The year 2013 marked a significant turning point for phone companies that have handled voice telephone calls for over 100 years. For the first time, the volume of domestic telephone calls and the revenue generated from them was nearly flat. For the last two years, both are now in decline on the wireless side of the business as North Americans increasingly stop talking on the phone and text and message instead.

The U.S. wireline business peaked in the year 2000 with 192 million residential and office landlines. Over the next ten years, close to 80 million of those — 40 percent, would be permanently disconnected, replaced either by cell phones, cable telephone service, or a Voice over IP line. Wireless companies picked up the largest percentage of landline refugees, most never looking back.

Over one-third of more than $500 billion in annual revenue generated by telecom companies in 2013 came from voice services. Although that sounds like a lot, it’s a pittance of a percentage when compared to 2005 when AT&T, Sprint, T-Mobile, and Verizon Wireless earned most of their revenue from voice calls. Ten years ago, wireless companies principally sold plans based on the number of calling minutes included, and many customers often guessed wrong, paying per minute for calls exceeding their allowance.

At first, this represented a revenue bonanza for the wireless industry, which earned billions selling customers minute-based calling plans that came with built-in cost-controlling deterrents for long-winded talkers — the concern of using up their calling allowance.

Starting in 2008, wireless industry executives noticed something peculiar. While revenue from texting add-on plans was surging, the growth in calling began to level off. Wireless voice usage per subscriber peaked at an average of 769 minutes in 2007 and began falling after that year. By 2011, the average customer was making 615 minutes of calls a month. As customers began downgrading calling plans, wireless carriers shifted their quest for revenue towards text messaging.

For awhile, texting earned wireless companies astounding profits that required little extra investment in their networks. SMS service at most carriers was effectively priced at $1,250 per megabyte, broken up into 160 byte single messages. In 2011, over 2.3 trillion text messages were exchanged. A message that cost a wireless carrier an infinitesimal fraction of a penny to send and receive cost consumers up to 20 cents or more apiece if they lacked an optional texting plan. To further boost revenue, some carriers like Verizon Wireless began to pull back offering customers a variety of tiered texting plans with different messaging allowances, switching instead to a single, more expensive unlimited texting plan. Many customers balked at the $19.95 a month price and began exploring other forms of messaging each other.

The industry’s demand for profit eventually threatened to kill the goose that laid the golden egg. At the same time wireless carriers were raising prices on text messages and forcing customers into expensive texting add-on plans, free third-party messaging apps began eating into texting volume. By 2012, the use of SMS declined for the first time, with 2.19 trillion text messages sent and received, down 4.9 percent from a year earlier.

It took little time for the wireless industry to realize the days of offering plans based on calling minutes and texting were quickly coming to an end. Younger users began the cultural trend of talking less, texting more — but using a growing number of free alternative apps to do so. As a result, both AT&T and Verizon shifted their plans away from focusing on revenue from calling and texting and instead moved to monetize data usage. Today, both carriers offer base plans featuring unlimited voice calling and texting almost as an afterthought. The real money is now made from selling packages of wireless data.

Wi-Fi calling allows customers to make and receive voice calls over a Wi-Fi connection, not a nearby cell tower. The prospect of bundling that option into a cell phone just a few years ago would have been unlikely at some providers, unthinkable at others. It was never considered a high priority at any traditional carrier, although T-Mobile began offering the service all the way back in 2007.

Since most calling plans now bundle unlimited calling, letting calls ride off the traditional cellular network is no longer much of an economic concern.

Some even expect carriers to eventually embrace Wi-Fi calling, declaring it superior to alternatives like Hangouts and Skype, which require an app to handle the call. A Wi-Fi call can be received by anyone with a phone.

This month, the last holdout, Verizon Wireless, capitulated and announced it had won approval from the FCC to introduce Wi-Fi calling to customers, joining Sprint, T-Mobile, and AT&T. But Verizon plans to initially limit that service, offering an app that must be installed to make and receive Wi-Fi calls. The other three carriers integrate Wi-Fi calling directly into the primary phone call app already on the phone.

The introduction of the service is unlikely to have a significant economic impact on any wireless carrier. Most have ample room on their networks to handle cell call volumes. Whether a call is placed over Wi-Fi or traditional cellular service, it will ultimately end up on the same or a similar IP-based phone switch as it makes its way to the called party.

With little revenue-generating opportunities for voice calling or SMS messaging, companies have nearly stopped the practice of monetizing individual telephone calls, preferring to offer unlimited, all-you-want calling and texting plans that used to cost consumers considerable amounts of money.

Now wireless carriers see fortunes to be made slicing up and packaging gigabytes of wireless data, sold at prices that have little relation to actual cost, just as carriers managed with text messaging for the last 20 years. A Verizon Wireless customer using 12GB of data in October that kept a now-grandfathered unlimited data plan paid just under $30 for that usage. (This month Verizon raised the price of that coveted unlimited plan by $20 a month.) Verizon charges $80 for that same amount of data on its new “XL” data plan. Verizon’s cost to deliver that data to customers is lower than it was five years ago, but customers wouldn’t know it based on their bill. As always with the wireless industry, costs often have no relationship to the price ultimately charged consumers.

Burn Her! T-Mobile CEO John Legere announces a data hog crackdown.

T-Mobile’s CEO has declared war on about 3,000 current customers caught “stealing data from T-Mobile” by using workarounds to avoid T-Mobile’s tethering usage allowance.

T-Mobile customers with unlimited 4G LTE plans get a fixed allowance to be used for tethering when using the Smartphone Mobile HotSpot feature, which allows laptops, tablets, and other wireless devices to share a T-Mobile wireless data connection.

“These violators are going out of their way with all kinds of workarounds to steal more LTE tethered data,” said John Legere, CEO of T-Mobile USA. “They’re downloading apps that hide their tether usage, rooting their phones, writing code to mask their activity, etc. They are ‘hacking’ the system to swipe high-speed tethered data.”

Legere claims the “clever hackers are willfully stealing for their own selfish gain” and are running up as much as two terabytes of usage a month over T-Mobile’s network. Legere thunders he won’t allow this on his watch and the company is starting a campaign of countermeasures this week to go “after a small group of users who are stealing data so blatantly and extremely that it is ridiculous.”

Legere was not specific about how T-Mobile identifies customers it considers to be abusing its network, but a new FAQ on the carrier’s website explains what will happen to those deemed to be exploiting workarounds to exceed T-Mobile’s standard 7GB tethering allowance:

We’re first warning these customers that they’re illegally using more data than they bought. We hope folks will stop on their own so they can keep their current plan. These customers are on an unlimited 4G LTE smartphone plan that includes a set amount of Smartphone Mobile HotSpot data, but they’re using workarounds to make their tethering look like smartphone usage which helps them use significantly more 4G LTE tethering than their plan includes.

Customers who continue to do this will be warned, then lose access to our Unlimited 4G LTE smartphone data plan, and be moved to an entry-level limited 4G LTE data plan.

Legere

Legere is clearly concerned the crackdown could be interpreted by the Federal Communications Commission as a Net Neutrality violation.

“These abusers will probably try to distract everyone by waving their arms about throttling data,” Legere wrote. “Make no mistake about it – this is not the same issue. Don’t be duped by their sideshow. We are going after every thief, and I am starting with the 3,000 users who know exactly what they are doing. The offenders start hearing from us tomorrow. No more abuse and no risk to the rest of our customers’ experience. It’s over. If you are interested, you can find more info in our [FAQ].”

The FCC has no rules prohibiting usage caps, but the issue of speed throttling is less settled and Legere’s comments are intended to frame the issue in terms of data theft and violations of the company’s terms and conditions.

Carriers are often less lenient with hotspot usage because desktop computers and laptops often consume much more data than portable handheld devices like tablets and smartphones. T-Mobile admits that customers who need to consume a lot of data should find another ISP:

[Wired] Broadband services would be a better solution for customers who need more high-speed for tethered devices.

Google today unveiled their new wireless service, dubbed Project Fi, the first wireless carrier that combines the coverage of two competing cellular providers — Sprint and T-Mobile — to deliver affordable wireless service and a data plan that rebates back any unused portion of your monthly allowance. There are no term contracts, early termination fees, or overlimit penalty charges.

Google’s calling plan starts with Fi Basics for $20 per month. This includes:

• Unlimited domestic talk and text;
• Unlimited international texts;
• Low-cost international calls;
• Wi-Fi tethering;
• Coverage in 120+ countries (Unlimited international texts are included in the plan, Cellular calls cost 20c per minute. If calling over Wi-Fi, per-minute costs vary based on which country you’re calling and you’re charged only for outbound calls.)

There is no unlimited data plan, presumably because neither T-Mobile or Sprint was willing to allow Google to offer one. Google tries to turn that into a plus by telling customers they should only pay for the data they actually use. The 2G/3G/4G data plan is $10/GB, sold in 1GB increments up to 10GB. Whatever data you do not use is converted into a cash amount credited to the following month’s bill. Instead of rolling over data, you roll over dollars. If you exceed your allowance, there are no penalty overlimit fees. Instead, you are charged $10 for an additional gigabyte of usage, with the same privilege of getting a cash credit applied to your next bill for any data you didn’t use.

Google assumes you will spend most of your time connected to Wi-Fi, where it offers free Wi-Fi calling and texting. If you lose your Wi-Fi connection, the phone will connect to either Sprint or T-Mobile’s network without losing a call in-progress. Another unique aspect of the service is that your mobile phone number lives in the cloud, so you can talk and text with your number on just about any phone, tablet or laptop using Google Hangouts.

The Nexus 6 is a real handful. It’s also the only phone that will work on Google Fi.

Google Project Fi relies on Sprint and T-Mobile’s combined networks to deliver coverage, trying to satisfy customers seeking Verizon or AT&T-like coverage. Google’s service seamlessly chooses Wi-Fi first, followed by Sprint or T-Mobile depending on which offers the best 4G signal at your location.

Although the service has been anticipated for some time, there are some caveats to consider before rushing to sign up.

First, you cannot sign-up immediately, you can only request an invitation. As with many other new Google projects, invitation-only service means it could be days, weeks, or even a month before you can sign-up.

Second, a view of Google’s coverage map shows Project Fi has substantially reduced dead spots, but has not eliminated them. Project Fi would likely appeal to Sprint or T-Mobile customers now frustrated by their suburban coverage. Chances are good that between the two carriers, one will deliver a robust signal even if the other does not. But rural areas have always been bypassed by both carriers and this makes Project Fi a bad choice if Sprint and T-Mobile are not good options where you live or work.

For example, much of eastern Kentucky, virtually the entire state of West Virginia, and western Virginia offer little to no 3G/4G coverage. Google Fi only promises 2G coverage in these areas, through a roaming agreement T-Mobile or Sprint has with a larger carrier.

Third, unless you already own a Nexus 6, you will be spending at least $650 to buy a new smartphone. Google will initially only support the Nexus 6 for Project Fi, because it is the only phone capable of switching between Google’s wireless partners. It comes in your choice of colors, if your choice is “Midnight Blue.” The smartphone offers two storage sizes—32GB ($649) and 64GB ($699). You can buy the Nexus 6 up front or finance your phone at 0% interest or fees for 24 months at $27.04/month for the 32GB option or $29.12/month for the 64GB option. A credit check is required for the financing option.

Fourth, there are no family plan options. Each phone is assigned to its own account. If you intend to switch your family of four, you will be dealing with four individual accounts (and a whopping $2,600 to acquire four Nexus 6 phones). Because of the invitation-only approach now in effect, it may take some time to get all of your family members up and running.

Finally, Google intends that its mobile service effectively sells itself. That means they are not offering promotions to sign up and will not pay your existing carrier to cover any early termination fees. You can port your current landline or mobile telephone number to the service. Google does not disclose any fees for doing so.

[flv]http://www.phillipdampier.com/video/Google Project Fi 4-22-15.mp4[/flv]

Google produced this introductory video about its new wireless service: Google Project Fi. (1:56)

A Verizon executive told investors there is no wireless spectrum shortage in the United States and Verizon has historically purchased and warehoused spectrum it had no intention of using immediately.

Fran Shammo, chief financial officer of Verizon Communications, drew attention to Verizon’s controversial spectrum acquisition policy as part of a conversation with investors about the recent FCC auction that sold 65 megahertz of wireless frequencies for an unprecedented $44.9 billion, far and away the highest ever seen in a spectrum auction.

“In every purchase of spectrum up to this auction, the scale was that it was more efficient to buy spectrum than it was to build capacity because the scale was spectrum was cheaper to build on capacity,” Shammo said.

Before the auction, there were significant differences in Verizon Wireless’ network capacity in different cities. In New York City, Verizon controls 127MHz. In Los Angeles and San Francisco it manages with 107MHz, but only has 97MHz to work with in Philadelphia, San Diego and Chicago.

Verizon Wireless has always held spectrum it acquired at auction but never put into widespread use on its network. But bidding during the FCC’s most recent Auction 97 made bidding and warehousing unused frequencies an expensive proposition, more expensive than beefing up Verizon’s existing network with additional cell towers, microcells, and other technology to make the most use of existing spectrum assets.

“This auction flipped [our acquisition] equation in certain markets,” Shammo said in reference to Verizon’s bidding strategy. “And so we became much more diligent on what markets we strategically wanted and [which] we were willing to let go because when you looked at it, if I was to get what I wanted initially when I went in, I would have spent an extra $6 billion when I could create the same capacity with $1.5 billion by building it.”

In the most recent auction, Verizon Wireless considered spectrum acquisitions crucial in California, where it added frequencies in Los Angeles, San Diego and San Francisco. But Verizon gave up bidding on spectrum for densely populated New York and Boston where the asking price grew too high. That forces Verizon Wireless to increase the efficiency of its existing network in those cities. It will do so by deploying more cell towers to divide the traffic load, as well as adding microcells and other small-area solutions in high traffic urban areas.

Despite not getting everything it wanted, Verizon took the auction results in stride, claiming its network was fully capable of handling growing traffic loads even in areas where it failed to win new spectrum.

“People think that spectrum is the Holy Grail and if you don’t have enough spectrum, you can’t have the capacity,” Shammo said. “But actually that’s not true now because technology has changed so much. If you look at small cell technology, diversified antenna systems, and when you think [about] Chicago, if you walk down the street, you see small cells on lamp posts. So, the municipalities are starting to open up to that small cell technology.”

AT&T paid $18.2 billion for nearly 250 licenses, compared with $10.4 billion Verizon will spend on 181 licenses. The presence of Dish Networks in the bidding clearly irritated AT&T and Verizon, primarily because the satellite dish provider incorporated two “designated entities” — SNR Wireless LicenseCo and Northstar Wireless — as bidding partners, winning up to 25% off their bids as part of a “small business discount.” The two DEs won over $13 billion in licenses with $3 billion in savings.

AT&T accused Dish of circumventing auction activity rules and distorting the bidding.

“As a result, Dish the corporate entity won no licenses,” said Joan Marsh, AT&T’s vice president of federal regulatory matters. “The Dish DEs, who each enjoyed a 25% discount, won substantial allocations.”

Marsh complained Dish already controls around 81MHz of spectrum that remains unused for wireless telecom services.

Dish also made life difficult for large carriers who have learned to predict the likely bidding strategies of their competitors based on experience. Many were surprised Dish managed to both bid up prices and win a substantial percentage of spectrum, all for a wireless business it has yet to build.

T-Mobile was not happy either. CEO John Legere called the auction “a disaster for American wireless consumers.” T-Mobile suffered considerably in the auction, outspent by Dish & Friends 132 times for important wireless licenses.

“Three companies alone spent an insane $42 billion between them, grabbing a ridiculous 94 percent of the spectrum sold at this auction,” Legere wrote, referring to AT&T, Dish Network and Verizon Wireless. “This whole thing should scare the hell out of you and every other wireless consumer in the U.S., because there is another important auction next year, and the results have to be different if wireless competition is going to survive.”

With the auction over, Verizon Wireless will continue to shift its spectrum usage around to accommodate network changes. Verizon will continue to emphasize enlarging 4G LTE services while gradually reducing the percentage of its network used for other purposes. Verizon expects to shut off its CDMA voice network in the early 2020s and is reducing the amount of spectrum dedicated to supporting its legacy 3G network.