Thanks to a divided 5-4 decision by the U.S. Supreme Court, customers trying to seek relief from unilateral fees and surcharges suddenly showing up on their Verizon cell phone bills will have to pursue individual arbitration claims with the cell phone company instead of joining forces in a class arbitration claim.

That Supreme Court case, AT&T Mobility v. Concepcion, is turning out to benefit Verizon Wireless as much as AT&T, because the Supreme Court found merit in contracts obligating customers to seek individual arbitration to settle differences while forbidding customers from pursuing organized legal action.

Now the 3rd U.S. Circuit Court of Appeals in Philadelphia has reversed an earlier ruling, reinstating a 2008 decision by U.S. District Judge Freda Wolfson that delivered victory to Verizon Wireless.

At issue was Verizon’s decision in October 2005 to unilaterally impose an “administrative fee” of $0.40 and/or $0.70, as part of the monthly charges for each Verizon cell phone line.  Customers upset with the new fees felt they violated the principle that, as part of their two year contracts, Verizon would deliver a fixed-price service.  The cell phone company has since implemented a variety of fees and surcharges on customers that are pocketed by Verizon, regardless of the contract price.

All Verizon Wireless customers are obligated by contract to challenge any terms and conditions they disagree with through an arbitrator of Verizon’s choosing, at a place also chosen by the company.  That means Verizon could place an arbitrator on retention in a city potentially thousands of miles away, and demand the customer make their case there, to an arbitrator whose livelihood ultimately depends on retainer fees paid by the company.  Few consumers would make such a journey to protest a fee that amounts to less than $10 a year per line.

Lawyers Keith Litman and Robert Wachtel, representing Verizon customers, decided to try a different approach — a class action arbitration.  The two attorneys would represent potentially millions of impacted customers themselves, making any travel cost concerns incidental, and providing a seasoned challenge before arbitrators, who would also hear counter-arguments from Verizon’s own legal team.

Verizon’s attorneys argued such class action arbitration was specifically forbidden in the company’s contract with customers.  Normally, a judge might decide at that point a customer agreeing to those terms and conditions was effectively up the creek.  But a series of legal challenges in circuit courts opened the door to invalidating those terms.

Litman and Wachtel argued that because the New Jersey Supreme Court, in Muhammad v. County Bank of Rehoboth Beach, Del. (2006), has held that an arbitration provision in a consumer contract that precludes class arbitration of low-value claims is unconscionable under New Jersey law, similarly, the arbitration provision in Verizon’s contract is also unenforceable.

Unfortunately for the two attorneys representing consumers, the decision by the U.S. Supreme Court effectively overrode that case, leaving Verizon on top with Judge Wolfson’s 2008 decision.

Wolfson

Wolfson’s written ruling on the case seemed unimpressed with claims that Verizon’s fees were unconscionable:

In this case, Plaintiffs are customers who chose Verizon as their wireless provider at least four years ago and continue to use Verizon today. They signed the customer Agreement with the arbitration clause and agreed to subsequent terms of service as added by Verizon. Plaintiffs do not allege that they did not understand the Agreement that they voluntarily entered into nor do they allege fraud or misrepresentation. The parties agreed “to settle [their] disputes . . . only by arbitration,” and the “agreement doesn’t permit class arbitration.” Therefore, [federal law] requires this Court to uphold the arbitration provision within Plaintiffs’ service Agreement.

But Judge Wolfson did recognize the effective impact of her decision:

“The Court recognizes the many hardships visited upon plaintiffs, such as in this case, based upon this ruling. First, it creates the opportunity for a different result depending on whether the case is brought in federal or state court. Second, it is also clear that compelling individual arbitration in this case will be tantamount to ending the Plaintiffs’ pursuit of their claims, as there is very little possibility that these Plaintiffs or any other plaintiff will pursue individual arbitration for claims that amount only to several dollars in damages. While this outcome is harsh, this Court is bound by Third Circuit precedent.”

Lately, Verizon Wireless customers have been seeking other forms of relief when Verizon unilaterally changes or implements new fees or surcharges.  Many are invoking the “materially adverse” clause found in Verizon’s terms and conditions, which theoretically allows customers to exit their contracts penalty-free if they do not agree to the changes Verizon is imposing on customers.  Verizon Wireless appears to be increasingly aggressive in fighting these claims, too, refusing to allow customers to leave without stiff early termination fees.  That may become the subject of another lawsuit at some point in the future.

Cornell University students pay an average of $37,000 a year (before housing, student fees, and other expenses) to attend one of America’s most prestigious universities.  When they arrive on-campus, it doesn’t take long to learn the college has one of the nastiest Internet Overcharging schemes around for students deemed to be using “too much Internet.”

For years, Cornell limited students to less than 20 gigabytes of Internet usage per month, only recently increasing the monthly allowance to 50GB this summer.  Cornell’s overlimit fee starts at $1.50 per gigabyte, billed in megabyte increments.  Now some students are pushing back, launching a petition drive to banish the usage limits that curtail usage and punish the 10 percent of students who exceed their allowance.

Christina Lara, originally from Fair Lawn, N.J., started the petition which has attracted nearly 300 signatures over the past few weeks.

“Cornell students, along with students across the world, rely on the Internet to pursue their academics, independent research, and leisure activity,” Lara writes. “We should not be subjected to charges for our Internet usage, particularly because our curriculums mandate we use the Internet. Despite this, Cornell University continues to adopt NUBB (Network Usage-Based Billing), which charges students for exceeding the 50 gigabyte per month ‘allowance.'”

Lara incurred bills as high as $90 a month in overlimit fees last year, thanks to regular use of Netflix and Skype for online video chats with friends and family back home.

Internet fees for on-campus housing are included in the mandatory student services fee.  Although Time Warner Cable has a presence on campus, most residence halls don’t appear to be able to obtain service from the potential competitor, which sells unlimited Internet access in the southern tier region of New York where Cornell is located.  Instead, Cornell students on campus rely on the university’s wireless and Ethernet broadband network, and DirecTV or the university’s own cable TV system for television.

Lara

The apparent lack of competition makes charging excess-use fees for Internet usage easy, critics of the fees charge.

“It’s much easier if you live off-campus or in one of the apartment complexes students favor,” says Neal, one of our readers in the Ithaca area who used to attend Cornell.  “The only complication is getting access to the University’s Intranet, which is much easier if you are using their network.”

Neal says Verizon delivers landline DSL to off-campus housing, but not on-campus.  Because the service maxes out at 7Mbps, most who have other options sign up for Time Warner Cable’s broadband service instead.

“It’s cheaper on a promotion and much faster, and it’s still unlimited,” Neal says. “Hasbrouck, Maplewood and Thurston Court were the only residential buildings that offered the chance for Time Warner Cable on-campus, and only if the wiring was already in place.”

Neal notes many apartment complexes off campus have contracts with Time Warner Cable, which means cable TV and basic broadband are included in your monthly rent.  Some Cornell students who live on or near campus try to make do with a slower, but generally free option — the Red Rover Wi-Fi network administered by the University.  Others reserve the highest usage activities for computers inside university academic buildings, where the limits come off.

Lara complains Ithaca, and the southern tier in general, is hardly an entertainment hotbed, making the Internet more important than ever for leisure activities.

Time Warner Cable provides the rest of Ithaca with unlimited Internet.

“If Cornell was situated in a major metropolitan area with a vast nightlife that could accommodate the interests of most, if not all, our undergraduates, then many Cornellians wouldn’t be so inclined to stay in their rooms and get on the Internet,” Lara says. “But that’s not the case. Cornell’s Greek life dominates the social scene, making ‘nightlife’ a dividing factor in the community.”

Tracy Mitrano, Cornell’s director of information-technology policy, told The Chronicle the vast majority of students will never hit the cap, and those that do cannot be charged more than $1,000 a month in overlimit fees, regardless of use.  Those that do exceed the limit typically find a monthly bill for “overuse” amounting to $30.

“The approach that Cornell uses offers transparency and choice,” said Mitrano. She noted that Cornell provides students with clear information regarding their network usage by alerting them by e-mail when they are about to hit the limit and by setting specific rates for overuse fees.

“The choice seems to be using the university network or moving off-campus to buy Verizon or Time Warner Cable broadband to avoid the usage cap,” counters Neal. “I am not sure their ‘choice’ argument flies if students don’t have the option of signing up for Road Runner in their rooms on their own, bypassing the Internet Overcharging altogether.”

Both Neal and Gregory A. Jackson, vice president of Educause, seem to be reaching consensus on whether or not universities should be charging students for Internet separately from room and board.  Jackson notes it is a discussion being held at an increasing number of universities.  Neal thinks having a wide open access policy to deliver competition could solve this problem in short order, and students should make the decision where to spend their broadband funds themselves.

“If Cornell’s IT bureaucracy faced unlimited-access competition from Verizon and Time Warner Cable, do you think they’d still have a 50GB usage cap, considering only a small percentage of their captive customers exceeded it,” Neal asks.  “Of course not.”

[Thanks to PreventCAPS for the story idea.]

Martha's Vineyard

President Barack Obama’s arrival on Martha’s Vineyard brings a gift any local resident can enjoy: improved cell phone reception on the island, located off the coast of Massachusetts.

The president’s advance team and entourage rely on Verizon Wireless cell phone service, so when the president travels to a vacation spot, Verizon Wireless usually follows with one or two temporary cell towers to guarantee adequate coverage.  This summer is no different, and customers that used to have to walk outside and face the mainland for adequate reception are suddenly enjoying four bars, thanks to two traveling cell towers strategically placed on the island at Chilmark and West Tisbury.

Martha’s Vineyard is notorious for lousy cell phone reception, and the island’s small population has not justified investment for improved service.  Even when carriers explore the idea, local residents usually object to the proposed cell towers, dismissed as unsightly.

But for much of August, the island’s cell phones have been ringing as Verizon customers accustomed to simply going without service while on the island are suddenly getting rock solid service.  That puts a temporary end to the usual practice of trading knowledge of “known reception spots” — specific floors in buildings, certain sidewalks with an especially clear view to the coastline, or where unknown forces converge to deliver enough signal to make a quick call or send a text message.

The cacophony of ringtones has received a mixed reception from the locals, some of whom are unimpressed with wealthy vacationers, bankers, and politicians who call Martha’s Vineyard home for two weeks during the summer.

Rachel Fox, an entertainment lawyer from Manhattan whose family has a home on the island told the New York Times, “A lot of the people who vote here, who live here year-round, couldn’t care less if the people who invade them in the summer get to talk to their Hollywood producers in the middle of the Chilmark [general] store.”

Cell Tower on Wheels

When the president leaves, Verizon’s two cell-on-wheels-trucks leave as well, leading some 15,000 locals to ponder who is paying Verizon to haul the two towers on and off of the island and the expense to run them.  The newspaper wondered the same and didn’t get a clear answer.

Laura Williams, a spokeswoman for the White House Communications Agency, said its job was to ensure “that the president has the best communications possible wherever he travels” so that he can “remain informed and connected.” But Ms. Williams would not answer specific questions about the enhanced service, including how much it costs and who pays for it, citing security concerns.

One thing is certain, the two or three week cell phone nirvana the island enjoys in the summer only benefits Verizon Wireless customers.  Those with AT&T, T-Mobile, and Sprint find themselves with no bars in virtually all places on the island.

That suits Linda Alley, whose home in West Tisbury is located right next door to one of Verizon’s temporary towers, just fine.

“I’m not attached to my cell phone like a lot of people are,” she told the Times. “I couldn’t care less.”

Sen. Schumer

Senator Chuck Schumer (D-New York) has proposed cell phone carriers permanently disable stolen cellphones, unless and until they are reactivated by the original owner.

Currently, only Verizon Wireless shuts down stolen phones, preventing their easy reactivation.  Other carriers only disable internal SIM cards, which are easily replaced by any thief in minutes, and for a fee AT&T and T-Mobile will reactivate any phone.  Sprint only disables access to stored contact lists and contents of memory cards that often accompanying modern smartphones.  But anyone can reactivate a stolen Sprint or Nextel phone just by claiming to have acquired it legitimately from the former owner and replacing the removable SIM card.

The result of easy reactivation is a thriving black market for stolen phones, particularly in New York.

“Forty-one percent of all property crimes in New York City in the first half of this year were related to cellphones,” Schumer said, noting phones often sell for hundreds of dollars and are back in operation sometimes hours after being stolen.

SIM Card

Schumer says if carriers permanently disabled stolen phones until the rightful owners declare them retrieved, phones would become worthless to would-be thieves.

The senator notes that European carriers use each phone’s unique identification code to monitor the status of the phone.  Once reported stolen, overseas carriers will not reactivate a disabled phone without a signed statement from the original owner authorizing the transfer of ownership.

Schumer notes cell phone theft is rising dramatically in New York as more people start carrying increasingly sophisticated smartphones.

In 2009, 10,650 phones were stolen in the city.  In 2010 — 10,746.  So far this year, more than 11,320 phones have been taken by thieves.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/WNYW New York Deactivate Cellphones 8-21-11.flv[/flv]

WNYW-TV in New York has raw video of Sen. Schumer’s press conference on cell phone theft.  (10 minutes)

Verizon Wireless is expected to enter the Alaskan mobile market sometime in 2013-2014, according to incumbent competitors, who expect Verizon’s largest impact will be to bleed AT&T of customers.

Alaska’s two primary local providers — Alaska Communications, Inc. (ACS) and General Communications, Inc. (GCI), are telling shareholders to relax because they don’t expect to see Big Red in the Alaskan market for at least 2-3 years.  Both companies reported net losses for the quarter, and GCI lost 2,400 subscribers recently when more than 4,000 soldiers at Fort Wainwright in Fairbanks were deployed to Afghanistan.

Both ACS and GCI have been using the current poor economic climate and their respective stockpiles of cash-on-hand to retire debt or reissue long-term-debt at more favorable low interest rates.  Both companies are also hurrying to outdo each other’s 4G wireless network deployments before Verizon Wireless shows up, making use of spectrum it acquired last August to enter the Alaskan market.  Government rules require Verizon to sign-on its new network by June 13, 2013.  But Verizon admits it will take up to five years after that to completely build a new network from scratch.

Right now, Verizon Wireless customers taking their phones to Alaska roam on ACS’ network, for which the company is compensated with an increasing amount of extra revenue.  ACS boosted earnings in part on that roaming revenue, even as it lost more of its own customers.  When Verizon switches on its own network, that roaming revenue will rapidly decline, but ACS executives reassured shareholders their knowledge and experience of construction seasons in Alaska guarantee Verizon won’t be able to get its network together until 2013 at the earliest.

But when Verizon opens their doors, Ron Duncan, CEO of GCI expects a hard fight on his hands.

“We recognize ultimately they’ll be a significant competitor, although I see AT&T share more at risk because Verizon’s main claim to fame when they get to Alaska is going to be devices. We’ll still outpace them on coverage. We’ll continue to be the only ones with statewide coverage,” Duncan said. “People who want to buy the coverage buy from us today; people who want devices buy from AT&T because AT&T gets much better devices than we do.”

Just months after Verizon announced they were headed north, both ACS and GCI accelerated plans to roll out respective “4G” networks for wireless customers, although each company is deploying different standards.

GCI

GCI’s cell phone network is a combination of some of its own infrastructure, the acquisition of Alaska Digitel, and a resale agreement to use parts of AT&T Wireless’ coverage it acquired from Dobson Communications Systems.  In and around Fairbanks, Anchorage, Glennallen, Valdez, Prudhoe Bay, Wasilla, and Kenai, GCI offers CDMA service.  In those communities and many other rural regions in western Alaska, GCI relies on AT&T Alascom GSM networks.  GCI pitches its CDMA network’s 3G wireless data capabilities, which offer faster wireless data speeds, if you can get coverage.  For wider coverage in Alaska’s smaller communities, GCI markets GSM phones, which currently only offer 2G EDGE/GPRS data speeds.  If you use a cell phone mostly for voice calls, the wider coverage afforded by GCI’s GSM network is a popular choice.  But if you want faster data, CDMA 3G data speeds are required.

Eventually, GCI’s 4G network may help deliver coverage and faster speeds in both urban and rural areas, particularly as GCI plans to invest up to $100 million to construct more of its own network, instead of relying on resale agreements and acquisitions.

GCI has chosen HSPA+ for 4G service on the GSM network, and will introduce the service in Anchorage later this month.  That’s the same standard used by AT&T and T-Mobile in some areas.  It’s not as fast as LTE service from Verizon Wireless, but is much cheaper to deploy because cell sites need not be linked with fiber optic cables — an expensive proposition.

ACS

Alaska Communications has a large 3G CDMA network in Alaska all its own.  Its coverage is primarily in eastern Alaska adjacent to major cities like Anchorage, Juneau, and Fairbanks, and where it does provide 3G data coverage, the company claims it extends further out than GCI.  ACS doesn’t offer much coverage in small villages and communities in western Alaska, however.

ACS expects to skip incremental upgrades and launch its own 4G LTE service in the future.  It may help the company regain its second place standing, lost to GCI last year, and protect it from Verizon Wireless poaching its customers.