Phillip Dampier

Verizon Wireless’s next generation LTE wireless broadband network threatens to bring expensive “usage-based billing” to millions of Americans using technology products that depend on wireless networking to communicate  — from the handheld tablet you use to enjoy USA Today over morning coffee, the car that delivers news, weather and traffic reports to and from work, to the portable television you use to catch up with the game while running around town.

At the Consumer Electronics Show, Verizon chief technology officer Dick Lynch warned that Verizon is likely to abandon any notion of flat rate usage pricing, particularly when Verizon doesn’t get a piece of the action from the sale of the devices that connect to their network.

Instead, Verizon Wireless will adopt a wireless version of Internet Overcharging — usage-based billing that isn’t entirely “usage-based.”

A true consumption billing system charges consumers only for what they use — don’t use the service that month and customers would pay little or nothing for service that billing period.  Instead, providers maximize revenue with arbitrary “usage allowances” which are part of the steep monthly service fee.  The unused portion of the allowance typically does not roll over, in effect lost at the end of the month.  That means you pay for not using their network.  Imagine if your electric company charged you for leaving the lights on 24/7, but you were out of town that month.  If you exceed your allowance, the overlimit penalty kicks in, and most providers set those prices high enough to sting you while rewarding them.

“The problem we have today with flat-based usage is that you are trying to encourage customers to be efficient in use and applications but you are getting some people who are bandwidth hogs using gigabytes a month and they are paying something like megabytes a month,” Lynch said. “That isn’t long-term sustainable. Why should customers using an average amount of bandwidth be subsidizing bandwidth hogs?”

Lynch

The first step to broadband pricing enlightenment is to recognize the only true “hog” here is the broadband provider with an endless appetite for your money.  Usage-based pricing schemes carry the one-two punch for consumers, with no pain for providers:

1. They discourage usage, as consumers fear using up their monthly allowance and getting socked with an enormous bill filled with penalties and overlimit fees;
2. The corresponding reduction in usage lowers the providers’ capital spending requirements to meet consumer demand, and increase profits dramatically from those who find allowances too limiting and are willing to pay the exorbitant pricing providers charge those who exceed them.

Does Verizon actually believe that $60 a month for their wireless broadband service represents a fair price for someone using “something like megabytes a month?”  Can Verizon show it is losing money on its wireless broadband service?  I think not.

Predictably, Lynch provides a “between-the-lines” slap at government intervention to force open wireless networks to additional competition in the equipment marketplace:

“The whole paradigm of how we sell devices into the public is changing,” Lynch said. “At the same time that we announced LTE, we announced an open development initiative where we encouraged third-party developers to deploy devices on our network.”

That initiative was hardly the result of a sudden change of heart from Verizon.  It came from pressure Washington applied over the “closed network” practices the American wireless industry has followed for years.  Handsets and the applications that run on them have traditionally been closely controlled by providers.  Features built into smartphones and other handsets were disabled or limited by providers before the phones were sold to the public.  Usually, this forced customers to use the services either provided directly by their wireless company, or one of their “affiliated partners.”

Verizon Wireless is signaling the consequence of a more competitive, open market for wireless products and services: usage limits and a higher bill. That’s because you didn’t buy that device at a Verizon store at their asking price, and you’ve been using it too much.

Consumers would make a grave mistake in blaming a more activist watchdog role by the federal government to force open the wireless industry to competition and innovation by third parties.  Despite Verizon’s hints that those pesky regulators in Washington are to blame for your usage being limited and your bill being higher, the blame really belongs with the carriers pocketing those proceeds.

Since regulators will get the blame regardless, isn’t it time to go all out for American consumers by transforming the wireless provider marketplace?  Here are our suggestions:

1. An end to the ongoing consolidation of existing wireless players into a shrinking number of what will soon be two or three “too big to fail” national providers;
2. Insistence on additional competition coming from new, independent players, not simply those directly affiliated with the dominant four carriers (Verizon, AT&T, Sprint, and T-Mobile);
3. Justification for confiscatory data pricing made possible from the highly concentrated wireless marketplace, particularly in smaller cities and communities.

Verizon and AT&T have both engaged in a lot of scare talk about usage and their costs to manage it.  We’d believe them, except we read their financial reports and neither company is hurting.  We’d even be willing to meet them halfway and advocate additional allocations of spectrum to provide the bandwidth an increasingly wireless world will demand, but not at their asking price with those pesky terms and conditions that ration service to consumers at top dollar prices.

Stop the Cap! reader John writes to let us know Teresa Dixon Murray from The Plain Dealer in Cleveland, who broke the story about Verizon’s mysterious $1.99 data usage charge is back again with an update.

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.

Dixon Murray

But Murray considers Verizon’s response more clever than truthful.  And the charges just keep on coming.  So are the comments piling up below Murray’s article on The Plain Dealer website reporting more mysterious charges.

Verizon’s response to the Federal Communications Commission claimed Verizon doesn’t charge customers who accidentally hit the mobile web button on their phones, because Verizon exempts the home page those phones first reach.  Murray points out Verizon forgot to tell the Commission that’s the policy now, after the bad press, but wasn’t the policy earlier when thousands of others were being billed as well.

But no matter, because Murray suggests Verizon has found all-new ways to sock those $1.99 fees on unsuspecting consumers.

Take my case. I got a new phone the first week of November and within 24 hours after I activated it, Verizon said I had incurred a $1.99 data usage charge. Never mind that I hadn’t actually used the phone yet.

Verizon said it accidentally eliminated the mobile Web blocks I had when it activated the new phone. Puh-leez.

So Verizon re-blocked my phone lines. Yet, the company says it recorded online access on Nov. 8, Nov. 14 and Nov. 21. Chris, a supervisor from Pittsburgh, is dumbfounded. He confirmed my phones are blocked. He doesn’t know how this is happening. He’s supposed to get back to me.

While I’m waiting, I’m making a few notes, actually a lot of notes, to give to the FCC.

Amazing that these billing errors always seem to work out in Verizon’s favor.  Maybe the cat has been using the phone to browse when you weren’t looking.  Maybe Verizon can continue to reap the rewards of collecting $1.99 from subscribers who feel it’s not worth the time and effort to protest the charges with a customer service representative.

This is ripe for one of those class action lawsuits where the lawyers make the big money and you get a coupon for a free cell phone case with your next purchase at a Verizon store.  Before that happens, Murray suggests you file a complaint with the FCC yourself.  Also, please do take the time to make the call to Verizon Wireless and demand credit if you’ve been hit with this charge.  It will cost them more than $1.99 just to handle your call, and you’ll probably get something more tangible than the outcome of a class action lawsuit.  It never hurts to ask them for additional discounts or free features to keep you a satisfied customer.

File A Complaint With the Federal Communications Commission

Phillip "Doesn't Worship Wall Street" Dampier

Bray Cary, president and CEO of a group of West Virginia television stations enjoying advertising revenue from Frontier Communications, was back on his Decision Makers program to allow an opposing viewpoint to the puff piece interview he held earlier with Frontier’s Ken Arndt, Frontier’s Southeast region chief.  This time, he invited Ron Collins, vice-president of the Communications Workers of America to give the CWA side.  Cary’s Tea-‘N-Cookies Breakfast Club With Ken this was not.  Cary decided to play hardball with Collins, leaving no viewer in doubt where Cary stood on the question of Frontier’s proposed purchase of West Virginia’s phone lines from Verizon.

Unfortunately, Collins was not completely prepared to rebut Cary’s pro-Wall Street, pro-deal propaganda and looked ill at ease at times during the interview.  We’re not, and Cary’s “facts” deserve some investigation.  After all, how hard should it be to rebut a guy who believes Wall Street and the banks have all the right answers for West Virginians’ phone service?

• Video No Longer Available.

Right from the outset, Cary wants to play “devil’s advocate” with Collins, asking why in the world the CWA is opposed to this deal.  That was a major departure from his cheerleading session with Arndt.

Bray Cary, Host of Decision Makers

“I’ve looked at this […] their stock has been extremely stable.  Wall Street appears to be signaling their financial viability is okay.  Why is the stock market not reacting negatively?  If it’s good for stockholders, how can it be bad for their financial stability.  Stockholders want financial stability,” Cary said in a series of statements about the deal, including mentioning a Moody’s report on the deal.

The Moody’s report Cary talks about is for shareholders who will reap the rewards or suffer the losses based on the success or failure of the deal.  Moody doesn’t rate the deal’s impact on consumers who have to live with the results.  What’s good for Wall Street is not necessarily what’s best for customers.

“What you don’t have is anyone in the financial community suggesting this is a bad financial deal,” Cary said December 13th.

Wrong.  Almost a week earlier, on December 7th, D.A. Davidson, a respected Wall Street analyst said the opposite.  In a story published in Barron’s: “Frontier Communications’ Shares Not Wired for Success,” the analyst firm argued the regional telecom’s acquisition of Verizon’s rural lines will be… wait for it… bad for the stock.

Cary’s claim that Wall Street is concerned with the long term viability of companies belies the growing reality that much of the investment culture in America has a long term obsession with short term results.  Your company is only as good as your last quarter’s financial earnings statement, and several bad ones in a row are usually enough to bring a recommendation to dump shares.  Frontier has kept its stock value stable largely as a result of their steady dividend payment.  Collins claims Frontier has gone beyond reason, paying 125% of earnings in dividends.  That may make the stock a popular choice for income investors, but is also eerily familiar.

FairPoint Communications also enjoyed a healthy stock price because of its high dividend payout.  Wall Street only got concerned when they thought that deal might not go through.  Morgan Stanley issued a report in 2007 suggesting the deal between FairPoint and Verizon to take control of landline customers in Vermont, New Hampshire, and Maine, was itself helping to prop up the stock’s value.  We saw how far that got FairPoint when the company declared bankruptcy a few months ago.

Ron Collins, CWA's vice president

Indeed, smaller independent phone companies commonly use high dividends to remain attractive to investors and stay viable in a tough market.  Windstream is another such company and even CNBC’s Jim Cramer gave due diligence to the fact high dividends and stock value by themselves don’t necessarily predict the company’s long term success or failure.

Make no mistake, Frontier has sold this deal to investors based on dividend payouts, claimed cost savings, and a safe bet that any broadband in rural America will earn them increased revenue, especially where consumers have no other place to go for service.

Frontier will take on massive additional debt to finance the deal, but on paper it actually appears to reduce their debt ratio.  That’s because when you add millions of new customers, the debt doesn’t look so big next to the increased revenue those additional customers will bring, assuming they stay with Frontier.  Should Frontier’s performance underwhelm customers, they’ll drop service if they can.  If mobile phone networks do a better job of reaching these rural customers, many will drop landline service anyway.  When wireless broadband service becomes a more realistic option, customers might toss Frontier’s slow speed DSL overboard.

AT&T and Verizon have read the writing on the wall — an ongoing decline in landline service and the eventual death of the kind of service Frontier is providing its customers on its legacy network.  Would you be better off with a company that recognizes the truth about the future of wired basic phone service, or the one that wants to buy up obsolete networks and hang on until the last customer leaves?

Cary’s concern starts and stops with shareholder value, not the individual long term needs of consumers across West Virginia.

“All of the bankers and all of Wall Street are saying financially this is a good deal financially for Frontier,” Cary argued.

“Good for Wall Street, bad for West Virginia,” Collins replied.

“Well, see I disagree… that has been a myth put out there, and the reason we don’t have any jobs in this state is companies don’t want to come here just because of that mentality.  People need to make money.  You look at where companies are flourishing, the workers flourish when they do,” Cary said.

Really.  Then why are several of these telecommunications companies awash in revenue also continuing to reduce their workforce in their relentless effort to obtain “cost savings.”  Someone is making money, just not the average employee.  Every state has pro-business acolytes claiming businesses don’t want to come to their state because of regulation and a hostile business climate, even those with the fewest regulations, lowest taxes, and little protection for employees and consumers.

Cary does make one valid point: Verizon wants out of West Virginia and refuses to invest a dime in the state as it looks for a quick exit.  Instead the company has diverted resources from serving smaller states’ phone service needs into its larger city FiOS fiber to the home system where it believes it can reap more revenue.  Whether that disinvestment should be permitted in the first place is a question that needs to be asked.

Verizon is a regulated utility that is required to meet certain performance standards, and the company’s long history of operations under that framework, under which it profited handsomely, does require consideration.  But the state can also provide additional incentives to make it more attractive for Verizon to commit more resources in the state, ranging from tax credits, public-private investment, rewards for performance and service improvements, etc.  It can also find someone else to provide the service, or let local communities band together into cooperatives to run their own networks, should customers find that could deliver better service.

At the very minimum, Frontier should he held to strict conditions that require a fiscally responsible transaction for ratepayers, not just for shareholders and management.  Verizon’s workforce, already cut to the bone, should not bear the brunt of “cost savings” either, both now and into the future.  If Frontier wants to deliver broadband, they should commit to offering 21st century speed (not the 1-3Mbps service typical for their smaller service areas) without their draconian 5GB usage limit in their Acceptable Use Policy.

Cary doesn’t concern himself with those kinds of details, but consumers and small businesses in his state sure do.

Cary wants more jobs and more earnings for West Virginia.  In the changing digital economy, high speed broadband isn’t an option — it’s a necessity.  Verizon has a proven track record of being able to provide 21st century broadband — Frontier does not (sorry, 1-3Mbps DSL is more 1999, not 2010).

Cary makes an astonishing statement in the third segment of the interview which makes me question his ability to grasp the reality-based community most Americans live in today.

“I have great faith in the banking system in America, in Wall Street, to evaluate these things.”

That stunned Collins, who asked, “even after the 2008 crash?”

Cary seems to think “everything is back to normal.”  Unfortunately, after the bailouts and big lobbying dollars being spent in Washington to preserve the status quo as much as possible, everything is back to normal… for Wall Street and the banks.  The rest of the country, including West Virginia, is another matter.

FairPoint's Stock Price from 2007, when it announced the deal with Verizon, to late 2009 when the company declared bankruptcy. By late 2008/early 2009, what seemed like a great deal for investors was apparently not, as the panicked rushed for the exits.

I’ll put my trust in the wisdom of West Virginians who want good service and reasonable prices.  If Cary wants to read from the Good Book of the “paragons of virtue” like AIG, Bear-Stearns and Goldman Sachs, let him sell his TV stations to help finance the bailouts.  Remember that when we went through this before with Hawaii Telecom and FairPoint Communications, the cheerleading session on Wall Street lasted only as long as the quarterly balance sheets looked good.  At the first sign of trouble, they bailed on the stock and both companies ended up in bankruptcy.

For them, it represented just another roll of the dice in the giant financial casino we call Wall Street.

For the rural residents of states like West Virginia who ultimately have to live with the results, this is their phone and broadband service we are talking about.  Before all bets are placed and the dice are thrown, isn’t it worth considering them?

Liberally borrowing from ABC’s Extreme Makeover: Home Edition, and those home improvement shows on HGTV, Verizon has been producing their own “home technology makeovers” for infomercials airing in different Verizon service areas, designed to pitch their fiber to the home FiOS product line. It’s a non-threatening introduction for those not so technology-inclined, but love the premise of home makeovers.

The Reyes family of Clearwater, Florida is the latest to receive a Verizon-inspired makeover this March, which will air later as an infomercial in the Tampa Bay area.

The family was chosen from those who auditioned for the role during the past two months.

Verizon traditionally sets up each show by illustrating the challenges busy families face when trying to work with outdated electronics.  It’s also a great chance to bash the competition, suggesting their cable reception isn’t so great, their calls to 911 are broken up and unclear, and their Internet is slow and generally lousy.  At this point, Bright House Networks, Tampa’s predominate cable company, is supposed to be squirming, because you can bet these families aren’t complaining about Verizon phone service or Verizon DSL.

After the family leaves the home, a bandwagon of Verizon workers and self-described “Design,” “Tech,” and “FiOS”-Gurus show up and replace their obsolete equipment with Verizon’s family of products, ranging from FiOS for their television, phone, and broadband needs, and some extra goodies thrown in from Verizon Wireless for mobility.  Add some new electronics and some room makeovers and the job is complete.

When the family returns, they are suitably impressed with Verizon’s products (which they presumably obtain for free, at least for awhile), the company throws a block party for the entire neighborhood, and everyone goes away with a positive feeling about the company.

“I like the concept of the show, how one company can bring so much happiness to a family just by changing their home technology,” said Jessica Reyes. “It may seem simple to some people, but I know this will have a huge impact on our family.”

See?

Actually, it’s a brilliant execution of marketing to those who don’t suddenly start drooling at the mere mention of FiOS in their neighborhood.  For plenty of Americans, a decidedly non-technical demonstration of the technology products Verizon sells is a much better way to sell service to those who think fiber is a matter of diet, not home entertainment.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Verizon MyHome 2.0.mp4[/flv]

Verizon’s promotional reel for My Home 2.0 shows home technology makeovers, and can’t resist taking a few pokes at the competition’s service. (1 minute)

Phillip Dampier

In a remarkable statement to the Federal Communications Commission in Washington, AT&T has joined Verizon in predicting the imminent demise of Ma Bell’s classic telephone network.

AT&T writes in its 30 page comment, “That transition is underway already: with each passing day, more and more communications services migrate to broadband and Internet Protocol (IP)-based services, leaving the public switched telephone network (“PSTN”) and plain-old telephone service (“POTS”) as relics of a by-gone era.”

AT&T claims abandoning the old legacy phone network would help the company devote its full resources into staying relevant by constructing a broadband, IP-based network that would deliver voice, data, and video to consumers, presumably over its U-verse platform.  That, according to AT&T, could help the company achieve universal broadband coverage in its service areas, but only if investment-friendly regulations are supported by Washington policymakers.

The Commission has been charged by Congress with formulating a National Broadband Plan that will result in broadband availability for 100% of the United States. That auspicious goal is within reach, but […] will not be met in a timely or efficient manner if providers are forced to continue to invest in and to maintain two networks. Broadband is dramatically changing the way Americans live, work, obtain health care, and interact with the government. Congress and the Commission have rightly made universal broadband access a core national priority. But achieving this goal will take an enormous investment of capital. Private investment from network operators has brought broadband access to over 90% of Americans, and these operators will continue to play a pivotal role in bringing broadband to the remaining 8-10% of citizens who do not currently have broadband access. It is accordingly crucial that the Commission pursue forward-looking regulatory policies that remove disincentives to private investment and encourage operators to extend broadband to unserved areas.

While broadband usage – and the importance of broadband to Americans’ lives – is growing every day, the business model for legacy phone services is in a death spiral. Revenues from POTS are plummeting as customers cut their landlines in favor of the convenience and advanced features of wireless and VoIP services. At the same time, due to the high fixed costs of providing POTS, every customer who abandons this service raises the average cost-per-line to serve the remaining customers. With an outdated product, falling revenues, and rising costs, the POTS business is unsustainable for the long run.

AT&T cites a growing number of Americans cutting their wired phone line service — 22% according to the National Center for Health Statistics.  Craig Moffett from Bernstein Research pegs it closer to 25%, with an additional 700,000 phone lines being disconnected every month.  With a shrinking customer base, the viability of companies providing only wired phone service has come into question.  Verizon and AT&T, the nation’s largest phone companies, have made the judgment it’s a dying business.  Conversely, Frontier Communications and a few other independent phone companies remain believers in rural copper wire phone networks, and are willing to buy the discarded, mostly rural regions their bigger counterparts can’t wait to exit.

But AT&T’s advocacy for an end to “plain old telephone service” is just a tad self-serving when one explores their “To-Do” list for Washington regulatory agencies and lawmakers.  AT&T suggests their future plan benefits all Americans.  Critics would contend it mostly benefits AT&T and its shareholders, especially in light of AT&T’s future revenues being directly impacted by customers disconnecting their AT&T phone lines.  AT&T themselves note collective industry revenue for basic phone service fell from $178.6 billion in 2000 to $130.8 billion in 2007, a 27% decrease.

AT&T’s Action Plan to Avoid Obsolescence Explored

At the heart of AT&T’s proposal for 21st century telephone service is an end to analog telephone service, designed more than 100 years ago to carry voice calls, and the launch of broadband-based service to every home in their service area.  From this new platform, AT&T can deliver telephone, television, and Internet service over a single network.  In fact, they already do in several cities where AT&T’s U-verse has launched. Instead of getting one revenue stream from basic phone service, AT&T can now earn from any number of services a broadband platform can support.

AT&T compares their plan with the transition from analog to digital television, except you won’t have to trade in your existing phones or attach converter boxes to every telephone in the house.  Just like the switch to digital television, AT&T wants a date certain to pull the plug on Ma Bell’s old phone network, the sooner the better.

But AT&T’s plan has plenty of strings attached.

First, the company believes the only path to private investment and a successful transition is a near-complete deregulation of the telephone industry.  It wants the federal government, specifically the FCC, to take control of oversight of phone companies across America, if only to end a patchwork of state regulations and service requirements.  Remember, the Ma Bell most Americans grew up with was a regulated monopoly.  In return for guaranteed profits, phone companies agreed to meet service obligations, provide service to any home or business that wanted it, serve the disabled, and provide discounted phone service to the economically disadvantaged.  Rural customers were assured they would have access to phone service and at reasonable prices, and if something stopped working, government oversight ensured problems would be repaired to the customer’s satisfaction.

In AT&T’s view, such requirements are quaint and outdated, and it wants to bear few of those burdens going forward.  Indeed, in a too-cute-by-half aside, the company argues that since it will design the network to operate under the same protocol the unregulated Internet uses, it should be unregulated as well.

Such deregulation could impact a myriad of policies governing phone service that most Americans take for granted — minimum service standards, requirements that telephone companies complete calls between one another – even if competitors, and reasonably priced basic phone service even in the most remote locations.  But AT&T is asking for even more – a comprehensive review and possible elimination of any regulation that could be interpreted as interfering with the transition to an all-broadband telephone network.  AT&T includes everything but the kitchen sink in this category, ranging from service quality requirements, reporting, recordkeeping, data collection, accounting, and depreciation and amortization rules governing how quickly the company can write off obsolete equipment.

Ma Bell's network is due for a retirement, advocates AT&T

Ironically, AT&T wants deregulation -and- access to public taxpayer dollars to construct their new network.  The company advocates government-funded award programs to promote universal broadband access.  One would provide money for wired broadband service, perfect for companies like AT&T that want to build those networks, and another for wireless mobile projects to expand service into unserved or underserved areas, also perfect for AT&T Mobility — the same wireless carrier slammed by Verizon Wireless for largely ignoring rural America with 3G wireless data upgrades.

While there is some justification for a review of federal and state rules that may no longer realistically apply to today’s telecommunications marketplace, AT&T goes out of its way to be self-serving in its recommendations.  It dangles the bright and shiny object of a 21st century broadband-based telephone network, but only if they get to run it essentially “no questions asked,” with little oversight and an infusion of public taxpayer dollars to compliment private investment.

AT&T may be correct that the days for Ma Bell’s “plain old telephone service” are indeed numbered.  But for a company that earns billions in profits and answers to shareholders demanding maximum return, shouldn’t their long term well-being first be a question between AT&T management and shareholders?  Are they incapable of a private course correction that makes their future relevance more secure?  AT&T’s U-verse did not require public tax dollars to be successful, and the company spent generously on lobbyists and astroturf campaigns to smooth the way forward with “statewide franchising,” bypassing local government oversight.

The real question on the table is how far does the Obama Administration and the FCC want to go to achieve universal broadband?  AT&T suggests that only massive deregulation will entice private investors to step up and make the investments required to help achieve whatever definition of “universal broadband” the Commission comes up with.  But that price is way too high to pay.  AT&T answers first and always to its shareholders.  If they want public tax dollars funding, even in part, their transition to an all-broadband future, they must also answer to the other “stockholders,” namely the American people helping to foot the bill.