Fashionably late, Verizon Wireless intends to change its wireless smartphone data plans to end unlimited usage in the next four to six months, according to Verizon CEO Ivan Seidenberg.

Seidenberg said Verizon Wireless’s new data plans, which he says will probably arrive in time for the holiday shopping season, will differ from AT&T’s but he refused to elaborate.

“We’re not sure we agree yet with how they valued the data,” he said at an investor conference Thursday.

The change has been widely anticipated in the wireless industry, as Verizon Wireless and AT&T, the nation’s largest and second largest carriers, charge nearly identical pricing for their wireless services.  Both carriers formerly charged smartphone customers $29.99 per month for unlimited wireless usage.  AT&T eliminated unlimited usage with two new plans unveiled in June with the introduction of the latest Apple iPhone.  One charges customers $15 a month for up to 200Mb of usage, and another charges $25 for up to 2GB of usage per month.  Customers exceeding the limits pay $15 for an additional 200Mb or $10 per gigabyte in additional fees.

Critics charge Verizon’s decision to slap usage limits and overlimit fees on customers is just another attempt to gouge wireless customers, made possible by the two providers’ market power.

Wall Street Journal reader Candace Kalish commented on the new limited usage attitude Verizon seeks to embrace:

What the carriers want is a tiered system with outrageous penalties for slight overages. The banks, car renters, airlines, and credit card issuers do very well with this. It is the most profitable business model since it requires careful underuse or disproportionate costs on the part of their customers. This is why they require people to guess their usage and impose punitive marginal costs on single byte transfers.

[…]I think the carriers’ actions indicate a much greater concern with short term profits rather than long term innovation and even great profitability.

[…]Since carriers impose rates on a take it or leave it basis, I don’t see rates improving much in the near future. I’ll stick with my ancient $30 a month plan and a cheap flip phone with an iPod Touch. When competition kicks in, possibly in the next 10 to 20 years, and they offer more for my money, I’ll consider a smarter phone. Right now the market is still what they used to call a natural monopoly, and the pricing structure proves it.

Seidenberg

Seidenberg made it clear the new Internet Overcharging schemes will arrive in time for the company’s introduction of its fourth generation data network – Long-Term Evolution, more commonly known as LTE.  Earlier, Verizon hinted to its investors it intends to market its LTE service at a premium price, anticipating customers will be willing to pay a higher price for faster service.  This, despite the fact LTE will deliver Verizon dramatically increased capacity at a lower overall cost, in terms of bang for the spectrum buck.

Company officials are still considering whether LTE pricing will carry a per megabyte charge with little or no usage allowance or a more common usage allowance plan with overlimit fees.  Either way, few expect wireless will offer an effective competing alternative to wired broadband service, unless one’s monthly usage is below 5GB.  Above that amount, overlimit fees could quickly accumulate, leaving customers with wireless bill shock.

Dave Burstein, publisher of DSL Prime, commented back in January about wireless data pricing:

Charging at the this level, if the other wireless carriers go along, is a blatant attempt to protect their other services. [A government agency] filing points out the likely reason: “The Commission also must keep in mind that the two largest US wireless providers, Verizon and AT&T, also offer wireline services in major portions of the country, raising the question of whether these providers will market these services as replacements for wireline services.”

If his prices carry the day, the […] broadband plan will accomplish very little. The [plan] implicitly counts on wireless for competition, because new wired networks are highly unlikely and their plan doesn’t change that. Wireless voice in the U.S. is a weak cartel, data a relatively strong cartel. [Verizon’s] signals may inspire the other carriers to also drastically cut the basic data allowance.  Or not.

If there’s a significant cut in the 5GB wireless allowance, then the broadband plan needs a huge redirection to measures that work [in] a telco-cable duopoly. That’s so tough I don’t know if Washington can do that.

Thanks to our regular reader Bones for sending word.

Verizon Wireless customers increasingly confront mandatory data plans costing $10-30 a month even if they don’t intend to use their phones to access data services

An increasing number of Verizon Wireless customers at the end of their two-year contracts are suspended in time, unwilling to upgrade their phones because of costly mandated data plans that dramatically boost cellular phone bills, especially if everyone in the family wants an improved phone.

Kathy Vega, who lives in Rotterdam, N.Y., is just one example.

She complained to the Albany Times Union she’s effectively trapped with her old phone, an LG enV, because any upgrade will expose her to new mandatory data plans costing as much as $30 extra per month.

She’s been a satisfied Verizon Wireless customer for years. She also has Verizon Internet service, a Verizon e-mail address and a Verizon land line at home. She’s been a virtual walking, talking advertisement for the company’s products and services.

That’s why Vega was so irked by Verizon’s response when she tried to replace her enV phone and add a second one for her stepfather for free, thanks to a Father’s Day promotion the company was running. Father’s Day 2025 will be celebrated in Australia on Sunday, 7 September. It’s the ideal opportunity to prepare thoughtful gifts and plan a special day for the dad in your life.

Vega recalls that she was told that she’d have to pay another $30 each month for a “media pack” that would provide Internet and e-mail access.

It’s not clear to her now whether the additional price quoted to her was actually $30 per phone, which was her understanding at the time, or a total additional cost of $30 per month, based on a $9.99 data plan for each phone.

The Maroon enV model like hers on Verizon’s Web site now requires a data package costing “$9.99 or higher.”

The exact amount is almost irrelevant, as far as Vega is concerned. She just doesn’t see why she should have to pay for services she doesn’t use — especially since she wants the same phone she already has with no data charge.

[flv width=”480″ height=”380″]http://www.phillipdampier.com/video/Loyal Verizon customer laments plan – The Advocate 8-19-10.flv[/flv]

Kathy Vega explains her plight to the Albany Times Union Advocate.  (1 minute)

Good luck.

Verizon Wireless, like AT&T, is increasingly exposing loyal customers like Vega to hidden rate increases in the form of mandatory service add-ons, in this case to cover data usage.  While Verizon’s most basic cell phones are still free from these fees, the phones most popular with consumers these days all come with bill busting add-on requirements.

Vega pays $116 a month for cell phone service now.  Verizon’s salespeople don’t always volunteer the company offers a lower usage data plan for $10, so assuming she follows the path laid before her by Verizon’s in-store staff, she could face quite a rate hike.

Confronted with her options, Vega is toughing it out with her current phone and an expired contract — like many other Verizon Wireless customers.

For those who have been loyal to Verizon for years, it’s galling to find higher priced monthly bills when it’s time to renew a contract and upgrade a phone.

Jen Smith said she was peeved when she learned of the new data program and associated costs.

“It’s sickening. I also hate that they have no customer loyalty. We have been with Verizon since they took over for Bell Atlantic Mobile in the area (~11 years ago). We have six phones and spend about $320 a month for them. You’d think we’d get a little better service for that, or a free accessory or some little perk, or heck, even a polite customer service specialist, but nope,” she writes.

Reader Sarah discovered the same thing, and she headed out the door to Sprint:

“This is exactly why I left Verizon over a year ago. I wanted a Palm. I didn’t want the data plan. Even though you can put a block on the phone to prevent the “unintentional use” of the data plan, they refuse to sell any smart phone without a data plan. So I had to go to Sprint. Can’t say I’m totally pleased with Sprint, but at least I could get what I wanted, and that was no data.”

For Verizon spokesman John O’Malley, it’s all a matter of doing some math.

He told the Times Union’s Cathy Woodruff, who serves as the newspaper’s consumer advocate, mandating data plans actually saves customers from unexpectedly high bills. He described circumstances where many owners of such devices had been racking up unexpected charges, suffering bill shock from Verizon’s punitive charge of $1.99 per megabite of data consumed.

“Customers who purchase these phones tend to take full advantage of the phone’s capabilities for surfing the Web, checking e-mail, etc.,” O’Malley said. “We’ve seen that those customers use an average of 17 megabytes of data per month. At our pay-as-you-go rate of $1.99 per megabite, that would cost them more than $30 a month.”

The $9.99 data feature provides up to 25 megabytes of data per month, which would cost nearly $50 under the old pricing policy, which makes the package “more cost effective,” he said.

Woodruff argued it won’t save any money for customers who don’t use data services.

But beyond that, we contend O’Malley’s math only works when using Verizon’s numbers.

It was Verizon Wireless that set the price of $1,990 per gigabyte of usage for “occasional users.”  Had Verizon chosen pricing more reflective of its actual costs, consumers finding an extra dollar or two on their bill for a piddly 17 megabytes of data would still leave Verizon fat and happy, more than covering their costs.  By inflating accidental and occasional use pricing into the ionosphere, O’Malley has a stronger argument to sell customers mandatory data plans that protect them from data pricing traps created by Verizon itself.

Overpricing data plans for loyal Verizon Wireless customers who can’t or won’t jump for joy at the prospect of spending $100 a month or more for a single cell phone with data service are now shopping around for better deals.  Unfortunately, they won’t find them at AT&T, who generally charges the same prices Verizon does.  But the financially-stressed consumer can find savings if they are willing to explore the second-tier of carriers, ranging from Sprint and T-Mobile and prepaid plans that require no contract.

Sprint promotes itself as a better value than larger carriers AT&T and Verizon

Sprint is banking on Verizon and AT&T overplaying their hand and overcharging their customers.  With Sprint’s newest handset hit — the HTV Evo, which also works on Sprint’s slowly growing 4G network, the company is attracting another look by advanced smartphone users.  Sprint’s latest marketing also targets families weary of tricks and traps from their cell phone provider, especially usage-limits and allowances.  Sprint bundles more services into its unlimited plans than other carriers, and its prepaid unit, Virgin Mobile, is no longer limiting wireless broadband usage on its 3G network.

Sprint’s biggest challenges to regain its top-tier footing come from years of bad customer service which company CEO Dan Hesse now assures is behind them, and a considerably more limited coverage area that simply cannot compare to AT&T and Verizon.

But for customers like Vega, being able to use the phone she wants and not pay gotcha fees for services she doesn’t use may be enough to compel a switch.

Verizon isn’t fooling her.

Woodruff

As Woodruff observes, “it seems foolish for Verizon to close out options for loyal customers, though, at a time when options can be such a strong selling point.”

“I just think (Verizon’s data package) is their way of building it to create more revenue, which I understand,” Vega told Woodruff, “but the customer should have a choice.”

She is so right.

Cathy Woodruff is known to Times Union readers as The Advocate.  Cathy covers telecommunications issues regularly in her column which appears twice-weekly in the newspaper.  She has covered the capital region of New York around Albany for more than 25 years, becoming The Advocate in July, 2009.  She grew up in Herkimer County in upstate New York. Her column is highly recommended.

AT&T's HotZone in Charlotte only covers a tiny portion of the city, along S. Brevard Street between the NASCAR Hall of Fame and East Trade Street and for AT&T customers waiting to use the nearby Lynx light rail.

What do you do when your wireless 3G network capacity is hopelessly overloaded and you don’t want to spend the money to upgrade the network to meet the daily demands your customers place on it?  You offload as much of that traffic as possible on less costly, conventional Wi-Fi network technology.

AT&T has discovered that Wi-Fi can turn an ugly congestion problem into a marketing opportunity.  The company has announced free, unlimited access to its increasing number of “Hotzones” to AT&T wireless customers, promising stronger signals and faster speeds along the way.  The three cities chosen for the launch of the neighborhood-blanketing Wi-Fi service are New York, Charlotte, N.C.,  and Chicago.

That New York and Chicago are on the list come as little surprise, but why Charlotte?

It turns out Charlotte is among the top-10 cities companies use to test market new products and services to get a better feel of how customers will react.  Charlotte has served as a test market for years.  FedEx used the city to test drop boxes inside U.S. post offices back in 2001.  Time Warner Cable brought its “Start Over” and “Caller ID on TV” services to Charlotte to get customer reaction.  AT&T first test marketed its 3G Microcell service in the area, so the company has a track record of choosing the community to test its newest offerings.

Stop the Cap! has been measuring reaction on our own to learn what Charlotte residents think about AT&T’s Hotzone.

First, many AT&T customers are still unaware that this Wi-Fi service has even made it to Charlotte.  For those who have learned about it, anything that improves AT&T’s service in uptown Charlotte is good news for them.

“Although AT&T in Charlotte has never suffered from the kind of congestion faced in larger cities, when you concentrate a lot of data users in one area, such as the Time Warner Cable Arena on East Trade, AT&T’s network can slow to a crawl,” writes Stop the Cap! reader Eric, who lives in Charlotte.  “I have ventured around that area several times and, to be honest, you can quietly hop on one of many business Wi-Fi hotspots for free now, but you can’t go too far before losing the signal.”

Eric says AT&T would be better off extending their Wi-Fi network across the city of Charlotte if they really want to offload 3G traffic.

“Wi-Fi is faster than their 3G service and it’s unlimited,” he notes. “I’d actually have a much more favorable impression of AT&T if they created city-wide Wi-Fi networks for their customers because it would add tremendous value and be a great reason to stick with AT&T for cell service.”

But Liam, who works in downtown Charlotte but lives near Freedom Park writes it’s a Band-Aid for a much bigger problem — AT&T underestimating the demand on their network.

“I am not sure how excited I should be about a Hotzone that runs up a street for about four city blocks,” he says.  “This is not midtown Manhattan where a service like that could make a huge difference for residents of skyscraping-condos and apartment buildings.  What about the rest of Charlotte?”

Liam was an AT&T customer but left for Verizon Wireless nearly a year ago.  He thinks AT&T isn’t a bad provider in Charlotte — in fact he thinks AT&T does a much better job in rural western North Carolina than Verizon does, but inside metro Charlotte, Verizon’s signals are more consistent.

“If this service does reach into Time Warner Cable Arena, it could make a big difference though, especially when that stadium is nearly full,” Liam notes. “Somehow I think we’ll see Time Warner Cable’s own Wi-Fi service operating there, for free, in the not-too-distant future.”

The Charlotte Observer‘s @Charlotte blog asked readers what they thought about AT&T’s Charlotte Hotzone in two articles.  Amidst a rhetorical war over the merits of AT&T and Apple’s latest iPhone, most comments welcomed the improved service, even if some are not sure exactly where that improved service can be found.

Reporter Eric Frazier wrote, “I was trying to find out for certain whether this zone will cover the office towers along Tryon Street, but a spokesperson for AT&T told me they can’t say whether specific buildings, such as the Bank of America headquarters, will or won’t be covered by the Hotzone.

Reverend Mike wants to know when he can get a Hotzone installed in his backyard, noting he was “glad to hear they are setting this up downtown.”

AT&T completed upgrades to its HSPA 7.2 network earlier this year and offers about double the potential speed its older 3G network provided Charlotte customers.

Rural Alltel wireless broadband customers are getting the axe as the company’s new owners have started pulling the plug on customers caught roaming too much with their service.

Not all of Alltel customers have become Verizon Wireless customers after Verizon bought Alltel in 2008.  In areas where Verizon Wireless already provided service, FCC rules required Alltel to sell its assets to other cell phone companies like AT&T or several regional providers.  One such company, Allied Wireless, bought the rights to use the Alltel name for its service.  But it’s not the same Alltel customers in southern Illinois remember.

Scott Sneddon, who lives near Benton, discovered that for himself when trying to log in using his Alltel Aircard.  When the service wouldn’t work, he called Alltel to learn they had unilaterally canceled his wireless broadband service because he was roaming off Alltel’s original network too often.  For the Sneddon family, that meant the Internet itself would no longer be available to them as they have no access to DSL or cable broadband service.  Sneddon received no warning and no second chance.

Sneddon is concerned because Alltel’s unlimited service plan did not carry the typical 5GB monthly usage allowance other providers enforce.  Despite having a two year contract, Alltel was able to pull the rug out from under his service because the company wanted to cut its roaming costs.  Although the Sneddon initially faced a $400 early cancellation penalty to switch providers, the media attention Alltel received made them relent — Alltel customers in similar positions who find themselves out in the wireless broadband cold will not have to pay a penalty to cancel all of their Alltel services.  Additionally, the company has promised to refund one month of service and refund all wireless broadband equipment charges incurred by dropped customers.

For rural America, incumbent wireless providers disconnecting service for customers they don’t want to serve is just another broken broadband promise.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/WSIL Harrisburg Alltel Drops Illinois Customers 6-27-10.flv[/flv]

WSIL-TV in Harrisburg, Ill., shares the stories of two Illinois families left without Internet service when Alltel suddenly canceled their service “for roaming too much.”  (4 minutes)

Alltel's logo, in use before 2006

Alltel Wireless is back.  Two years after Alltel was bought by Verizon Wireless, some 900,000 customers in Georgia, Illinois, North and South Carolina, Ohio and Idaho not included in the transition to Verizon will remain Alltel customers under new management.

For many customers, that suits them just fine.  In fact, with an increasing number of complaints from the 13.2 million former Alltel customers forced into a shotgun cellular wedding with Verizon or AT&T, many wish they could have the choice to return to Alltel themselves.

The demise of Alltel is another classic example of a telecommunications deal that made sense (and dollars) for Wall Street and a handful of Alltel executives, but left thousands of employees out in the cold in the unemployment line and customers coping with broken promises and higher bills.

It’s a story familiar to most of our readers, because the game plan for most telecom mergers and acquisitions delivers all of the benefits to a select few and ends up costing consumers plenty.  That these deals get almost routine approval from the Federal Communications Commission is ironic, considering that same agency commissioned studies that unsurprisingly found increased consolidation and lack of competition in the wireless marketplace.

The end of Alltel is a great example of what happens when an industry achieves near-total deregulation. Lobbyists sell deregulation as directly benefiting consumers with increased competition, more innovation, and lower prices.  In reality, from broadcasting to broadband, deregulation sparks escalating rounds of mergers, acquisitions, and buyouts.  Wall Street doesn’t want increased competition — it wants fewer options, less costly innovation, and higher prices to sustain profits.  When Wall Street speaks, most of these companies listen.

Since 1996, when the Telecommunications Act was passed, more than two dozen telecommunications companies have been swallowed up in mergers and buyouts.  Consumers find themselves with new providers and higher bills.  But not everyone is hurting from laissez-faire tele-economics.  For a handful of top executives, the result has been riches beyond their wildest dreams.  Even when they are forced out through merger deals, the golden parachutes that follow brings tears of joy.  Just ask Alltel’s last CEO — Scott T. Ford — he said goodbye to Alltel in 2007 with a parting bonus of nearly $150 million dollars.

Alltel’s History — Keeping It In the Family

Alltel’s history in the telephone business traces all the way back to 1943, with the formation of the Allied Telephone Company of Little Rock, Arkansas.  Back then, telephone service in the U.S. was mostly a monopoly of AT&T and several smaller independent phone companies. Allied’s business began as a pole and wiring provider for those phone companies.  In 1983, Alltel – the traditional phone company – was created from a merger between Allied Telephone and Mid-Continent Telephone.  In 1985, Alltel Wireless service began from its first cellular system in Charlotte, N.C.  In less than a decade, the wireless division would expand service in smaller cities and towns across mid-America and the south, often where larger carriers didn’t want to provide service.

Just about everything in the telecommunications industry changed with the passage of the 1996 Telecommunications Act, signed into law by President Bill Clinton.  The law that promised to open the doors to better service and more competition actually deregulated most of the industry into an “anything-goes” circus of money-fueled mergers, buyouts, and consolidation.  Important consumer protections were discarded along the way.

The implications of the Act were well understood by corporate executives in the industry, and companies spent millions to lobby for its passage.  They considered it a down-payment for better days to come.  The biography of Alltel’s then-CEO Joe T. Ford noted the passage of the law changed everything, even leading to a violation of an agreement he made with his son when he was only 12 years old:

Scott T. Ford, the president and chief executive officer of the Alltel Corporation, made his first business deal at the age of 12 with his father, Joe T. Ford. The two agreed that Scott would never work at Alltel. Joe wanted to spare his son what he himself had endured since coming to work for his father-inlaw, Hugh Wilbourne Jr., in 1959. After the passage of the Telecommunications Act of 1996, however, the Fords rethought their agreement, and, at age 35, Scott Ford became executive vice president of Alltel. Within two years he was appointed CEO, following in the footsteps of his grandfather Wilbourne, who formed Allied Telephone Company in 1943 in Little Rock, Arkansas.

All that hard work by earlier generations was about to pay some serious dividends in a laissez-faire telecommunications world.

Beebe literally drew his own road map depicting his idea of success - remaining on top after a flurry of mergers and ongoing industry consolidation

The Dot.com Boom… for Some

At the end of the 20th century, the telecommunications industry was in the middle of the dot.com boom.

The impact of the 1996 Telecom Act did fuel change among traditional telecom companies.  While some new players were wildly upgrading networks and building fiber optic networks to sustain the dot.com book, most of the traditional phone and cable companies were spending their time and attention on mergers and leveraged buyouts.  The Baby Bell-AT&T empire that was broken up in the mid-1980s was nearly restored to its former glory with super-sized Verizon and AT&T.  Independent phone companies which operated for a century were suddenly the targets of buyouts, now consolidated by regional players like CenturyTel, Embarq, Alltel and Citizens.

Alltel didn’t just buy up other independent phone companies.  It also bought wireless providers and soon merged its landline and wireless divisions into a single company.  This was the era when the “full service phone company” was trendy — capable of delivering local, long distance, and wireless service all from one company, usually on one bill.

Alltel’s executives, like then-Alltel group president Kevin Beebe, delivered presentations to Wall Street bankers like Credit Suisse/First Boston promoting Alltel and its made-for-consolidation balance sheet.  He literally drew his own road map showing his route to success, depicting himself on top after successive mergers with smaller players.

Unfortunately, the high-powered, cash rich days of the dot.com deal were about to end.  By the start of the new century, it was all over.  An oversupply of infrastructure was built to support web-based businesses that would never launch.  Many of those already in business shuttered their virtual doors.  Venture capital for telecommunications projects dried up.  But there was still plenty of money to be made in wireless, and Alltel did obtain financing to launch mergers and buyouts with as many small cell phone providers as possible.  By the early 2000s, the mentality in the telecommunications business was “small is bad.”  The only path to success was to buy your competition, or be bought by them.

The business of mergers and acquisitions earned countless millions for Wall Street banks, who charged fees to help structure the deals and usually helped finance them.  Executives always won, even if a merger brought an end to their career at the company.  Golden parachutes kept the top floor happy.  The only losers were the soon-to-be-ex-employees and middle management declared redundant and escorted from the building.  They were the “cost savings” promoted as a benefit of the merger months earlier.  Meanwhile, customers were stuck dealing with the transition changes, service interruptions, and the eventually higher bill that always result from reduced competition.

During the first half of this decade, it was Alltel doing the acquiring — spending fortunes to acquire other regional wireless phone companies:

• 2002: Alltel acquires 700,000 wireless customers from CenturyTel Inc. in Arkansas, Louisiana, Michigan, Mississippi, Texas and Wisconsin for $1.5 billion.
• 2003: Alltel purchases wireless properties in Mississippi from Cellular XL.
• 2004: Alltel acquires wireless properties from MobileTel, U.S. Cellular and TDS Telecom.
• 2005: Alltel merges with Western Wireless Corp., acquires wireless properties from Public Service Cellular, certain wireless assets from Cingular and exchanges properties with U.S. Cellular of Chicago to meet divestiture requirements related to Alltel’s merger with Western Wireless Corp. Alltel agrees to purchase Midwest Wireless for $1 billion in cash.

Despite the shopping spree, Alltel’s executives like Beebe continued to let it be known Alltel itself was “well-positioned for wireless consolidation” — available for a buyout… for the right price.  By 2006, Alltel had become the fifth largest telecommunications company in the country, with operations in 34 states.  Thanks to lengthy roaming agreements with Sprint and Verizon Wireless, Alltel could deliver national service even from a regional network.

Alltel also enjoyed a satisfied customer base, thanks to innovative calling plans and services that were unheard of from other cell companies.  In 2006, it introduced the popular My Circle calling plan, which allowed customers to make unlimited wireless calls to up to ten numbers, regardless of whether they were landlines or other Alltel wireless customers.  That same year, U Prepaid was introduced, which included unlimited calling and text messaging to a pre-designated number — perfect for those needing to call home.  Alltel prepaid customers could also roam on many other carrier’s networks without paying enormous roaming fees.

Alltel Sells Out Its Landlines

Until the 1996 Telecom Act, most publicly-owned telephone companies were considered a safe utility stock.  In rural communities, many of the phone companies that established service where AT&T’s Bell System did not have been around since the 1890s.  Often owned by a family or cooperative, these independent phone companies popped up when Alexander Graham Bell’s telephone patents expired.  The companies were hardly growth hotbeds, traditionally serving communities that saw little growth and lots of expenses from the wide-open country they had to wire.

After deregulation, venture capital moved aggressively into the wireless and cable sectors.  For the first time, many rural phone companies faced competition from rural cellular providers and cable companies experimenting with “digital phone” service delivered over cable television lines.  But unlike the phone company, these providers were not required to deliver service to everyone.  Most of these services would only challenge the phone company in population centers within towns and villages, that also happened to be where most of their customers lived and worked.

The business model was changing.  As rural phone companies began losing customers to cable and wireless providers, some of them looked to mergers and acquisitions to reduce costs and improve revenues to keep revenue stable, even as customers disconnected.  To maintain interest and  investment from stockholders, many traditional publicly-held phone companies began paying shareholders increased dividends, which attracted attention from Wall Street.

On July 11, 2004, one independent phone company set a new bar for dividends and probably changed the long term business models of rural phone companies for years to come.  Citizens Communications Corporation, as part of a corporate re-shuffle, announced the resignation of its then-CEO Leonard Tow, changed its name to Frontier Communications, and announced an incredible one-time payout of a $2 dividend for every share of common stock, and an ongoing annual $1 dividend, payable every quarter.

With a payout like that, investors began demanding increasing dividends from other phone companies, Alltel included.  To pay that kind of dividend, you need revenue, and slow-growth rural phone companies cannot just generate millions in new revenue selling voicemail, long distance plans, and caller-ID.  That kind of money comes from new lines of business, such as broadband, or from cash-generating mergers and buyouts.

Broadband required millions of dollars in new investments, increasing short term costs and having to wait several years to see a return.  Mergers and acquisitions delivered fast cash and instant results — short term benefits Wall Street loves to see.

So while phone companies continued to lose landline customers at rates up to 7 percent per year, another round of frenzied consolidation through mergers and buyouts erupted.

For Alltel, already established with a strong wireless division, seeing the long term prospects of trying to sustain its landline business as it lost customers seemed pointless.  In December 2005, Alltel announced it was dumping its 3,000,000 landline customers, combining them with another 500,000 customers of Irving, Texas-based Valor Communications in a $9.1 billion dollar tax-free deal to create a new independent landline company — Windstream Communications.

Alltel would henceforth be a wireless phone company-only, and a much richer one at that.  Unfortunately, despite its ranking as America’s fifth largest wireless provider, Alltel still remained a regional player, far behind its fourth largest rival T-Mobile.  With a dwindling number of wireless companies to acquire, speculation grew Alltel itself would soon become a takeover target.

[flv]http://www.phillipdampier.com/video/KLRT Little Rock Alltel Sold to Goldman Sachs 5-20-07.flv[/flv]

KLRT-TV in Little Rock covered the announced acquisition of Alltel by Goldman Sachs on May 20, 2007 in these three reports.  (15 minutes)

Goldman Sachs Moves In

Within two years, Alltel’s independence would come to an end.  In 2007, Alltel formally opened an auction to sell the company’s wireless assets to the highest bidder.  But in a surprise move, company executives suddenly canceled the auction and accepted a $26 billion leveraged buyout takeover offer from TPG Capital and the buyout arm of Goldman Sachs.  Now, Wall Street investment bankers would own and control Alltel outright.

Speculation in the financial press about why Alltel canceled the auction and didn’t even entertain other bidders for the company raised eyebrows at the time.  The windfall payouts to Alltel’s executives disclosed in later Securities & Exchange Commission filings may have had something to do with it.  Company executives won the equivalent of the Powerball Lotto:

• CEO Scott T. Ford received nearly $150 million dollars.
• Richard Massey, former chief strategy officer and general counsel walked away with almost $50 million.
• Alltel Chief Operating Officer Jeff Fox cleared more than $70 million.
• C.J. Duvall, who was EVP of human resources earned nearly $10 million.
• Kevin Beebe, group president of operations went home with more than $60 million.

That’s quite a haul for the top floor executives at Alltel heading for the exits.

But Goldman Sachs had no intention of running its own phone company for long.  Analysts predicted the investment bank would hold onto Alltel for a year or two in hopes of selling it at a premium to one of the other wireless carriers, probably AT&T or Verizon.

That’s exactly what happened, except it only took seven months.

[flv]http://www.phillipdampier.com/video/Bloomberg In-Depth Look Goldman and TPG to Buy Alltel 5-21-07.flv[/flv]

Bloomberg News took an in-depth look at the 2007 Alltel acquisition by Goldman Sachs and ongoing wireless consolidation. (Corrected Video) (5 minutes)

Verizon Takes Over – The Dog & Pony Approval Circus

With the collapse of the banking sector in 2007 and 2008, Goldman Sachs needed to get rid of assets to raise money.  The subprime mortgage mess left banks with $386 billion in asset writedowns and credit losses.  By putting Alltel up for sale, Goldman would earn $28.1 billion, enough to pay off the loans financing Alltel’s buyout months earlier, and even come out ahead.

The buyer, Verizon Wireless, sought to combine Alltel’s rural cell tower network with its own to expand coverage and pick up a stronger presence in middle America.

In the high stakes, high cost consolidation of telecommunications in the United States, what few regulatory hurdles Verizon would face getting the deal approved meant bringing forth the dog and pony show from Verizon’s lobbyists.  The Federal Communications Commission could alter or even kill its deal.  To make sure that didn’t happen, Verizon counted on the usual assortment of “dollar a holler” advocacy groups, heavy lobbying in Congress, and other friendly allies to help get the deal approved.

Unsurprisingly, Verizon can always count on help from free market allies and alleged community service groups with whom it has a financial relationship or contributes executive talent to serve on their boards.  Most of these have no involvement in telecommunications matters, except when it interests or impacts Verizon.  Suddenly they spring to action, conveniently submitting similar comments supporting whatever Verizon had on the agenda before the FCC.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Little Rock Alltel-Verizon Merger Compilation 2008-2009.flv[/flv]

KLRT and KTHV-TV in Little Rock, Ark., where Alltel was headquartered, ran a series of reports explaining the impact the Verizon-Alltel merger would have on Alltel’s service and jobs in Little Rock. (23 minutes)

Selected Members of the Verizon Friendship Crew Filing Comments Supporting the Verizon Purchase of Alltel (click the names to read their letters to the FCC):

• Institute for Policy Innovation
• Communications Consumers United
• Native American Television
• ASPIRA Association
• Organization of Rural Education
• The Free State Foundation (Political)
• U.S. Hispanic Chamber of Commerce
• U.S. Pan Asian American Chamber of Commerce
• Pacific Research Institute
• Small Business and Entrepreneurship Council
• National Hispanic Council on Aging
• Women Impacting Public Policy
• American GI Forum
• U.S.-Mexico Chamber of Commerce
• Hispanic Alliance for Prosperity Institute
• Latino Coalition
• Consumers for Competitive Choice (Astroturf)
• Dominican American National Roundtable
• National Black Chamber of Commerce
• National Indian Council on Age
• Freedom Works Foundation (Political and Associated With Corporate Lobbying)
• American Association of Peoples with Disabilities
• U.S. Cattlemen’s Association
• League of United Latin American Citizens

Alltel's service areas were carved up between three major providers - Verizon, AT&T, and ATN

[flv]http://www.phillipdampier.com/video/Bloomberg Verizon Buying Alltel 6-5-08.flv[/flv]

Bloomberg News considered the business/industry implications of the Verizon-Alltel merger in these reports. (9 minutes)

Consumers Get Broken Promises & More Expensive Service

The benefits list of what Verizon promised to bring Alltel customers was heavily redacted in FCC filings as “highly confidential.”  What was promised, in public, was that Verizon would deliver improved service to Alltel customers who could continue with their existing service plans..

What consumers really got were major headaches, bad service, and much higher bills.  Former Alltel customers continue to tear up Verizon Wireless’ support forums with page after page of complaints.  As one former Alltel customer puts it, “we are the abandoned children of the redheaded stepchild.”

Some readers of Stop the Cap! shared their own experiences with the Alltel sale. Penny writes:

I first had Midwest Wireless that was bought out by Alltel which was just bought out by Verizon. With each switch I had to change my phone because something on the new system would not work on my old “previous provider” cell phone. Verizon has yet again said that for the “data charges” I can not block anything as my cell phone is too old and that I need to get a “Verizon” phone. My phone is not even a year old.

Enough about phones, data charges, rude customer service. You want to talk about dishonesty and unfair practices…just say Verizon.

In May I called and asked what I should do about leaving for a trip in which I would go out of my phone zone. The customer assistant that I talked to informed me that to avoid roaming charges I should temporarily switch to a national plan. I asked several times if I would be able to go back to my previous plan and was promised that I could set the start and end date for the new national plan. Well can you guess what they did? Yep they did the old bait and switch and from what I know about law….or what I thought about law was that this practice is illegal. Verizon started the new plan almost after I got back from my trip and plus would not set me back to my old plan. So now I had over 2 times the old bill plus roaming charges and less minutes. All I can say is my last call to Verizon was asking when my contract was up and what the termination fee is. By the way the $200 might be well spent.

Penny was switched away from her grandfathered Alltel plan to a new Verizon service plan, and potentially also ended up with a brand new two year contract, without new phones to accompany it.  Any Verizon customer on a grandfathered service plan should never consider allowing a customer service representative to make substantial plan changes — you could lose your old plan.  Grandfathered customers can make certain changes from the Verizon website (adding text plans, changing calling features on phones, etc.) without terminating their existing plan, but be cautious.  Once you lose an old plan, you may never get it back.

Steve, another Stop the Cap! reader, writes:

I was with Alltel for 15 to 20 years and a very happy customer — never a problem. Then Verizon took over and it has been a problem ever since. First off let me tell you that we are truck drivers and travel all over the US. We were in Texas when our laptop died so we went and bought a new one.  Our Alltel air card would not work in the new computer. This was at the time when Verizon was taking over, so we had to go to Verizon and get a new air card. By the way we had unlimited with Alltel. The sales person in Verizon sold us a new card and got us on the road again. From that day forward we have had to visit a Verizon store about our bill every month. Last month was the final straw. We did not like the 5 gig limit to begin with and did not trust it so we were watching it closely so we thought. When the MB’s got up near 4100 we called Verizon and they said you are no where near your 5 gig. Well when the bill came in it said we used over 8 gig and instead of our bill being 200.00 it was over 400.00 for the month . Since this has happened we have already dropped their phone service and may have to drop the Internet and pay the penalties.

Verizon's wireless modem

Steve ran into the problem former Alltel customers frequently encounter when traveling or moving outside of their old Alltel service area.  Many Verizon representatives are not well trained about their new Alltel customers.  Until the transition is complete, many Alltel customers still use equipment that gives priority to Alltel’s network first.  If not correctly provisioned, equipment may not work properly outside of areas where Alltel had service.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/WTVT Tampa Verizon Alltel to refund charges 6-24-09.flv[/flv]

Alltel and Verizon were accused of bill cramming in the state of Florida — subjecting customers to monthly charges for “free” ringtones and other services.  The Florida Attorney General’s office ordered refunds for all affected Floridians.  Cell phone companies have an incentive to allow these services to get away with loading up customers’ bills with unauthorized charges — they receive a cut of the action.  WTVT-TV in Tampa reports.  (3 minutes)

Verizon’s 5GB usage cap also includes a steep overlimit penalty.  We’ve seen reports that customers who use service around the country do not immediately see correct numbers for data usage.  That can cause a sudden traffic spike as usage from other areas finally shows up on one’s account.  Verizon customers should have the ability to opt-out from overlimit penalties.  When their 5GB is used up, they should be presented with a screen that requires them to acknowledge they wish to continue using the service and face the consequences on their bill.

Verizon’s tricks and traps for Alltel customers always pay off for Verizon, almost never for customers:

1. Verizon is doing everything possible to get Alltel customers to “upgrade” their service to Verizon plans so they can get them away from Alltel’s legacy plans offering more features for less money.  Once a customer renews a contract with a new Verizon phone or makes a significant change to their service plan, they are switched to a new Verizon plan… often including tricks and traps.  Unlimited texting costs extra on Verizon, as do many other features.  Customers who mistakenly buy what they thought was a comparable service plan learn the errors of their ways when the $1,100 Verizon bill arrives a month later.  Forgetting to add text and data plans can be an expensive mistake on Verizon’s network.
2. Dangling a free or discounted phone upgrade for former Alltel customers often also requires an “upgraded” service plan… from Verizon.  If you want a new subsidized phone, you may lose your old Alltel plan.
3. In many areas, Alltel phones gravitate towards Alltel’s legacy cell network.  That means the phone will choose a weaker cell tower formerly operated by Alltel instead of a closer Verizon cell site.  A roaming/software upgrade normally would correct this and help route calls to the best possible cell site, but customers overwhelmingly complain that doesn’t happen with Alltel-provided phones.  Customers are encouraged to choose a new Verizon phone instead… with a new Verizon service plan.

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/WTKR Hampton Roads Norfolk NC man overcharged 400 dollars when switching from Alltel to Verizon 1-19-10.flv[/flv]

This former Alltel customer in North Carolina was charged $400 for an unjustified early termination fee when his service switched to Verizon Wireless as part of the merger.  Despite repeated calls, Verizon-owned Alltel turned his account over to a collection agency. Verizon told him to pay off the Alltel collection agency account and they’d credit him $400.  He paid and then Verizon refused to credit his account and turned him over to their collection agency who started calling him at work.  They also ruined his credit.  It took WTKR-TV in Hampton Roads, Virginia airing this story on the 6 o’clock news to get Verizon’s attention after seven months.  (2 minutes)

Things are even more complicated in areas where the FCC has forced Alltel to divest its wireless assets and not transfer them to Verizon.  In most areas, those customers will shortly discover they are becoming part of AT&T’s wireless family, as AT&T bought the majority of those divested markets.  AT&T, however, does not operate with the same wireless standard Alltel and Verizon do.  AT&T phones work on the GSM standard while Alltel and Verizon work on CDMA.  For the time being, AT&T will simply operate the existing CDMA network Alltel used to own, but eventually every affected customer will get a free upgrade to a new GSM phone.  That upgrade better come quick for frequent travelers who are former Alltel customers switched to AT&T.  They’ll find getting service from AT&T outside of their home areas difficult on a network that uses an entirely different standard.  AT&T will likely have to maintain roaming agreements with Verizon for former Alltel customers until conversion is complete.

[flv]http://www.phillipdampier.com/video/South Dakota Alltel ATT 6-24-10.flv[/flv]

KELO and KSFY-TV, both in Sioux Falls, South Dakota, informed South Dakota’s former Alltel customers they’d soon have AT&T as their cell phone company, making Apple’s iPod available in stores in the state for the first time. (3 minutes)

A handful of customers won’t end up with either Verizon or AT&T.  In parts of Wisconsin, Element Mobile will take control of their Alltel account. But nearly a million customers will find their former Alltel service is now provided by… Alltel?

The Return of Alltel Wireless

McGill

Allied Wireless Communications Corp., which is staffed by former Alltel employees, has acquired the remaining leftover pieces of Alltel’s network, including its name, for $223 million dollars.  The all-new Alltel will have the same logo and calling plan features the old Alltel offered, and for 900,000 customers, it will be as if they never left.

“We feel like it’s putting the bank back together here in Little Rock,” Wade McGill, chief administrative officer for Alltel Wireless and AWCC told RCR Wireless. The original Alltel Corp. was headquartered in Little Rock, Ark., before being acquired by Verizon Wireless for $28 billion in early 2009. As part of the acquisition, Verizon Wireless was forced to divest some markets, a majority of which were acquired by AT&T Mobility for $3 billion, with most of the rest picked up by what will remain Alltel.

The company will have extensive roaming agreements for nationwide coverage and will focus on maintaining high quality customer care.

“The ability to retain the brand was key in these markets and you can’t underestimate the value of that,” McGill noted, adding that more than 50% of its current customer base have been Alltel customers for more than six years.

“We need to have a laser focus on the customer experience and being local,” McGill explained, citing a common mantra of rural carriers forced to compete against large, nationwide operators. “That’s how we want to think about our plans moving forward. … I think our plan is to grow organically at first and just focus on providing excellent customer service and support.”

But that doesn’t preclude Alltel from starting to expand operations to other parts of the country, perhaps even in areas now taken over by Verizon.

The new Alltel will remain a CDMA provider with plans to move to the LTE standard, which will deliver a 4G-like experience.

Going Back to the Future

In the end, many of the 13 million former Alltel customers probably wish they could have their old Alltel back, too.

Instead, they got wheeled and dealed away, first by an investment bank/casino that later used taxpayer dollars to bail itself out of its own greed, then by Verizon and AT&T who promise a future of higher bills and poorer service for many trapped in two year contracts. Too often, what’s in the best interests of consumers are an afterthought in these kinds of transactions, even today. Despite the FCC’s own findings that wireless competition is shrinking in a consolidating wireless world, they still found a way to green light deals like this that reduce competition even further.