AT&T's HotZone in Charlotte only covers a tiny portion of the city, along S. Brevard Street between the NASCAR Hall of Fame and East Trade Street and for AT&T customers waiting to use the nearby Lynx light rail.

What do you do when your wireless 3G network capacity is hopelessly overloaded and you don’t want to spend the money to upgrade the network to meet the daily demands your customers place on it?  You offload as much of that traffic as possible on less costly, conventional Wi-Fi network technology.

AT&T has discovered that Wi-Fi can turn an ugly congestion problem into a marketing opportunity.  The company has announced free, unlimited access to its increasing number of “Hotzones” to AT&T wireless customers, promising stronger signals and faster speeds along the way.  The three cities chosen for the launch of the neighborhood-blanketing Wi-Fi service are New York, Charlotte, N.C.,  and Chicago.

That New York and Chicago are on the list come as little surprise, but why Charlotte?

It turns out Charlotte is among the top-10 cities companies use to test market new products and services to get a better feel of how customers will react.  Charlotte has served as a test market for years.  FedEx used the city to test drop boxes inside U.S. post offices back in 2001.  Time Warner Cable brought its “Start Over” and “Caller ID on TV” services to Charlotte to get customer reaction.  AT&T first test marketed its 3G Microcell service in the area, so the company has a track record of choosing the community to test its newest offerings.

Stop the Cap! has been measuring reaction on our own to learn what Charlotte residents think about AT&T’s Hotzone.

First, many AT&T customers are still unaware that this Wi-Fi service has even made it to Charlotte.  For those who have learned about it, anything that improves AT&T’s service in uptown Charlotte is good news for them.

“Although AT&T in Charlotte has never suffered from the kind of congestion faced in larger cities, when you concentrate a lot of data users in one area, such as the Time Warner Cable Arena on East Trade, AT&T’s network can slow to a crawl,” writes Stop the Cap! reader Eric, who lives in Charlotte.  “I have ventured around that area several times and, to be honest, you can quietly hop on one of many business Wi-Fi hotspots for free now, but you can’t go too far before losing the signal.”

Eric says AT&T would be better off extending their Wi-Fi network across the city of Charlotte if they really want to offload 3G traffic.

“Wi-Fi is faster than their 3G service and it’s unlimited,” he notes. “I’d actually have a much more favorable impression of AT&T if they created city-wide Wi-Fi networks for their customers because it would add tremendous value and be a great reason to stick with AT&T for cell service.”

But Liam, who works in downtown Charlotte but lives near Freedom Park writes it’s a Band-Aid for a much bigger problem — AT&T underestimating the demand on their network.

“I am not sure how excited I should be about a Hotzone that runs up a street for about four city blocks,” he says.  “This is not midtown Manhattan where a service like that could make a huge difference for residents of skyscraping-condos and apartment buildings.  What about the rest of Charlotte?”

Liam was an AT&T customer but left for Verizon Wireless nearly a year ago.  He thinks AT&T isn’t a bad provider in Charlotte — in fact he thinks AT&T does a much better job in rural western North Carolina than Verizon does, but inside metro Charlotte, Verizon’s signals are more consistent.

“If this service does reach into Time Warner Cable Arena, it could make a big difference though, especially when that stadium is nearly full,” Liam notes. “Somehow I think we’ll see Time Warner Cable’s own Wi-Fi service operating there, for free, in the not-too-distant future.”

The Charlotte Observer‘s @Charlotte blog asked readers what they thought about AT&T’s Charlotte Hotzone in two articles.  Amidst a rhetorical war over the merits of AT&T and Apple’s latest iPhone, most comments welcomed the improved service, even if some are not sure exactly where that improved service can be found.

Reporter Eric Frazier wrote, “I was trying to find out for certain whether this zone will cover the office towers along Tryon Street, but a spokesperson for AT&T told me they can’t say whether specific buildings, such as the Bank of America headquarters, will or won’t be covered by the Hotzone.

Reverend Mike wants to know when he can get a Hotzone installed in his backyard, noting he was “glad to hear they are setting this up downtown.”

AT&T completed upgrades to its HSPA 7.2 network earlier this year and offers about double the potential speed its older 3G network provided Charlotte customers.

The classic one-two punch of Internet Overcharging is to limit your broadband usage -and- throttle speeds downwards.  AT&T wireless customers in several major cities across the United States are experiencing that for themselves over the long holiday weekend, reporting upload speeds have been throttled down to 100kbps or less (one-tenth of the speed most customers enjoyed as late as last week).

Speedtest.net has shown AT&T network throttling in many parts of Baltimore, Boston, Cincinnati, Cleveland, Columbus, Denver, Des Moines, Detroit, Fairfax, Houston, Kansas City, Las Vegas, New York, Orlando, Phoenix, St. Paul,  Salt Lake City, and Washington, D.C.

The speeds are so noticeably slow, it has become a national story as irate customers find their wireless broadband service first usage capped at just 2GB per month, and now upload speed throttled to the point of unusability.  AT&T promised a statement explaining the issue, but one has not yet been forthcoming.  Some speculated the throttles were designed to reduce congestion on AT&T’s network over the holiday, while others suspect a technical fault.

Reducing your wireless speed reduces the impact on AT&T’s backhaul network, which in turn reduces congestion and the number of dropped wireless calls.

The introduction of speed throttles for “heavy users” is a favorite in countries where overcharging schemes predominate.  Most permit a preset amount of traffic to pass at normal speeds, but once customers exceed an arbitrary allowance, a temporary speed throttle gets applied to dramatically reduce speeds and discourage further use.  Some limit customers to a selected amount of traffic per day, others per month.  Once the window expires, the throttle is automatically removed.

While there is no indication AT&T is applying such a throttle at this point, the company has strongly opposed efforts to ban such schemes.  AT&T has a history of antagonizing its wireless customers with poor network performance, and has been judged the least favorite provider by Consumer Reports.

AT&T’s hurry to end unlimited wireless data plans for its customers, many of which are using popular Apple iPhone and iPad devices, signals AT&T’s overburdened network can no longer handle customer demand.  With the threat of even higher data usage from today’s release of the next generation iPhone, which will highlight bandwidth-intensive video conferencing and streaming, AT&T put the brakes on before new customers even activate their new phone.

With a penalization program in place, AT&T is sending a message to customers contemplating owning the newest generation of smartphones that its network is in no position to actually provide service to those devices, particularly bandwidth-heavy video streaming.

Customers who dare use these video streaming services face the prospect of paying an overlimit fee up to $15 for just 200 megabytes of data.  That’s a compelling reason to think twice about every high bandwidth application. And that may be exactly the point for a network that suffers from congestion problems in several major American cities.

AT&T has consistently ranked at the bottom of consumer surveys done by credible organizations like Consumer Reports, typically because of network capacity issues.  Yet the carrier also charges, on average, the highest out-the-door price among the four major carriers — an average of $134 a month for a two-phone plan with a data package.  That’s $20 higher than either T-Mobile or Sprint, eight dollars more than Verizon Wireless.

Ranked rock-bottom for voice quality, downright lousy for customer service, and only average for its other services, AT&T has simply not kept up.  Yet AT&T raked in more than 13 billion dollars in profits in wireless last year.  The New York Times reports AT&T has at least 33 million smartphone customers, many committed to AT&T’s required $30 data plan.  That represents more than $900 million dollars per month in revenue — $10.8 billion dollars annually, and that’s for data services alone.

Yet the percentage of the company’s investments committed to expanding its network, measured under AT&T’s 2009 annual financial report, has not kept up with its enormous iPhone customer base, on AT&T’s network since 2007.

Source: AT&T's 2009 Annual Report -- AT&T's capital investments in its network and service don't keep up with the enormous increase in its Apple iPhone customer base introduced to AT&T service. Last year showed a dramatic reduction in investment when compared with 2008. AT&T is not exactly plowing all of its wireless profits back into its wireless business.

According to TownHall Investment Research, between January 2006 and September 2009, AT&T spent about $21.6 billion, or $308 per subscriber, on its wireless network. During that same period, Verizon Wireless spent about $25.4 billion, or nearly $353 per subscriber.  Verizon has outspent AT&T each of the past three years on service upgrades without the revenue benefits a stampede of iPhone-owning customers brings.  That gap has now grown into a nearly $4 billion dollars difference between the two providers in infrastructure upgrades.

“This is the story of a wireless carrier that is determined not to invest enough to meet the demand of users, but has decided to manage its network as a scarce resource,” says Chris Riley, policy counsel for Free Press. “This is what Wall Street loves: Reduce your expenditures and increase your revenues.”

In a barely competitive wireless marketplace, AT&T can afford to force customers to pay dramatically higher data costs in the months and years ahead, especially for iPhone customers who must use AT&T if they want a subsidized phone.  Even if a customer leaves, AT&T will earn up to $325 in cancellation penalties.

That iPhone exclusivity agreement with Apple has been an unlimited goldmine for AT&T. AT&T’s wireless business drives AT&T’s overall profitability, generating 57 percent of its operating income according to Gerard Hallaren, director of research at TownHall.

AT&T is having trouble meeting the wireless needs of its customers in major cities like New York and San Francisco, so it is experimenting with free Wi-Fi connections in particularly crowded parts of its service area.

AT&T’s Wi-Fi “hotzone” launched Tuesday in Times Square.  The service has been installed near 7th Avenue between 45th and 47th street, and is designed for outdoor users.  Any AT&T customer can connect to the service with any Wi-Fi capable device.

AT&T has been promoting free use of its indoor Wi-Fi connections for customers for well over a year because it helps reduce demand on its 3G mobile broadband network.  Developing outdoor hotzones in densely populated cities like New York could offload considerably more traffic from congested 3G cell sites.

The company hopes that free Wi-Fi will prove more attractive to customers than 3G because it can deliver faster speed connections and won’t suffer from slowdowns that have become all too common on the company’s 3G network.

If the experiment proves successful, AT&T will consider expanding it to other cities where the company faces congestion issues.

AT&T's Hotzone in Times Square covers a narrow outdoor area bordering W. 45th Street and W. 47th Street near 7th Avenue.

Time Warner Cable's DOCSIS 3 service is marketed as "wideband"

Time Warner Cable has made its DOCSIS 3 wideband broadband service its star at the 2010 Cable Show in Los Angeles.  Demonstrating up to 290Mbps service, company officials are suddenly excited about the prospect of delivering 21st century broadband speeds just one year after foot-dragging their way through upgrade plans for their cable systems nationwide.

Time Warner Cable has been among the slowest to deliver channel-bonded broadband service to its residential customers.  Currently marketed mostly in areas where Time Warner faces competition from Verizon FiOS or AT&T U-verse, DOCSIS 3 upgrades deliver faster speed tiers to its customers and reduce congestion.  At the top end, Time Warner residential customers can purchase 50/5Mbps service for just under $100 a month.  Because of its premium price tag, the company hasn’t had too many takers.  As of the fourth quarter of last year, just 2,000 customers signed up.  But the trends are clear — if the price comes down, adoption rates will increase.

For business customers, the price isn’t cheap either.  In Cincinnati, for example, Time Warner business customers face $350 a month for 50/5Mbps service.  Contrast that with Comcast in San Francisco, which charges businesses $189 a month for the same thing.

If Time Warner Cable is as enthusiastic about wideband as it suggested during this year’s Cable Show, it should be firing up its upgrade plans to deliver the service to all of its customers and attempt some new marketing that brings service at a more aggressive price.

In New York, Time Warner Cable’s DOCSIS 3 upgrades have so far skipped cities like Rochester, which faces only token competition from Frontier Communications’ DSL service.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/TWC 2010 Cable Show – Chief Marketing Officer Sam Howe.flv[/flv]

Time Warner Cable employees and chief marketing officer Sam Howe fall all over themselves, ecstatic with Time Warner Cable’s wideband broadband service, in this company-produced video taken at the 2010 Cable Show in Los Angeles.  (4 minutes)