AT&T has once again received the dubious distinction of being America’s worst cell phone company, according to ratings (sub. required) from Consumer Reports.

AT&T’s bottom-of-the-barrel status has become something of an annual tradition in the consumer magazine’s ratings, as the company remains in last place year after year for dreadful performance, poor value, and downright lousy customer service. Its one bright spot: the company’s new 4G LTE service, which gets top marks for speed, although that rating comes before the majority of its customers are on the new network.

Verizon Wireless also took a tumble in the ratings published in the January 2013 issue. Verizon got downgraded for its new Share Everything plan, rated as only a fair value. Verizon’s vaunted customer service also declined significantly.

The highest ratings went to companies many never heard of:

• Consumer Cellular: This company resells AT&T service. The disparity between this top-rated, no contract provider and AT&T demonstrates that a bad customer experience with AT&T’s high prices and poor customer service can topple your ratings across the board. Consumer Cellular will face the same growing pains AT&T’s customers do in congested cities, but their customers seem to tolerate them better;
• U.S. Cellular: Top rated last year, this regional carrier provides service in the Pacific Northwest, Midwest, parts of the East and New England. The carrier, like the southern U.S. provider C-Spire, would probably have been acquired by one of the top-four carriers if the Justice Department seemed willing to accept further market consolidation. Its customers benefit from the company’s independence.
• Credo Mobile: Resells the Sprint network, but delivers superior customer service, which boosts its overall ratings. Formerly known as Working Assets, this progressive organization also enjoys loyalty because customers approve of the political and social causes with which it affiliates.

Overall, the magazine increasingly recommends consumers investigate no-contract or prepaid service plans before signing an expensive 2-year contract with the major four carriers. Pricing changes in 2012 have caused many subscribers to see bills rise, even as perks and benefits continue to erode. Device activation fees, upgrade fees, limits on early upgrades, restricted data plans, and all-or-nothing offerings that deliver (and charge) for features many consumers don’t use much have all reduced the value of contract service.

What keeps most customers coming back to another two-year contract is the chance to grab the hottest new smartphone at a discount. But consumers ultimately pay back whatever they have saved in higher fees over the life of the contract, which may make buying your own device at full price a better value with a no-contract plan.

For the 15th time, Verizon Wireless has topped J.D. Power & Associates’ U.S. Wireless Network Quality ratings for best service.  Verizon Wireless consistently achieved fewer customer-reported problems with dropped calls, initial connections, transmission failures and late text messages, compared with other carriers, with one exception — U.S. Cellular, and only in the north-central part of the country.

J.D. Power found variations in network performance regionally, with carriers changing rankings depending on their infrastructure in different areas of the country.  For instance, AT&T came in second in most regions of the country, except in the north-central region where they landed third, and in the western U.S. where they ranked dead last.

T-Mobile and Sprint traded last place positions in different parts of the country as well.  Sprint performed more poorly in the northeast, north-central, and southeast, while T-Mobile did worse in the southwest and mid-Atlantic regions.  But the German-owned carrier achieved second place in the western states.

J.D. Power reports problems with wireless carrier quality were on the increase in 2011, driven primarily by issues with data services including mobile Web and email.

The increase in data-related problems may be attributable to shifts in where wireless customers are using their devices and in the types of services they are accessing.

“The ways and places wireless customers use their devices have changed considerably during the past several years,” said Kirk Parsons, senior director of wireless services at J.D. Power and Associates.  “For instance, in 2012, 58 percent of all wireless calls are made indoors – where wireless connections can be harder to establish and maintain – compared with only 40 percent in 2003.  In addition, the rapid expansion of smartphone usage has also changed the ways in which wireless customers use their devices, which also impacts network quality.”

“Based on varying degrees of consistency with overall network performance, it’s critical that wireless carriers continue to invest in improving both the voice quality and data connection-related issues that customers continue to experience,” said Parsons.

AT&T has once again scored dead last in a nationwide survey (subscription required) of wireless providers commissioned by consumer magazine Consumer Reports.

Among national coverage carriers, Verizon Wireless again scored the highest, but not highest overall when including smaller independent and regional carriers.  Top honors were won by Consumer Cellular, a relatively small company in Portland, Ore. that ironically depends on bottom-rated AT&T’s network to deliver service.  What sets Consumer Cellular apart from other carriers is its near-exclusive focus on selling phone service to America’s senior population.  Working with groups like the AARP to market simple cell phones to older, less technologically-comfortable customers, over 85% of Consumer Cellular customers are over the age of 50.  The vast majority are occasional cell phone users, primarily using cell phones to make and receive calls.

Regional carrier U.S. Cellular, which used to top Consumer Reports‘ surveys, scored second.  Most U.S. Cellular customers are in the Pacific Northwest, Midwest, and parts of the East including New England.  CREDO, better known under its former name Working Assets Wireless, scored third.  It provides service over the Sprint network.

Among major-sized providers, only Sprint managed to escape the poor ratings for value received by AT&T, Verizon, and T-Mobile.  Also ironic, T-Mobile continued to score better than AT&T, which is still working feverishly to acquire the German-owned carrier.

AT&T also did poorly in delivering reliable voice and data services, according to respondents.  Customer service was also deemed lacking.

Consumer Reports

“Our survey indicates that subscribers to prepaid and smaller standard-service providers are happiest overall with their cell-phone service,” said Paul Reynolds, electronics editor for Consumer Reports. “However, these carriers aren’t for everyone. Some are only regional, and prepaid carriers tend to offer few or no smart phones.”

Consumer Cellular being a prime example. 

Consumer Reports surveyed 66,000 Americans for its 2011 Wireless Satisfaction Survey and found little had changed from last year.  The consumer magazine recommends consumers who don’t make or receive a lot of calls or are not addicted to wireless data services consider a prepaid plan instead of a two-year contract.  Competition in the prepaid arena continues to force prices down, and most providers offer month-to-month service plans that can be automatically renewed through a checking account or credit card, eliminating any hassle purchasing “top up” cards.

Most of the prepaid providers resell service provided by AT&T, Sprint, or Verizon Wireless.  Two that don’t: MetroPCS and Leap Wireless’ Cricket, received little regard from those surveyed.  MetroPCS scored second from the bottom and Cricket didn’t make the ratings at all.  Two prepaid plans to consider first: TracFone, excellent for occasional calling, and Straight Talk, sold by Wal-Mart — better for those who like to talk a lot on their phones.  If you don’t need the sexiest handset around, Stop the Cap! also recommends Page Plus, which relies on the Verizon Wireless network, especially if you don’t need a lot of data services.

U.S. Cellular Monday told investors the company plans to abandon unlimited data service sometime in the next two or three quarters in favor of tiered data plans similar to what is on offer from AT&T and Verizon Wireless.

U.S. Cellular president and CEO Mary Dillon told investors the company is changing pricing as a result of “significant changes in pricing strategies” at their larger competitors, who have moved away from unlimited data plans over the last year.  Dillon applauded the adoption of tiered data pricing, but noted increasing pricing pressure in the market.

For the nation’s sixth largest wireless carrier, best known in the midwest, northern New England, the Carolinas, and northern California, being a regional provider in an increasingly concentrated wireless marketplace has some on Wall Street concerned about the long term viability of smaller cell phone companies.

Blaming the continuing challenges of “an extremely competitive market and a sluggish economy in which carriers continue to fight for a dwindling pool of new subscribers and the cost of acquiring switchers are significant,” the company reported a net loss of 41,000 customers during the last quarter.  Only 226,000 new customers signed up, down from 307,000 in the prior year quarter.  Another 17,000 prepaid customers dropped U.S. Cellular last quarter as well.  U.S. Cellular now has just under six million customers in all.

Adrian Mill from Eagle Capital noted the customer losses — presumably to larger AT&T or Verizon Wireless, and pondered how long the company can continue to exist on its own in a market increasingly dominated by those two larger carriers:

“I know you guys did a lot of work a couple years ago on whether our regional cellular company could still be relevant and looked at ways in other industries and had some good data from it.

I’m just curious if after the past couple quarters of results where we’ve now seen everybody lose share to AT&T and Verizon if that was something you thought might happen in short term or if it’s been surprising?

If its been surprising, how long would you guys potentially consider losing subs before you do a strategic transaction or consider a sale?”

U.S. Cellular executives didn’t directly answer the question, but acknowledged the wireless carrier does have challenges in the marketplace its larger competitors don’t have.  They include:

• Access to coveted smartphones, particularly Apple’s iPhone, which continues to be unavailable from smaller, regional wireless carriers;
• Access to sufficient wireless spectrum to deploy robust data networks to meet customer demand;
• Capital requirements to build and expand the next 4G generation of wireless;
• The downward pressure on smartphone equipment pricing due to competition and expensive equipment subsidies;
• Roaming agreements to ensure nationwide coverage for voice and data services.

U.S. Cellular's primary service areas

Company officials told investors U.S. Cellular intends to continue to compete for new customers, leveraging its top consumer ratings for reliable service and satisfaction with the deployment of its own 4G LTE wireless network.  But first it intends to re-align pricing to reduce costs.

Alan Ferber, U.S. Cellular’s executive vice-president, sales operations, notes U.S. Cellular wants to see more of its customers upgrade to smartphones, which guarantee higher revenues per customer from the higher-priced service plans that accompany the phones.  The company needs less expensive phones from manufacturers, because consumers typically won’t pay more than $200 for a smartphone that comes with a 2-year service agreement.

Ken Meyers, chief financial officer for the company, has been crunching the numbers on smartphone equipment costs and is grateful for the presence of Android phones in the marketplace, which are starting to drive phone prices downwards.

“[It’s] exciting to me is to see what’s happening with the Android phone cost that will allow carriers to start to recapture some of the economics needed to support LTE [4G] investment and the subsidization of those smartphones, whereas that works on a $200 smartphone but if I’m subsidizing $400 or $500 suddenly most of that revenue isn’t going to pay for the network,” Meyers said.

Ferber expects to deliver new smartphones to U.S. Cellular customers for less than $200 by the holiday season, so customers will find the initial cost for phones lower than ever.  But Ferber admits the company’s forthcoming tiered data pricing means increased revenue and “better cost controls” over the life of a customer’s 2-year contract.

“We have also talked about things like tier data pricing on a going forward basis,” Ferber said. “We do believe that has at least two major benefits. The first is to align data revenue with data cost better and the second is to, in combination with the lower cost smartphones, enable more customers to get into a smartphone.”

But Ferber also acknowledges the company’s move to LTE 4G technology will actually cut the company’s costs to deliver that data — great news to investors, but potentially higher cell phone bills for consumers.

“Over the long turn it’ll certainly make the economics much more attractive,” Ferber said.

Other highlights from Monday’s conference call:

• U.S. Cellular will not acquire other providers not within or adjacent to its current operations, but is stockpiling cash for the potential purchase of any T-Mobile territories the federal government requires AT&T to divest as part of any merger agreement.  T-Mobile is not a major competitor in most of U.S. Cellular’s more-rural/suburban markets, but if U.S. Cellular does acquire any of these customers, they will have to convert them from T-Mobile’s GSM network to the company’s CDMA network;
• Data roaming from Verizon and Sprint customers traveling through U.S. Cellular’s service areas have brought increased traffic to the company’s data network, and roaming revenue with it;
• System operations expenses of $228 million were up $14 million or 7% year-over-year. This was due primarily to higher usage and roaming expenses as customers use more data services both on and off U.S. Cellular’s network. Through June of this year, total data of network usage increased nearly 400% over the same period last year.