Some Clearwire customers remain unhappy when speeds are throttled to “manage” the network.

Clear (formerly known as Clearwire) has announced a general rate increase of about 10 percent for customers using its legacy 4G WiMAX broadband service.

As a result, most customers will pay about $5 more per month for fixed wireless or “on the go” broadband service.

“We instituted this to remain competitive and manage our costs,” a Sprint representative told Broadcasting & Cable. “Like our competitors, we must respond to customer trends, and provide a good user experience, and as a result we will make adjustments to fees and services from time to time. Our offer is still comparable to other offerings in the marketplace.”

Some customers would argue with Sprint’s definition of a “good user experience,” as complaints continue about heavy-handed throttling of Clear’s service that makes high bandwidth applications painful or impossible to use in the evening.

Stop the Cap! reader Akos contacted us this week to complain Clear still advertises and contracts for “unlimited data and top speeds,” while not exactly being upfront about targeting certain traffic for a prime time speed throttle that effectively keeps customers from streaming video.

“They openly admit their service is being throttled by software at each tower site that activates when it detects streaming video services like Netflix, reducing speed from 1.3Mbps to as little as 20kbps, rendering it unusable,” said Akos.

The speed throttle is usually active from 8pm-1:30am daily, when traffic is anticipated to be highest. Clear speaks about its network management speed throttle in the fine print: its Acceptable Use Policy.

Akos complains Clear’s speed throttle makes it easy to blame the streaming service, not Clear itself, because customers running speed tests will not see throttled speeds.

“It fools people to think the problem is on their end or with the streaming service, so customers don’t complain to Clear,” says Akos.

As a result, people using streaming video services get about 30 seconds of uninterrupted video before the throttle kicks in bringing extensive buffering delays.

Clearwire’s Speed Throttle Subject of Lawsuits

Clear’s own 2010 marketing promises unlimited usage with no speed reductions, like those “other” providers.

Clearwire’s speed throttle has been a part of life with the wireless service since 2010. Clearwire had significant legal exposure over its choice of network management because the company routinely advertised “unlimited service” with no speed throttles or overlimit fees. At least three lawsuits were filed against the company for its undisclosed throttling practices, eventually condensed into a single class action case that was finally settled last month.

Under the terms of the settlement, Clear admits no wrongdoing, but will clearly disclose it uses “network management” practices — a term that generally means usage caps and/or speed throttles — and will give customers information about the speeds they can expect when the throttle is active. As of today, Clear has not done that. Clear also volunteered to suspend term contracts and waive early termination fees for customers complaining about speed issues.

At least seven law firms handling the case will split a total award fee of $1,887,792.91 and expenses of $62,207.09. Individual representative plaintiffs each receive up to $2,000. Everyone else identified as part of the class action case that returned a claim form prior to Jan. 3, will receive an average of less than $30:

• a 50% refund of any early termination fee charged after a customer canceled service because of speed throttling;
• a rebate of $14 for customers signing up for Clearwire before Sept. 1, 2010 and experiencing speed throttling or a rebate of at least $7 for Clearwire customers signing up on or after Sept. 1, 2010;
• plus varying amounts for each month of service prior to Feb. 27, 2012 during which Clearwire’s records show it throttled a customer’s Internet speed. Customers throttled at 0.25Mbps will receive $5.00 for each month throttled, 0.60 Mbps: $3.00, and 1.0 Mbps: $2.00.

Court documents reveal of the 2,733,406 customers identified in Clearwire’s records as being speed throttled, only 83,840 submitted timely claims as part of the class action case. This represents a claims rate of about 3.1%. Of those, 76,199 were for speed throttling, 2,331 were requests for reimbursement of early termination fees.

The Future of Clear’s WiMAX and Sprint’s 4G

Sprint purchased the assets of Clearwire Corporation in July, rebranded the network “Clear,” and as of the end of August, stopped selling WiMAX devices to customers. Although Clear will still activate existing equipment, potential new customers are being marketed broadband plans on the Sprint network instead.

Former Clear dealers have received word Sprint plans to eventually decommission its acquired WiMAX network as early as 2014, most likely by gradually converting portions of the 2.5GHz spectrum Clear’s WiMAX service now uses in favor of Sprint’s 4G LTE service in urban and high congestion areas. Clearwire itself was in the process of adopting a variant of 4G LTE technology that would gradually replace the outdated WiMAX standard when Sprint acquired the company.

Although Sprint runs its own 3G network, it partnered with Clearwire to provide 4G WiMAX for Sprint customers. In 2011, Sprint announced it would stop selling devices with built-in support for WiMAX and announced it would launch its own 4G LTE network. Sprint will adopt the same version of LTE other North American carriers are using: FD-LTE, or Frequency Division LTE, which requires one transmit channel and one receive channel. But it will also support and continue Clearwire’s upgrade to TD-LTE, or Time Division LTE, a slightly different standard that supports receiving and transmitting signals on a single frequency at slightly different time intervals, providing enhanced spectrum efficiency. At least 5,500 towers should be active with TD-LTE service by the end of this year. End users will care only to the extent their devices support one or both standards.

Sprint’s 4G LTE rollout will depend primarily on higher frequency spectrum that is disadvantageous indoors and over extended distances. Sprint’s competitors AT&T and Verizon Wireless primarily depend on lower 700MHz frequencies that penetrate buildings better and can serve a larger coverage area. But a combination of Sprint and Clearwire’s spectrum assets give Sprint the most wireless spectrum of any U.S. carrier, which means potentially faster speeds and more capacity.

• 1900MHz: Sprint’s primary 4G FD-LTE service is now available in 151 cities on more than 20,000 cell towers;
• 2500MHz: Now used by Clear’s legacy WiMAX network, will see a transition towards Sprint’s TD-LTE service which will be targeted to urban and high congestion areas from “small cell” sites;
• 800MHz: The former home of now-shuttered Nextel, Sprint will eventually launch FD-LTE service on this band which will offer better indoor and marginal area reception.

Customers can expect devices that support both FD-LTE and TD-LTE in 2014.

A website glitch by Verizon Wireless last weekend let customers with legacy unlimited data plans to upgrade to a new subsidized smartphone on a two-year contract and keep unlimited data.

This afternoon, Verizon Wireless representatives confirmed they will honor upgrades from customers that took advantage of the mistake, despite the fact Verizon’s CEO has gone out of his way to declare unlimited data service “unsustainable.”

Over the past weekend, there was a software issue involving some orders for customers seeking to upgrade their devices. A number of customers who were upgrading devices were able to maintain an unlimited monthly data feature while paying a subsidized price. Verizon Wireless will honor those orders that were approved this past weekend, allowing those customers to retain their unlimited plans for the duration of their contract and receive their new device. Verizon Wireless corrected this software issue today.  The company no longer offers unlimited data plans and customers who want to retain existing unlimited data plans, must pay full retail price for a replacement phone.

Verizon Wireless discontinued offering unlimited use data plans, but has allowed customers still on those plans to keep them indefinitely. Last year, Verizon Wireless amended its policy for grandfathered unlimited customers denying them access to subsidized, discounted devices unless they switched to a usage-based plan. A website error allowed unlimited customers to bypass a usual restriction requiring them to abandon their unlimited plan to complete the upgrade order. Dozens of customers reported this morning they had received their new phones with unlimited data still intact. With the glitch fixed, customers attempting to upgrade will once again need to give up unlimited data in return for a device discount.

Verizon Wireless CEO Lowell McAdam said last week offering unlimited data service was “unsustainable” as a matter of physics. McAdam said carriers still offering unlimited data will be overwhelmed by excessive customer use, running wireless networks “out of gas.”

Sprint countered it has plenty of “runway” to continue selling unlimited data service, and even offers a “lifetime guarantee” of unlimited service on its wireless network.

At least one Wall Street analyst agreed with Sprint.

“This Verizon comment simply makes no sense. When two different people look at the same thing you often get two completely different perspectives. That’s what is happening here. It does not mean either is right or wrong, just different,” said tech analyst Jeff Kagan. “Unlimited wireless data may not make sense for Verizon Wireless for a variety of reasons. Perhaps they want to have some control over how much wireless data is being used. Perhaps they want to increase their profitability. Whatever the reason, this is Verizon’s belief and they are not wrong, for Verizon. Sprint is a different story.”

Sprint’s chief financial officer Joe Euteneuer, speaking at a Goldman Sachs conference in New York on Thursday, said Sprint’s acquisition of 2.5GHz radio spectrum from Clearwire will give it a capacity edge once its 4G network build-out is done in mid-2014.

“We feel very good about our positioning having that spectrum . .. and our portfolio spectrum vs. the competition,” Euteneuer said. “So we’ll get leverage there.”

“Sprint’s unlimited plans are the right idea at the right time,” added Kagan. “They have plenty of capacity on the network. Sprint in fact has much more spectrum than Verizon. Sprint needs to hang on to their existing customer base and attract new users. If Sprint charged the same as Verizon or AT&T they would lose. So Sprint needs to attract attention. That’s what always happens in a market. The leaders and the followers take different marketing and positioning angles. And that’s exactly what is happening here.”

AT&T and Verizon Wireless have the largest share of wireless customers. (Wall Street Journal)

The Department of Justice has recommended the Federal Communications Commission promote competition by setting aside certain future low-frequency wireless spectrum for auctions open exclusively to smaller wireless carriers including Sprint and T-Mobile USA.

“Today, the two leading carriers have the vast majority of low-frequency spectrum whereas the two other nationwide carriers have virtually none,” the Department of Justice wrote in comments to the FCC. “This results in the two smaller nationwide carriers having a somewhat diminished ability to compete, particularly in rural areas where the cost to build out coverage is higher with high-frequency spectrum.”

The Justice Department’s antitrust division has monitored the wireless industry with increasing concern consumers are not getting benefits from a robustly competitive marketplace increasingly concentrated in the hands of two wireless giants: AT&T and Verizon Wireless.

That dominance is made possible, in part, from the control of lower frequency spectrum, particularly in the 600-800MHz range that easily penetrates buildings and delivers a more reliable signal over longer distances than frequencies counted in the gigahertz. Verizon and AT&T control large swaths of these lower frequencies that work well indoors and provide longer distance coverage in rural areas. Conversely, Sprint and T-Mobile, among other smaller carriers, rely heavily on higher frequencies that need a larger network of cell towers to support good signal levels.

It often means rural customers may find reception with AT&T or Verizon Wireless but end up with a roaming indicator or no service at all with smaller providers.

The Justice Department worries that auctioning off future prime 600MHz spectrum carved out of the UHF television band reallocated for wireless services will end up in the hands of the deepest pocketed providers — AT&T and Verizon Wireless, and further hamper the ability of Sprint, T-Mobile and other small carriers to compete.

“Due to the scarcity of spectrum, the Department is concerned that carriers may have incentives to acquire spectrum for purposes other than efficiently expanding their own capacity or services,” writes the DoJ. “Namely, the more concentrated a wireless market is, the more likely a carrier will find it profitable to acquire spectrum with the aim of raising competitors’ costs. This could take the shape, for example, of pursuing spectrum in order to prevent its use by a competitor, independent of how efficiently the carrier uses the spectrum. Indeed, a carrier may even have incentives to acquire spectrum and not use it at all.”

The Justice Department echoes critics’ contentions that given a chance, large wireless carriers will “warehouse” acquired spectrum, unused, denying it from the competition. Carriers object to that claim, calling it baseless. But incentives remain for providers to drag their feet: spectrum warehousing forces competitors to pay even higher prices for other scarce spectrum, the necessity of constructing a larger network of costly cell towers to offer robust coverage, and fighting customers’ perceptions of inferior quality indoor phone reception.

In response, AT&T sent a multi-page, thinly veiled threat to sue if the Commission adopted the recommendations of the Justice Department.

“The Department is quite candid about its motive for this blatant favoritism: it hopes that reducing competition for the spectrum may enable Sprint and T-Mobile ‘to mount stronger challenges’ to AT&T and Verizon,” AT&T wrote in response. “Picking winners and losers in this fashion would be patently unlawful.”

AT&T also claimed the Justice Department’s recommendations were specifically tailored to help the two competitors, despite the fact neither company has shown much interest in acquiring low-frequency wireless spectrum, much less further expand the reach of their wireless networks:

“It is especially puzzling that the Department feels the need to help Sprint and T-Mobile in particular. Sprint already has by far the largest nationwide portfolio of spectrum, and holds vastly more spectrum than either AT&T or Verizon. It will also have ample financial resources at its disposal, as the Department has already approved Sprint’s purchase by Softbank, a financially strong Japanese company, and Dish Network has now made a competing offer for Sprint, citing the financial and strategic advantages of its own proposed combination.

Regardless of how this bidding war turns out, Sprint will receive a sizable infusion of cash, spectrum or both. T-Mobile, which is owned by Deutsche Telekom, one of the largest telecommunications companies in the world, just recently acquired substantial amounts of spectrum from both AT&T and Verizon, and is on the verge of completing a merger with MetroPCS that will add another trove of spectrum. So it is surely not for a lack of spectrum resources or financial backing that the Department needs to propose a financial giveaway to these companies.

Moreover, neither company even chose to bid at the Commission’s last auction of low-frequency spectrum, nor have they availed themselves of opportunities to acquire such spectrum in secondary markets. If low-frequency spectrum was critical to their business plans, as the Department simply assumes, someone should have informed their management, which has, instead chosen to acquire deep holdings in [higher frequency] PCS, AWS, and BRS/EBS spectrum.”

The Justice Department filing did not name Sprint or T-Mobile directly, but both companies are the only remaining national competitors to both AT&T and Verizon Wireless.

Spectrum set-asides are not unusual in telecommunications regulation. The Canadian Radio-television and Telecommunications Commission set aside significant wireless spectrum exclusively for new entrants to promote competition. Ultimately, the new competitors had little impact with less than a 10 percent market share and all three are now considered up for sale. That spectrum may eventually end up in the hands of the largest Canadian wireless companies regardless of the CRTC’s original intentions when license transfer restrictions expire in 2014. All three could be acquired by one or more of the major providers.

Sprint will focus its postpaid wireless business on profitability in 2013, with reductions in customer discounts and a tighter upgrade policy that will raise prices for some and slow down others seeking new subsidized smartphones.

CEO Dan Hesse today told Wall Street investors Sprint will be leveraging its upgraded LTE network to help hold the line on discounts and early upgrades, reminding customers Sprint’s Network Vision plan is delivering better service with faster speeds and fewer dropped or blocked calls.

Sprint released its 1st quarter 2013 earnings this morning, showing the company reduced its quarterly losses from $863 million in the same quarter last year to $643 million. The company spent $1.4 billion during the first quarter on network upgrades, primarily on forthcoming 4G LTE network roll-outs.

Steve Elfman, Sprint’s president of network operations reported the company activated more than 12,000 LTE-upgraded cell towers by the end of the quarter, slowed only by inclement weather. This year will see a massive increase in those numbers.

“We now have zoning complete on over 32,000 sites and leasing complete on over 31,000 sites. More than 25,000 sites already or have already begun construction,” Elfman reported. “Our weekly construction starts are now at a level to achieve our goals for the year. There are over 600 cities under construction and we have now launched 4G LTE in 88 cities with over 170 expected to launch in the months to come.”

Hesse

While Elfman oversees LTE upgrades, Sprint is also busy working towards decommissioning its Nextel network on June 30. Despite repeated warnings Nextel’s demise was close at hand, at least 1.4 million Nextel customers, nearly all business accounts, are still active on that network. Sprint is focusing most of its promotional budget again this quarter on convincing those customers to convert to Sprint service. But only 46 percent of Nextel customers took Sprint up on their repeated offers during the first quarter. Many others left for Verizon Wireless, switching off not only their Nextel commercial phones, but also those on Sprint’s network as well.

Sprint expects to hold on to a declining number of its Nextel customers as the second quarter progresses, until the network is switched off for good at the end of June.

That hurts, because Sprint has also been losing customers due to “pardon our dust” construction-related service interruptions as part of LTE 4G upgrades. Those disruptions are expected to accelerate  as more cities are prepared for LTE service.

Sprint’s Lifeline cell phone service for the poor, Assurance, also took major hits during the quarter after the FCC tightened eligibility requirements for the free/low-cost cell phone service. The company switched off 224,000 accounts in the last three months that either failed to re-certify eligibility or were never qualified in the first place. Sprint’s wholesale customers, which resell access on the Sprint network, are also busy deactivating unqualified Lifeline wireless lines, so Sprint expects a similar number of disconnects during the second quarter as those accounts are dropped from the network.

As Sprint turns its attention to profitability, revenue numbers at Sprint improved slightly. Sprint’s prepaid division added 568,000 net prepaid customers, and Virgin Mobile raised its minimum top up amount for 90 days of service to $20 (up from $15 with a credit card). As customers upgrade their Sprint postpaid phones, more customers are also encountering Sprint’s $10 “premium data” surcharge.

Customers will also discover a tightening of Sprint’s discounts and upgrade promotions. Among the efforts underway:

• curtailing or eliminating certain customer credits and discounts;
• tightening device upgrade policies to end early upgrades, although Sprint still retains its 20 month upgrade policy for now;
• holding the line on phone subsidies for increasingly expensive smartphones.

Sprint’s prepaid mobile division

Slowing phone upgrades is particularly important for Sprint’s bottom line.

“I think the policy shifting is important in the industry because subsidies just keep going up and I think from the economic model perspective of the carriers we just can’t afford to upgrade as often,” said Sprint CEO Dan Hesse. “We’re not seeing any evidence yet that customers are interested in upgrading less often if they see less difference or improvement year-over-year in terms of what’s going on with these devices. In fact the opposite might be true which means these policies are really quite important for the industry.”

Hesse admitted that the drive to increase profits could cost Sprint some of its postpaid business, and probably already has over the last three years. But Hesse noted many of those contract customers have migrated to the company’s prepaid service, which keeps revenue in-house. Hesse expects as long as popular phones are available on prepaid plans, price-sensitive customers will continue to migrate towards prepaid service.

“I think what you are seeing is maturing of the U.S. markets beginning,” Hesse noted. “The U.S. has always been or traditionally been almost exclusively postpaid and it’s beginning to look like other markets that have a higher prepaid mix in terms of the number or percentage of customers.”