The Federal Reserve comes to the rescue of Big Telecom

Credit crisis?  What credit crisis?  That’s for little people.

While “challenging economic times” and “a difficult business environment” were among the reasons cited by banks for raising consumer credit interest rates, closing accounts, and slashing credit lines, some of America’s largest corporations received special credit favors from the Federal Reserve — cheap and easy money with little collateral required.

Among the companies that feasted on $3.3 trillion dollars of bailout credit largess — Verizon Communications, which had its $1.5 billion in debt picked up by the Fed — easy credit accessed twice during a major credit crisis.

The Washington Post uncovered Verizon’s Federal Reserve “Platinum Card” while reviewing more than 21,000 recently released loan records, forced into the open by new financial regulatory legislation.

Most of Verizon’s credit came in the form of covering the company’s “short term paper” — temporary debt taken on to fund daily business activities.  Although the Federal Reserve got the loan money back, the fact only major corporations, Wall Street banks, and other inside players got access burns many Americans, especially small business owners forced into hardship or out of business when their credit lines dried up at the height of the credit crisis.

While banks like Advanta, popular with small businesses, shut down all of its credit operations and raised interest rates to 30 percent or more on current balances, large companies like Verizon never had a thing to worry about thanks to the federal government.

“The American people are finally learning the incredible and jaw-dropping details of the Fed’s multitrillion-dollar bailout of Wall Street and corporate America,” said Sen. Bernard Sanders (I-Vt.), a longtime Fed critic whose provision in the Wall Street regulatory overhaul required the new disclosures. “Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations. As a result of this disclosure, other members of Congress and I will be taking a very extensive look at all aspects of how the Federal Reserve functions.”

Verizon spokesman Robert A. Varettoni said that it was “an extraordinary time,” adding that there was no credit available otherwise at the time.

Ordinary Americans already knew that, of course.  But they didn’t get the same kind of help companies like Verizon received.

As far as Sanders is concerned, banks and large American corporations did splendidly during The Great Recession — some like Goldman Sachs are paying record-busting bonuses for the second year running — all thanks to the special favors given by the federal government during the last months of the Bush Administration.

Sanders told the Post the federal government could have made demands on those accessing easy credit to help ordinary Americans, such as requirements to lend to small businesses, modify mortgages of homeowners, or agree to hire more workers.

“We bailed these guys out, but the requirements placed upon them had very little positive impact on the needs of ordinary Americans,” Sanders said.

While America’s largest cell phone companies battle over map coverage and work towards limiting wireless data usage, one super-regional wireless carrier is willing to pay customers to dump their old carrier and switch.

Privately owned Cellular South, which delivers home coverage over its own network in Memphis, the Florida Panhandle, Rome, Georgia, and parts of Mississippi and Alabama, is offering $100 to hand over your AT&T iPhone and get a brand new Android phone.  The company will even cover up to $200 of any early termination fees charged by AT&T or other carriers.

The company offers smartphone plans starting at $50 a month that includes unlimited mobile web access.  Customers with two or more smartphones on one account can get “unlimited everything” service for $59.99 per line.

Cellular South, virtually unknown outside of its service areas, has gained wider attention in recent days because of its stand against Verizon Wireless’ LTE network policies and an unrelated total meltdown of a Lauderdale County, Mississippi Board of Supervisors meeting that began with a debate about switching away from AT&T.

[flv width=”640″ height=”447″]http://www.phillipdampier.com/video/Cellular South Ad.flv[/flv]

An ad for Cellular South promotes the fact its smartphone data plan delivers unlimited usage.  (1 minute)

The company is planning its own LTE network for its local coverage areas and got into a major dispute with Verizon Wireless, a fellow CDMA carrier, over the LTE standard’s roaming capabilities.  Wireless providers who belong to the Rural Cellular Association are disturbed that without interoperability requirements from the FCC, big national carriers will be able to exclude small players from their networks.  Even worse, companies like Cellular South may have trouble finding affordable wireless equipment that works on the frequency bands they are allocated to use.  What this means for consumers is that equipment purchased for Cellular South’s LTE network may not function while roaming.  The carrier told the FCC:

Lack of interoperability in the 700 MHz band will impose significant costs and burdens upon A Block licensees, which will competitively disadvantage smaller and regional carriers and their consumers. By delaying a decision on interoperability, the FCC is denying rural America access to 4G service. Cellular South paid $192 million dollars for licenses in Auction No. 73 and for months has been prepared to immediately put available capital to work to deploy its 700 MHz network in compliance with the FCC’s build-out requirements and for the benefit of its rural and regional consumers. But, without the certainty of interoperability across the 700 MHz spectrum, Cellular South’s capital will remain on the sidelines – unable to create jobs or increase economic activity within its 700 MHz license area.

Collectively, the rural and regional carriers holding Lower A licenses do not have the scale or scope to attract equipment manufactures making Band Class 17 or Band Class 13 equipment to produce Band Class 12 equipment at reasonable costs. Even where Band 12 equipment can be made available, the costs are unnecessarily inflated by the limited scale resulting from the lack of interoperability across the 700 MHz bands. If such equipment were produced, it would not be technically capable of roaming outside of Band Class 12 deployed networks. Nevertheless, rural and regional carriers like Cellular South may have no choice but to reduce the speed and size of their 700 MHz deployment and pay the unnecessarily inflated costs of Band 12 equipment and devices if it wants to compete with Verizon Wireless and AT&T in the 4G market.

The Rural Cellular Association noted the FCC inquired whether or not rural carriers could simply rely on the good will of Verizon Wireless, which is running its own private interoperability initiative, the Rural American Partnership Program.  Verizon says it will work with rural carriers and sign roaming agreements with participants to help ensure equipment was standardized across multiple carriers.  But the Rural Cellular Association claims Verizon’s offer was akin to a digital Trojan Horse — a gift to rural operators on the outside, but one that benefits Verizon far more than rural carriers on the inside.

“Verizon’s Plan provides a limited number of rural carriers with nominal opportunity to add or extend their 4G coverage in a way that only fills Verizon’s coverage gaps. Additionally, Lower A licensees paid a significant amount of money for their spectrum, more than Verizon paid for the C block per MHz/pop, and have stringent geographic-based build-out requirements,” Rebecca Murphy Thompson, the rural carriers’ general counsel wrote the Commission. “Considering these strict build-out requirements, Cellular South will focus on building its own business, not helping Verizon expand its network.”

The Rural Cellular Association (RCA) also continued its campaign against what it sees as anti-competitive behavior on the part of AT&T and Verizon.

“In addition to interoperability, RCA described how its members have limited options to obtain nationwide data roaming, but their customers still expect nationwide coverage and comparable services to their urban counterparts. Larger carriers are blocking rural and regional carriers from obtaining data roaming with reasonable terms and conditions because there is no regulatory mandate. RCA plans to supplement the record to provide examples of how AT&T and Verizon have blocked rural and regional carriers from negotiating data roaming agreements with reasonable rates. After a year of negotiations, Cellular South now has a data roaming agreement with one of the larger carriers.”

Lauderdale County, Miss.

For rural America, unaccustomed to getting good cellular coverage, the presence of rural carriers specifically targeting underserved communities as their main business function is a welcome change from “extended service” provided by larger carriers, mostly for travelers, as an afterthought.  These smaller carriers also often deliver savings in the communities they serve.

In Lauderdale County, Mississippi, the Board of Supervisors met earlier this week to review potential savings of at least $10,000 a year for the county sheriff’s department, just by ditching AT&T for Cellular South.  While Sheriff Billy Sollie had no objections to that, a follow up discussion about what to do with the savings started an on-camera debate that quickly descended into personal attacks and traded accusations.

District 5 supervisor Ray Boswell and Sheriff Sollie turned the meeting into a spectacle with allegations of drug and alcohol abuse, illegal use of county property, culminating in claims the sheriff was a “crybaby” and “a disgrace.”  A sheriff’s deputy even joined in at one point, yelling at Boswell for making unsubstantiated allegations and suggesting Boswell was arrested on felony charges but had his record expunged.

While other members of the board, including its president, sat stunned into silence, no one bothered to gavel the shouting match out of order.  The resulting 15 minutes of fame has created a sensation, and many area residents are embarrassed and upset.

Cellular South will probably win the county’s business, but heaven help the customer service representative that takes a call from Ray Boswell about a service problem.

[flv]http://www.phillipdampier.com/video/Lauderdale County Meltdown 12-6-10.flv[/flv]

Watch for yourself as a county meeting descends into chaos.  As it goes from bad to worse, nobody bothered to intervene to stop the escalating accusations and counter-accusations that have since become an embarrassment for residents of Lauderdale County, Miss.  (18 minutes)

Verizon’s chief operating officer thinks industry calls for Internet Overcharging schemes like metered billing and usage capped-broadband will harm providers trying to convince customers their multi-service packages represent the best value.

Bob Mudge told Bloomberg News Verizon has little interest heading down the road to charge customers based on what they use, particularly on its FiOS fiber to the home network.  Although Verizon does limit usage on its wireless network, to enforce limits on its fiber network could harm the company’s “value proposition” to consumers.

“The way we’ve structured our pricing is we have a great value proposition with the best speeds in the industry,” Mudge said.  “What we’re thinking about here is to make sure that if you are an Internet user, the total triple or quad play will have so much value and flexibility to you it will prevent you from becoming a niche buyer or seeking to cut the cord.”

Mudge believes customers want to be able to access content across several different device platforms, from home-based televisions, to computers around the home, to wireless devices while out on the go.

Despite Verizon’s enthusiasm for FiOS, the company has continued to put further expansion to new areas on hold.  Only communities already holding signed franchise agreements from Verizon will see fiber to the home from the company anytime soon.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Bloomberg Mudge Says Verizon Is Expanding Its Fios Service 12-7-10.flv[/flv]

Bloomberg News interviews Bob Mudge from Verizon about FiOS and Verizon’s future plans.  (5 minutes)

Verizon Wireless customers exchanging defective phones can expect to receive a pre-owned, "like-new" replacement from the wireless company.

Some Verizon Wireless customers are upset by the wireless company’s refusal to replace brand new, but defective phones with an equivalent brand-new phone, even just a few days after purchase.  Instead, customers are handed returned, usually refurbished phones originally used by other Verizon Wireless customers.

For some customers, that is tantamount to getting back “other people’s problem-phones.”

“You honestly have no idea how the last customer who owned the phone treated it,” writes Stop the Cap! reader Jenna, who lives in Fort Wayne, Ind.  “That person could have used it as a coffee coaster or dropped it in the street — how can you know?”

Jenna is upset because she purchased a brand new Verizon Droid phone and paid a premium for it in order to keep to just a one-year service agreement.

“This is one expensive phone, costing me hundreds of dollars, and it just quit working two days after I bought it,” she writes.

When she returned to the Verizon Wireless store expecting a new, off the shelf replacement, she was shocked when the company would only hand her a used, “re-certified” phone.

“I bought a factory fresh phone and that is what I expected to receive.  I could understand getting a refurbished phone if I had the phone six months, but 48 hours after purchase, no way,” she said.

Jenna’s replacement was handed to her in a plain box shrink wrapped with a “like new” sticker attached to the front.

“If I wanted ‘like new’ I would buy a used phone on eBay,” Jenna explains.

Despite several attempts, Verizon steadfastly refused to replace her dead phone with a new one, so Stop the Cap! alerted Jenna to the fact Verizon has a 30-day “worry-free” guarantee for new customers or those renewing contracts.  “If you’re not completely satisfied, you can cancel service within 30 days and pay no early termination fee if you return your device. A restocking fee may apply.”

“Thank you for letting me know about the 30-day trial, which gave me new leverage,” Jenna follows up.  “I walked into Verizon Wireless and talked to the same guy who refused me the first time and told him I wanted to return the phone under the 30 day policy and like magic the heavens opened.”

Jenna reports not only did the store manager promptly offer to replace her phone with a factory-sealed model, she also received some free accessories to make up for her inconvenience.

“The only way phone companies listen is when customers have some leverage to hit them in their wallets,” Jenna said.

Jenna also complained to several consumer reporters in the Fort Wayne area.  WANE-TV did a story on a reporter’s own personal experience with Verizon’s intransigence.

Jason Wagner, a Verizon Wireless store manager, told the reporter he actually preferred getting and using refurbished phones.

“I personally would rather use a certified, pre-owned [phone], Wagner explains.  “I know this phone has been checked […] and is going to work the way it should.”

“Good — he can have mine,” said Jenna.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/WANE Ft Wayne Verizon Defends like-new Policy 11-17-10.flv[/flv]

WANE-TV in Fort Wayne talked with Verizon Wireless about their exchange policies after a reporter at the station tried to exchange her defective phone.  (2 minutes)

AT&T Mobility thinks it has a winning strategy when it took away unlimited data plans, forcing new customers to choose high-priced, usage-limited alternatives.  But a new survey from Wall Street research firm Sanford Bernstein found AT&T customers will grab, claw, and scream to keep the peace of mind that comes from having the choice of an unlimited use plan.

Sanford Bernstein’s study found a large number of customers willing to abandon any carrier that takes unlimited data away from them.  About a third of the more than 800 people responding said AT&T’s move toward usage-based billing left them with a bad impression of the wireless carrier.  That’s particularly bad for AT&T, which already scores as America’s lowest-rated wireless company according to Consumer Reports.

AT&T mitigated some of the potential damage by letting existing customers keep their unlimited data plans when they ceased selling the unlimited option this past June.  New customers are forced to choose between two limited-use plans — $15 for 200MB or $25 for 2GB of usage (a tethering option is also available.)  Existing customers will only face that hard choice if or when they change phones, presumably in the next year or two.

Had they not grandfathered in existing customers, Sanford Bernstein’s research suggests a large proportion of customers forced to give up unlimited data would quit AT&T even if it meant buying a new phone and paying a higher bill just to get the unlimited data option back.  When AT&T eventually forces these customers’ hands, Sanford Bernstein predicts trouble.

According to the study, more than 58 percent of the lowest data users said they would dump AT&T overboard and switch to another provider with an unlimited plan. For heavier users, more than two-thirds are prepared to take their business elsewhere.

But even with overwhelming evidence like that, AT&T and some Wall Street analysts think Internet Overcharging schemes do customers a favor.

AT&T's mandatory data plans

“Customers generally have strongly negative perceptions about Usage-Based Pricing, and these are often not correlated with self-interest,” Bernstein analyst Craig Moffett said in a research note analyzing the findings of the survey conducted this past summer. “It is fashionable to argue that loyalty to carriers is dead (except perhaps to Verizon Wireless, whose service level is perceived to be markedly higher than that of its competitors). The new conventional wisdom is that carrier loyalty has been replaced with loyalty to the device. But high inclination to switch carriers and phones to maintain an unlimited plan suggest that perhaps the plan itself is more important than either one.”

The Wall Street firm’s research is hardly news to consumers, who have repeatedly expressed loathing contempt for Internet Overcharging schemes like so-called “usage-based billing,” “data caps,” and speed throttles that kick in when carriers decide customers have used the service enough.

Consumers are willing to pay a higher price just knowing they will never face dreaded “bill shock” — a wireless company bill filled with hefty overlimit fees charged for excessive data usage.  They also have no interest in being penalized by arbitrary usage limits that punish offenders with speed throttles that reduce wireless speeds to dial-up or lower.

AT&T was the first major carrier to throw down the gauntlet and force customers into choosing between a “budget plan” that is easy to exceed at just 200MB of usage per month or an inadequate, overpriced 2GB tier that costs just five dollars less than the now-abandoned unlimited use plan.

Wall Street firms like Sanford Bernstein worry their investor clients may be exposed to a revenue massacre when competing carriers like Verizon Wireless, which retains an unlimited plan for now, unveils its own version of the popular Apple iPhone.  The result could be a massive stampede of departing customers headed for top-rated Verizon Wireless, even if it means paying early termination fees.

AT&T spokesman Mark Siegel sees things very differently however, telling CNET News AT&T’s new limited option plans deliver more choice and flexibility for data-hungry users.