Telephone companies will lose up to half of their broadband market share if they insist on sticking with DSL technology to deliver Internet access, according to a new report from Credit Suisse analyst Stefan Anninger.

Anninger predicts DSL will increasingly be seen as the “dial-up” service of the 2010s, as demand for more broadband speed moves beyond what most phone companies are willing or able to provide.  Credit Suisse’s analysis says DSL accounts sold in the United States top out at an average speed of just 4Mbps, while consumers are increasingly seeking out service at speeds of at least 7Mbps.  The higher speeds are necessary to support high quality online video and the ability for multiple users in a household to share a connection without encountering speed slowdowns.

A lack of investment by landline providers to keep up with cable broadband speeds will prove costly to phone companies, according to Anninger. He believes a growing number of Americans understand cable and fiber-based broadband deliver the highest speeds, and consumers are increasingly dropping DSL for cable and fiber competitors.  Any investments now may be a case of “too little, too late,” especially if they only incrementally improve DSL speeds.

Anninger says providers may be able to offer up to 18Mbps in five years by deploying ADSL 2+ or VDSL technology, but by that time cable operators will be providing speeds up to 200Mbps, and many municipal providers will have gigabit speeds available.

The impact on phone company broadband market share will prove bleak for phone companies in all but the most rural areas, Anninger predicts.  He says by 2015, cable companies will have secured 56 percent of the market (up by 2 percent from today), phone companies will drop from 30 percent to just 15 percent, Verizon FiOS, AT&T U-verse, and wireless broadband will each control around 7 percent of the market, with the remainder split among municipal fiber, satellite, and other technologies.

Anninger is also pessimistic about wireless broadband being a wired broadband replacement in the next five years.

A Credit Suisse online survey of 1,000 consumers in August found that less than half would consider going wireless only.  The reasons?  It’s too slow, too expensive and most plans have Internet Overcharging schemes like usage caps and speed throttles.

Although cable companies are on track to be the big winners in broadband market share, still have one giant hurdle to overcome — a lousy image.  Just 36 percent of cable customers say they are “very satisfied” with their local provider.  More than 60% of FiOS and U-verse’s broadband customers said they are “very satisfied” with the services these advanced telephone company networks provide.  Consumer Reports has regularly awarded top honors to Verizon FiOS for the last several years.

Independent phone companies and smaller cable operators routinely score at the bottom, typically because they are relying on outdated technology to supply service.

This makes the marketplace ripe for disaffected consumers to jump to an alternative provider.  Unfortunately, as most Americans face a duopoly of the cable company they hate and the phone company that doesn’t deliver the services they want, there is no place for them to go.

Anninger also predicts the risk of broadband reform by reclassifying broadband under Title II at the Federal Communications Commission is now “minimal.”  That suggests Net Neutrality enforcement at the FCC is not a priority.  The Credit Suisse analyst says if action hasn’t been taken by winter or spring of next year, it’s a safe bet the Commission will never re-assert its authority.

"DVD's are so five years ago!"

Netflix, which has seen its Canadian streaming-only video service welcomed with usage cap reductions by Rogers Cable, has finally started to wake up to the threat its online video business model is one speed throttle or usage cap away from oblivion.

As the video rental company now contemplates launching a streaming-only version of its service in the United States, it has now firmly waded into the Net Neutrality debate.  In a filing earlier this month, Netflix impressed upon the Federal Communications Commission the importance of prohibiting providers from establishing blockades to keep its competing video service from threatening cable-TV revenue:

“The Commission must assure that specialized services do not, in effect, transform the public Internet into a private network in which access is not open but is controlled by the network operator, and innovative Internet-based enterprises are permitted effective access to their consumers only if the enterprises pay network operators unreasonable fees or are otherwise seen by such network operators as not threatening a competitive venture.”

Netflix online video packs a real wallop, as Americans embraces the service as a suitable and cheaper replacement for premium cable movie channels.

Sandvine, which pitches “network management” products to the broadband industry, reported Netflix now represents more than 20 percent of all downstream broadband traffic in the United States during peak usage times between 8-10pm.

The company’s financial results seem to affirm its growing impact as an online video entertainment player.  The Washington Post reports in the third quarter, Netflix saw a 52 percent gain in subscribers to 16.9 million. Revenue increased 31 percent to $553 million. But most interesting: 66 percent of subscribers watched more than 15 minutes of streaming video compared with 41 percent during the same period last year. The company predicted Wednesday that in the fourth quarter, a majority of Netflix subscribers would watch more content streamed from the Web on Netflix than on DVD.

That prompted CEO Reed Hastings to say Netflix should now be considered a streaming company that also offers DVD-by-mail service.

If providers launch Internet Overcharging schemes that limit broadband usage or throttle their competitors to barely usable speeds, that growth could come to an end quicker than the introduction of the next “unfair usage policy.”

Sandvine’s research confirmed something else.  As broadband speeds increase, so does usage.  In Asia where broadband speeds are dramatically higher than in the United States, Sandvine found median monthly data consumption is close to 12 gigabytes per household compared to 4 gigabytes in North America.  And Asians stay very close to their broadband connections, using them on average for almost 5.5 hours per day, compared to just three hours for North Americans.

When one considers the majority of broadband users are only starting to discover online video, those numbers are headed upwards… fast.

With continued inaction at the Federal Communications Commission, some stakeholders in the Net Neutrality debate continue to file comments with the Commission trying to find a “third way” to bring about guarantees for online free speech and access while softening opposition to “network management” technology that allows providers to manipulate broadband traffic.

Among such filers is the Communications Workers of America, which seeks a “middle-ground approach” to protecting a free and open Internet.

The CWA has always maintained its feet in two camps — with consumers looking for improved broadband and with the communications companies that employee large numbers of the union’s members, who will build out those networks and provide service.

The union shares our annoyance with FCC Chairman Julius Genachowski for his complete inaction on broadband policy thus far.  In short, the Commission keeps stalling from taking direct action to reclassify broadband as a telecommunications service, restoring its ability to oversee broadband policy lost in a federal appeals court decision earlier this year.

The CWA used a piece by David Honig from the Minority Media and Telecommunications Council (MMTC) to echo its own position:

MMTC isn’t alone in being frustrated with the FCC’s disappointing attitude toward real action this past year. In a recent interview with the Wall Street Journal, FCC Chairman Julius Genachowski expressed impatience with the glacial pace of policymaking at his Commission. Although he mentioned that the FCC, under his direction, has implemented some notable reforms, he conceded that “there is still a lot to do.”

Unfortunately, regardless of how earnest the Chairman is in his desire to move forward with the business of policymaking, his actions speak much louder than his words. Indeed, his yearlong pursuit of network neutrality rules — first via a traditional rulemaking proceeding and, most recently, via an effort to reclassify broadband as a telecommunications service — has cast a long and almost suffocating pall over many of the items that the Chairman wishes to act upon. His inaction on civil rights issues — especially EEO enforcement — is just one example of how paralyzed the agency has become.

Recent news that Congress will not move forward to address the regulatory questions that currently vex the Commission (e.g., whether the FCC has authority to regulate broadband service providers) could embolden the Chairman to adopt the sweeping regulatory changes for broadband that he proposed earlier this year. Doing so in the absence of Congressional action would only invite immediate legal challenges that would mire the FCC in litigation, appeals, and remands for years to come.

To put it plainly, the FCC is stuck. Although it recently adopted some promising orders related to broadband (e.g., new rules for accessing new portions of wireless spectrum called “white spaces” and for enhancing access in schools and libraries), the Commission has failed to move forward with implementing core provisions of its monumental National Broadband Plan.

The union last week also submitted its latest round of comments requested by the Commission, this time to broaden its position on a proposed compromise.  We’ve delineated which of the proposals we believe are primarily pro-consumer (in green), pro-provider (red), and which fall straight down the middle (blue):

• First, wireline broadband Internet access providers (“broadband providers”) should not block lawful content, applications, or services, or prohibit the use of non-harmful devices on the Internet.
• Second, wireline and wireless broadband providers should be transparent regarding price, performance (including reporting actual speed) and network management practices.
• Third wireline broadband providers should not engage in unjust or unreasonable discrimination in transmitting lawful traffic.
• Fourth, broadband providers must be able to reasonably manage their networks through appropriate and tailored mechanisms, recognizing the technical and operational characteristics of the broadband Internet access platform.
• Fifth, the Commission should take a case-by-case adjudication approach to protect an open Internet rather than promulgating detailed, prescriptive rules.

The first and third principles are strongly pro-consumer, although as we’ve seen, providers have a tendency to want to define for themselves what is “harmful,” “unjust,” or “unreasonable” and impose it on their customers.  We’ve seen provider-backed front groups argue that the concept of Net Neutrality itself is all three of these things.  Any rules must be clearly defined by the Commission, not left to open interpretation by providers.

The second principle cuts right down the middle.  Consumers deserve an honest representation of broadband speeds marketed by providers (not the usual over-optimistic speeds promised in marketing materials), and transparency in price — especially with gotchas like term contracts, early cancellation penalties, overlimit fees, etc.  But providers can also go to town with abusive network management they’ll market as advantageous and fair, even when it is neither.  Just ask customers of Clear who recently found their “unlimited” wireless broadband service, marketed as having no speed throttles, reduced in speed to barely above dial-up when they used the service “too much.”  Clear says the speed throttles are good news and represent fairness.  Customers think otherwise, and disclosure has been lacking.

The fourth and fifth principles benefit providers enormously.  Network management itself is neither benevolent or malicious.  The people who set the parameters for that management are a different story.  A traffic-agnostic engineer might use such technology to improve the quality of services like streamed video and Voice Over IP by helping to keep the packets carrying such traffic running smoothly, without noticeably reducing speeds and quality of service for other users on that network.  There is nothing wrong with these kinds of practices. There is also nothing wrong with providing on-demand speed boosts on a pay-per-use basis, so long as the network is not oversubscribed.

But since providers are spending less to upgrade their networks, providers may seek to exploit these technologies in a more malicious way — too stall needed upgrades and save money by delivering a throttled broadband experience for some or all of their customers.  If customers can be effectively punished for using high bandwidth applications, they’ll reduce their usage of them as well.  That’s good for providers but not for customers who are paying increasing broadband bills for a declining level of service.

Some examples:

• Customers using high bandwidth peer-to-peer applications can have their speeds throttled, sometimes dramatically, when using those applications;
• Internet Overcharging schemes like usage caps, overlimit fees, and “fair access” policies can discourage consumers from using services like online video, file transfer services, and new multimedia-rich online gaming platforms like OnLive, which can consume considerable bandwidth;
• Preferred content can be “network managed” to arrive at the fastest possible speeds, at the cost of other traffic which consequently must be reduced in speed, meaning your non-preferred traffic travels on the slow lane;
• Providers can redefine levels of broadband service based on intended use, relegating existing packages to “web browsing and e-mail” while marketing new, extra-cost add-ons for services that take the speed controls off services like file transfer and online video, or changes usage limits.

The CWA runs the Speed Matters website, promoting broadband improvements.

It is remarkable the CWA seeks to allow today’s indecisive Commission to individually adjudicate specific disputes, instead of simply laying down some clear principles that would not leave a host of loopholes open for providers to exploit.

Big players like Comcast, AT&T, and Verizon have plenty of money at their disposal to attract and influence friends in high places.  If the Commission thought Big Telecom’s friends in Congress were breathing down its neck about telecom policy now, imagine the load it will be forced to carry when these companies seek to test the Commission’s resolve.

Opponents of Net Neutrality claim broadband reclassification will leave providers saddled with Ma Bell-era regulation.  But in truth, the FCC can make their rules plain and simple.  Here are a few of our own proposals:

1. Network management must be content-agnostic.  “Preferred partner” content must travel with the same priority as “non-preferred content;”
2. Providers can use network management to ensure best possible results for customers, but not at the expense of other users with speed throttles and other overcharging schemes;
3. Providers can market and develop new products that deliver enhanced speed services on-demand, but not if those products require a reduction in the level of service provided to other customers;
4. Customers should have the right to opt out of network management or at least participate in deciding what traffic they choose to prioritize;
5. Providers may not block or impede legal content of any kind;

In short, nobody objects to providers developing innovative new applications and services, but they must be willing to commit to necessary upgrades to broaden the pipeline on which they wish to deliver these services.  Otherwise, providers will simply make room for these enhanced revenue services at your expense, by forcing a reduction in your usage or reducing the speed and quality of service to make room for their premium offerings.

The industry itself illustrates this can be done using today’s technology.

The cable industry managed to accomplish benevolent network management with products like “Speed Boost” which delivers enhanced, short bursts of speed to broadband customers based on the current demand on the network.  Those speed enhancements depend entirely on network capacity and do not harm other users’ speeds.

Groups like the CWA need to remember that compromise only works if the terms and conditions are laid out as specifically as possible.  Otherwise, the player with the deepest pockets and closest relationships in Washington will be able to define the terms of the compromise as they see fit.

And that’s no compromise at all.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/CWA Larry Cohen on the Open Internet Jobs and the Digital Divide 9-14-10.flv[/flv]

Communications Workers of America president Larry Cohen outlined the union’s position on Net Neutrality before the Congressional Black Caucus Institute on Sept. 14, 2010.  (2 minutes)

Big Telecom Cash works its magic

As the fall elections near, the rhetoric and sheer nonsense from those opposed to important consumer broadband reforms has reached a fever pitch.  And as our reader Karen writes, too many Americans and the candidates they support just don’t get it.

Here in Delaware, Tea Party candidate Christine O’Donnell exemplifies what Net Neutrality supporters are up against — complete ignorance and big cash contributions.  Before she went into hiding, I attended one of Christine’s rare public events and asked her about where she stood on Net Neutrality and her response was she believed “all sides should be represented on the Internet.”  So she thinks Net Neutrality is about views expressed online, not stopping the telecom industry from slowing or blocking access to websites.

At least 35 of the Tea Party groups are opposed to Net Neutrality, mostly because their financial backers (big corporations and billionaire-funded front groups) have convinced members they should be.  Many others are stupid enough to believe Glenn Beck and his pal Phil Kerpen at Americans for Prosperity who say Net Neutrality will “censor” the Internet or turn control of it over to Barack Obama.

Conservative groups heavily funded by corporate interests they refuse to identify are backing various chapters of so-called “Tea Party” groups and feeding them talking points generated by companies like AT&T and Verizon in opposition to Net Neutrality.  The Center for Individual Freedom runs a website StopNetRegulation, edited by conservative activist Seton Motley, dedicated to derailing broadband reforms.  Motley was also quoted in The Hill in late September warning Republicans about antagonizing Tea Party types with their support for Net Neutrality in Congress.  Only then his comments came as leader of the group “Less Government.”  Judging from the organization’s website, Motley is also in favor of reduced size websites because his amounts to a single sentence.

Seton is convinced the end of the net world, as we know it, comes November 30th when the government could “seize control of the Internet.” That’s the date of the FCC’s November meeting, at which Seton suspects Julius Genachowski will finally move to reclassify broadband as a telecommunication service. 

Seton completely misrepresents reclassification as saddling the Internet with “the same rules as landline telephones.”  I read that claim somewhere before… oh yes, straight from AT&T and Verizon lobbyist talking points.

It doesn’t matter to Seton and other conservatives that Genachowski went out of his way to say he would not be applying any onerous telephone-era regulations on today’s broadband providers.  In fact, Genachowski’s actions to date have moved at such a glacial pace, friends have to occasionally check his pulse to make sure he’s still with us.

So what is so big, bad, and scary about Net Neutrality?  It simply guarantees your Internet Service Provider doesn’t start throttling your speeds when accessing websites and Internet applications they dislike, cannot block access to websites critical of their agenda, and are not allowed to extort payments from content providers just to allow traffic onto “their” networks.

While that may pose a Halloween freak-out for the profit-obsessed phone and cable companies, it’s hard to find actual consumers (not paid by said providers) who want their Internet service blocked or slowed down.

Seton goes way over the top turning this into a First Amendment free speech issue.  That argument only works for the likes of AT&T and Verizon who find their corporate right to overcharge people for broadband being infringed.

Seton then argues his view must be right because even minority groups support his position.  As readers here already know, most of the groups he names to bolster his argument are “dollar-a-holler” organizations willing to peddle the phone and cable company agenda on their letterhead in return for donation checks.

So have many additional normally Democrat paragons, including several large unions: AFL-CIO, Communications Workers of America (CWA), International Brotherhood of Electrical Workers (IBEW); several racial grievance groups: League of United Latin American Citizens (LULAC), Minority Media and Telecom Council (MMTC), National Association for the Advancement of Colored People (NAACP), Urban League; and an anti-free market environmentalist group: the Sierra Club.

If you ever wondered why AT&T and Verizon spend so much on contributions to these interest groups, Seton Motley just handed you the answer — so he and the companies he supports could name drop them in arguments against pro-consumer broadband reform.  And considering the CWA and IBEW represent phone company workers, it’s not a surprise to see them on their side of this issue either.  Wherever you look amongst those in opposition to Net Neutrality, a check from AT&T and/or Verizon is almost always waiting to be deposited.

The Obama-Has-Concentration-Camps-crowd parked on Andrew Breitbart’s website ate it up and wrote comments like this:

The communist can’t control the people with a internet that is out of control, all dictatorships have the power over what the people can read, free thinkers in this day and age are considered terrorist, Republicans, conservatives, anti abortionist, Oath Keepers, Christians, ex military, people who think the Constitution is still the law of the land, my lord, the communist can’t have these sorts communicating with each other over the internet, why, they may all come together one day and put a stop to the one world government goal, you know, the goal of making the world one big slave camp.

This kind of wild opposition has even corporate Republicans on edge, according to The Hill.  A major talking point of Net Neutrality opposition is that such “sweeping changes” should not be enforced by the FCC, but from legislation enacted in Congress.  But because Tea Party elements are opposed to the concept altogether, and Republicans are loathe to hand Democrats their votes on much of anything, even a corporate-friendly Net Neutrality bill introduced by Rep. Henry Waxman (D-Calif.) went up in flames.  Waxman’s bill would have enacted some protections, but only until 2012, at which point it was open season on broadband consumers.

The Hill piece delivered a disappointing fact of life for much of today’s Congress, beholden first to corporate interests (underlining ours):

In a striking sign that people who normally align themselves with telecommunications companies may line up behind the bill if it is industry-backed, ardent net-neutrality critic Brett Glass, founder of a wireless company, is open to it. He tweeted on Monday, in a note to Americans for Prosperity executive Phil Kerpen, that the Waxman legislation seems “more reasonable than I expected.”

In a note earlier this month, analysts at Stifel Nicolaus wrote that although Republican House members “may not have incentive to solve a political problem for Democrats,” some may support the bill “if there’s a push by” phone and cable companies and at least some Internet companies.

But the shilling for Big Telecom has never been a one-party-problem.  While Republicans appear to be moving in lock step against Net Neutrality, a number of groups and politicians on the Democratic left have also been only too willing to take AT&T money and run to a microphone to oppose a free and open Internet.

The Los Angeles Times gave plenty of space on an issue we’ve written repeatedly about on Stop the Cap!:

Key minority groups are backing the carriers’ efforts to thwart the net neutrality proposals, which would, for instance, prohibit carriers from charging more to give some residential and corporate customers priority in delivering online content.

“When you give national civil rights groups millions of private dollars, there’s no firewall strong enough to keep that money out of their policy,” said Malkia Cyril, executive director of the Center for Media Justice.

Cyril and other consumer and public advocates have been buoyed by comments from Federal Communications Commission member Mignon L. Clyburn, a prominent African American and daughter of Rep. James E. Clyburn (D-S.C.).

She said in a speech in January that she was surprised that most statements and filings by “some of the leading groups representing people of color have been silent on this make-or-break issue” of net neutrality.

“There has been almost no discussion of how important — how essential — it is for traditionally underrepresented groups to maintain the low barriers to entry that our current open Internet provides,” Clyburn said.

AT&T's cash machine benefits groups like LULAC

At issue are the enormous contributions from big phone and cable companies like Comcast, AT&T and Verizon that routinely translate into what we’ve called “dollar-a-holler” advocacy.  After the checks get deposited, many of these groups generate innocent sounding letters of support for the latest merger, deregulation, or policy debate — always in favor of Big Telecom and too often directly against the interests of the people they claim to represent.

No group better exemplifies this than the League of United Latin American Citizens (LULAC), a particularly eager player in the cash for advocacy game.  And the group doesn’t care whether the money comes from Verizon or AT&T.  They’re on board with both.

Brent A. Wilkes, executive director, penned this guest editorial for the Houston Chronicle, for which he was called an “idiot” by at least one of the newspaper’s readers:

Net-neutrality rules should prevent broadband providers from engaging in anti-competitive behavior, but they should not be commandeered to insulate wealthy Internet applications companies from paying their fair share of the broadband bill. Any new rules must protect consumers both by ensuring their unfettered access and by shielding them from having to shoulder all the costs for faster broadband networks that our nation so badly needs. Such an approach will not please the special interests, but it will be a double win for consumers.

From AT&T’s talking points to Wilkes editorial.  “Wealthy Internet applications companies” already pay for their own bandwidth and for the Internet’s expansion.  Search engine companies like Google and Yahoo! construct data centers with their own money just to maintain their services to consumers, generating jobs and helping local economies.  Wilkes ignores the fact broadband providers already earn plenty from their subscribers — consumers and businesses who pay a monthly fee so they can access those “wealthy Internet applications companies.”

But that is not enough.  Now broadband providers want to be paid twice.  To facilitate their argument, they’ve invested more than a million dollars in LULAC alone to defend their position, which ultimately brings Latinos (and everyone else) the high broadband bills today that Wiles scaremongers will be forthcoming tomorrow.

Wilkes was shocked, shocked by the implication that phone company money would have anything to do with LULAC going out of its way to comment on arcane telecommunications policy issues, always in favor of its benefactors.

“It’s kind of like saying the minority organizations can’t think for themselves,” Wilkes said, adding that any suggestion that minority groups were mouthpieces for the industry was “offensive.”

Verizon played along:

“I can tell you we do not, and have not ever, given money to minority organizations so that they will support our positions on any topic,” said Peter Thonis, a spokesman for Verizon Communications Inc. “We talk to many groups about our positions, and some agree with us and some do not.”

So if Verizon talked to Stop the Cap! about their positions, do you think we’d receive a handsome check from the phone company?

Britt cut out all of the middlemen and picked up the phone to personally lobby FCC Chairman Genachowski about broadband reform.

The Times documented numerous other examples:

For instance, David Cohen, Comcast’s executive vice president, joined the board of the National Urban League three years ago as part of a three-year partnership to promote the league’s various educational programs. Comcast, now seeking FCC approval to buy a controlling interest in NBC Universal, was recognized that year for being one of several sponsors to donate $5 million or more to the organization.

On the local level, the Greater Sacramento Urban League has Barbara Winn, a Sacramento-area director of external affairs for AT&T, as its chairwoman and Linda Crayton, Comcast’s senior director for government affairs in California, as vice chairwoman.

That affiliate’s president, David B. DeLuz, wrote to the FCC in January that net neutrality rules “will strongly reduce broadband network investments and ultimately raise prices.” DeLuz said in an interview that the two telecom executives on the chapter’s board have not influenced its net neutrality stance.

“The Urban League does not engage in pay to play,” he said. “Just because [telecoms] write a check to us doesn’t mean they write the only check to us.”

The most remarkable part about the Urban League’s argument is that in a sea of corporate cash, competing checks can cancel each other out.

While the blizzard of bucks continues to descend on Washington, Time Warner Cable CEO Glenn Britt decided his cable company could cut out the middlemen and go right to the man with the plan to reclassify broadband.  Unlike ordinary consumers, Britt had no trouble getting FCC Chairman Julius Genachowski to take his call, allowing him to personally lobby against Net Neutrality and those nasty broadcasters trying to overcharge him for permission to carry local broadcast stations on the Time Warner Cable dial.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/ATT Net Neutrality There’s a problem.mp4[/flv]

It seems like only yesterday AT&T’s Ed “Our Pipes” Whitacre was clamoring for the right to deliver the Internet to consumers his way, complete with pay walls and speed throttles.  Very little has changed since Big Ed left for Government Motors with his $158 million AT&T golden parachute.  The name at the top has changed, but AT&T still recognizes money buys friends and influence.  (2 minutes)

Verizon, the nation’s largest wireless phone company, has agreed to refund erroneous data charges for 15 million subscribers who paid for data sessions they did not initiate.

Those familiar with the proposed refund settlement claim the company could spend between $50-90 million in refunds for customers without data plans who were charged, in some cases repeatedly, $1.99 for a few seconds of web access.

The problem stems from Verizon phones that make accessing data services easy to trigger.  One misplaced button press can launch a data session, resulting in a web access fee.  Verizon repeatedly denied the company was charging customers who accidentally landed on the provider’s wireless home page, but customers loudly claimed otherwise, filing hundreds of complaints against Verizon with the Federal Communications Commission.

Teresa Dixon Murray, a reporter for The Plain Dealer in Cleveland, was among the first to report on the mysterious charges many customers couldn’t figure out, especially as they continued even for customers who placed a “block” on accessing data services or who had powered their phones off and were still charged the fees:

In a column last summer, I chronicled my battle with Verizon after I discovered Verizon had been concocting $1.99 monthly charges for supposed Web use by my family plan numbers. Verizon’s ruse ended the month that my son’s phone was dead and locked away for weeks.

Verizon responded directly to me in a meeting with several top executives, and they promised to investigate the problems suffered by thousands of customers nationwide. The company in August also promised to change its policy of charging customers if they accidentally hit their phone’s “mobile Web” button. The new policy: To get charged, customers now supposedly have to type in a Web address.

A Verizon Wireless employee anonymously told the New York Times the scheme was a planned money-maker for Verizon, which earned up to $300 million a month just from accidental web access:

“The phone is designed in such a way that you can almost never avoid getting $1.99 charge on the bill. Around the OK button on a typical flip phone are the up, down, left, right arrows. If you open the flip and accidentally press the up arrow key, you see that the phone starts to connect to the web. So you hit END right away. Well, too late. You will be charged $1.99 for that 0.02 kilobytes of data. NOT COOL. I’ve had phones for years, and I sometimes do that mistake to this day, as I’m sure you have. Legal, yes; ethical, NO.

“Every month, the 87 million customers will accidentally hit that key a few times a month! That’s over $300 million per month in data revenue off a simple mistake!

“Our marketing, billing, and technical departments are all aware of this. But they have failed to do anything about it—and why? Because if you get 87 million customers to pay $1.99, why stop this revenue? Customer Service might credit you if you call and complain, but this practice is just not right.

“Now, you can ask to have this feature blocked. But even then, if you one of those buttons by accident, your phone transmits data; you get a message that you cannot use the service because it’s blocked–BUT you just used 0.06 kilobytes of data to get that message, so you are now charged $1.99 again!

“They have started training us reps that too many data blocks are being put on accounts now; they’re actually making us take classes called Alternatives to Data Blocks. They do not want all the blocks, because 40% of Verizon’s revenue now comes from data use. I just know there are millions of people out there that don’t even notice this $1.99 on the bill.”

Verizon’s decision to refund the erroneous data charges also comes long after a class action lawsuit was filed earlier this year against the company by Goldman Scarlato & Karon, P.C., of behalf of customers.

Impacted existing customers can expect credits, typically ranging from $2-6 on their October or November bills.  Former customers will get refund checks in the mail.

The Federal Communications Commission said it was opening an investigation into the Verizon overcharges, seeking a financial penalty from the wireless carrier, according to Reuters.

The news agency noted some customers were billed for data fees just because of software pre-loaded onto phones:

The charges affected customers who did not have data usage plans, but were billed because of exchanges initiated by software built into their phones.

For example, trying out a demonstration of a game that Verizon Wireless had pre-loaded onto a phone would sometimes trigger data transmissions from the phone unbeknownst to the customers who were then charged by Verizon Wireless for the data.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/WPRI Providence Verizon To Pay Millions In Refunds 10-4-10.flv[/flv]

WPRI-TV in Providence covers the Verizon overcharges, pondering ‘why did it take more than two years for refunds?’  (3 minutes)