"I think these are radical consumer groups," says Larry Kudlow

CNBC host Larry Kudlow engaged in on-air lovemaking with the wireless phone industry in a shameless segment decrying Net Neutrality.  His guest, Chris Guttman-McCabe, vice president of regulatory affairs at CTIA – The Wireless Association, was strictly in friendly territory as Kudlow tossed him softballs.  It was an industry talking point Blitzkrieg on consumers from start to finish:

Kudlow: Potential government control of the Internet: is Net Neutrality going to limit investment and innovation and even customer service?

Reality: Saying Net Neutrality is “government control” of the Internet is like saying safety inspections are “government control” of the food industry.  Without Net Neutrality, big cable and phone company providers will be the ones controlling the Internet.  Will Net Neutrality really limit investment, or continue the Internet success story that investment and innovation has already produced before providers demanded you pay more.  As for impacting customer service, that’s about as valid as claiming Net Neutrality will cause snakes to hide in your bed.

Guttman-McCabe: It’s a perfect storm of usage.  If we’re forced to deliver every bit all the time you’re going to lead to some form of commoditization of the product.

Reality: Gasp!  We can’t have that!  For those who may miss the meaning, commoditization refers to a perfect storm of competition, with providers generally competing on price because their products are of similar scope and quality.  Providers cannot extract higher pricing in such environments, because consumers won’t pay.  In the wireless industry’s eyes, Net Neutrality forces them to actually deliver the service they promise in their marketing materials.  You, as a consumer, get to choose the applications and services you wish to use and pay accordingly.  The market they want is to closely control and manage the content you use on their networks, blocking or impeding “unauthorized” services that don’t have a relationship with, or approval from, your wireless phone company.  Consumers actually want every bit delivered all the time, and providers are throwing a hissyfit because of it.

Kudlow: If you’re forced to deliver every bit all the time and meet the demands of these radical consumer groups, what happens to the profits of the deliverers?  The profits that are supposed to go into the investments to expand the broadband delivery?

Reality: Radical consumer groups?  Attacking real consumer groups that represent what consumers actually want, while providers stomp their feet when forced to deliver, doesn’t solve “the problem.”  And what of the profits?  That’s a good question Guttman-McCabe isn’t prepared to fully answer.  The enormously profitable broadband industry, in general, earns billions and invests a small percentage of that back into expanding their networks.  As our readers have learned on the wired broadband side, the logical assumption that providers will at least maintain a level percentage of revenue going back into network infrastructure isn’t always the case.  Instead, some providers raise prices and limit service, blaming “increased demand.”  Kudlow could ask providers what percentage of their revenues go into network expansion, and whether that has changed in the last ten years.  Of course he doesn’t.

Kudlow (to Guttman-McCabe): …obviously you’re not from the telephone company or the cable company, what’s your meat in the game here, who are you representing?

Reality: The CTIA has among its members AT&T, Cox, and Verizon.  Guttman-McCabe’s meat is paid for by all three, and many other industry members who belong to the group.  Who does CTIA not represent?  Consumers.

Guttman-McCabe: (Here come the shiny keys of distraction and misinformation, folks) I posit a question.  Are they (Google) allowed to cache their content closer to the customer to provide a better service under these Net Neutrality rules?

What about this pen -- will it be allowed under the new Net Neutrality rules?

Reality: Yes!  Having redundant and strategically placed content delivery servers is a widespread, industry-accepted practice not harmed by Net Neutrality.  Akamai delivers vast quantities of video content from regionally placed servers.  Cable operators will be able to place servers to deliver TV Everywhere to their customers wherever they like, if they so choose.  Net Neutrality does not compel web providers to run everything from a central server farm.  It would, however, tell broadband providers they cannot identify and artificially slow that content delivery down just because they don’t like it on their networks.  Big difference.

Guttman-McCabe: Is the Amazon Kindle, which is basically a wireless (single purpose) device — is that allowed to exist under the new Net Neutrality rules?  I think these are some of the questions that will come out as the Commission considers these new rules.

Reality: Yes!  Mr. Boots, your cat, will also be allowed to exist under Net Neutrality rules if he happens to jump on your keyboard while you access web pages.  Your wireless picture frame, which receives digital images to display on your bookcase will also be allowed to exist even if it cannot be used to play World of Warcraft.  I’m certain Guttman-McCabe and his friends will concern troll their way through the debate by throwing up lots of non-germane “concerns and questions” that they know have no relationship to the matter at hand.  They are well paid to do so.

Kudlow, of course, doesn’t challenge his guest on any of these issues, because he seems in perfect agreement with the industry position.  The shameless segment wraps up with the ominous notice that Net Neutrality has a long way to go and the CTIA has a “lot of educating to do.”  I’ll bet.

Larry Kudlow is the host of CNBC’s The Kudlow Report (M-F, 7pm/ET).

[flv width=”400″ height=”300″]http://www.phillipdampier.com/video/CNBC Kudlow Net Neutrality 2009-09-21.flv[/flv]

Larry Kudlow interviews Chris Guttman-McCabe, vice president of regulatory affairs at CTIA – The Wireless Association on Net Neutrality (9/21/09) (4 minutes)

The Federal Trade Commission on Monday issued new guidelines to stem the growing trend of product and service endorsements on web-based blogs that do not disclose the cozy relationship some bloggers have with the companies they write about.  For the first time, new FTC guidelines will require bloggers to confess any payments or free products or services they receive in return for their writings.  Waiting and Watching, one of our regular readers, wrote asking if these guidelines would affect telecommunications-related sites like Stop the Cap!

The revised FTC rules add new examples to illustrate the long standing principle that “material connections” (sometimes payments or free products) between advertisers and endorsers – connections that consumers would not expect – must be disclosed. These examples address what constitutes an endorsement when the message is conveyed by bloggers or other “word-of-mouth” marketers. The revised rules specify that while decisions will be reached on a case-by-case basis, the post of a blogger who receives cash or in-kind payment to review a product is considered an endorsement. Thus, bloggers who make an endorsement must disclose the material connections they share with the seller of the product or service. Likewise, if a company refers in an advertisement to the findings of a research organization that conducted research sponsored by the company, the advertisement must disclose the connection between the advertiser and the research organization. And a paid endorsement – like any other advertisement – is deceptive if it makes false or misleading claims.

Unfortunately, in the marketplace of ideas, astroturf groups which pretend to represent consumer interests that receive direct financial support from the industry they write about do not appear to be covered by the new FTC guidelines.

Several marketing firms specializing in “word of mouth” marketing or social media campaigns are paid to put free samples in the hands of bloggers who agree to write a review of the product or service (or at least write about it generally).  In return, they get to keep the product at no charge.  Some bloggers belong to marketing programs that pay them directly for positive reviews, mentions, or links to a product or service.

The new regulations will not punish bloggers who violate the FTC guidelines — the Commission will instead go after the marketing company, the manufacturer or provider.

Jack Gillis

Some consumer groups think that is a mistake, and that bloggers should also be accountable.

Jack Gillis, a spokesman for the Consumer Federation of America, told the Associated Press he thinks the FTC doesn’t go far enough to protect consumers from unethical bloggers.

“Consumers are increasingly dependent on the Internet for purchase information,” he said. “There’s tremendous opportunity to steer consumers to the wrong direction.”

The consumer advocacy group said lack of disclosure is a big problem in blogs. To mainly crack down on companies that give out freebies or pay bloggers won’t always solve the problem. By going after bloggers as well, “you put far more pressure on them to behave properly,” Gillis said.

For the record, Stop the Cap! receives no compensation of any kind from this industry or any other.  This website is supported entirely by myself and consumer contributions made through the Paypal link on the right.  Further, none of our authors are employed by or contracted with any company or provider with an interest in our issues, including Google (for the few who have made that baseless accusation in the past.)

I believe that bloggers should be held to fully disclosing their industry and/or financial connections so consumers may be fully informed about any potential conflict of interest or bias.  Fake website reviews and promotions have been a perennial problem on the Internet, some written by consumers who earn money or free service whenever a new customer signs up using a special link he or she provided.

Some reviews on big sites like Amazon have been written by company employees under pseudonyms which praise their own products and trash the competition.  The “word of mouth” marketing industry takes this to a new level, by leveraging social media networks to hype a product, with a direct incentive for the writer to provide glowing reviews if they want to remain on the “free goodies” mailing list.  An even stronger incentive to write “pay for say” articles comes when actual cash payments are provided for reviews.  Bloggers instinctively would suspect the gravy train would derail if they turned in a series of negative honest reviews, leading to the marketing company to drop them from the program.

Having full disclosure for sites engaged in public policy debates is an even better idea, especially when members of Congress routinely quote from material provided to them by what they assume are consumer groups, but are actually little more than industry-sponsored megaphones.

[flv width=”480″ height=”360″]http://www.phillipdampier.com/video/WWLP Springfield Bloggers Must Confess 10-5-09.flv[/flv]

WWLP-TV in Springfield reports on the new rules for bloggers.  Note the report is inaccurate about fining bloggers — FTC enforcement will not target bloggers. (1 minute)

A Fox News video report about “blogger mommies” that advocates self-regulation is also included below.

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NY State Attorney General Andrew Cuomo

The New York State Attorney General has slapped Frontier Communications with a $35,000 fine and ordered the phone company to refund up to $50,000 it wrongfully charged consumers in so-called “early termination fees” for telephone and broadband service — fees consumers were never properly informed about at the time they ordered service.

“Frontier failed to spell out in its contracts the existence of costly fees,” said Attorney General Andrew M. Cuomo. “The company is now fixing the issue by providing written notices of these fees and paying back consumers who were wrongfully charged.”

Frontier, located on South Clinton Avenue in Rochester, provides high speed broadband Internet service (FrontierHSI) and local and long distance telephone service. Between January 2007 and September 2008, Frontier sold bundles of various services under one-, two- or three-year agreements known as Price Protection Plans that offered a lower rate than month-to-month service as well as a promise that the subscription rate would not increase during the term of the plan. However, Frontier charged early termination fees to consumers who terminated a service before the end of the term. These fees typically ranged between $50 and $400, depending on the contents and services included in the package.

The Attorney General’s investigation determined that consumers who purchased one-year bundle agreements were never provided with written notice of the term or the existence of an early termination fee. The investigation also uncovered that consumers were not notified in their monthly billing statement that their agreements contained early termination fees. Therefore, many consumers first learned about the fee only after they canceled their service with Frontier and the charge appeared on their final bill.

In at least one instance, Frontier automatically re-enrolled a consumer to a term commitment after the initial term expired and then charged an early termination fee when she canceled after the initial term.

This is not the first time Frontier’s promotions have faced scrutiny by a New York Attorney General.  In March 2006, Frontier agreed to pay $80,000 in penalties and around $300,000 in customer refunds for what former Attorney General Eliot Spitzer called “misleading advertising and marketing tactics.”

Frontier’s customer service centers have often provided uneven service to consumers calling for information about products and services.  Stop the Cap!‘s editor, yours truly, had a number of problems when sampling Frontier’s DSL service during the Time Warner Cable Internet Overcharging experiment.  In addition to inconsistent product information, pricing, and terms and conditions, customer service representatives were ill-equipped to properly describe their own lineup of products, at one point promoting their wireless wi-fi network service in Rochester as “wee-fee.”

After the company couldn’t provide DSL service to my residence at speeds better than 3.1Mbps, service cancellation did not result in an early termination fee, but did cause serious billing foul-ups that took multiple calls to sort out.

In 2008, Stop the Cap! helped many customers cancel their DSL service without incurring early termination fees when the company introduced a 5GB usage limitation in their Acceptable Use Policy, under the provision allowing customers to opt-out of materially adverse changes in their service.  The company later announced customers under their Price Protection Agreement would not be subject to any service limitations until those agreements expired.

In January 2009, Attorney General Cuomo’s Office began investigating Frontier Communications and its subsidiaries after receiving dozens of complaints from consumers who were unexpectedly charged early termination fees.

Through an agreement with Attorney General Cuomo’s Office, Frontier must pay up to $50,000 in refunds and credits of early termination fees paid by eligible consumers who filed complaints prior to December 31, 2008. The company has provided the Attorney General’s Office a list of those eligible for refunds or credits.

Frontier's headquarters in Rochester, N.Y.

Other consumers who believe they are eligible for a refund or credit may submit a claim to the Attorney General’s Office by December 21, which will review the claims and act as the final arbiter for eligibility for reimbursement. Consumers wishing to file a complaint should call the Attorney General’s Rochester Regional Office at (585) 327-3240.  A promised web-based claim form could not be located on the NY Attorney General’s website at press time.  Residents living outside of New York State are not eligible to participate, but you may want to contact your own state’s Attorney General and ask them to review the New York settlement agreement, which could provide the basis for similar settlements in other states.

Frontier must also pay $35,000 in fees and costs. Frontier will send written notices to all customers who subscribe to new services regarding early termination fees. The company will not collect any such fee until after the notice has been sent. Frontier must also include a written notice of the term of any service agreement on consumers’ monthly billing statement for any agreement with an early termination fee.

Many customers never realized Frontier automatically renewed their Price Protection Agreements without their explicit consent, generating early termination fees of $300 for some customers who left after more than five years of service with the company.

JuniPerez, a former Frontier customer, wondered whether Frontier was offering a Price Protection Lifetime Agreement: “I had Frontier’s DSL and phone service for about five to six years (phone service for much longer). After my last move, I switched to Time Warner’s phone, cable, and broadband package. Within two weeks of notifying Frontier of my service cancellation, they sent me my last bill — $300.00! This was for what they called an “Early Termination Fee”. After five to six years I had an early termination fee? I didn’t even get a chance to dispute it. Within days (not weeks or months) they turned the account over to a collection agency. They still dare to send me ‘come back to us’ flyers and specials.”

Some Frontier customers sign up for bundled packages of service to receive incentives, such as heavily discounted satellite television service or a “free” Dell netbook (after paying $45 in fees for taxes and shipping), in return for signing a two- or three-year Price Protection Agreement.  The agreement promises customers will not see any changes in pricing for the length of the agreement.  At the same time, the agreement “locks-in” the customer to stay with the company for the length of the contract, or face a penalty for canceling service early.  In many cases involving incentives, the early termination fee amounted to $300.

But Frontier appears to have made some changes even before yesterday’s settlement with the Attorney General.

As of at least this past spring, customers signing up for a promotion with a Price Protection Agreement were directed verbally to an e-mail copy of the agreement sent to them, urged to read it, and were required to electronically consent to the terms of the agreement in order to participate in the company’s promotions.  Follow-up e-mails were sent to customers who did not complete this process.  The contract also included provisions notifying customers that agreements were automatically renewed for an additional term unless the customer notified the company in advance they did not consent to automatic renewal.  In fact, customers could cancel the contract renewal almost immediately after electronically consenting to it.

Frontier’s e-mail was sent to the customer’s Frontier e-mail account, which some customers never used and never accessed.  For some, the terms amounted to “fine print” that many never read.  While the New York Attorney General ultimately found Frontier Communications responsible for failing to adequately notify customers about such fees, Stop the Cap! reminds the public they have a responsibility to carefully read and review the terms and conditions of all service agreements, especially those involving promotional giveaways tied to service commitments like Price Protection Agreements.  Many have historically carried steep cancellation penalties as well as automatic renewal provisions designed to keep you from switching providers.  Such agreements should be considered only if you are certain you are happy with your service provider.  If you are trying a service for the first time, inquire whether you can sample the service for a trial period and retain the right to cancel without incurring penalties.  Frontier traditionally offers a 30-day trial period for DSL service.  Always record the time and day you made the inquiry, and the name of the customer service representative you spoke with.  Should you be given incorrect or inconsistent information, being armed with this information may help convince the provider to agree to what you were promised.

Customers who are not satisfied with the response they receive from a customer service representative or their immediate supervisor should check the front of their telephone directory for the number of the “executive customer service office,” sometimes also called, “unresolved complaints.”  These special representatives are empowered to resolve complaints customer service representatives may not have the authority to fix.  Failing that, contact your state’s Public Utilities/Service Commission or the Attorney General’s office.

Two video news reports appear below the fold.

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Verizon FiOS today adds television to its lineup of services in several suburban towns in the Syracuse area, as competition heats up in central New York for cable, telephone, and broadband service.  But the incumbent cable operator, Time Warner Cable, says it’s not worried by Verizon’s arrival, and a company spokesman predicts no price war will result.

Eight communities in the Syracuse area will now be able to choose Verizon FiOS television service in addition to broadband and phone service: Camillus, Clay, Cicero, DeWitt and Salina, and the villages of East Syracuse and North Syracuse in Onondaga County, and the town of Fleming in Cayuga County.

The arrival of television service is important for Verizon, because it lets them compete head-on with incumbent cable operator Time Warner Cable that already offers bundled packages of services, typically known as a “triple play” in the industry — telephone, cable-TV, and broadband.

Chris Creager, Verizon’s president of Northeast operations, claims competition for cable television in central New York will result in better service at lower prices.

“When we enter a market, customers win,” Creager said. “Usually, cable companies are more receptive to looking at prices.”

Time Warner Cable downplayed the competitive threat Verizon could pose to their operations in the region.

In a statement echoing the sentiment Time Warner Cable has expressed in most of the communities where FiOS competes with them, spokesman Jeff Unaitis said Time Warner Cable already has an advanced cable network and has experience delivering cable television service to Syracuse-area residents that Verizon lacks.  Competition is nothing new to Time Warner Cable, he said, noting the company has faced satellite television competition for years.  Unaitis also predicts no significant price cuts as a result of Verizon’s all-fiber FiOS system arriving in town.

Indeed, evidence suggests that Verizon’s FiOS service does not result in dramatic savings for consumers, with one significant exception.

New customer promotions often offer significant price savings, particularly for customers who sign contracts to remain with providers for one or two years, and choose bundled packages of multiple services.  Central New York customers signing up for Verizon FiOS for at least two services can receive a $150 gift card.  Customers choosing their “triple play” will receive $30 off their monthly bill for six months.

Once the promotional offers expire, so do most of the savings, unless a customer threatens to switch providers.  That often brings a renewal of their promotional package price for an extended period, although some providers limit the number of times a customer can take advantage of a promotion.  For consumers trying to optimize savings, that can start a ping-pong relationship with providers, as customers sign up for a promotion and then cancel service when it expires, taking their business to the other player in town.

Competition does often bring improved service, even when savings are elusive.  Broadband service in particular often benefits, as consumers enjoy faster speeds with fewer limitations in communities with FiOS as one of the competitors.

In Syracuse, Time Warner Cable has adjusted speeds upwards for its Road Runner service, in advance of Verizon FiOS’ arrival.  In contrast, speeds in Rochester, a city with no prospect for Verizon FiOS competition, has not seen a speed increase for standard service in several years.  In New York City, a system upgrade to DOCSIS 3 technology has allowed the cable company to offer a premium 50Mbps service tier.  The Syracuse Post-Standard explored the competition angle, and what central New York residents might expect to come from it:

Competition from FiOS, which offers Internet download speeds of up to 50 megabits per second, may push Time Warner Cable to deploy available technology to match those speeds, said Thomas W. Hazlett, a law and economics professor at George Mason University and former chief economist of the Federal Communications Commission. Time Warner Cable recently upgraded its New York City network to offer a 50-megabit option, compared with the maximum 15-megabit speed in Syracuse.

“If it’s like elsewhere, you’re going to see Time Warner respond,” Hazlett said. “They will increase speeds.”

Likewise, Verizon and Time Warner Cable will push each other to offer better channel lineups, better picture quality, on-demand programming and novel services, said Jeffrey Kagan, an independent telecommunications analyst in Atlanta. Prices also will be lower that they would be without competition, but don’t expect a big drop, he said.

The newspaper explored what each company offers customers:

$110 per month: Includes unlimited phone calls in North America; Internet at 15 megabits per second for downloads, 5 megabits for uploads; 255 standard-definition TV channels and seven high-definition channels.

$120 per month: unlimited phone calls in North America; Internet at 25 MBPS for downloads, 15 MBPS for uploads; free Wi-Fi access on nationwide network of hotspots; 275 standard-definition TV channels and 70 high-def channels.

$130 per month: Same package as $120, but with Showtime, 16 more standard-def channels and eight more high-def channels.

Creager said Verizon will lock in the price for two years.

Time Warner Cable’s regular rate for its “All the Best” triple play is $135.50. But new customers can get an introductory rate of $115 for a year, including free use of a digital video recorder for six months, according to the company’s Web site. The service includes unlimited phone calls in North America; Internet downloads at 10 megabits per second, uploads at 1 MBPS; 214 standard-def TV channels and 70 high-def channels.

Time Warner also offers a $100-per-month introductory package that includes fewer TV channels — 154 standard-def and seven high-def.

Several TV news video reports, and a Verizon video press release can be found below the page break.

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"PPC-1" - Pipe Network's new fiber link opens this week

Ongoing connectivity issues and lack of competition continue to leave Australians with expensive, slow, and usage-limited broadband service.

This week, Pipe Networks will make a small dent in improving international connectivity when it activates its new PPC-1 fiber link between Sydney and the U.S. territory of Guam in the Pacific. The project, first envisioned in December 2006, took nearly three years to complete at a cost of more than $175 million U.S. dollars, and has a design capacity of 1.92Tb/s run over two fiber pairs.

Telecommunications analyst Paul Budde said Pipe Networks, along with others “would help to reduce this problem and will therefore provide ISPs with better prices,” which was supposed to result in a lifting of Internet Overcharging schemes like usage caps.

Not so fast.

Broadband providers in Australia have taken notice of Pipe Networks’ new pipeline, but many have not lowered prices or removed usage caps.  The lack of competition has kept a price war from taking place.  Ovum senior telecommunications analyst David Kennedy told Australian IT that without a price incentive, a lot of customers, particularly those served by Optus and Telstra, are unlikely to switch providers.

ADSL2+ Speeds drop dramatically the further away you live from the phone company's switching office

One DSL provider in Australia, Internode, has made some changes to its service offerings in response to the new fiber link.  The Adelaide-based company has simplified some of its service plans, cut the price of small office/home office pricing by about $9 per month, and increased the paltry usage cap on its Easy Broadband plan from 30GB per month to 50GB per month.  Internode’s Easy Broadband charges $44 a month for DSL service at 1.5Mbps/256kbps,  or in areas upgraded to ADSL2+ service, up to 24Mbps/1Mbps.  Actual speed on the latter service is highly dependent on how far away you live from the telephone company local switching office.

Internode chief executive Pat Tapper doesn’t think PPC-1 will make a huge difference for his company.

Internode sells "data blocks" for consumers intending to exceed their allowance.

“In the whole scheme of things the PPC-1 circuit doesn’t represent a huge spend in terms of what it costs to run the network. It will change a little bit in terms of our overall cost but only a very small amount,” he said.

“What it does give us is the ability to deliver more capacity to customers in downloads.”

That means a larger usage cap, but not cheaper pricing.

Internode customers that exceed the cap can purchase additional usage blocks, at pricing starting at $2.20 per gigabyte.