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Regulators… Captured: AT&T Gets FCC to Omit Bad Internet Speed Scores It Doesn’t Like

AT&T was unhappy with the low internet speed score the FCC was about to give the telecom giant, so it made a few phone calls and got the government regulator to effectively rig the results in its favor.

“Regulatory capture” is a term becoming more common in administrations that enable regulators that favor friendly relations with large companies over consumer protection, and under the Trump Administration, a very business-friendly FCC has demonstrated it is prepared to go the distance for some of the country’s largest telecom companies.

Today, the Wall Street Journal reported AT&T successfully got the FCC to omit DSL speed test results from the agency’s annual “Measuring Broadband America” report. Introduced during the Obama Administration, the internet speed analysis was designed to test whether cable and phone companies are being honest about delivering the broadband speed they advertise. Using a small army of test volunteers that host a free speed testing router in their home (full disclosure: Stop the Cap! is a volunteer host), automated testing of broadband performance is done silently by the equipment on an ongoing basis, with results sent to SamKnows, an independent company contracted to manage the data for the FCC’s project.

In 2011, the first full year of the program, results identified an early offender — Cablevision/Optimum, which advertised speed it couldn’t deliver to many of its customers because its network was oversold and congested. Within months, the company invested millions to dramatically expand internet capacity and speeds quickly rose, sometimes beyond the advertised level. In general, fiber and cable internet providers traditionally deliver the fastest and most reliable internet speed. Phone companies selling DSL service usually lag far behind in the results. One of those providers happened to be AT&T.

In the last year, the Journal reports AT&T successfully appealed to the FCC to keep its DSL service’s speed performance out of the report and withheld important information from the FCC required to validate some of the agency’s results.

The newspaper also found multiple potential conflicts of interest in both the program and SamKnows, its contracted partner:

  • Providers get the full names of customers using speed test equipment, and some (notably Cablevision/Optimum) regularly give speed test customers white glove treatment, including prioritized service, performance upgrades and extremely fast response times during outages that could affect the provider’s speed test score. Jack Burton, a former Cablevision engineer said “there was an effort to make sure known [users] had up-to-date equipment” like modems and routers. Cablevision also marked as “high priority” the neighborhoods that contained speed-testing users, ensuring that those neighborhoods got upgraded ahead of others, said other former Cablevision engineers close to the effort.
  • Providers can tinker with the raw data, including the right to exclude results from speed test volunteers subscribed to an “unpopular” speed tier (usually above 100 Mbps), those using outdated or troublesome equipment, or are signed up to an “obsolete” speed plan, like low-speed internet. Over 25% of speed test results (presumably unfavorable to the provider) were not included in the last annual report because cable and phone companies objected to their inclusion.
  • SamKnows sells providers immediate access to speed test data and the other data volunteers measure for a fee, ostensibly to allow providers to identify problems on their networks before they end up published in the FCC’s report. Critics claim this gives providers an incentive to give preferential treatment to customers with speed testing equipment.

Some have claimed internet companies have gained almost total leverage over the FCC speed testing project.

The Journal:

Internet experts and former FCC officials said the setup gives the internet companies enormous leverage. “How can you go to the party who controls the information and say, ‘please give me information that may implicate you?’ ” said Tom Wheeler, a former FCC chairman who stepped down in January 2017. Jim Warner, a retired network engineer who has helped advise the agency on the test for years, told the FCC in 2015 that the rules for providers were too lax. “It’s not much of a code of conduct,” Mr. Warner said.

An FCC spokesman told the Journal the program has a transparent process and that the agency will continue to enable it “to improve, evolve, and provide meaningful results as we move forward.”

The stakes of the FCC’s speed tests are enormous for providers, now more reliant than ever on the highly profitable broadband segment of their businesses. They also allow providers to weaponize  favorable performance results to fight off consumer protection efforts that attempt to hold providers accountable for selling internet speeds undelivered. In some high stakes court cases, the FCC’s speed test reports have been used to defend providers, such as the lawsuit filed by New York’s Attorney General against Charter Communications over the poor performance of Time Warner Cable. The parties eventually settled that case.

In 2018, the key takeaway from the report celebrated by providers in testimony, marketing, and lobbying, was that “for most of the major broadband providers that were tested, measured download speeds were 100% or better of advertised speeds during the peak hours.”

Comcast often refers to the FCC’s results in claims about XFINITY internet service: “Recent testing performed by the FCC confirms that Comcast’s broadband internet access service is one of the fastest, most reliable broadband services in the United States.” But in 2018, Comcast also successfully petitioned to FCC to exclude speed test results from 214 of its testing customers, the highest number surveyed among individual providers. In contrast, Charter got the FCC to ignore results from 148 of its customers, Mediacom asked the FCC to ignore results from 46 of its internet customers.

Among the most remarkable findings uncovered by the Journal was the revelation AT&T successfully got the FCC to exclude all of its DSL customers’ speed test results, claiming that it would not be proper to include data for a service no longer being marketed to customers. AT&T deems its DSL service “obsolete” and no longer worthy of being covered by the FCC. But the company still actively markets DSL to prospective customers. This year, AT&T also announced it was no longer cooperating with SamKnows and its speed test project, claiming AT&T has devised a far more accurate speed testing project itself that it intends to use to self-report customer speed testing data.

Cox also managed to find an innovative way out of its poor score for internet speed consistency, which the FCC initially rated a rock bottom 37% of what Cox advertises. Cox claimed its speed test results were faulty because SamKnows’ tests sent traffic through an overcongested internet link yet to be upgraded. That ‘unfairly lowered Cox’s ratings’ for many of its Arizona customers, the company successfully argued, and the FCC put Cox’s poor speed consistency rating in a fine print footnote, which included both the 37% rating and a predicted/estimated reliability rating of 85%, assuming Cox properly routed its internet traffic.

The FCC report also downplays or doesn’t include data about internet slowdowns on specific websites, like Netflix or YouTube. Complaints about buffering on both popular streaming sites have been regularly cited by angry customers, but the FCC’s annual report signals there is literally nothing wrong with most providers.

Providers still fear their own network slowdowns or problems during known testing periods. The Journal reports many have a solution for that problem as well — temporarily boosting speeds and targeting better performance of popular websites and services during testing periods and returning service to normal after tests are finished.

James Cannon, a longtime cable and telecom engineering executive who left Charter in February admitted that is standard practice at Spectrum.

“I know that goes on,” he told the Journal. “If they have a scheduled test with a government agency, they will be very careful about how that traffic is routed on the network.”

As a result, the FCC’s “independent” annual speed test report is now compromised by large telecom companies, admits Maurice Dean, a telecom and media consultant with 22 years’ experience working on streaming, cable and telecom projects.

“It is problematic,” Dean said. “This attempt to ‘enhance’ performance for these measurements is a well-known practice in the industry,’ and makes the FCC results “almost meaningless for describing actual user experience.”

Tim Wu, a longtime internet advocate, likened the speed test program as more theoretical than actual, suggesting it was like measuring the speed of a car after getting rid of traffic.

AT&T Will Pay $60 Million in Refunds to Throttled and Scammed “Unlimited Data” Customers

AT&T will pay $60 million to compensate unlimited data customers that found their data speeds throttled without warning because AT&T deemed them ‘heavy users’ that were slowing down AT&T’s wireless network.

“AT&T baited subscribers with promises of unlimited data, trapped them in multi-year contracts with punishing termination fees, and then scammed them by choking off their access unless they moved to a more expensive plan,” claimed FTC Commissioner Rohit Chopra. “The AT&T throttling scandal is an important case study into how dominant firms operating without meaningful competition can easily renege on their contractual obligations and cheat consumers who have almost no recourse.”

The $60 million in compensation is part of a settlement with the Federal Trade Commission that accused the company of false and misleading advertising after marketing an unlimited data plan subject to severe speed reductions after as little as 2 GB of usage. AT&T also agreed to a permanent injunction forbidding the company from advertising unlimited data plans without clear disclosures that such plans were subject to speed throttling. AT&T will have to prominently disclose such limitations in the future and not in the fine print.

“AT&T promised unlimited data—without qualification—and failed to deliver on that promise,” said Andrew Smith, director of the FTC’s Bureau of Consumer Protection. “While it seems obvious, it bears repeating that Internet providers must tell people about any restrictions on the speed or amount of data promised.”

AT&T’s throttling came to light in 2011 after the company was found to be slashing “unlimited data” smartphone users’ speeds to as low as 128 kbps — roughly 2-3 times the speed of dial up data, after a customer reached 2 GB of usage during a billing month. The FTC claims over 3.5 million AT&T customers were subjected to AT&T’s speed throttle as of October 2014 when the federal agency filed a formal complaint against the wireless carrier.

AT&T fought the FTC in and out of court for five years, claiming the FTC had no jurisdiction over its wireless business. The Ninth Circuit U.S. Court of Appeals disagreed in 2018, when it ruled that the FTC did have jurisdiction to pursue its false advertising claims against the company. Observers believed this court ruling forced AT&T to move towards a settlement.

AT&T’s past and current wireless customers targeted for speed throttling will automatically receive compensation without having to file a claim. The settlement provides customers throttled to 128 kbps an equal share of $13.8 million set aside to compensate current and former customers for the loss of value of their unlimited plan, plus interest. Those throttled to 256 or 512 kbps will split $46.2 million. Current customers will be provided a bill credit, former customers will receive a check in the mail, assuming AT&T can locate your current address. Any unclaimed funds will be sent to the FTC and will not be kept by AT&T. Customers can expect refunds within the next 90 days.

Wireless carriers selling “unlimited data” routinely bury restrictions on such plans in their fine print. Most limit customers to between 20-50 GB of usage per month, after which the company reserves the right to dramatically reduce your data speeds until the next billing cycle begins. The FTC is increasingly concerned that advertising unlimited service while burying important restrictions in the fine print is false advertising. The FTC is sending a message to wireless companies it wants hidden disclosures stopped.

The Commission vote approving the stipulated final order was 4-0-1. Commissioner Rebecca Kelly Slaughter was recused.

FTC Commissioner Deepak Chopra issued a scathing statement about how AT&T does business:

Chopra

AT&T’s Nationwide Bait-and-Switch Scam

When any business, big or small, offers an unlimited service for a fixed fee, that business is taking a risk. If customers use much more of the service than projected, the company will take a hit. Conversely, if customers use less than projected, the company will haul in even larger profits. This is how business works.

As detailed in the Commission’s complaint, AT&T wanted the rewards without the risks, so it turned its offer of an “unlimited” data plan into a bait-and-switch scam that victimized millions of Americans.

Subscribers were lured in with promises of unlimited data service for a fixed fee, trapped into multiple years of service by punitive termination fees, and then forced to switch to a more expensive tiered plan with overage fees to actually receive the unlimited data they were promised.

This scam went hand-in-hand with AT&T’s early monopoly in the iPhone market. In 2007, Apple and AT&T inked a major deal that gave purchasers of the iPhone only one choice for a mobile carrier.

Around this time, AT&T faced a major threat to its wireless business: the company was losing exclusivity over the iPhone. Analysts warned that the company could be “demolished,” potentially losing millions of customers to Verizon.

To prevent this from happening, AT&T aimed to lock down existing subscribers into new long-term contracts by “grandfathering” them in to their unlimited plans when they upgraded their phones. Since data usage can be unpredictable and hard to track, an unlimited plan without risk of overage fees created certainty for cost-conscious consumers.

AT&T throttles

How low can AT&T go? Some wireless customers were throttled to 128 kbps speed after using just 2 GB of data on their AT&T Unlimited Plan.

AT&T is a sophisticated company. It knew it needed to invest in enough capacity to deliver service for subscribers who used a lot of data under their unlimited plans, especially since the company had claimed its network was the “fastest” in the nation.

Instead of living up to its promises, AT&T pulled a bait-and switch.

First, to hold on to customers who might switch to the competition, AT&T marketed an unlimited data plan that was not actually unlimited. AT&T subscribers who signed up for newer phones with unlimited service were likely those who intended to use the most data. Instead, these subscribers were throttled the most, and ended up receiving the slowest, most unreliable data coverage.

According to the FTC’s complaint, roughly 3.5 million customers victimized by AT&T’s fraud saw their speeds go down by up to 95 percent. The iPhone’s internet-intensive functions were practically unusable on AT&T’s network at the diminished speeds. This Swiss-cheese service was not the unlimited deal that was promised. Americans in rural areas without broadband connections, as well as those who depended on the service for their livelihood, got a particularly raw deal.

Second, AT&T made it hard to walk away, trapping subscribers in contract terms. Until 2011, AT&T was the only carrier offering the iPhone and the only network the iPhone worked on. As the exclusive iPhone carrier, AT&T dictated the terms of access, which included signing long-term contracts with big penalties for leaving early. After AT&T lost iPhone exclusivity, new carriers entered the market promising better coverage. But most existing iPhone users were stuck with AT&T until their contracts ran out, unless they paid the expensive early termination fee. And when their contracts did run out, AT&T induced them to renew with false promises of “unlimited” service.

Third, AT&T pushed subscribers into switching to more expensive plans. AT&T allocated the most data and most reliable service to capped data plans with overage fees, while imposing arbitrary limits on subscribers in “unlimited” plans. Unlimited data subscribers who wanted reliable service could pay a big fee to switch carriers, or they could switch for free to a capped data plan with no throttling. While these plans might have been cheaper upfront than the unlimited plan, their low data cap, the high cost of overages, and the expanding capabilities of smartphones made a service price hike inevitable for Americans who wanted what they signed up for. The only truly unlimited data service was therefore available solely through capped plans with expensive overages.

AT&T’s bait-and-switch scam is a good window into the many harms that result from dominant companies operating without the discipline of meaningful competition. Their market power, financial resources, and one-sided information gives them license to ignore their own contractual obligations while aggressively enforcing every little clause in the fine print. Consumers can accept the bad deal, walk away, or fight it, but each choice carries a cost, with dominant firms prevailing almost every time.

In my view, AT&T profited by using its dominance to force customers to keep their end of the deal even as the company failed to deliver and then changed the terms. AT&T’s unlimited data subscribers could have kept paying for limited, unreliable service, paid the penalty to switch to a carrier with better service, or paid a price hike to get the unlimited data service they had been promised. But none of those are good options.

Wireless companies are spending more money on stock buybacks than they are investing in their networks.

AT&T’s broken promises were not inevitable. The company could have upheld its obligations to its customers by making the right infrastructure investments. It certainly had the money to do so. From 2011 to 2015, AT&T paid tens of billions of dollars in dividends and share buybacks. In 2012, as the company boasted to investors that customers were fleeing its unlimited plan for tiered plans, it spent more on share buybacks than it invested in its wireless network. The bottom line is that AT&T fleeced its customers to enrich its executives and its investors.

Scrutiny for Scammers of All Sizes

The FTC sued AT&T in 2014, and an exceptional group of staff litigators racked up big wins in this case. Our staff even prevailed in the Ninth Circuit Court of Appeals, when AT&T tried to sidestep accountability for this massive fraud by claiming it was immune from the FTC’s oversight. I am extremely grateful to our litigators and investigators who persisted, and I am glad to see money being returned to consumers. No settlement is perfect. While I would have liked to see AT&T pay more for the company’s scheme, I fully appreciate the risks and resources associated with litigation.

There are also important lessons from this matter that I hope the entire agency can learn.

Scammers come in all sizes. During my tenure as a commissioner, I have raised concerns about disparate treatment of small firms, where the agency is quick to call out their fraud and where resolutions can include crippling consequences and individual liability. In contrast, the agency is quick to deem large firms as “legitimate” and apply a more soft-touch approach. AT&T’s massive scam is a reminder that we must focus on the practices of a business, rather than the size of a business.

Rigorous analysis yields better results. The Commission must do more to support our litigators and investigators with rigorous analysis of the many ways that companies profit from illegal conduct.

Commission economists typically develop estimates of consumer injury, but this is just one facet of the relief we can seek in court. Economic analysis of consumer injury is not a complete financial analysis, so we must be wary of overly relying on this narrow methodological approach. To arm our litigators effectively, we must conduct rigorous financial analysis that goes beyond the out-of-pocket losses that consumers experience. We also need to ensure we conduct a comprehensive review of a firm’s business model, which can allow us to assess what led to the wrongdoing in order to inform what injunctive relief we should pursue.

It will be critical for the Commission to closely scrutinize AT&T’s moves under order. If the company violates any aspect of this settlement, the agency should seek a contempt judgment in federal court and hold both the company and any appropriate individuals responsible for flouting the order. Given AT&T’s aggressive enforcement of arbitration clauses that ban consumers from taking the company to court, it is critical to be vigilant in our oversight of AT&T under this order.

Conclusion

If consumers don’t pay up when a company fails to live up to its promises, they are often pummeled with late fees, collection calls, and negative credit reporting. Yet when dominant companies don’t deliver on their end of the bargain, too often they can turn a profit, as their customers feel powerless to do anything about it. Cheating is not competing. Without effective government and private enforcement, we will not achieve all of the benefits that competitive markets can deliver.

Telecom Industry Slashes Investments for 2020-2021; Focus on Profit Margins New Priority

Telecom companies are cutting investment in their networks despite promises by Republican members of the FCC that repeal of net neutrality would inspire increased investment.

Charter, Comcast, AT&T, and Verizon have surprised Wall Street with dramatic cutbacks in spending and investment in their networks, with one provider admitting improving profit margins are now a bigger priority.

As a result, Wall Street analysts are revising down capital expenditure (Capex) estimates in reports to their investor clients.

“Comcast and Charter missed [third quarter] expectations for Capex and guided 2019 lower than previously planned,” reported Nomura in a note to investors. “We have lowered our combined 2019 Capex forecast for Comcast and Charter from $14.6 billion to $14.2 billion.”

AT&T’s drop in network spending was the most dramatic among the country’s top telecom companies. AT&T has declared an end to fiber broadband expansion and slashed spending forecasts from the $23 billion the company spent this year to as little as $20 billion next year, despite claiming it would dramatically expand its 5G service to over two dozen cities over the next 12 months.

In a recent conference call with investors, AT&T CEO Randall Stephenson said “now it’s time to reap the rewards of what we’ve been doing [and] begin to reward to shareholders these investments that we’ve been making over the last few years.”

Over the next three years, AT&T will pay shareholders $45 billion in dividends and spend $30 billion on buying back shares of AT&T stock to retire debt racked up buying Time Warner (Entertainment). In fact, AT&T will devote 50-75% of its free cash flow exclusively on retiring shares of AT&T stock, which is expected to benefit shareholders.

Verizon reported spending $4.4 billion in the third quarter on network upgrades, approximately $100 million less than expected. That is a concern because Verizon is trying to expand its costly 5G network, but is not devoting the investment dollars required to make such an upgrade happen without cutting investments elsewhere in the company. Verizon has told Wall Street analysts to expect stable Capex spending of $17-18 billion annually for 2019-2021. That will either mean Verizon’s 5G expansion will be modest or the phone company will have to slash investments in other areas, such as wireline, fiber to the home, or business services.

Many analysts expect 5G will be a top spending priority for AT&T and Verizon over the next several years, leaving little room in budgets for upkeep of the company’s legacy landline networks or its other products. Charter and Comcast have effectively stopped spending on large upgrade projects, also as part of improved profit-taking.

The spending realities are in direct conflict with the promises made by Republican members of the FCC. Trump-picked FCC Chairman Ajit Pai repeatedly claimed that banishing net neutrality would lead to significant increases in investment by the nation’s top telecom companies. In fact, the opposite has happened.

California Governor Vetoes Rural Broadband Development Bills; AT&T and Frontier Benefit the Most

Gov. Newsom

California’s efforts to address the state’s ongoing rural broadband problems made little headway in 2019, as Democratic Gov. Gavin Newsom in the past week vetoed (or allowed to expire) the only two broadband measures surviving the treacherous journey through the California legislature.

Assembly Bill 1212 would have made rural broadband a priority for Caltrans — California’s Department of Transportation and the Department of Water Resources, including broadband on recommended lists of projects for funding consideration by two of the state’s largest pension investment funds: the California Public Employees Retirement System and the California State Teachers Retirement System. Current state law only allows pension boards to invest in in-state infrastructure projects that meet certain fiduciary responsibilities. By expanding investment projects to include telecommunications, funding from two major pension funds might have been unlocked and made available to future rural internet projects.

Assembly Bill 417, also known as the Agriculture and Rural Prosperity Act, included several measures targeting rural farming. Two passages in the bill would have included broadband expansion as a new priority for the California Department of Food and Agriculture (DFA):

Due to the central role of agriculture in rural California, it is necessary to achieve a detailed understanding of the economic value that agriculture brings to rural communities and to identify opportunities to improve agricultural productivity, including by increasing broadband access, advancing agricultural innovation, technology, and education, and supporting a well-trained, productive rural workforce, to benefit rural communities.

[…] Making recommendations to the secretary on actions to further the development of rural agricultural economies, including, but not limited to, increasing broadband access, providing technical, resource, and regulatory compliance assistance, advancing agricultural innovation and technology, establishing programs for education and workforce development, and evaluating recreation and tourism opportunities.

Several other proposed measures, including AB 1409 which would have created a fund for providing wireless hotspots for students and Wi-Fi service on school buses was killed last spring behind closed doors in the California Assembly’s Appropriations Committee. The annual attempt by AT&T and other telecom companies to write their own laws to deregulate themselves (this time AB 1366), was suddenly pulled from committee consideration by its author back in September.

That the two mild measures made it through the legislature to the governor’s desk was not surprising considering the sheer number of minor bills that pile up on Newsom’s desk. But for both to suffer quiet deaths through veto or expiration despite almost no public opposition speaks to the power of Sacramento insider politics.

Newsom’s explanation for killing AB 1212 was hardly compelling, as he explained he felt the measure was “unnecessary” because “existing law already encourages public retirement systems to invest in state infrastructure.” But that explanation ignores decades of state government bureaucracy, where agencies zealously guard their funding and protect their own existing project priorities to the hilt. AB 417 would have expanded the mission of the DFA, something the governor argued should only be done in the state budget and only within the specific context of the broader mission of the department, whatever that means. The head of the DFA was likely thrilled anyway.

Telecom consultant Steve Blum notes Caltrans and other state agencies were unlikely to ever consider rural broadband a funding priority, unless it was intended for their own use. Blum also believes the most likely suspects responsible for convincing the governor to kill both bills were the heads of the departments themselves.

“The simplest explanation for Newsom’s vetoes is that Caltrans, DWR and/or DFA staff asked him to do it, because those are jobs they don’t want to do,” Blum wrote on his blog. “That sort of opposition was why a Caltrans dig once policy bill was watered down in 2016.”

Blum believes the state’s largest phone companies will benefit the most from the outcome of the 2019 legislative session.

“Newsom’s vetoes bolster AT&T’s and Frontier’s rural monopoly business model, which redlines poorer and less densely populated communities and leaves them with low speed DSL service, if they’re lucky enough to get anything at all,” he wrote.

The loss of AB 1212 and 417 won’t change much for Californians waiting for rural broadband. Neither measure would have led to any immediate improvement in internet access in the less populated areas of the state. But the measures would have set a foundation to bring two more state agencies into the fight to tackle rural broadband issues.

Ultimately, just as in other states, a large amount of money will have to be found to wire those still without internet access. Governments and regulators can either make rural internet expansion a contingency of future merger deals or other business-government transactions or find suitable funding to subsidize the cost of internet expansion by for-profit companies, rural co-ops, or local governments willing to tackle the problem on the local level.

AT&T Charges Customers to Recoup Cost of Tax It Never Paid

Phillip Dampier October 14, 2019 AT&T, Consumer News, Public Policy & Gov't No Comments

AT&T customers in Portland, Ore. discovered their cell phone bills increased this summer because the wireless company decided to pass along the costs of Portland’s Clean Energy Tax to its customers. Except AT&T is exempt from paying the tax, but wants customers to pay to recoup costs the phone company is not paying.

Portland’s Revenue Bureau told Willamette Week it classifies cell phone providers as utilities, and they are exempt from the tax.

Scott Karter, a manager in the Revenue Bureau, said it was up to AT&T to decide if it will refund customers for the charges it has collected since August.

“The code does not specifically address amounts that might be over-collected from customers,” Karter said.

AT&T had no comment.

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