assign usage caps to their forthcoming LTE wireless broadband services, they will never provide suitable competition for American consumers.

The implications of Internet Overcharging schemes in wireless broadband go well beyond the two companies’ broadband offerings.  Investors expect either AT&T or Verizon to attempt a buyout of DirecTV in the coming months, hoping to pair the satellite service with broadband packages delivered by DSL, fiber, or wireless broadband.  Because many DirecTV subscribers are located in rural areas where even DSL service is often not available, wireless broadband networks would be the most likely means of reaching customers, but not with onerous usage caps.

“If LTE networks are going to be usage-capped, then the last pretense that LTE networks can be positioned as a substitute for terrestrial broadband would seem to be gone,” Bernstein told his clients. “And if LTE can’t be offered as a replacement for wired broadband, then the notion of an out-of-region bundle of DirecTV and LTE is no more.”

Unlike earlier broadband technologies, WiMax, LTE, and other 4G broadband platforms can deliver far more data to subscribers at reduced costs.  With the increased efficiencies offered by the faster networks, carriers can provide customers with considerably more wireless broadband service, unlike heavily capped 3G networks, most of which are limited to 2-5GB of monthly usage before the penalty rates or speed throttles kick in.  While completely unlimited service is unlikely until capacity increases, there is plenty of room to allow customers to access 4G networks without thinking twice about everything they do on them.

Sprint is betting its comeback on its virtually-unlimited Clear WiMax 4G service, now becoming available in an increasing number of cities across the country.  Marketed as a replacement for wired broadband, Sprint is hoping customers will flock back to the carrier, especially if AT&T and Verizon’s 4G LTE offerings are capped.

But AT&T and Verizon have both made noises about usage capping their LTE offerings, if only to increase revenue.  These profit raising Internet Overcharging schemes come despite efforts by the Obama Administration to dramatically increase wireless spectrum available for wireless broadband services.  Dave Burstein from DSL Prime says Federal Communications Commission chairman Julius Genachowski is betting the farm on wireless broadband being the best chance for increased broadband competition.

“The heart of the U.S. broadband plan is to release more spectrum – enough for 10-20 networks like Verizon’s LTE now building – and pray that will be enough competition in five to seven years to check price increases,” Burstein writes.

Making wireless an important substitute for DSL requires raising bandwidth caps from today’s typical 5-10 gigabytes to several times as high as LTE makes the cost reasonable. If Verizon follows AT&T with an abusively low cap of 2-5 gigabytes and Sprint etc. don’t clobber them, the whole broadband plan falls apart because that’s not enough for competition in the future.

I doubt Julius understands this, because he would be doing everything in his power to avoid low caps. It’s just one more strike against “affordable” broadband, like the recent Comcast and Verizon price increases. People need to laugh out loud when Genachowski says “affordable” while tolerating continuous price increases.

Dave Burstein, DSL Prime

While wireless broadband can deliver access to many Americans who have never had broadband service before, it’s not well-positioned to compete for customers seeking to use the next generation of high bandwidth Internet applications.

None of the current wireless services are suitable for high quality video streaming of HD TV shows and movies, a crucial application for many broadband users. Burstein also notes large uploads are painfully slow on Clear’s WiMax network because of limited upstream speeds, but he expects improvements in time, assuming carriers expand with demand.  If not, as more users pile on the next generation wireless networks, their suitability for high bandwidth services becomes even more questionable.

“How much wireless could compete with landlines, especially as all cable connections are moving to 50 meg, was a crucial question for the broadband plan,” Burstein writes. “The consensus of several good engineers is that 4G competes fine with DSL if not many people expect video or other high-bandwidth apps. Wireless certainly can’t keep up if many people want to watch their TV over the net, so it’s only a partial substitute.”

As for AT&T and Verizon, Moffett suspects both may have to take a pass on DirecTV, consumed with fighting against broadband reclassification and Net Neutrality policies in Washington.  Taking on a second battle to run another dog and pony circus to gain regulatory approval for a buyout of DirecTV may be more than they’re willing to deal with at the moment.

AT&T was sending 156 page cell phone bills in Linda Drussel's name to her son in Texas

All Linda Drussel tried to do was add her son and daughter-in-law to her AT&T FamilyTalk calling plan, adding a phone to Drussel’s account for $10 per month.  But instead of a $10 monthly fee added to her bill, Drussel got a past due notice from a collection agency demanding $1,182, threatening to ruin her credit if she didn’t pay.

Drussel told WDAF-TV she doesn’t pay her bills late, and had no idea what AT&T was talking about, having never received a past due bill from AT&T.  The collections agency was unimpressed, telling Drussel, “Oh come on, Ms. Dressel, you have to know about this — your name is on this.”

Drussel made multiple calls to AT&T trying to get someone to resolve this, but even company supervisors refused to provide any straight answers.  WDAF-TV felt Drussel’s pain when they got the AT&T runaround themselves.  At one point, a reporter was surprised when AT&T asked her for Drussel’s AT&T cell phone number.

It turns out AT&T didn’t establish service for her son under her own account — instead opening one under her name and charging full price for service, delivering the bill to her son’s home in Texas.  When her son and daughter-in-law divorced, nobody paid the bill and AT&T’s collections department decided to pursue Linda Drussel for the past due bill, claiming it was her responsibility.

With a local station’s newscast following the story, AT&T finally determined Linda didn’t ultimately owe the company a cent and has resumed pursuing her son for the past due balance.

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/WDAF Kansas City Problem Solvers Calling ATT 7-13-10.flv[/flv]

WDAF-TV’s ‘Problem Solvers’ had to be called in to try and get through to AT&T that a Kansas City-area woman didn’t owe the company $1,182 it claimed she did.  (3 minutes)

AT&T U-verse customers may have to do without these shows if an agreement cannot be reached with Rainbow Media

AT&T U-verse customers may lose access to three basic cable networks in less than two days if a dispute over how much money AT&T should pay for the networks isn’t settled.

Rainbow Media’s AMC, We TV, and the Independent Film Channel are all threatened with removal from AT&T’s nationwide U-verse lineup as a two week extension of carriage negotiations appears to be going nowhere.

In an ironic “now the shoe is on the other foot” twist, Rainbow Media is a wholly-owned subsidiary of Cablevision Industries — the cable system serving parts of downstate New York, New Jersey and Connecticut.  AT&T is using some of the same language Cablevision used earlier this year in a dispute over fees charged by Scripps’ Food Network and HGTV, as well as Disney-owned WABC-TV in New York.  Rainbow even borrowed a page from Scripps and launched an AT&T protest site, Facebook page and Twitter account.

“AT&T is acting in an aggressive manner that puts their corporate interests ahead of their customers,” AMC said in a statement. “We are negotiating in good faith with AT&T and are hopeful that we can reach an agreement as soon as possible so that our viewers don’t lose out.”

Meanwhile, AT&T is publicly insulting Rainbow’s cable networks.

“Based on aggregate data we obtained from third party industry sources and our own subscribers, some of the Rainbow channels are among the least-watched and most overpriced per viewer compared to other major programming providers,” an AT&T spokeswoman told Deadline. “They’re also trying to force the renegotiation of a contract for one of their other channels that is not yet expired and force us to carry a new channel that wasn’t even formally presented to us until after the recent July 1 contract extension. We want our customers to know that we can’t and won’t give in to unreasonable deals that unfairly disadvantage our customers.”

Despite AT&T’s bravado, Rainbow may have the upper hand with a more aggressive outreach campaign.  AT&T’s website for U-verse has not mentioned the dispute — a potential PR mistake if it wants to argue its position about programming costs.

We have received a copy of AT&T’s statement in response to yesterday’s report about slowed upload speeds impacting customers in several cities around the United States:

AT&T and Alcatel-Lucent jointly identified a software defect — triggered under certain conditions – that impacted uplink performance for Laptop Connect and smartphone customers using 3G HSUPA-capable wireless devices in markets with Alcatel-Lucent equipment. This impacts less than two percent of our wireless customer base. While Alcatel-Lucent develops the appropriate software fix, we are providing normal 3G uplink speeds and consistent performance for affected customers with HSUPA-capable devices.

That two percent figure seems low considering the sheer number of reports received, but it’s not unprecedented.  Equipment and software glitches can create major slowdowns and outages.  While the problem is being fixed, affected customers are falling back to older and slower upload protocols.  AT&T didn’t apologize for the slowed upload speed, nor provide an estimate for when repairs would be complete.  As of the time of writing (3pm ET), problems are still being noted by some customers.

Customers annoyed by the glitch might be able to obtain some credit for the reduced level of service by contacting AT&T customer service and asking for it.

A full page ad from Verizon mocks Apple's iPhone reception problems (click to enlarge)

Apple wants customers to believe it’s not a head-slapping design flaw that is bringing iPhone reception to its knees when holding the phone, it’s the software that is telling you AT&T’s reception quality is better than it really is. Change the formula to calculate how many bars of signal strength AT&T is not delivering to its customers, problem solved.

But just how will Apple make its fan base believe those dropped calls and lousy data transmission rates, made worse when holding the phone “the wrong way” are just the result of some software bug?

In a statement released Friday, Apple told worried customers the latest version of the phone remained the best it had ever produced, and the lack of signal shown on the display is a software problem (inferring AT&T’s usual network issues), not a fundamental design flaw:

Upon investigation, we were stunned to find that the formula we use to calculate how many bars of signal strength to display is totally wrong. Our formula, in many instances, mistakenly displays 2 more bars than it should for a given signal strength. For example, we sometimes display 4 bars when we should be displaying as few as 2 bars. Users observing a drop of several bars when they grip their iPhone in a certain way are most likely in an area with very weak signal strength, but they don’t know it because we are erroneously displaying 4 or 5 bars. Their big drop in bars is because their high bars were never real in the first place.

To fix this, we are adopting AT&T’s recently recommended formula for calculating how many bars to display for a given signal strength. The real signal strength remains the same, but the iPhone’s bars will report it far more accurately, providing users a much better indication of the reception they will get in a given area. We are also making bars 1, 2 and 3 a bit taller so they will be easier to see.

We will issue a free software update within a few weeks that incorporates the corrected formula. Since this mistake has been present since the original iPhone, this software update will also be available for the iPhone 3GS and iPhone 3G.

In other words, Apple is banking that its fans are so enamored with the company and its products that just making a software change will convince customers the phone isn’t the problem. Will AT&T’s already lousy customer rating take an even bigger hit when Apple passes the buck for its design flaws to the cell phone provider?

The ongoing revelations of the flaws in the latest iteration of the Apple iPhone are stunning, if only because they were completely missed during beta testing by company employees. As we learned several weeks ago from the Apple employee who left his phone behind in a California bar, some prototype phones didn’t use the “innovative” case design now implicated in the “grip of death.”  Perhaps other Bay Area testers just assumed the bouncing signal strength meter was simply AT&T-as-usual.

Now that the signal issue, among others, has been made the star of the iPhone show on YouTube, Apple has launched into damage control mode.  What Apple does to regain your trust depends on what type of customer you are:

Tech-minded, Informed Consumers: Apple will have the most trouble convincing these customers to sign-on the iPhone bandwagon, especially now.  Many have refused to hop on board all-along, unwilling to sacrifice their wireless phone service to AT&T.  While many of these customers would happily buy an iPhone… from Verizon, news of technical defects and design faults will not inspire confidence.

Tech-minded Early-Adopters: Apple will need to fix its problems with the iPhone to keep these customers happy.  They are the first to buy new products and are more forgiving of early manufacturing faults (and are among those who probably first documented and reported them), but they won’t forgive intransigence and PR nonsense.  These customers want honest answers, a schedule for a solution, and mitigation — a few free iPhone case bumpers as a consolation would probably make many of these customers happy.

Non-technical Apple Devotees: If it’s from Apple, these people will buy it.  They don’t have the first clue about the technical mumbo-jumbo that explains the design flawed antenna on the newest phone, and probably don’t care.  They are loyal Apple customers, but they’ll happily slam AT&T for dropping their calls.  Most of these customers are probably blaming any reception issues exclusively on AT&T already.

The Fanboys & Fashion-Minded: These are the folks who perennially set up the lawn chairs in front of Apple stores 15 hours before the launch of every version of the iPhone.  A criticism of Apple is a personal affront, and they’ve probably already bought the company explanation for the issue.  The fashion-minded treat the iPhone as a must-have personal accessory.  Nothing short of a total failure of the phone will pry them loose from grabbing the latest version of the phone they need to be seen with.

For those without (or who don’t care about) iPhones, watching customers wait in long lines, proclaiming all things from Apple to be good — quickly followed by torch-bearing complaints when they are not so good brings  rolling eyes and mutterings about why someone would punish themselves over a phone.

Potentially the most irritating of all is the fact Apple could make money from its design failure — by advocating consumers spend a ludicrous $30 on what is little more than a rubber band to protect the rim of the phone from your hand.  Apple is selling their “bumper” case one to a package in multiple colors.  For that amount of money, consumers should get one of every color.  A company memo underscored the fact Apple was not about to give these out for free to aggravated customers.  Why lose an opportunity to extract even more cash from devoted customers?

[flv width=”536″ height=”420″]http://www.phillipdampier.com/video/MSNBC iPhone Troubles 7-6-2010.flv[/flv]

MSNBC’s ‘Morning Joe’ was unimpressed with customers who first lauded and then “whined” about their iPhone purchases, after revelations of inherent design flaws and other quality control issues threaten to turn the product sensation into the Toyota of telephones. (3 minutes)

Class action law firms are salivating at the prospects, and attorneys claim no “software fix” is going to suddenly make the iPhone’s antenna design issues go away:

• One suit filed on behalf of Steve Tietze and others in the U.S. District Court for the Northern District of California seeks class action status. Tietze accuses Apple of unfair competition, false and misleading advertising, breach of warranty, and violation of the Consumer Legal Remedies Act.
• A second was filed in the U.S. District Court for the District of Maryland on behalf of Kevin McCaffrey, Linda Wrinn, and others accusing Apple and AT&T of knowingly distributing a phone with a malfunctioning antenna. The suit charges general negligence, defect in design, manufacture, and assembly, breach of warranty, deceptive trade practices, intentional and negligent misrepresentation, and fraud by concealment.
• Two others: Alan Benvenisty v. Apple, 10-2885, and Christopher Dydyk v. Apple, 10-2897, U.S. District Court, Northern District of California (San Francisco).  “Apple’s sale of the iPhone with this unannounced defect, assuming Apple’s prior knowledge of the defect, constitutes misrepresentation and fraud,” said Christopher Dydyk of Cambridge, Massachusetts in his complaint. “In omitting to disclose the defect in the iPhone 4, Apple perpetrated a massive fraud upon hundreds of thousands of unsuspecting customers.”  Dydyk wants Apple to hand out free “bumper” cases that cover the antenna in rubber to prevent signal issues.

[flv]http://www.phillipdampier.com/video/WJZ Baltimore Lawsuits Filed Over New iPhone 4 7-2-10.flv[/flv]

WJZ-TV in Baltimore covers the Maryland lawsuit seeking class action status.  Baltimore area residents filed the suit against both AT&T and Apple.  (1 minute)

Other phone manufacturers are laughing themselves silly at Apple’s declaration that all smartphones lose reception and drop calls based on how you hold the phone. Nokia is having a field day at Apple’s expense, promoting the fact you can hold their phones anyway you like and won’t suffer signal degradation:

One of the main things we’ve found about the 1 billion plus Nokia devices that are in use today is that when making a phone call, people generally tend to hold their phone like a…. well, like a phone. Providing a wide range of methods and grips for people to hold their phones, without interfering with the antennae, has been an essential feature of every device Nokia has built.

Of course, feel free to ignore all of the above because realistically, you’re free to hold your Nokia device any way you like. And you won’t suffer any signal loss. Cool, huh?

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/WTTG Washington iPhone Signal Strength Can Drop 7-5-10.flv[/flv]

WTTG-TV in Washington spoke with Washington Post Tech Reporter Rob Pegoraro who discussed the signal ‘death grip’ and characterized AT&T’s service quality: “we have terrible coverage and we were lying to you [about it] all along.” The report also seriously questions Apple’s claims of a “software glitch” asking why a software problem would cause calls to drop when holding the phone “the wrong way.”  (4 minutes)

Apple’s public relations problem continued to grow this week when it declared earlier reports of terse e-mails purporting to be from Steve Jobs as fakes.  Boy Genius Report, who compensated one recipient of the e-mails, posted e-mail headers that they represent proves the messages did, in fact, come from Apple.

Apple also was caught in a case of bad timing when blogs discovered the company posting help wanted ads seeking antenna engineers, which seemed ironic coming after the release of the much-anticipated iPhone 4.

One biochemist offered his advice for free:

Subject: HowToFix for minimal cost — hydrophobic organic thin film layer

Hi,

In truth, Apple’s explanation for iPhone 4 signal reception problem is inaccurate at best and disingenuous at worst. iPhone users are in some of the hottest and most humid parts of the country this summer and have salty, damp hands especially at events such as baseball games, barbecues, or other outdoor activities. having bare metal antennae purposely handled will absolutely short the signal. This problem will be difficult to reproduce in Apple’s labs because the engineers are required to wash their hands before touching devices, which also strips off the natural hand electrolytes that are ever-present in the field on a hot day.

Anyway, the solution is not a redesign of the phone, but rather an electrically insulating organic hydrophobic layer atop the bare metal. a variety of plastics will work, such as polyethers, polystyrenes, or nylons. you could even use the plastic labels ever-present on aluminum soda cans, which likewise have an electrically insulating effect when holding said cans. these plastic coatings can be very very thin films which do not ruin the aesthetics of the device, and would require a minimal change of your production line. More importantly, this coating in no way affects the ability to recycle the aluminum — the organic thin film layer will burn away cleanly during the aluminum remelt process. Phones that have already shipped could easily be coated with this new layer at any Apple retail store or with a simple kit you could send to your customers.

In summary, this is a problem of electrochemistry, and certainly NOT a problem of software design, nor one that can possibly be solved by a software update.

Apple needs to hire some chemists.

Best regards,
XXXXXXXXXX, Ph.D.

KWGN-TV in Denver noted job postings from Apple seeking the help of experienced antenna engineers to help with their iPhone product line.  (3 minutes)

Several additional videos detailing the saga of the iPhone 4’s bugs are included below the jump.

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