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The Telecom Scammers' Latest Ploy to Screw You for More Cash

Fees, surcharges and taxes make wireless companies tons of money.
 
 
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Do you watch movies via a wireless connection on your laptop, tablet, smartphone or even TV set? If so, have you received a love letter from your service provider informing you to either go on a digital data diet or plan to pay more to suck down more streaming 1s and 0s? If not, it will arrive shortly.  

The leading wireless companies are changing the usage and pricing models they have long used, shifting the industry from one with “unlimited” plans to “limited” deals. 

These new limited plans tier data downloads to the ability to pay. AT&T, Verizon, T-Mobile and Virgin Mobile have either introduced or plan to introduce “data cap” or throttling programs on their 3G and 4G wireless users. Sprint remains the only leading provider offering an unlimited data plan that isn't subject to throttling.

When thinking about your latest wireless toy, it's important to remember two key facts. First, according to Europe’s Organization for Economic Co-operation and Development (OCED) the U.S. ranks first in total wireless users, with 200.2 million subscribers as of June 2011. However, it ranked ninth in terms of users per 100,000 people of a nation’s population, with 65.5 per 100/k – this compares to #1 Korea (96.3) and #2 Sweden (93.6).

Second, in the U.S., the datarate for wireless laptops and smartphones lags way behind U.S. wireline rates, let alone speeds among the most advanced telecom countries. In March 2011, PC World found for laptop users the download rate ranged from Verizon’s 6.44 Megabytes per second(Mbps) to AT&T’s 2.48 Mbps to Sprint’s 2.15 Mbps; upload rates ranged from Sprints 0.61 Mbps to Verizon’s 5 Mbps.  

The performance of smartphones is even more anemic. Downstream T-Mobile topped out at 2.28 Mbps to AT&T’s 1.45 Mbps to Verizon’s 1.01 Mbps; in terms of upstream, don’t ask – Verizon was only 0.67 Mbps, AT&T was 0.97 Mbps and T-Mobile hit 0.95 Mbps. As a point of comparison,as of Q-3 2011, Akamai ranked the U.S. 13th globally in average (downstream) datarate speed of 5.8 Mbps. (Verizon’s high-performing FiOSservice hits 1 Gbps.)

In simplest terms: America’s wireless broadband service sucks! No wonder that throttling is a great scam, a get-rich scheme concocted by America’s telecom trust. 

* * *

The Communications Trust is the network of big telecom, cable and media companies that have turned the U.S. into a second-tier telecom nation. Its reach recalls the great trusts of Carnegie and Rockefeller during the Robber Baron era of the late 19th century. Daily life in the 21st century is increasingly dependent on digital communications. Today’s trust is complicit in a shared effort to maximize short-term profits while sacrificing the nation’s communications future. Its effort recalls the tobocco trust that was finally broken up for RICO violations. 

One way to increase short-term profits is by throttling. For AT&T, Verizon and the other wireless providers, it involves two issues, one immediate, one long-term.  The most immediate is the new fee structure they are attempting to impose; wireless is cheaper to offer and more profitable to opperate then wireline services! 

The short-term incentive for new pricing is obvious. One can see the $$$ signs exploding in some corporate executive’s mind at the revenue opportunity these new data plans represent. 

AT&T faced significant customer discontent when it first announced its new pricing plan; it has about 17 million "unlimited" subscribers, most of whom use iPhones.  However, it plans to charge $10 per additional GB beyond its basic offering of 2 GB at $25 per month and $30 for 3GB;Verizon has tiers of $30 for 2 GB, $50 for 5 GB, and $80 for 10 GB per month.

The telcos are, therefore, shifting their respective business models away from heavy investments in wirelines – the optical fiber landline networks that are the backbone of America’s communications network – to the cheaper and (due to deregulation) more profitable wireless businesses. AT&T and Verizon have stopped building out their most advanced wireline networks, U-verse and FiOS, respectively. This shift will only further erode the nation’s communications capabilites.

The 21st century is witnessing more and more people shifting their telecommunications life to mobile devices. As this happens, wireless spectrum is being turned into a scarce, precious commodity. To do so, the providers of digital data transport, the great middlemen, AT&T and Verizon, are buying up all available spectrum, thus acquiring greater control over the flow of wireless data. In this process, they have become the digital spigots of social life, affecting much of communications, commerce, politics and intellectual experience. 

Most scandalous, the customer – really, the American public – has paid, through fees, taxes and surcharges, for the development of the nation’s private, corporate-controlled and increasingly unregulated wireless network. And while the telco companies have gotten fat, what has the consumer gotten? 

The telecom trust’s shift from wireline to wireless raises a serious technical questions: how much data traffic can wireless networks support?

Wireless providers, led by Verizon, are warning that they are facing capacity crunch or bandwidth congestion, that the proverbial sky is falling. To address this alleged problem, they must acquire more wireless spectrum and introduce throttling to dissuade large-data usage.

Their argument frames this as a supply-vs-demand issue, good-old traditional capitalism. In this spirit, the telecom trust argues that the digital debate is based on a new media culture of scarcity. They insist that their networks are simply overwhelmed by an ever-increasing demand for digital voice, audio, text, interactivity and video. 

The analysis places the burden for the country’s pathetic wireless – and wireline – system onto the customer for wanting too much. This is a false argument, shifiting the inadequacies of wireless networks failure away from the operators.  These service providers have not invested in upgrading the networks but crème-skimming long-term investments to meet demands of short-term profit and providing generous compensation to executive and returns to shareholders.

* * *

Online video is transforming the traditonal broadcast and cable TV businesses. There are two competing ways that streaming works:

  •  Internet Protocol Television (IPTV) -- is a method for the delivering of digital programming over a closed or proprietary network offered by a cable or telephone company. With traditional television, all channels are broadcast simultaneously and a viewer selects which program s/he wants to watch by changing the channel. 

With IPTV, the cable/telco subscriber selects the program s/he wants to see and it is transmitted downstream to the viewer.  Like cable TV, IPTV programming requires an in-home set-top box. IPTV employs “a walled garden” strategy to deliver video content over a closed, secure infrastructure; programming is limited to only those content aggregators or syndicators who meet a distributor’s contractual requirements. Most programming is the same as that offered by a cable and satellite service.

  • Over The Top (OTT) -- refers to an open or unmanaged video data stream that rides “over the top” of an ISP’s network. OTT delivers streaming and/or VOD programming utilizing the open, public Internet.  It can be accessed through a cable or telco company’s function as an ISP. OTT programming is accessed through a specialty set-top converter like that offered by Roku Box, Google TV and Apple TV.

Until recently, Internet video mainly consisted of low-quality, user-generated content sites like YouTube that were characterized by small-size display window and grainy images. As broadband distribution capabilities improved, the quality of OTT programming has also improved. Among the leading OTT services are Google’s YouTube, Netflix and Hulu (owned by NBC Universal, News Corp. and Walt Disney Co.). 

The combination of the Great Recession and an historically “free” Internet is sucking subscribers from cable TV services. In order to counter subscriber erosion, the major cable operators (e.g., Cablevision) are promoting special “TV Everywhere” programs and offering hybrid OTT-IPTV services so as to incorporate OTT programming into their service offerings. Thus, some cable operators are offering OTT Netflix streaming as an enhanced program service.

American telecom customers seem to want to receive on their mobile device the same programming they can get on the home/office TV or computer. This has driven increased demand for wireless spectrum and led the leading wireless companies to change the pricing model they have long used. This is shifting the industry from one with “unlimited” to “limited” plans based on the ability to pay. 

AT&T plans to introduce a new fee schedule affecting its top 5 percent users on October 1. T-Mobile plans to reduce the speed on "unlimited" plans once users have exceeded their data limits. Virgin Mobile cuts speeds to 256 kbps for "unlimited" data users after they hit 2.5 GB of monthly data use. Verizon will reduce the data speed of the top 5 percent of 3G data users, which currently equates to about 2 GB per month.

A rule-of-thumb for streaming data downloads to a smartphone, tablet or other 4G (i.e., 4th generation) device is: 1 gigabytes (GB) for standard definition (SD, i.e., 480p) video content requires about 1 hour; for HD (i.e., 1280p) content its about 2 GB per hour. (For more on 4G wireless, read The Smart Phone Con Job: Your So-Called 4G Phone Isn't What It's Cracked Up To Be.)

So, let's say you want to watch a Hulu TV show or a Netflix movie on a tablet device like an iPad in HD. According to Janko Roettgers at Gigacom, an episode of "Weeds" consists of about 800 megabytes (MB) and a movie like Moulin Rouge would eat up about 3.5 GB of data.

For most TV viewers, the question is simple: can I get better programming and save money by shifting my TV viewing from a wireline, cablehookup to a wireless connection? 

Bruce Springsteen once famously observed about cable TV, “500 channels and nothing to watch.” So, why not just pay for (i.e., “subscribe” to) only what you want to watch? Sounds simple; the cable companies are fiercely fighting this proposition at the FCC and in Congress.

Video streaming of OTT programming allows viewers to pick and choose the shows they watch. Is this the future of TV, of media consumption? 

Video is famously acknowledged as a bandwidth hog. When we talk about video we are talking big files:  a simple email message measures 7 to 11 kb; a 2-hr movie is 3.5 GB. As more people shift the communications’ nexis of their lives from a fixed communications device (e.g., the telephone, radio, TV set, desktop computer and videogame player) to mobile device (e.g., smartphone, laptop, tablet, wireless computer and TV set), the world changes.

The telcos claim the problem of data demand lies with the consumer: to many consumers are digital gluttons, wanting too much steaming data. For the telcos, it’s a problem of capacity; in order to manage the spread between bandwidth “demand” and “supply,” they plan to impose a newusage and pricing model to maximize the financial return from their networks.

Yet these very same telcos created the problem, but take no responsibility for it. They built their businesses on one simple fiction:  they promised legislators, regulators and the public to build super-high networks offering unlimited performance.

So convinced were the government and the public that they willingly paid (through tax breaks, subsidies and inflated prices) to upgrade the nation’s private telecom infrastructure. The telecos guaranteed this tech capability by offering unlimited contracts -- and fattening their corporate bottomlines in the process. Unfortunately, they failed to deliver on their promise; the U.S. is a second-rate telecom nation.

No one, telco official, politician or regulator, will point the guilty finger for the (alleged) wireless capacity crisis at those who have orchestrated it, the wireless providers. The trust is attempting to impose this new program of media austerity through a policy of reguatory capture. 

Its most eggregious recent example involves former FCC commissioner Meredith Attwell Baker, who, shortly after voting in favor of Comcast’s acquisition of NBC-Univeral, left to take a senior position at Comcast. (And, by the way, Chris Dodd, former senator (D-CT), now heads the film industry’s trade association, the MPAA; and Michael Powell, son of the famous general and former FCC chairman, heads cable industry’s trade association. Influence peddling?)

In order to halt the development of an alternative way to access media programming, the telco and cable operators are attempting to impose a new usage and cost model. Every time one hears scare stories about their telecom system being congested, facing scarce bandwidth or suffering over-capacity, one should get ready for changes in your service plan and new charges. A word to the wise.

* * *

So, if you have an unlimited plan and are facing a wireless company’s throttling effort, what can you do? Very little. 

In a recent court decision, Matt Spaccarelli, of Simi Valley, CA lost a challenge to AT&T over throttling. The Supreme Court ruled in 2011, in AT&T Mobility LLC v Concepcion, that AT&T, along with any other company, could block class-action suits arising from disputes with customers and instead force those customers into binding arbitration. So, all Spaccarelli could do was enter arbitration following his pyrrhic victory in small claims court and receive an $850 payment from AT&T.

Given this, individual customers have limited options in dealing with their wireless providers. In selecting a plan, one needs to make a relatively simple calculation. How much TV do you now watch on your TV set? Calculate the total data amount per half-hour shows and two-hour movies; take that total and compare it to your wireless usage (some people live electronically via only an iPhone and an iPad).

The telecoms are attempting to impose an austerity model on media consumption. Scarcity, a technical limit to bandwith was the model of the great 20th-century media revolution. Radio and TV offered only a limited number of channels; its distributed network fostered the decentralized national grid.

The great 21st-century media culture is based on a model that assumes the potentially unlimited capacity of digital technology, a capacity that instantaneously links two people across the globe. It is grounded on three utopian assumptions:

  • It inherits the tradition of the ubiiqutous late-19th and early-20th century publishing and U.S. mail distribution, creating a ubiqutous national market. 
  • It is inspired by Moore’s first law of the digital age: the number of transistors on a signal processor doubles every 18 months or so and price declines acccordingly. 
  • It fulfills Stewart Brand’s famous notion: “On the one hand information wants to be expensive, because it's so valuable....On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time.” 

Digital technolgies offer increasingly more sophisticated data processing capabilities. As data compression, storage and transport get more robust, costs decline. In the face of these utopian impusles, the telcos are attempting to impose a 20th-century analog business model on 21st-century digital media. This is what the current wireless squeeze is really all about.

David Rosen is the author of Sex Scandals America:  Politics & the Ritual of Public Shaming and is a regular contributor to CounterPunch, Brooklyn Rail and Filmmaker.  He can be reached at drosennyc@verizon.net.