The primary backers of the ABC Plan

Today, Federal Communications Commission Chairman Julius Genachowski is scheduled to deliver a major announcement on reforming the Universal Service Fund (USF) — a federal program designed to subsidize the costs of delivering telecommunications services to rural America.

The reform, long overdue, would transition a significant percentage of USF fees every telephone customer pays towards broadband deployment — a noble endeavor.  For years, Americans have paid more than $5 billion annually to phone companies large and small to maintain rural landline service.  Small co-op phone companies depend on the income to deliver affordable service in places like rural Iowa, Kansas, and Alaska.  But large companies like AT&T and Verizon also collect a significant share (around $800 million annually) to reduce their costs of service in the rural communities they serve.

That’s particularly ironic for AT&T, which time and time again has sought the right to abandon universal rural landline service altogether.

Genachowski’s idea would divert USF funding towards broadband construction projects.  The argument goes that even low speed DSL requires a well-maintained landline network, so phone companies that want to deploy rural broadband will have to spend the money on necessary upgrades to provide just enough service to earn their USF subsidies.  The lower the speed, the lower the cost to upgrade networks and provide the service.  Some may choose wireless technology instead.  Since the telephone companies have fought long and hard to define “broadband” as anything approaching 3-4Mbps, that will likely be the kind of speed rural Americans will receive.

At first glance, USF reform seems like a good idea, but as with everything at the FCC these days, the devil is always in the details.

Dampier: Another day, another self-serving plan from the phone companies that will cost you more.

While headline skimmers are likely to walk away with the idea that the FCC is doing something good for rural broadband, in fact, the Commission may simply end up rubber stamping an industry-written and supported plan that will substantially raise phone bills and divert your money into projects and services the industry was planning to sell you anyway.

Stop the Cap! wrote about the ABC Plan a few weeks ago when we discovered almost all of the support for the phone-company-written proposal comes from the phone companies who back it, as well as various third party organizations that receive substantial financial support from those companies.  It’s a dollar-a-holler astroturf movement in the making, and if the ABC Plan is enacted, you will pay for it.

[Read Universal Service Reform Proposal from Big Telcos Would Rocket Phone Bills Higher and Astroturf and Industry-Backed, Dollar-a-Holler Friends Support Telco’s USF Reform Plan.]

Here is what you probably won’t hear at today’s event.

At the core of the ABC Plan is a proposal to slash the per-minute rates rural phone companies can charge big city phone companies like AT&T and Verizon to connect calls to rural areas.  You win a gold star if you correctly guessed this proposal originated with AT&T and Verizon, who together will save literally billions in call connection costs under their plan.

With a proposal like this, you would assume most rural phone companies are howling in protest.  It turns out some are, especially some of the smallest, family-run and co-op based providers.  But a bunch of phone companies that consider rural America their target area — Frontier, CenturyLink, FairPoint and Windstream, are all on board with AT&T and Verizon.  Why?

Because these phone companies have a way to cover that lost revenue — by jacking up your phone bill’s USF surcharge to as much as $11 a month per line to make up the difference.  In the first year of implementation, your rates could increase up to $4.50 per line (and that fee also extends to cell phones).  Critics have been widely publicizing the increased phone bills guaranteed under the ABC Plan.  In response, advocates for the industry are rushing out the results of a new study released yesterday from the Phoenix Center Chief Economist Dr. George S. Ford that claims the exact opposite.  Dr. Ford claims each customer could pay approximately $14 less per year in access charges if the industry’s ABC Plan is fully implemented.

Genachowski

Who is right?  State regulators suggest rate increases, not decreases, will result.  The “Phoenix Center,” unsurprisingly, has not disclosed who paid for the study, but there is a long record of a close working relationship between that research group and both AT&T and Verizon.

But it gets even worse.

This shell game allows your local phone company to raise rates and blame it on the government, despite the fact those companies will directly benefit from that revenue in many cases.  It’s a real win-win for AT&T and Verizon, who watch their costs plummet while also sticking you with a higher phone bill.

The USF program was designed to provide for the neediest rural phone companies, but under the new industry-written rules being considered by the FCC, just about everyone can get a piece, as long as “everyone” is defined as “the phone company.”  There is a reason this plan does not win the hearts and minds of the cable industry, independent Wireless ISPs, municipalities, or other competing upstarts.  As written, the USF reform plan guarantees virtually all of the financial support stays in the Bell family.  Under the arcane rules of participation, only telephone companies are a natural fit to receive USF money.

Genachowski will likely suggest this plan will provide for rural broadband in areas where it is unavailable today.  He just won’t say what kind of broadband rural America will get.  He can’t, because the industry wrote their own rules in their plan to keep accountability and oversight as far away as possible.

For example, let’s assume you are a frustrated customer of Frontier Communications in West Virginia who lives three blocks away from the nearest neighbor who pays $50 a month for 3Mbps DSL broadband.  You can’t buy the service at any price because Frontier doesn’t offer it.  You have called them a dozen times and they keep promising it’s on the way, but they cannot say when.  You may have even seen them running new cable in the neighborhood.

Frontier has made it clear they intend to wire a significantly greater percentage of the Mountain State than Verizon ever did when it ran things.  Let’s take them at their word for this example.

The telephone companies have helpfully written their own rules for the FCC to adopt.

Frontier’s decision to provide broadband service in West Virginia does not come out of the goodness of their heart.  At a time when landline customers are increasingly disconnecting service, Frontier’s long-term business plan is to keep customers connected by selling packages of phone, broadband, and satellite TV in rural markets.  Investment in DSL broadband deployment has been underway with or without the assistance of the Universal Service Fund because it makes financial sense.  Our customer in West Virginia might disconnect his landline and use a cell phone instead, costing Frontier any potential broadband, TV and telephone service revenue.

Under the ABC Plan, Frontier can be subsidized by ratepayers nationwide to deliver the service they were planning to provide anyway.  And what kind of service?  The same 3Mbps DSL the neighbors have.

If your county government, a cable operator, or wireless competitor decided they could deliver 10-20Mbps broadband for the same $50 a month, could they receive the USF subsidy to build a better network instead?  Under the phone company plan, the answer would be almost certainly no.

Simon Fitch, the consumer advocate of the Federal-State Joint Board on Universal Service, which advises the FCC on universal service matters, says the ABC Plan is a consumer disaster.

“Although a stated goal of the FCC’s reform effort is to refocus universal-service funding to support broadband, the industry’s ABC plan requires no real commitment to make broadband available to unserved and underserved communities,” Fitch writes. “Companies would receive funds to provide broadband with upload and download speeds that are already obsolete. States would be given no real enforcement power.”

Fitch is certain companies like AT&T and Verizon will receive enormous ratepayer-financed subsidies they don’t actually need to provide service.

Back to AT&T.

In several states, AT&T is seeking the right to terminate its universal service obligation altogether, which would allow the same company fiercely backing the ABC Plan to entirely walk away from its landline network.  Why?  Because AT&T sees its future profits in wireless.  Under the ABC Plan, AT&T could build rural cell towers with your money to provide “replacement service” over a wireless network with or without great coverage, and with a 2GB usage cap.

At the press conference, Genachowski could still declare victory because rural America would, in fact, get broadband.  Somehow, the parts about who is actually paying for it, the fact it comes with no speed, coverage, or quality guarantees, and starts with a 2GB usage cap on the wireless side will all be left out.

Fortunately, not everyone is as enamored with the ABC Plan as the groups cashing checks written by AT&T.

In addition to state regulators, Consumers Union, the AARP, Free Press, and the National Association of Consumer Advocates are all opposed to the plan, which delivers all of the benefits to giant phone companies while sticking you with the bill.

There is a better way.  State regulators and consumer groups have their own plans which accomplish the same noble goal of delivering subsidies to broadband providers of all kinds without increasing your telephone bill.  It’s up to the FCC to demonstrate it’s not simply a rubber stamp for the schemes being pushed by AT&T and Verizon.

Apple is set to announce a new iPhone or two early this afternoon, but some in the tech media notice the frenetic excitement of the newest Apple sensation has been tempered, in part because many of the new software and cloud storage features will run into usage caps for some, speed throttles for everyone else.

The imminent arrival of anticipated models iPhone 4S, expected to sell at AT&T and Verizon and iPhone 5, which is rumored to be sold exclusively by Sprint during a short sales window, remains a big deal for all three carriers.  Verizon is reportedly allowing its call center employees to take unlimited overtime in preparation for the anticipated rush of questions and orders.  Sprint, which has 33 million customers on two-year contracts, has made a commitment to sell at least 30.5 million Apple iPhones over four years, if reports by the Wall Street Journal turn out to be accurate.  That’s a lot of phones.

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/Sprint Getting iPhone 10-3-11.flv[/flv]

9 to 5 Mac shows off a mock image of what the newest iPhone 5 will probably look like. Pay close attention to the rounded edges and bezel.

Reports from the Wall Street Journal, WDAF-TV in Sprint’s home base of Kansas City, and Bloomberg News discuss the implications of Sprint’s deal with Apple.  (11 minutes)

That’s also an enormous gamble for Sprint, which is guaranteed no real profits from the venture until the year 2014.  If the company does win temporary exclusivity of an iPhone model that includes support for Sprint’s 4G network, WiMax, it will also bring the company an enormous number of new customers.

Among the most important new features of the phone is iOS 5, the latest version of Apple’s mobile operating system.  It comes loaded with new ways to burn through the stingy usage caps AT&T and Verizon Wireless are now providing their customers:

1. Over the air upgrades/activations: Apple’s notoriously huge software updates can be delivered to your wireless device without syncing it on a personal computer.  That means downloading software updates that can easily exceed the 200MB “light usage” plans some carriers sell budget-conscious customers;
2. Notification Center: Puts messages from e-mail, texts, and apps in a more convenient place to access and respond, increasing usage;
3. NewsStand: Leverages newspaper and magazine content in a single app, downloading content pushed to your phone, increasing usage;
4. Safari Sync: The Safari web browser will now sync with other instances of the browser on other devices to keep your reading list updated;
5. iMessage: Send texts, photos, and bandwidth-hogging video to friends and family, potentially driving up usage considerably;

But nothing is expected to spike wireless data usage like Apple’s new iCloud and iTunes Match, both of which manage and sync multimedia content and app purchases between devices “over the cloud.”  Unfortunately, repeated journeys of this type will burn through your usage allowance, and those with significant-sized libraries of photos, music, or videos are at serious risk of blasting past their usage cap.  Even customers who use more than 4-5GB on “unlimited data plans” sold by AT&T and Verizon will face the scourge of the speed throttle, which will reduce your zippy new phone to speeds that resemble dial-up.

AT&T and Verizon Apple iPhone customers are at the highest risk of facing the speed throttle, because Apple is not expected to support either company’s 4G data network.  Verizon only exempts 4G customers from the speed throttle when they use the 4G network.

The one company well-positioned to capitalize on these realities happens to be Sprint, which is keeping its truly unlimited data plan.  If Apple comes through with 4G support for Sprint, customers could not only say goodbye to AT&T and Verizon’s slower 3G speeds, they would also be able to rest easy knowing they won’t experience bill shock or a month in the dial-up speed penalty corner if deemed to be using “too much” service.

Customers of the two biggest carriers need to get familiar with switching to Wi-Fi as often as possible, and avoid using data-intensive features on usage-limited plans.  For Verizon and AT&T, it’s the best of all worlds — another two year contract for a usage-limited data plan that guarantees increased revenue and reduced costs.  For you, it’s an improved phone you can never use to its full potential.

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/Little Buzz Over New iPhone 10-4-11.flv[/flv]

The Wall Street Journal reports there isn’t as much buzz over this year’s newest iPhone.  Bloomberg talks about the software changes in the new phone, and WWLP-TV in Springfield notes Verizon’s unions are calling on Americans to boycott the new phone until Verizon workers get a fair contract.  (8 minutes)

Update 2:00pm ET:  The Wall Street Journal reports the Sprint iPhone will not support their 4G network: According to people familiar with the company’s plans, the hotly anticipated device won’t operate on long-term evolution or WiMAX fourth-generation networks. Those wireless networks promise speedier downloading to mobile devices of episodes of television programs, as well as cute baby photos. The people said the device will work on 3G networks, which are broadly in use today and are the standard for the current iPhone 4. AT&T says its HSPA+ network has 4G-like speeds.

Update 4:00pm ET: The announcement event finally concludes with news the iPhone 5 is vaporware for now.  Sprint will end up with the same Apple 4S phone AT&T and Verizon will sell on their respective networks. The San Jose Mercury News was not thrilled with the event:

At a rollout that lacked some of the thrills and surprises of past product releases — and disappointed some in attendance who expected a completely made-over iPhone 5 — Siri stood out as the sexiest new feature on an iPhone that, contrary to speculation, isn’t any thinner or different looking on the outside than its predecessor, the iPhone 4.

“This phone is better than the iPhone 4 in many ways, even though it looks the same,” said Avi Greengart, an analyst with Current Analysis on hand for the unveiling before several hundred reporters, bloggers, analysts and other guests. “Sales will be wildly successful, but Apple fanboys’ expectations probably were not met today.”

The new phone, which will be available Oct. 15 after pre-orders begin Oct. 7, will cost $199 for a 16-gigabyte version, $299 for 32GB and $399 for 64 GB. It had been center-stage in the tech blogosphere for months, as pundits weighed in with what they saw as the most obvious bells and whistles Apple would unleash on their growing fan base. Tuesday, some were surprised by how wrong that had been.

The phone that everyone thought would be thinner than the iPhone 4, pretty much resembled its older sibling. But as analysts had suspected, the new phone is much faster, thanks for the new A5 chip inside it, and it has plenty of consumer-pleasing attributes, most of them inside the case.

Allen Wan from Chicago dropped Stop the Cap! a postcard by good old snail mail about today’s broadband cap ‘n tier regime in place at some of America’s largest Internet Service Providers to make an important point: with Internet Overcharging schemes like usage caps and usage-based billing, America’s best broadband value may actually come from the United States Postal Service.

Allen breaks it down for us:

Allen’s chart points out that for large file transfers like movies, TV shows, and major software updates, consumers actually get more value on a per-GB basis burning those shows and software to a traditional or dual-layer (DL) DVD, and dropping them in the mailbox.

While prices for service may vary, so do Internet Overcharging schemes.  If a customer reaches their monthly limit one time too many, they will be relying on the post office to move files back and forth because companies like Comcast and Cox will terminate their service.  Other providers, like AT&T and Suddenlink, are content to simply send the customer a bill with overlimit charges on it.

With a marketplace duopoly, ineffective government oversight, and ever-increasing prices, the U.S. Post Office may still be in the running after all, thanks to Back to the Future-pricing from your ISP.

Courtesy 9 to 5 Mac

AT&T has begun sending out warnings to wireless customers deemed to be using too much of their “unlimited data plans” and are now subject to speed throttling that will reduce their wireless Internet experience to one more familiar for dial-up users.

Life in the slow lane is the price AT&T customers pay for being a member of the Top 5% Data User Club.  Running the numbers, that means using more than around 4GB of wireless usage per month.  One customer who managed to rack up 11GB in September, even before the new speed throttle plan took effect Oct. 1, has already found himself in the speed reduction doghouse with a warning message he received Sept. 29.

Although the customer did not reveal what he was doing to achieve 11GB of usage in one month, the two most common ways to run up usage are watching a lot of streamed video or using your phone to tether to other wireless devices, especially laptops.  Some wireless customers are attempting to use their unlimited data plans as a home broadband replacement, especially in rural areas where cable or DSL service is not available.  That’s an option AT&T doesn’t seem to want customers to consider.

In addition to eliminating unlimited use plans for new customers more than a year ago, the company has increasingly cracked down on existing customers grandfathered into unlimited use plans.  In addition to banning third party tethering apps, AT&T is now simply reducing speeds for heavy users to make high bandwidth applications like video and even some forms of streaming audio impossible when residing in the penalty box.

But don’t worry: you can still use your data plan to read e-mail or browse simple web pages.  The company also advises customers can use unlimited amounts of Wi-Fi, whether they provide it or not.

Suddenlink will introduce an Internet Overcharging scheme beginning with their customers in Amarillo, Tex. Oct. 3rd, according to a company document obtained by Stop the Cap!  But the new usage cap and overlimit fee scheme will not be limited to Texas.  The company’s internal memo notes the new limits will eventually be imposed on customers nationwide, and incredibly, the cable operator claims it will make their Internet service better:

Early next month, October 2011, Suddenlink will notify residential (non-business) Internet customers in Amarillo, Texas, of a new usage allowance plan (AP) that is designed to further enhance their Internet experience.

This allowance plan will be introduced to other residential Internet customers, in other Suddenlink communities, in the following weeks and months.

An introductory letter will be mailed to Suddenlink residential Internet customers, when our allowance plan goes into effect in their community. The introductory letter to Amarillo customers will be mailed on or about October 3, 2011.

In addition to the introductory letter noted above, we will launch a new Web page on or about October 3, 2011, at suddenlink.com/allowanceplan.

This new page will provide additional information about the allowance plan in the form of frequently asked questions (FAQs).

Suddenlink's national service area

On the first instance of exceeding the limit, the customer’s Internet service will be suspended until the customer reads and agrees to a web notification message that includes an understanding that on the fourth instance of going over their usage cap, customers will be billed $10 for every 50GB increment that exceeds their allowance, whether it is by 1MB or 40GB.  That pricing is identical to AT&T’s usage cap overlimit fee.

Amarillo residents already pay $55 a month for 15Mbps standalone broadband service from Suddenlink.

Stop the Cap! reached out twice today to Suddenlink officials to get their reasons for implementing the usage allowance program, what the specific allowances might be, and when the usage caps will reach markets beyond Amarillo.  We have still not heard back from them as we “go to press” but will update the piece if and when we do receive their comments.

Suddenlink’s employees are being trained on how to handle the inevitable complaints when customers discover their bills have suddenly increased.  Their employee FAQ:

Q. I only went over my allowance by 1 gigabyte, but I was still charged $10. I thought I would not be charged $10 until I was 50 gigabytes over my allowance. What happened?

Of the very few customers who go over their monthly allowance, we have found that most go over by a significant amount. Accordingly, to make this process as fair and simple as possible on all customers, we do not start charging until the third time someone goes over the allowance – and, once that happens, we automatically assign additional allowances to the account, in standard 50-gigabyte installments, at a standard price of $10 for each installment.

Customers can use all or some of that additional allowance, depending on their individual situations. What’s more, if they exceed the additional allowance of 50 gigabytes, another 50-gig allowance is automatically applied, again at the standard price of $10.

To help customers manage their Internet accounts, we have provided a way for them to monitor their monthly usage at Suddenlink.net.
• If you’re already registered at Suddenlink.net, log on, go to “My Account,” and then click the link for “My Internet Usage Summary.”
• If you’re not already registered at Suddenlink.net, visit that site, look toward the upper right corner for the log-in box and the link that reads “Don’t have an account? Sign up now!” Follow that link to a set of instructions on how to register your account, and then, when you’re finished, click the link for “My Internet Usage Summary.”

Kent: The days of system upgrades are over.

Finally, we offer some tips at suddenlink.com/allowanceplan, about ways to keep usage within the monthly allowances we’ve established.

Q. Can I have fewer than 50 gigabytes or less than $10.00 applied to my account the next time I go over?

Not at this time. The 50-gigabyte installments and $10 per installment charges have been standardized in all areas where we’ve rolled out this allowance plan, to make the process as fair and simple as possible on all customers.

Q. I don’t recall being notified that this was starting in my area. When did that happen?

We mailed letters announcing this change to all customers in your area several weeks before the allowance plan was put into place. I’m sorry if you missed that letter, but rest assured, very few customers – less than 1 out of every 100 – go over their allowance. And for the very few customers who do go over their allowances, charges are waived the first couple of times.

Q. What gives Suddenlink the right to do this?

We occasionally make changes to our Internet services, consistent with our Residential Services Agreement, which is published on our website. This allowance plan is one of those changes.

If asked: To view our Residential Services Agreement, go to Suddenlink.com, and look for a link near the bottom of the page titled, “Terms & Policies.” Click on that link and then look for another link titled, “Residential Services Agreement.” Click on that link and then scroll down the page until you see the sections related to Internet service, such as Section 46.

Suddenlink’s new Internet Overcharging website is not yet active, so we are unsure exactly what plan limits will be, but Suddenlink has been no stranger to usage caps.  The company introduced a usage meter in several markets in the summer of 2009, and used to claim usage limits were partly to handle traffic loads on a limited number of cable systems that were in the process of upgrading.  Once the upgrades were complete, the caps were supposed to be relaxed or retired.

Then, Suddenlink president and CEO Jerry Kent appeared on CNBC last September to announce that people don’t realize the days of system upgrades are over and it was time to rake in the profits:

“I think one of the things people don’t realize [relates to] the question of capital intensity and having to keep spending to keep up with capacity,” Kent said. “Those days are basically over, and you are seeing significant free cash flow generated from the cable operators as our capital expenditures continue to come down.”

Suddenlink’s journey to usage caps includes all the hallmarks we foretold in an article published on Stop the Cap! in 2009:

1. Establish a foundation for usage caps.  In their 2009 FAQ, Suddenlink conflated broadband usage with electricity: “What is “Internet usage”?  Much like electric usage is measured in kilowatts, and water usage is measured in gallons, Internet usage is measured in gigabytes (GB).”
2. Establish a ‘pulled from the air’ number of gigabytes (which often conveniently later becomes your usage allowance) and then tell subscribers what they can do with that.  In Humboldt County, Calif., in March 2011, Suddenlink began telling “heavy users” what other customers were doing with what the company deemed a more appropriate, average amount of Internet service.  Suddenlink also told customers the Internet service they were providing was for “entertainment only.”
3. Tell customers such tools are actually for their benefit.  See above.
   
4. Lie to customers when a usage meter suddenly shows up or terms and conditions are quietly changed to support an Internet Overcharging scheme.  In 2009, Suddenlink introduced a usage meter but tried to reassure customers, telling them: “Does Suddenlink plan to set a maximum usage allowance for its Internet customers, like other companies are doing? Do you plan to charge extra if a customer’s usage is too high?  Those steps are not part of our current plan. Our only goal at this time is to help the few customers whose usage is well above (two to three times higher than) the typical range to identify the reasons for that high usage and take steps to protect and secure their computers and accounts.”

You used too much. Look what you can do with an "average" amount of usage instead.

Now usage caps will protect and enhance Suddenlink’s profits on Internet service.  Remarkably, Suddenlink put itself in the “predicament” of facing increased customer demand of the Internet through its own marketing.  The company’s website heavily promotes its bandwidth-heavy Suddenlink2GO™ service to “watch TV online anytime, anywhere in the U.S. on any computer for FREE when you subscribe!”

But “free” becomes $10 for every 50GB if you watch too much.

How to Get Unlimited Back: If you are a Suddenlink residential customer who does not want to face restricted-use Internet, you can avoid the limits by switching to Business Class service, which will not have caps.  Unfortunately, pricing information was not immediately available to us.  One customer in Lubbock noted he paid $69 a month for 6Mbps Business Class service and $107 a month for 107Mbps residential service, so expect to pay comparatively more for lower speed service.