Verizon's Home Phone Connect base station

Verizon Communications has announced a new option for landline customers to ditch their local phone company with a new device that routes home phone calls over Verizon Wireless’ cellular network.

Verizon has chosen two test markets for its new Home Phone Connect service — Rochester, N.Y., serviced by Frontier Communications and Time Warner Cable and Connecticut, which is served by AT&T and Comcast.  (Thanks to our reader Bob for sharing the news with us.)

The service works with your existing home wired and cordless phones.  Customers signing up under a one or two year service contract will receive the base unit free of charge.  Installation is as easy: Just unplug the phone cord from the wall and plug it into the back of the Home Phone Connect device.  The unit supports up to two hard wired (non-cordless) phone lines and a cordless phone base station.  When you pick up any phone around the house, the base station will deliver a familiar dial tone, but all calls are made and received over the Verizon Wireless cell phone network.  You can download an read a copy of the installation manual here.

The service is priced at $9.99 per month for existing Verizon Wireless customers with any existing Family SharePlan that has two or more lines with at least a 700 minutes calling allowance per month.  Customers using Home Phone Connect under this plan will use minutes from their existing wireless service plan.  But since calls to and from Verizon customers and all calls placed during nights and weekends do not eat minutes, this may be a viable option for many customers.

For heavy talkers, or those without a qualifying Verizon Wireless service plan, an unlimited talk time plan is available for a flat $19.99 per month.

All local and domestic long distance calls are included, and the service also comes with these features:

• Call Waiting
• Call Forwarding
• Caller ID (not currently compatible with Caller ID + Name)
• International Dialing (charged at prevailing Verizon long distance rates)
• 3-Way Calling
• Basic Voice Mail (*86)
• Account Balance (*225)
• Device Provisioning, (*228)
• Account Payment (#786)
• 311, 411, 511, 611, 711 & 911 (some services not available in all areas)
• Last Number Callback (*69)
• National Domestic Hope Line (#4673)

The base unit includes a backup battery to power the unit for up to 36 hours idle time/2 hours talk time in the event of a power failure.  Customers relying on landline service that works with a monitored alarm system should check with their alarm company to ensure compatibility with cell network technology.

Michael Murphy, Verizon’s public relations manager for the New England Region, said consumers have the option of keeping their existing home phone number or requesting a new one.  Customers who do switch their current home phone number to Verizon will automatically cancel their existing landline service.  Frontier customers should carefully check their bills to make sure they are not on a Frontier “Peace of Mind” contract before switching.  Any expiration dates adjacent to the type of home phone service described on your bill likely means you are on a term contract.

Customers dumping Frontier before their contract expires could be exposed to early termination fees of up to $300 or more, which will appear on a customer’s final bill.  If you did not authorize a service contract, demand that Frontier drop it from your bill before you switch, and follow up with a complaint to the New York Attorney General’s office if the company fails to comply.

The device is intended to be portable, so you can take your “home phone” with you to any area served by a Verizon Wireless signal.  Just pack the Home Phone Connect base station and take it along.

Verizon carefully chose test markets outside of Verizon landline service areas.  That allows them to pick up new “landline” customers without harming their own landline business.

Verizon Wireless has a very large share of the Rochester, N.Y., market because of its ownership of the legacy Rochester Telephone cellular network.  Verizon delivers far more robust coverage than any other regional cellular provider in western New York.  With a built-in customer base wide open to Verizon’s marketing machine, the phone company could grab a significant number of Frontier landline customers who will see significant savings over Frontier’s comparable landline feature plans that run close to $50 a month after taxes and fees.  The company could also poach a number of Time Warner Cable’s Digital Phone customers, especially those whose first year promotional discount has expired.

In Connecticut, Verizon is challenging AT&T, which provides most of the state with its landline service.  Comcast is the dominant cable operator.

Comcast seemed unimpressed with the challenge being raised by Verizon in its service area.  The cable company hinted Verizon’s lack of a bundled service option including phone, cable, and broadband would hurt its chances of success.

Indeed, Verizon will have to develop some creative marketing to make its Home Phone Connect stand out.  Younger customers have no landlines to switch.  Most of those eager to cut their home phone line have already moved to cellular or Voice Over IP services from their local cable company or other providers like Vonage.  Existing Verizon Wireless customers may be hesitant about using a service that burns their wireless minutes away.  Older customers are unlikely to understand the product and have a built-in resistance to dropping traditional phone service.  Many may resist the notion of being stuck with at least a one year contract for an untested service.

T-Mobile attempted to market an almost identical service under its @Home brand, but judged it a failure and disconnected it earlier this year.

Because the service is being test marketed, its availability is limited to selected Verizon Wireless stores:

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Verizon Home Phone Connect 11-23-10.mp4[/flv]

The New Haven Register set up a video interview with a Verizon representative to demonstrate its new Home Phone Connect service. (1 minute)

Verizon prepaid customers can buy this basic phone from Walmart for just $15.88. But if you want to use this phone on a postpaid plan, Verizon charges up to $200 for the same phone unless you renew your contract.

As AT&T and Verizon discover an increasing amount of their revenue and profits come from their respective wireless divisions, they’re testing the waters to determine just how much more consumers are willing to pay for cell phone and wireless broadband services.

Verizon Wireless has spent the past year closing loopholes of various kinds and herding an increasing number of customers into mandatory data plans which can add up to $30 a month per phone to your monthly bill.  AT&T wants more if you plan on early upgrades for your cell phone.  A quick review:

Verizon Wireless Locks Down Prepaid Phone Models: Anyone who has shopped for a prepaid phone has probably noticed them dangling from hooks in Walmart and other stores at prices starting around $20.  Most of these prepaid phones are basic models or those deemed cutting edge a few years ago.  Take the LG 5600 — the Accolade.  It’s a phone your father would be comfortable with, covering the basics and designed primarily for making and receiving phone calls.  Verizon Wireless’ retail price for its “postpaid” customers (those who get and pay a bill every month) is $199.99 for the Accolade.  Of course, if you sign a new two-year contract, the phone is free.  But you can find the exact same phone, labeled for Verizon’s prepaid service at prices as low as $15.88.

Verizon claims the deep, deep discounts on prepaid phones are made back from the higher prices prepaid customers pay for airtime.  Some enterprising Verizon postpaid customers have sought these models out to replace or upgrade a worn out or broken phone without having to sign a new two-year contract.  Some other prepaid companies have also activated Verizon’s prepaid phones on their own network, including Page Plus.

Verizon has put the kibosh on both practices.  Customers seeking to activate a prepaid phone on a postpaid account must first use the phone in prepaid mode for a minimum of six months prior to its conversion to postpaid use.  Until very recently, some customers discovered a loophole around this requirement — registering a prepaid phone first on Verizon’s website and then activating it by dialing *228.  So long as a phone had never been activated, it often could be used on a postpaid account from the date of purchase.  But now Verizon tracks which phones are intended for postpaid and prepaid use, and that loophole has been closed.

Page Plus, which resells Verizon’s network, also had to stop activating Verizon prepaid phones almost a year ago.

As a result, those who want discounted cell phone service but keep Verizon’s robust network coverage have been forced to buy handsets at retail pricing, purchase one of several mostly refurbished phones direct from Page Plus, or activate an older phone no longer in use.

Avoiding the Data Plan: What drives an increasing number of Verizon off-contract customers towards “creative solutions” for upgrading their more than two year old phones is resistance to the expensive data plan required for most of their newest and best phones.  For these customers, renewing a contract means a plan change that includes $30 a month extra for data services or a phone downgrade to a basic model to avoid a data plan. Verizon’s remaining data-plan exempt handsets are:

• Verizon Wireless CDM8975
• LG Accolade™
• LG Cosmos™
• Pantech Jest™
• Samsung Gusto™
• Verizon Wireless Salute™
• Verizon Wireless Escapade®
• Samsung Haven™
• Samsung Intensity™
• Samsung Convoy™
• Motorola Barrage™

Would you renew a two-year service contract if you had to downgrade your next new phone to a basic model to avoid a mandatory data plan?

For large families accustomed to mid-level phones, the prospect of being stuck with a Jitterbug-like-downgrade or a $30 data plan has kept many from renewing their contracts, sticking with what they already own.

When AT&T announced the end of its flat rate smartphone plan, it said the lower pricing on smaller allowance data packages would represent “savings” for consumers reluctant to upgrade.  It’s hard to accept the same company that set prices so high for data usage in the first place has consumer interests at heart with usage-limited alternatives, especially when they no longer offer an unlimited option for customers who want one.

Verizon also plans to drop its unlimited plan in the near future.  Also on tap is a gradual shift away from so-called “mid-level” phones that consumers can purchase with a reduced rate, but still-mandatory $10 data plan.  Verizon increasingly will push customers between two stark choices — a high-powered, battery-eating smartphone that will give you a heart attack if you drop it or a very basic, stripped down phone with features commonly found on handsets five years ago.

This kind of pricing is driving some cash-strapped consumers to prepaid alternatives, such as Page Plus and Straight Talk on Verizon’s network and Wal-Mart’s new family prepaid plan on T-Mobile.  This is especially true if customers just want to talk and text.

AT&T’s Increases ‘Early Upgrade Price’ for Data-Friendly Smartphones by $125

Boy Genius Report obtained a copy of an AT&T memo to its sales force notifying them the price for “Early Upgrade Pricing,” traditionally charged customers who must have the latest and greatest, or accidentally lose or destroy their existing phone, is going up — way up, from $75 to $200:

Beginning Oct. 3rd, Early (Exception) Upgrade pricing for Smartphones will increase from the two-year price plus $75 to the two-year price plus $200.  This change does not apply to iPhone or Basic and Quick Messaging Phones.

Example: BlackBerry Torch $199.99 two-year price + $200 Early Upgrade fee = total price $399.99, a savings of $100 off the No-Commitment price of $499.99.

In return for just a $100 discount, customers sign a new two-year contract that begins with the phone’s replacement.  That contract includes the usual early termination fee of $325, which decreases by $10 per month.  AT&T watchers speculate the price change was designed to stop resale of relatively new phones on sites like eBay or Craigslist, where sellers charge near-retail prices and eat the formerly low penalty for an early upgrade.  It also makes the price of getting the very newest phones that much higher.

Courtesy: Boy Genius Report

Cell Phone Lobby Resists Requirement for Early Warnings Alerting Customers Their Data Allowance Is Almost Gone: “It Will Cause Customer Confusion and Frustration”

Liz Szalay had to dip into her 401(k) retirement account to pay the family’s $2000 Verizon Wireless bill, gone wild with data fees her 14-year old son ran up searching for and downloading songs.

“I would never have allowed my son to accrue such charges, if I had known,” Szalay, a secretary in Niles, Michigan, told Bloomberg News. “What I did to prevent this from happening in the future was have his Internet access completely blocked by Verizon, but not before they made off with a boatload of money.”

Had Szalay received a text and/or e-mail message warning her one of the phones on her account was approaching 80 percent of its monthly data allowance, or was already at risk of racking up huge fees, it would have been possible to stop the damage before it began.

Sen. Udall wants legislation to warn consumers before they run up enormous wireless bills. The industry calls such warnings "confusing and frustrating" for consumers.

Senator Tom Udall, a New Mexico Democrat, wants to make sure she gets that warning.  Udall drafted legislation that would require companies to warn customers when they have used 80 percent of their allotment.

“It’s difficult for the carriers to get up and argue against greater transparency on bills and notifications,” Christopher King, an analyst at Stifel Nicolaus & Co. in Baltimore told Bloomberg. “It’s becoming an issue on the front burner of regulators’ minds.”

The industry’s lobbyists are trying to block the legislation anyway.

The CTIA, the wireless industry lobbying group, is fiercely trying to kill Udall’s bill, claiming warnings will cause “customer confusion and frustration” and that carriers already offer customers the opportunity to check their usage by visiting carrier websites or via a text message.

The lobbyist solution requires consumers to be vigilant and check daily to make sure they don’t exceed any limits.  Udall’s idea puts the onus on phone companies to warn customers, who often have family members that have no idea what kind of cash bonanza they can provide a wireless provider just by using data features built into their phones.

Szalay’s son has a phone that doesn’t require a data plan, but incurs an enormous $1.99 in charges for every megabyte accessed online.  Verizon’s own website notes customers can consume 183 megabytes of data streaming music just five minutes a day for a month.  That’s $364 in data charges.  Five minutes downloading games — 440 megabytes or $875 in data fees.  One need not use their phone for hours a day to incur enormous fees for data usage.  Szalay’s son could have managed the $2,000 bill he caused using his phone for less than 15 minutes each day.

Verizon does not allow customers hit with these bills to retroactively sign up for a data plan to cover the costs, which are the same to Verizon whether a consumer incurs them on an unlimited $30 monthly data plan, or on a pay per use plan with a stinging penalty rate.

And the company objects to any government official telling them to warn customers before the overlimit fees kick in.

“We have several measures in place that allow our customers to monitor their usage and protect against overages — this is a proactive approach on Verizon’s part,” Verizon’s Smith told Bloomberg in an e-mailed statement.

How to Protect Yourself

Both Verizon and AT&T are masters of extracting a maximum amount of money from customers’ pockets.  Verizon is increasingly risking its high rating for customer service and quality by finding new ways to nickel and dime even long time customers to death.  AT&T already has earned a bad reputation and can’t drop much further unless it adopts Sprint’s old strategy of driving its own customers away.  Only through education and careful consideration of your family’s actual usage can you safely navigate around these shark-like wallet biters.

1.  Avoid cell phone company insurance plans unless you are concerned about theft.  With “early upgrade” plans, even at AT&T’s $200 price, it may not be worth paying an expensive monthly fee for insurance.  Also consider Squaretrade, a third party warranty/replacement provider.  They charge considerably lower prices than most (Google around for coupon codes offering up to 30 percent off).  If your phone breaks or is damaged, and you are not on a contract, you might find a suitable refurbished replacement through websites like eBay.  Just make sure the phone wasn’t designated for prepaid service to avoid activation hassles.

2.  If you want Verizon network quality, but don’t want to pay Verizon’s diamond-platinum pricing, consider doing business with one of the new prepaid providers offering month-to-month service that uses the same network as Verizon itself.  Walmart sells Straight Talk, but also consider Page Plus, which offers 1,200 minutes of call time, 1,200 texts, and 50MB of data use for $29.95 per month.  The only downside is that most prepaid providers don’t sell family plans, meaning each user pays the same price.  Walmart’s new prepaid plan changes that with the introduction of a shared family plan, with additional lines given discounted pricing.  But the discounts are not as good as postpaid plans offer, and the service relies on T-Mobile, which is not well-regarded for coverage outside of metropolitan areas.

3.  Smartphones, in addition to being expensive, often deliver horrible battery life.  Some won’t even make it through an entire business day.  Before seeking out one of these premium phones, consider whether you will actually use their features.  Is it worth the price of a $30 a month data plan if you only occasionally use the phone for wireless Internet?  Bragging rights come with a $200 up front price tag and a two year contract that will run up to $720 just for the data plan over two years.  If you drop it, lose it, or it gets stolen, the retail price for most of these phones is north of $500.

4.  Carriers design “gotcha” data pricing into their assumed revenue models.  They know even with online tools, nobody wants the hassle of checking their allowance for data every day, especially when most stopped checking their voice minutes allowance years ago.  While carriers occasionally waive gigantic bills, especially when the media gets involved, you can restrict data access on some or all of your phones if you do not have a data plan and don’t care about this feature.  You should support Senator Udall’s bill as well.  Carrier excuses that a warning message will cause confusion and frustration are laughable.  Getting a $2,000 wireless bill in the mail will cause far more of both.  That the industry objects to even this common sense approach illustrates just how rapacious wireless companies are for additional profits.

5. Educate everyone on your plan about the implications of using the phone to download music and games or watch video.  Unless you are on a flat rate plan, you may want to simply tell your family not to use their phones for these kinds of services without asking permission first.  This gives you an opportunity to check your allowance before Verizon gets a chance to reduce your bank balance.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Cell Phone Savings 10-12-10.flv[/flv]

We have four reports covering consumer news on cell phones that can save you money:  KSHB-TV in Kansas City takes a look at Walmart’s new prepaid family plan using T-Mobile’s network, WIVB-TV in Buffalo reports Sen. Kirsten Gillibrand (D-N.Y.) wants carriers to stop international roaming charges when customers end up making and receiving calls on a Canadian provider’s network from the American side of the border, WFTS-TV in Tampa provides tips on getting lower rates from your cell phone company and WTEV-TV in Jacksonville helps customers analyze cell phone bills for savings.  (6 minutes)

Early reaction and declarations of a price war notwithstanding, yesterday’s “price cuts” from Verizon Wireless and AT&T Mobility on their unlimited calling plans may bring price increases for many customers who don’t need all of the components of the wireless industry’s Cadillac plans.

First, an explanation of what has changed.

Verizon started the ball rolling announcing a $30 price cut on their Nationwide Unlimited Talk plan.  Formerly $99.99, customers now pay $69.99.  For those with multiple phones on a single account, Verizon’s Nationwide Unlimited Talk Family SharePlan, which includes two lines, now drops to $119.99.  AT&T immediately matched Verizon’s new pricing.  AT&T’s Nation Unlimited plan is now also $69.99 and their shared line plan, FamilyTalk Nation Unlimited is $119.99 and also includes two lines.

Customers currently paying more for a wireless plan with either carrier have to call customer service at either carrier to switch to these plans.  You won’t incur a service charge or extend your existing contract.

Verizon’s plans with unlimited calling and texting features have also dropped in price.  Verizon’s Talk and Text plan costs $89.99 per month, down from $119.99. The Nationwide Unlimited Talk & Text Family SharePlan is now $149.99 per month.  AT&T customers can add unlimited texting to an existing plan, and the rates for doing so remain unchanged — $20 for single phone accounts, $30 for family plan accounts.

However… Here comes the tricks, traps, and gotchas.

For big families with multiple phones, these unlimited plans bring a nasty surprise  — the additional charge for each third, fourth, and fifth line is $49.99 per month for each phone, not the traditional $9.99 each for those on plans with minute allowances.

Those who receive employer-related discounts from the wireless carriers may find those discounts do not apply to the Unlimited talk plans.  Verizon declares all of their unlimited plans are not eligible for any monthly access discounts, period.

AT&T goes out of its way to define what they believe a “voice call” means:

Unlimited voice services are provided primarily for live dialogue between two individuals. If your use of unlimited voice services for conference calling or call forwarding exceeds 750 minutes per month, AT&T may, at its option, terminate your service or change your plan to one with no unlimited usage components. Unlimited voice services may not be used for monitoring services, data transmissions, transmission of broadcasts, transmission of recorded material, or other connections which do not consist of uninterrupted live dialogue between two individuals.

Both AT&T and Verizon Wireless may try and up-sell you on the new data plans when you call to change your plan.  Customers calling both carriers have reported customer service representatives only too willing to provide steep discounts for new handsets or try and convince you to add one of the company’s new data plans.  Take advantage of their offer to upgrade your phone and you’ll likely discover yourself forced to also take a mandatory data plan with it anyway.  The list of phones falling under this trap keeps expanding.

Last year, Verizon started requiring customers choose data plans for the LG EnV Touch and the Samsung Rogue.  With this week’s changes, customers activating LG Chocolate Touch, LG EnV, LG VX8360, Motorola Entice W766, Nokia 7705 Twist, and Samsung Alias2 are now also subject to required data plans.  Don’t expect Verizon Wireless representatives to sell you on their cheapest pay-per-use option, which is priced at $1.99 per megabyte.  I’ve witnessed Verizon Wireless’ store employees pushing Verizon’s new unlimited $29.99 data plan.  If customers complain that’s too much, the $9.99 data plan for a piddly 25MB of access is offered next.  If it looks like a balking customer might cost a sale, the representative will grudgingly sell you pay per use plans.

AT&T customers buying many midrange and “quick-messaging” phones are also going to be required to spend at least $20 a month on a combination of texting and/or data plans. Customers using phones like the LG Neon or the Samsung Propel are affected, and weren’t required to buy data plans before.  Unlimited data for quick-messaging devices is priced at $15 a month.

If you already own a top of the line phone, your data plan charges remain the same.  Verizon customers using Windows Mobile, BlackBerry or Android phones will still pay $29.99 a month for unlimited data.  AT&T customers using the iPhone, BlackBerry, Nokia smartphone or Windows Mobile phones will also pay $29.99 a month for unlimited data.

Customers using wireless broadband with a USB dongle are also unaffected by these changes.  Whether you tether or use the dongle, your usage is limited to 5GB per month.

Existing customers will not be forced to add a data plan until their contract is up for renewal or they upgrade their phones.

Do These Changes Save Customers Money?

For most, the answers is no.  In fact, these pricing changes guarantee higher bills for most customers down the road.

Only a tiny percentage of customers pay for unlimited calling plans because most calling-allowance plans provide generous usage ranges, free night/weekend calling, and often free calling for the most frequently called, or those who are also customers of your wireless carrier.  AT&T even rolls-over unused minutes from month-to-month.  Paying considerably more for an “unlimited” calling option makes little sense for customers not exceeding existing calling allowances.

Changes to calling plans and the features associated with them occur year to year, but many customers prefer to remain on legacy plans that may offer fewer minutes, but have far fewer revenue-enhancing tricks and traps.  Verizon customers hanging on to their America’s Choice II FamilyShare plan offered four years ago maintain 700 minutes of calling time between multiple phones, get free night and weekend calling, and can access data features on their phones that deduct from their airtime allowance instead of billing for data usage charges.  The price?  $60 a month for two lines.  The equivalent plan today is priced at $69.99 for the voice calling plan, plus a mandatory data plan for the increasing number of phone that require one.  Even for phones on a pay-per-use plan, any data access will incur a minimum charge of $1.99 per month.

Where the real money will be made is from overpriced data plans forced on customers whether they want them or not, especially for midrange phones.

Wireless consultant Chetan Sharma estimates fewer than 10 percent of these customers buy data plans.

“There’s a significant number of consumers out there who like the idea of a cutting-edge handset but not of paying for services,” Michael Nelson, founder at Nelson Alpha Research told Business Week.

Wall Street analysts know mandatory data plans will bring exceptional new revenue to both major providers, especially at current prices.

“We could see a move upwards rather than downwards [in revenue/earnings],” says Jennifer Fritzsche, an analyst at Wells Fargo Securities in Chicago, who recommends buying shares of AT&T and Verizon Communications.  “Any kind of voice pricing is very much a commodity,” Fritzsche tells Bloomberg News. “Data is the future.”

JPMorgan is celebrating the potential windfall for both companies and their stocks, estimating just two percent of customers will realize any savings from these pricing changes, while many more will see prices increase.

For Verizon Wireless, it’s party time.  Even though Credit Suisse analyst Jonathan Chaplin estimates the carrier will sacrifice $540 million in voice revenue, they’re likely to gain $630 million in data plan sales. The costs of providing the service are likely to be minimal, considering most of the customers now forced to choose a plan are unlikely to use it much.

“Price War” or “War on Customers”

Still, some on Wall Street are unhappy with the prospects of any pricing changes that head downwards, especially if it sparks a price war.  Some have dumped their wireless stocks as a result of industry trends this year.  But what they may need to worry more about is the prospect of middle class customers switching from traditional postpaid two-year contract plans to prepaid services that offer light and medium mobile users better value with fewer tricks and traps.

As families face the prospect for $100+ monthly bills just for cell phone service, with mandatory data charges likely to add another $20-30 on top of that, will non-power-users stick with AT&T and Verizon for service?  Sprint and T Mobile argue they already offer better value for the hard-hit middle class, but prepaid mobile has garnered new respect for its simpler plans and easy-to-understand billing (and taxes and fees are typically included in the prepaid plan price.)

Formerly the domain of those willing to pay a steep per minute fee and buy top-up cards at convenience stores, today’s prepaid wireless plans often offer month-to-month service with familiar “minute bucket”-allowances or unlimited calling, and operate on Verizon, AT&T, Sprint, or T-Mobile’s nationwide networks.

A real price war has broken out in the prepaid wireless sector, with competitors offering unlimited calling plans as low as $40 a month.  Straight Talk, using Verizon Wireless’ network, goes even lower for a simple 1,000 minute/1,000 text/30MB web access plan for $30 a month.  The only downside is a very limited selection of phones.  Regional players like MetroPCS and Cricket offer comparable pricing for their unlimited plans, but their network coverage is a shadow of the larger players, roaming agreements notwithstanding.

As major carriers pile on extra fees for services many customers don’t want, many will find far better values in the prepaid phone marketplace.  Without the two-year contract common on major carriers, customers can switch providers at will, taking their phone number with them in most cases, if one provider doesn’t provide good service.  Best of all, they don’t have to pay for a cancellation fee or take services they don’t want or need just to satisfy AT&T and Verizon’s quest for cash.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/WIVB Buffalo Price War Between Cell Phone Providers 1-19-10.flv[/flv]

WIVB-TV in Buffalo appeared to be drinking the industry’s Kool-Aid about the benefits of new, ‘lower pricing,’ but towards the end even they admitted there are tricks and traps involved. (3 minutes)

Verizon Wireless is expected to unveil three new data plans on January 18th, including a new smartphone-mandatory “unlimited broadband” 3G plan priced at $29.99 per month, according to documents obtained by Broadband Reports.

The documents, provided by a Verizon Wireless employee, show the company is moving towards mandating all of their customers select some sort of data plan as part of their monthly service.  But unlike some wireless providers that leave options open to customers, Verizon wants to herd customers into data plans based on the types of phones they use:

• Simple Phones: Basic handsets that are designed for making and receiving phone calls and sending quick text messages from a numeric keypad, typically at older network standard speeds;
• 3G Multimedia: 3G-capable phones that may include a simple keyboard, and are designed for simpler text messaging and occasional data access;
• 3G Smartphones: Blackberry, Android, Windows-capable, and eventually the iPhone all qualify for this classification.

Verizon Wireless formerly offered a paltry 25MB package for $9.99 with a 50 cents per megabyte overlimit fee and a stingy 75MB package for $19.99 per month with a 30 cents per megabyte overlimit fee.  These might be suitable for someone trying to navigate a mobile web browser on an older generation phone from a numeric keyboard, but were priced unattractively for those with more advanced phones.

The 75MB package appears to be history after January 18th, but the 25MB package will remain with a reduced overlimit fee of 20 cents per megabyte (that’s an incredible $200 per gigabyte) .  Customers who don’t want -any- data plan for their basic wireless phone will be forced onto Verizon’s “pay as you go” plan, which charges $1.99 per megabyte.  It’s this plan that subjects customers to those $1.99 mysterious “data charges” on their bill, caused when a customer invokes the phone’s web browser (intentionally or otherwise, if you believe customers.)

Customers who don’t own smartphones and don’t use their phones to access many data services will find themselves being corralled into one of Verizon’s new data plans, whether they like it or not, once they try and renew their contract or make “certain account changes” under their existing contract.  If you’re a smartphone user, your choice will be the $29.99 unlimited data plan or the $29.99 unlimited data plan.  In other words, smartphone customers don’t get a choice.  Only owners of more basic phones will be able to choose from overpriced “pay as you go” service, a paltry 25MB offering, or what the company will upsell as the “best value” — the $29.99 unlimited plan.

“Even some basic phones such as the LG VX8360 will require data plans starting the 18th,” says Broadband Reports‘ tipster. Some examples of 3G Multimedia phones: LG Chocolate Touch, LG enV3, LG enV Touch, LG VX8360, Motorola Entice, Motorola Rival, Samsung Rogue, Samsung Alias2 and Nokia Twist.

The launch of an unlimited data plan on Verizon Wireless’ 3G network will make Apple happy.  The iPhone manufacturer has reportedly advocated generous data plans for iPhone customers who find themselves required to purchase plans for both voice calling and data with AT&T.  If the iPhone’s arrival on Verizon Wireless’ network is imminent this summer, having an unlimited data plan available to customers would make sense.

Although the fine print isn’t available to us, Karl Bode at Broadband Reports notes the documents he’s seen indicate no hidden usage cap, like AT&T’s formerly advertised “unlimited” plans that were limited to 5GB in the fine print.

Broadband Reports ran an exclusive story this morning breaking the news about Verizon's new data plans.

Still, for customers pushed into purchasing a data plan they may not want, it’s another case of Internet Overcharging.  That’s particularly true with Verizon, which claims to be a proponent of “paying for what you use,” yet still doesn’t offer all of their customers that option.  Instead, customers who don’t want to pony up $29.99 a month (or don’t have to because they don’t own a smartphone) are stuck paying for overpriced “pay as you go” plans or a paltry 25MB plan priced not to sell.  Even their “unlimited” plan may not last for long.  As Verizon Wireless works towards their 4G network launch, unlimited pricing may never be a part of it.

The Verizon Wireless documents explain what’s really happening here when it instructs employees pushing data plans to up-sell customers: “think of how dissatisfied they would be if they received their bill with excessive Pay As You Go charges!”  That is a powerful tool to motivate customers to choose a more expensive plan they may not need or want, just to protect themselves from the nasty surprise of an enormous bill at the end of the month.

With the evolving wireless phone marketplace now opening up new options for consumers to bypass the wireless company’s own products and services, overcharging consumers for accessing competitors’ products on their network guarantees a nice payday for Verizon Wireless no matter how you use your phone.

It’s why year after year, despite an increasing number of minutes thrown into your plan’s bucket, your cell phone bill never seems to actually decrease.  After all of the additional add-ons, surcharges, and fees attached to the bill, it has become easier than ever to approach $100 a month for cell phone service in the United States.

Nothing beats an overcharging scheme like cell phone text messaging.  What originally was envisioned as a small text paging add-on has become a massively lucrative service from America’s cell phone companies who rake in millions from one line messages.  In 2008, 2.5 trillion messages were sent from cell phones worldwide, up 32 percent from the year before, according to the Gartner Group.

Woe to those who send or receive text messages without a special texting plan.  Although the actual cost to send and deliver dozens of text messages is literally a fraction of a penny, almost every carrier charges a uniform 20 cents per message sent or received.  A text-happy teen can rapidly skyrocket your cell phone bill, as one Massachusetts father discovered.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/WWLP Springfield Cell Phone Bill Shocker 12-26-09.flv[/flv]

WWLP-TV in Springfield reports on a Massachusetts dad confronted with a $500 text message cell phone bill last year.  (1 minute)

Texting plans typically add a few dollars to your cell phone bill, although unlimited texting can cost you a ten spot every month per phone from some providers.  For those customers receiving unwanted text message spam, most simply pay the bill, which only adds to provider profits.  Carriers promise they will credit customers receiving unwanted text messages, and several will block them altogether for no additional charge.  Carriers claim the popular text messaging service adds value to subscribers, and frankly utilizes less of their network resources than customers making quick voice calls back and forth.

Yet prices for cell phone text messaging keep increasing.  Some carriers originally charged just five cents per message.  Yet since the number of wireless phone companies have shrunk from six to just four today, prices have increased: first to 10 cents per message, then 15 cents, and today a near-uniform 20 cents per message. That generates profits credit card companies can only drool over.  In fact, doing the math, sending 140 bytes of data in a typical text message costs you one cent for every seven bytes of data.  That’s $1,497.97 per megabyte.

Senator Herb Kohl (D-Wisconsin) has had his share of constituent complaints from those who’ve received surprise enormous bills.  Kohl is chairman of the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights.  He began investigating why text messaging costs so much.

“Text messaging files are very small,” Kohl says, “as the size of text messages are generally limited to 160 characters per message, and therefore cost carriers very little to transmit.”

Perhaps even less than Kohl suspects.  Text messages are limited to 160 characters because they ride across barely-utilized control data circuits cell phone companies use to manage calls.  Because these circuits are idle or underutilized, yet still occupy part of the spectrum, riding text messages across these channels costs carriers next to nothing, and don’t bog down wireless networks.  But that staggering bill can sure bog down your budget.