Lowering the bar on "unlimited use" customers.

Customers grandfathered on AT&T’s “unlimited use” data plan are starting to wonder whether AT&T’s definition of “unlimited” is worth the effort.

Stop the Cap! reader Earl shares news the wireless carrier has lowered the bar (and wireless speeds) on customers who consume just 2GB on an “unlimited” wireless plan the company charges $30 a month to keep.  That’s $15/GB before AT&T considers you a usage abuser.  Now customers are discovering for the same $30, they can buy a usage-limited plan that offers 3GB a month, one gigabyte more than the “unlimited plan” allows before AT&T considers you among the top 5% of its “heavy users” subject to a punishing speed throttle.

[From CNET’s ‘Ask Maggie’ column:]

Dear Maggie,
I am currently using an iPhone 3GS and am grandfathered into the unlimited data plan. I normally use between 3GB and 4GB of data a month without issue. I have now been notified after 2GB of data that my data consumption is in the top 5 percent of customers and my data will be throttled. I have noticed that this seems to be a common cutoff for other customers as well.

My question to you is–Does this make the unlimited data plan basically useless as the new 3GB plan will at least give me 1 extra gigabyte of data for the same price? Also, why don’t they just cancel the unlimited plan instead of forcing people to switch through throttling?

Dear Brian,
I think you’ve nailed this issue right on the head. AT&T’s throttling program seems to target customers, who are just over the 2GB threshold. And its new higher priced data plans that offer 3GB of data for $30 looks like an attempt to get customers to switch from their unlimited data plans to the 3GB plan for the same price.

Whether you can live with the slower data rates is up to you.

It’s increasingly apparent AT&T is engineering data plans to discourage customers from retaining their grandfathered unlimited-use plan.  By luring customers to ‘never-throttled’-tiered data plans, AT&T can expose customers to lucrative overlimit fees charged when plan allowances are exceeded.

Leap Wireless is trying to save face on less-than-impressive second quarter financial results showing the company is losing its mobile broadband customers who are increasingly weary of Cricket’s price increases and speed throttles.

The company lost at least 132,000 broadband customers since the first quarter, mostly due to price increases, reduced usage allowances and “network management” practices, which reduce speeds to near dial-up for customers who are deemed to be “using too much.”

“On broadband, we tightened our focus to more profitable customers while shedding less profitable ones,” said Leap Wireless CEO Douglas Hutcheson.

Internet Overcharging Facts of Life: What 'Network Management' tools are really used for. (Courtesy: Cricket's Second Quarter Results Investor Presentation)

Cricket recently announced increased pricing on their usage limited plans: $45/month for 2.5GB, $55/month for 5GB, or $65/month for 7.5GB.

With a less-than-robust regional 3G network and higher pricing, broadband customers have decided to take their business elsewhere, despite the company’s recently announced expanded data roaming agreement with Sprint.

Cricket acknowledges their “increased network management initiatives” are partly to blame for the loss, but the company also says increased prices for mobile broadband devices, which used to be available for free after rebate, are also responsible.  Cricket’s least expensive mobile broadband modem now runs just under $90.

Company officials told investors the losses “were expected,” and that the company has been trying to make up the difference with higher value smartphone data plans.  Mobile broadband customers tend to consume more data than smartphone users, so the company’s emphasis on smartphone data users, who use less, will deliver increased revenue at a reduced cost.

Cricket’s CEO explains the company’s renewed focus on keeping highly-profitable mobile broadband customers while effectively getting rid of “heavy users” who have been targeted with aggressive speed throttling over the past year, and now face higher prices for lower usage allowances. Also explored: Cricket’s future 4G LTE network buildout.  August 3, 2011.  (4 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

Cricket's declining mobile broadband business

In fact, the company’s presentation to investors credits network management tools for driving away “higher usage customers,” allowing Cricket to reap the benefit of “improved revenue yield per gigabyte.”  In short, that means Cricket profits handsomely from data plans they hope customers will only occasionally use.

One of Cricket’s biggest product priorities this year is pitching its Muve Music service, bundled into an all-inclusive $55 wireless prepaid phone plan.  It gives Muve phone customers unlimited access to an enormous downloadable music library accessed on the phone.  Since the service does not allow customers to transfer the music to other devices, record companies are happy to participate.

The biggest downside for some is that the Muve phone becomes your music player — a phone many customers consider a work in progress.  Some critics have labeled the service a “total fail” because of sound quality and DRM restrictions. But since the service is already bundled into the wireless plan at no additional cost, more than 100,000 customers are using it, downloading at least 130 million songs since it was first introduced in January.

Muve Music is another way Cricket is trying to differentiate itself from other wireless providers, and the company may try to expand the Muve Music service to much-more-profitable smartphones in the near future. Cricket hopes to begin selling no-contract smartphones at prices below $100 by Christmas.

Cricket executives answer questions from Wall Street about how the company intends to deal with a decline in mobile broadband customers, and explains their use of network speed throttles. Cricket plans to “follow industry trends” and experiment with “session-based” throttles sometime next year. These allow customers to pay an extra charge to temporarily remove the speed throttle when they need additional bandwidth. It’s just one more source of lucrative revenue from conjured up network management schemes.  August 3, 2011.  (4 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

Cricket is also planning further expansion of its ‘welfare wireless’ plan — a Universal Service Fund-backed home phone replacement for customers receiving public assistance.  The Lifeline USF subsidy is designed to provide affordable home telephone service to the most income-challenged among us.  Many landline providers charge around $1 a month for the service (before fees), and then charge for every call made.

Cricket’s implementation of this subsidy could draw some controversy because it delivers a $13.50 monthly discount off -any- of their rate plans.  That means qualified customers could pay just over $40 a month for a high end smartphone service plan, subsidized by every telephone ratepayer in the country.

Cricket also plans to launch LTE 4G service starting in early 2012.

Cricket plans to introduce 4G LTE service in 2012.

Over the air television in Detroit if the NAB is correct.

The National Association of Broadcasters is warning a Congressional plan proposed on behalf of the wireless industry could force every broadcast station in Detroit off the air, and drive at least one network affiliate in many northern U.S. cities along the Canadian border to “go dark” if the plan is adopted.

The FCC’s National Broadband Plan contains provisions now on Capitol Hill to recapture spectrum currently used by free over-the-air television stations and provide it to wireless providers to bolster mobile broadband and cell phone networks.  Lawmakers expect the wireless industry will pay up to $33 billion for the lucrative spectrum, to be shared with vacating broadcasters and the U.S. Treasury.

But the NAB says the FCC plan goes too far, forcing stations to vacate UHF channels 31-51 to crowd into the remaining channel space of 11 VHF channels (2-13) and 17 UHF channels (14-31).  According to a study conducted by the broadcasting lobby, there is simply not enough remaining channel space to accommodate 1,735 U.S. stations, forcing at least 210 to sign off, permanently.

Because of agreements with the Canadian government to protect American and Canadian stations from mutual interference, the results could be devastating for northern cities along the U.S.-Canadian border.  The worst impact would be in Detroit, Michigan where the NAB predicts every local station would have to leave the airwaves.

The cities of Buffalo, Seattle, Syracuse, Cleveland, Spokane, Rochester and Watertown, NY and Flint, Mich. would likely lose at least one major network affiliated-full power station each.  At least 73 stations in the top-10 largest television markets would be forced off the air, unable to find appropriate channel space in the remaining available spectrum.  Hundreds of stations would be forced to change channels and potentially reduce power and coverage areas to protect stations sharing the same channel number in adjacent cities.

“If the FCC’s National Broadband Plan to recapture 20 more TV channels is implemented, service disruption, confusion and inconvenience for local television viewers will make the 2009 DTV transition seem like child’s play,” said NAB President Gordon Smith. “NAB endorses truly voluntary spectrum auctions. Our concern is that the FCC plan will morph into involuntary, because it is impossible for the FCC to meet spectrum reclamation goals without this becoming a government mandate.”

Broadcasters are feeling a bit peeved at the federal government for repeatedly returning to sell off a dwindling number of channels for other uses.  The original UHF dial included channels 14-83, but over the years the highest channel number has dropped to 51, mostly for the benefit of the cell phone industry.  Now they’re back for more, seeking channels 31-51 for wireless broadband and mobile telephony.

The cell phone industry wants broadcasters to “voluntarily” give up their channel space and reduce transmitter power so more stations can share the same dial position in nearby cities.  But that could leave fringe reception areas in rural communities between cities without over-the-air television reception, and make free television more difficult to watch without a rooftop antenna.

The NAB called on the FCC to immediately make public its analyses of the broadband plan’s potential negative impact on viewers of free and local television.

“We’ve waited patiently for over a year for FCC data on how the Broadband Plan impacts broadcasters, and more importantly, the tens of millions of viewers who rely every day on local TV for news, entertainment, sports and lifeline emergency weather information,” said the NAB’s Smith. “Even Congress can’t get information from the FCC. All we are seeking is more transparency. We have but one chance to get this right if we are to preserve future innovation for broadcasters and our viewers.”

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/NAB Free TV Spot.f4v[/flv]

The National Association of Broadcasters is distributing this ad to local broadcasters to air on their stations to inform viewers about the spectrum controversy.  (1 minute)

The consumer wireless handset lobby does not deny the plan will leave Americans with fewer channel choices, but they believe that will come from corporate station owners voluntarily shutting down stations for profit.

“The study presumes an unrealistic scenario in which every single existing TV station continues to operate over-the-air. However in the event of incentive spectrum auctions, it is highly likely numerous stations will capitalize on their spectrum assets by exiting the business or sharing resources,” said Consumer Electronics Association senior vice president for government affairs Michael Petricone.

Petricone believes the number of Americans spending time with broadcast television is dwindling, and less important than the wireless industry’s spectrum woes.

“Our nation faces a crisis as demand for wireless spectrum will soon outstrip supply,” said Petricone. “Meanwhile, the number of Americans relying purely on over-the-air TV is less than 10 percent, according to both CEA and Nielsen market research. Incentive auctions would be a financial windfall for broadcasters, free up the spectrum necessary for the next generation of American innovation to move forward and bring in $33 billion to the U.S. Treasury.”

The cellular industry’s top lobbying group CTIA was more plain: it’s survival of the fittest.

“Since spectrum is a finite resource, it is vital that the U.S. government ensures the highest and best use of it,” said CTIA vice president Chris Guttman-McCabe.

[flv width=”512″ height=”308″]http://www.phillipdampier.com/video/NAB Explains Spectrum.flv[/flv]

The NAB explains the concept of “spectrum” — or ‘the airwaves’ to consumers and what a major reduction in UHF channel space would mean for “free television.”  (3 minutes)

Three years ago, Bush Administration FCC Chairman Kevin Martin championed an initiative to offer free national Internet access across the United States via wireless access.  Martin’s idea was to take a portion of unused spectrum and auction it to a company that agreed to set aside 25 percent of the 2 GHz “AWS-3” band for a free, slow speed Internet service.  The winning bidder could underwrite the free service with online advertising and sell access to the remaining 75 percent of the spectrum, presumably for faster access.  Think NetZero for the 21st century.

That proposal just happened to coincide with a nearly identical plan offered by M2Z Networks Inc., a politically-connected start-up backed by Kleiner Perkins Caufield & Byers partner John Doerr and loaded with former FCC people.

M2Z had everything the FCC wanted from an applicant:

• a minority owned business that would raise the percentage of minority-owned telecommunications businesses;
• a willingness to agree to Martin’s demands that the free Internet service be censored to remove adult content;
• sufficient financial backing to win the spectrum auction;
• political connections that could help drive the plan through a political minefield and objections from incumbent commercial providers.

John Muleta, co-founder and CEO of M2Z Networks, also headed the FCC's Wireless Telecom Bureau between 2003 and 2005.

M2Z planned to offer free Internet access below the definition of broadband speeds defined in America’s National Broadband Plan — 768kbps, and would also include web advertising injected by M2Z.  Premium, paying customers could access faster speeds and avoid the extra advertising.

Unfortunately for the project’s boosters, Martin’s maverick proposal met a roadblock of opposition, including from his boss, President George W. Bush.  Commercial providers, especially AT&T, Verizon, and T-Mobile immediately attacked the plan.  AT&T and Verizon did not want a competitor giving away free wireless access when they were charging top dollar for it.  T-Mobile objected, fearing interference to spectrum it owned nearby (fears that proved not credible).  Civil rights and consumer groups objected to Martin’s insistence that adult content be blocked using imperfect filtering software.  Still others thought M2Z would never be able to cover 95 percent of America within a decade, as required by Martin’s proposal.  Some speculated M2z would launch service, deploy it to major cities, and then petition the FCC to forget about the 95 percent requirement.

Philosophically, many industry groups also objected to the Commission sticking its nose in private company business plans, dictating the services offered by the winning bidder.

Despite some willingness by M2Z to compromise on issues like the “smut filter,” with the remaining parade of opposition it came as no surprise the FCC left M2Z’s proposal on the back burner for the remainder of the Bush Administration.

With the arrival of the Obama Administration, Kevin Martin was out at the FCC.  In came Julius Genachowski and a National Broadband Plan.

The concept on offer from M2Z just didn’t fit the vision of America’s broadband transformation.  Although wireless 3G and 4G networks remained hot topics, other wireless projects have simply not gotten as much attention outside of rural areas.  As many community-owned Wi-Fi services shut down, the concept of free, slow-speed broadband just wasn’t a hot topic any longer.  Even worse, approving a plan offering speeds well below the FCC’s proposed definition of broadband threatened to muddy the message America needs faster access.  Last week, the FCC quietly sent word to M2Z that they had rejected their proposal, effectively killing the venture.

How broadband advocates frame broadband expansion can be critical to the plan’s success.  Critics already opposed to broadband stimulus programs could argue M2Z offered a free market, privately-funded solution to Internet adoption without spending billions of taxpayer dollars.  Although 768kbps would offer little to solve the digital divide, totally free access isn’t something easily ignored, even if M2Z was never capable of extending service to 95 percent of the country.

But in the end, vociferous objections from AT&T, Verizon, and T-Mobile were probably the primary reason for the plan’s ultimate demise.

After all, if you could get free wireless access at speeds comparable to what several carriers realistically deliver to their 3G customers today for upwards of $60 a month, would you remain a paying customer?

[flv]http://www.phillipdampier.com/video/C-SPAN M2Z Networks The Communicators 10-11-07.flv[/flv]

In October 2007, C-SPAN’s “The Communicators” spent 30 minutes discussing the state of competitiveness in American broadband and how M2Z planned to shake up the duopoly.  Three years later, the duopoly remains and M2Z’s plan is dead.  (29 minutes)