After an outpouring of complaints from UK mobile data customers, T-Mobile’s UK division has announced it is backing off implementing ‘new and improved’ usage caps of 500MB per month, down from the 1-3GB customers used to enjoy.  But the change of heart will only apply to existing customers.  New customers will find themselves second class citizens of the T-Mobile family — stuck with a 500MB allowance other customers won’t have to cope with.

The company claims it changed its mind after hearing from customers, but we suspect the real reason for the sudden change was word the British regulator OFCOM was considering an investigation, suggesting T-Mobile could have violated its own contract with customers by not providing 30 days of advance notice.

There were also reports angered customers seeking an early end to their contract were meeting resistance from T-Mobile’s customer relations department.  Customers who quit early face steep early cancellation penalties, despite the fact they should be waived if a mobile provider materially changes the service consumers thought they were getting when they signed up.

Another object lesson learned: Internet Overcharging schemes often start with “generous” allowances that some providers will lower if it means reducing demand on their networks, without ever bothering to lower prices for customers.

Virgin Mobile has begun notifying their Broadband2Go customers of how they plan to continue delivering “an outstanding customer experience”: by throttling the speeds of any customer who exceeds 5GB of usage per month.

Many Virgin Mobile customers have been in touch with Stop the Cap! about they feel is bait and switch pricing engaged by Sprint’s prepaid mobile division.  At issue — customers who invested $75-150 in equipment to sign up for a service they were sold on being “unlimited.”  Virgin Mobile made the “unlimited” part of its service the focus of its marketing.

The company characterizes the decision to adopt an Internet Overcharging scheme “a difficult choice,” but it’s one that that will ultimately help the company’s bottom line while costing many of their customers a substantial amount of money for a service they might never have purchased had they known it was going to be limited.

As is the case with almost every Internet Overcharging scheme we’ve seen, the same marketing that promised an “unlimited” experience now promises that such usage limits won’t impact most customers.  In fact, the company’s notification states, “you can send over 500,000 e-mails or browse the web for 250 hours a month!”  Of course, nobody except spammers send that much e-mail, so that kind of boasting is ultimately meaningless to customers.

What is more meaningful is that Virgin’s new 5GB cap will effectively mean customers have to heavily ration their online experience, especially if it includes multimedia.  In fact, customers won’t be able to watch more than a handful of HD movies using the service.  That’s a $40 movie pass some customers would have passed up had they known it came with limits.

This notification arrived in our e-mail box this morning. Despite the spin, the e-mail is likely to enrage customers, especially those who only recently invested money in Virgin Mobile equipment they can no longer return for a refund.

In fact, Virgin Mobile’s return to the land of Internet Overcharging is nothing new for the company.  Customer response to the company’s earlier prepaid wireless broadband plans were, to say the least, underwhelming.

Virgin Mobile’s new usage limits are less about “delivering the same quality service you’ve come to expect” and more about protecting Sprint’s more lucrative postpaid mobile data customers who pay more to use the same 3G network.  While Stop the Cap! agrees delivering an unlimited wireless broadband service remains a difficult challenge with the current limits on wireless capacity, Virgin Mobile’s about-face comes uncomfortably fast — just six months after unveiling and heavily promoting its “unlimited” service.  Just as with Clearwire, Sprint has managed to oversell its network and not invest sufficiently in expanding it to meet customer demands.  Nor has either company educated customers about the inherent limitations wireless broadband has, especially on an overcrowded network.

Sources tell us Virgin Mobile, much like Clearwire, suffered from some customers trying to use peer to peer software, sometimes for days on end (simply a ridiculous endeavor on most of the wireless networks we’ve experienced).  But the company did little to explain to customers that such software often does not work well on these types of networks, and using it 24/7 is likely going to create issues not only for that customer, but for others as well.  Instead, blanket usage limits punish everyone.

Customers deserve more than platitudes from Virgin Mobile.  Any customer that wants to cancel their service should be given a full refund by Virgin for equipment costs they incurred when signing up.  Further, Virgin Mobile’s customer policies do not generally allow money on account, but as of yet unspent, to be refunded to departing customers.  That policy should be waived in this instance.  Any unspent funds should be credited back to the customer’s credit card or refunded by check.

Life's for sharing... just not on our wireless network.

British T-Mobile wireless broadband users got — how shall we put it — an “abrupt” and uncharacteristically rude notice about a change in the company’s “Fair Use” policy that takes effect in February (underlining ours):

Browsing means looking at websites and checking email, but not watching videos, downloading files or playing games. We’ve got a fair use policy but ours means that you’ll always be able to browse the internet, it’s only when you go over the fair use amount that you won’t be able to download, stream and watch video clips.

So what’s changing? – From 1st February 2011 we will be aligning our fair use policies so our mobile internet service will have fair use of 500MB.

What does this mean? – We’ll always let you email and browse the internet and you’ll never pay more than you agree to. We do have a fair use policy but ours is there to make sure we deliver the best service possible to all our customers.  This means that you’ll always be able to browse the internet.

So remember our Mobile Broadband and internet on your phone service is best used for browsing which means looking at your favorite websites like Facebook, Twitter, Gmail, BBC News and more, checking your email and looking for information, but not watching videos or downloading files.

If you want to download, stream and watch video clips, save that stuff for your home broadband.

T-Mobile's warning to customers to avoid watching videos on their network flies in the face of their own smartphone promotions.

As our regular reader “Jr” observes, broadband carriers want customers to use their broadband connections to browse web pages and read e-mail — and little else.  Rarely has a carrier come right out and said it, though.

Not only has T-Mobile “aligned” their fair use policies to deliver you less service (down from 1-3GB per month), but they’ve kept the same high price.  T-Mobile is the same company that routinely markets smartphones and other multimedia-equipped handsets specifically for the services they don’t want you to use on their network.

T-Mobile illustrates once again how Internet Overcharging schemes really work:

1. They implement a usage cap and suggest it is “generous” and that the majority of customers will never come close to hitting it;
2. They gradually reduce the usage allowance when revenue needs eclipse the needs of customers;
3. They still claim the new, lower limit is still “generous.”
4. They suggest almost nobody is likely going to hit the limit, no matter what it is.

Of course, had T-Mobile customers really come nowhere near the old limits, what problem was resolved lowering it?  T-Mobile claims the vast majority of customers don’t exceed 200MB of usage per month, an exceptionally low amount in comparison to other carriers.

The telecoms regulator Ofcom told ZDNet UK on Monday that, “if consumers are being notified of a change likely to cause them material detriment, the provider must give the customer one month’s notice of the change, and at the same time they must also inform the customer of their right to terminate their contract without penalty if the proposed change is not acceptable to the customer”.

As the changes take effect from 1 February, T-Mobile has given less than one month’s notice.

“We encourage unhappy consumers to speak with their provider about their concerns,” Ofcom’s spokesperson said. “If the problem relates to a particular term or condition that you feel is unfair, then you can log your complaint with Ofcom. We monitor complaints about the behaviour of communications providers and if there is a high volume of complaints about a particular issue, we do investigate and take action as required.”

(Thanks to our reader “PreventCAPS” for sharing the story with us.)

Elk Grove, Calif. residents receiving letters from Frontier Communications claiming they are using the company’s Internet service too much are getting confusing responses from the phone company when calling to register complaints about the Internet Overcharging scheme.  Even worse, one company official told a subscriber they have to keep the new usage limits secret “for legal reasons in case we have to change it again.”  But no worries, Frontier explained to one customer: if you exceed the secret cap again, you’ll be notified future overages will be conveniently billed on a future Frontier bill.

Stop the Cap! has been receiving dozens of e-mailed complaints from customers upset that the company’s bait-and-switch broadband also comes with uninformed customer service representatives who can’t deliver straightforward answers to customers trying to understand how they can avoid up to $250 a month for 3Mbps DSL broadband service.

“When I signed up for Frontier DSL, nobody said a thing about usage limits,” writes our reader Trina who lives near Camden Park.  “My small business has DSL from Frontier as well and we were horrified when we received a letter telling us we were over-using their service.”

Trina and her husband have four teenage boys living at home, all sharing their Frontier DSL account.  When she called the company in response to the letter she received, the confusion began.

“The first representative didn’t understand what I was talking about and denied there were any limits and said the letter must have been a mistake,” Trina says. “But my husband noticed others in our area were talking about the letter on area message boards so when he called, he got a representative that confirmed the limits were real.”

Trina was told her home would need to upgrade to Frontier’s $249 monthly DSL service plan, the same one Frontier held over the heads of some customers in Mound, Minn. last year.

“I told them they must be smoking crack — are they serious?  There is no way I am going to pay $250 a month for DSL that gives us 1.5Mbps service — not in this world,” Trina says.  “My husband laughed when I told him, saying Frontier is going to drive themselves out of business from this stupidity.”

Elk Grove reader Stephen also called Frontier after he received a letter stating he used over 100GB in a month.

“Yeah, I used 104GB according to my router’s logs and Frontier deemed me a bandwidth abuser,” Stephen writes.  “Of course the company tried to sell me a plan priced at $100 a month for their lousy DSL service we got suckered into on one of their term contracts.”

Stephen said he’d manage to find a way to shave 5GB off his monthly usage and forego Frontier’s $99 offer until he signs up with a competitor and tells Frontier to take a hike.

“It’s one thing to be abused by a lackluster phone company like Frontier who never did a thing for Elk Grove — it’s another to pay them more for their abuse,” he writes.

Stop the Cap! reader Pete, also in Elk Grove, says he can’t get a straight answer over exactly what the monthly limit is.

“When I called, I was told 5GB by one representative, 100GB by another, but get this — when I logged into the ‘Flexnet’ Usage Meter the company tells you to review, it showed I had a 20GB limit,” Pete says.  “I called Frontier on the phone and told them I was so through with them — I can’t stand their nonsense.”

Pete wasn’t alone.  Our regular reader Mike figures his cap was actually 20GB a month if the company’s usage meter was to be believed, and he sent pictures.

“I got their nastygram last month over my usage and now my Flexnet meter shows me over the limit,” Pete says.  “I have been vocal on a local Elk Grove message board so I’m feeling like this is retaliation.”

In fact, Mike’s usage meter depicts him as well over the arbitrary 100GB limit Frontier suggests in their letter, despite not coming close to 100GB of usage.  Ditto for our reader Michelle who lives in Palo Cedro, a community Frontier can largely hold captive thanks to limited competition.

Benjamin, also in Palo Cedro, says Frontier’s move will hurt small businesses in the northern California Shasta County community of 1,200.

“I need high speed Internet to help start my business, which will largely involve uploading and downloading multimedia, (which is hard enough to do on a 1.5 connection) but to increase the cost is absolute insanity,” he says.

Our reader Mike discovered Frontier's usage meter suggests he has far less than a 100GB monthly usage allowance.

Benjamin’s alternatives barely qualify.

“I can either try Clearwire, which works terribly locally and is known for its speed throttles when congested, or HughesNet satellite-delivered Internet, which is overpriced,” Ben adds.

As our readers already know, satellite fraudband is no replacement for real broadband service, because it comes with a “fair access” policy that isn’t fair and doesn’t deliver much access.

“I will fight this any way I have to,” Benjamin says.

John in Elk Grove writes in to say the entire affair is a Frontier shell game.

“It’s pure bait and switch to sell us broadband without limits and then suddenly impose them while we are supposed to be on ‘price protection agreements’ that the company says will keep our prices stable,” John says. “Now we learn it’s all a shell game — they can say we used too much and that doesn’t count with their price protection scam.”

John adds Frontier can change the limits at will, and customers who choose to depart could still face enormous cancellation penalties.

“The Frontier representative I talked to when I called to cancel service told me I owed $300 for ending my contract early,” he said. “I told them to go to hell and that if they tried to collect, I’d personally make it my life’s work to cost them far more than that in lost business.”

Customer anger only increases after speaking with Frontier’s own representatives.

Uh oh. Frontier suggests Mike has already blown through his monthly usage allowance, despite his carefully reduced use of the service.

“Mr. Brown” shares his experience:

I am an Elk Grove resident and a Frontier DSL internet customer. I received the same letter from Frontier about exceeding the 100gb of bandwidth within a 30 day period. It said that I must reduce the amount of use or bump my account up to the next tier of service, a $99/mo business account.

I called the number on the letter to talk to a customer service representative so that they would not disconnect me for not responding within 20 days. I asked him if there is a maximum bandwidth cap. He told me that there is no cap, but that their terms of service says that they can disconnect you if you are exceeding reasonable usage and that Frontier will determine what is reasonable usage. The representative could not help me any further so he connected me with his supervisor.

The supervisor said that Frontier sent this letter out to about 1,000 customers in Elk Grove and that most of the customers who have called after receiving the letter have not questioned them and said they they will reduce their usage.

He also said that there is no longer any $99/mo plan, the only option is to reduce usage. He said they sent the letters out to the costumers who are using more than a reasonable about of bandwidth telling them to use less Internet. Then if they did not, Frontier will send another letter saying that if they use more than a reasonable amount that they will charge the customer for anything over.

He went on to say that Frontier had to remove the statement about the previous 5GB bandwidth cap in their terms and conditions and that for legal reasons they are not going to tell us what the new limit is, in case they have to change it again in the future.

I tried to get him to admit that there is a cap and to tell me what that limit was, but he would not.  He would only say that I would be okay if I did not go over 100gb/mo and that if I do, to expect to receive another letter with the new terms that would allow them to charge my account for excess bandwidth.

The one thing is common with readers we’ve heard from is their urgent search for a new provider.

Trina canceled all of her Frontier services at home and at her business and switched to SureWest, a fiber to the home provider.  Joining her includes Mike, Stephen, Pete and John.  Together, their combined disconnects will cost Frontier more than $500 a month in lost revenue, all because of broadband traffic that costs Frontier far less than 5 percent of that amount.  If each customer shares their horror story with friends, family, and neighbors, the loss in revenue could cost far more.

For customers like Mike, he can’t wait to get his SureWest service installed.  The company offers to buy out current contracts with companies like Frontier valued at up to $200, and their fiber-delivered broadband service leaves Frontier’s speeds in the dust.  Mike says if Frontier gives departing customers a hard time about early cancellation fees, file a complaint with the California Public Utilities Commission Consumer Affairs Branch.

SureWest offers 3/3Mbps service for $36.99 per month, 25/25Mbps service for $51.99 a month, and 50/50Mbps service for $181.99 a month.  A $3.99 High Speed Internet features and services charge applies.  There are no limits on SureWest’s Internet service.

SureWest delivers several fiber to the home broadband service plans that best Frontier's DSL speeds by a mile.

Frontier offers 3Mbps service with a slower upload speed for $32.99 per month or 10Mbps service for $44.99, both with a required price protection plan and $6.99 monthly modem rental fee.

“Why in the world would you pay Frontier more for less service,” asks Pete.  “Once they pile on the administrative fees, surcharges and taxes, it’s well north of $40 a month, and you don’t even get the speed they advertise, much less the usage limits they don’t.”

Studies find few surprises for cable and phone companies that pay for them.

Internet plans with term contracts, usage limits, and other pricing tricks are good for consumers and save them money over comparable unlimited usage plans.

That is the conclusion of a new study from the Technology Policy Institute, an industry front group funded by AT&T, Comcast, the National Cable & Telecommunications Association, Qwest, Time Warner Cable, T-Mobile, and Verizon.

Scott Wallsten and James Riso’s “study,”Residential and Business Broadband Prices, Part 1: An Empirical Analysis of Metering and Other Price Determinants,” claims to have taken a comprehensive look at 25,000 plans offered across North America, Europe and the Pacific to make their case that a residential service plan with a 10GB monthly usage cap would save consumers 27 percent over the price of a comparable unlimited plan, as long as data use stays below the cap.  They also suggest additional savings can be had if consumers lock themselves into term contracts with service providers (most of which carry hefty fees to exit early.)

These results suggest that the unlimited data plans typically offered by most U.S. wireline broadband providers may not be optimal for many consumers. The details of capped plans matter, and how an individual user is affected depends on the base price, allowed data usage, and consequences for exceeding the cap. Nevertheless, because capped plans are—all else equal—cheaper than unlimited plans, many consumers, particularly the low-volume users, are likely to pay less for broadband with data caps than they would for plans offering unlimited data transfer.

Wallsten and Riso make much of AT&T’s recent decision to end unlimited usage for wireless broadband, suggesting that consumers are saving money with new, low-use plans over the company’s old unlimited pricing.  The authors claim close to 70 percent of iPhone users consume less than 200 MB per month, which is the cap for AT&T’s cheaper data plan.

But the authors concede that usage is growing — rapidly in the case of online video, which sets the stage for consumers saving money today, but facing serious overlimit charges on their bills tomorrow:

Some analysts, however, remain concerned that these plans make video streaming impractical given the bandwidth it consumes, could eventually cost consumers more as they use their wireless devices more intensively, and generally make it less likely for wireless to become a viable substitute for wireline broadband. To be sure, while Figure 3 shows that the vast majority of users consume small amounts of data today, it also shows per user mobile data consumption growing quickly, so the number of people who exceed the caps could increase significantly in a relatively short period of time.

Major U.S. wireline providers have not yet introduced metered pricing successfully, though, as shown above, it is common in other countries. An experimental metered pricing plan by Time Warner Cable garnered strong reaction, prompting one group to demand that Congress ―investigate ongoing metered pricing practices to determine the impact on consumers. Some in Congress did, in fact, hold hearings on the plans. In response to this backlash, Time Warner Cable canceled its experiment.

Despite the political reaction, all consumers are not inherently worse off or better off with metered pricing. Low-volume users are likely to be better off under metered plans and high volume users worse off. The net effect on any given consumer depends on his data use, the base price, how much data the base price allows, the price of data when exceeding the cap, and how much he would have paid for an unlimited plan.

Wallsten and Riso also admit several parts of their study are “incomplete,” and “lack data.” We would also include the facts they ignored whether consumers prefer unlimited plans, how customers would feel about a bill with overlimit fees attached, or whether the usage cap levels the authors note in their study are adequate.  They also completely ignore the critical issue of bandwidth cost trends and their relationship to consumer pricing.

But of course they would, considering the same providers who want these pricing schemes are paying the costs for the study.

Welcome to the world of Hired Gun Research.

Wallsten, in particular, has been singing the same cap-happy tune for several years now, churning out the same industry-financed conclusions about broadband.  Back in 2007, he delivered a piece trumpeted by the Progress & Freedom Foundation and the Heartland Institute — two groups notorious for parroting corporate-friendly talking points.  Back then it was about Internet overloads and supporting Internet toll booths for “congestion pricing” after Comcast got caught secretly throttling broadband customer speeds.

Dave Burstein of DSL Prime notes most consumers don’t like caps, lock-in contracts, or speed throttles.

“Policymakers should normally assume that imposing caps generally results in negative consumer welfare. The small efficiency gains don’t come close to making up for a second rate Internet,” Burstein writes. “Everyone is better off with a robust, unthrottled Internet. It allows for an important form of video competition and market access for innovative new net offerings. It’s a better experience for the user and hence more people will be connected, a good thing.”

In this latest study, the two authors completely ignore some very important facts:

• Who sets the pricing for unlimited and usage-capped broadband?  Providers.  Do consumers save money from usage limited plans because of decreased provider costs passed along to consumers or pricing schemes that artificially inflate unlimited broadband pricing to drive customers to “money-saving” limited plans that teach usage restraint or expose consumers to dramatic overlimit fees?

• What are the trends for wholesale bandwidth costs and how does that trend comport with industry pricing schemes that have increased broadband pricing in the United States?  An honest study would reflect these costs are dropping… dramatically, and would introduce the very real question of whether unlimited broadband is a problem in search of a revenue-generating solution that would come from further monetizing broadband with so-called “consumption pricing.”

• What is the consumer perception of usage-limited broadband?  An important part of this equation is whether consumers want unlimited broadband service to be discontinued.  Every study to date not paid for by the providers themselves shows consumers are willing to pay today’s prices for the peace of mind they receive in not being exposed to limits or overlimit fees.  Wallsten and Riso touched on the consumer backlash, to a considerable part coordinated by Stop the Cap!, over Time Warner’s pricing scheme which would have tripled broadband pricing for an equivalent level of service.  But the authors charge on with their pro-cap conclusions regardless.

• Wallsten and Riso’s study only casually mentions the dramatically different paradigms of wireless and wireline broadband.  The former is delivered using technology that is recognized to have limitations that can only be seriously addressed with additional spectrum allocation that could take years to address.  The latter is already being mitigated by cable broadband technology upgrades, fiber optics, and improved backbone connections that often deliver much better access at a fraction of the price providers paid just a few years earlier.  Drawing comparisons between AT&T’s wireless broadband pricing and wireline broadband is dubious at best, especially since two companies largely control pricing and service for the majority of wireless customers in the United States.

• To prove its contention limited broadband service is “common in other countries,” the authors cite a Frequently Asked Questions article by Comcast trying to justify that company’s own usage cap to its customers.  So because Comcast’s PR department says it, it must be true.  In fact, in countries where usage capped broadband has been a traditional problem, consumer demand and public policy efforts have moved providers towards offering unlimited service plans to meet popular demand.  In fact, in countries like Australia, New Zealand, and South Africa, governments have cited usage caps as a serious disadvantage to growth of the digital economy.  Consumers certainly agree.

Burstein adds:

Caps or other throttling measures are almost never imposed because of actual congestion problems (on large, wired networks.)  The caps would be at far higher levels if they were, like Comcast’s 250 gigabytes. The usual explanation is bogus. The typical consumer advocate believes the caps are about preventing competition to the carriers’ own video package. That’s certainly common, but so is price discrimination to yield increased potential revenues. As Scott notes, price discrimination in a strongly competitive market can work out well for all concerned. With strong competition, the benefits flow through to consumers. Since competition in broadband is typically weak, I believe it far more often has little consumer benefit but is good for company profits.

The authors conclude that despite limitations on data available, “The policy implications, however, are clear.  Policymakers should not immediately conclude that data caps and other pricing schemes that differ from traditional unlimited plans are necessarily bad.”  Instead, the authors suggest pricing trends should be evaluated over time to identify the effects on prices, investment and usage.

Although that’s a point Burstein agrees with, we feel there is substantial evidence this debate is based not on experimental pricing to find new customers, but rather a defensive position to respond to an inevitable public backlash against Internet Overcharging schemes.  Providers are desperately looking for excuses to further monetize broadband, cut costs, and deliver an effective impediment to online video competitors using broadband networks to deliver alternative, less expensive services to consumers.

Policymakers should listen to their constituents, who are more than comfortable with today’s unlimited broadband experience.  Nobody objects to experimental low usage plans with discount pricing, but not at the expense of ending or repricing existing unlimited service into the stratosphere.  Today’s broadband industry earns billions in annual profits, even as their costs decline.  Providers have done considerable profit-taking in the last few years from their broadband divisions, slashing upgrades and other investments to keep pace with traffic demands.