On Wednesday, Motherboard reported that AT&T, T-Mobile, and Sprint sold extremely sensitive GPS information meant to triangulate 911 emergency callers to around 250 private businesses, mainly bounty hunters trying to retrieve the clients of bail bondsmen:
Between at least 2012 until it closed in late 2017, a now-defunct data seller called CerCareOne allowed bounty hunters, bail bondsmen, and bail agents to find the real-time location of AT&T, T-Mobile, and Sprint mobile phones. The company would sometimes charge up to $1,100 per phone location, according to a source familiar with the company.
[...]
Some of the data available to CerCareOne customers included a phone's "assisted GPS" or A-GPS data, according to documents and screenshots of the service in action provided by two independent sources. A-GPS is a technology that is used by first responders to locate 911 callers in emergency situations. A letter to the Federal Communications Commission from a T-Mobile lawyer in 2013 noted that "A-GPS is reasonably the foundation of wireless [emergency] 911 location for both indoor and outdoor locations."
Laura Moy, executive director of Georgetown University's Center on Privacy & Technology, told Motherboard in an email that "Oftentimes A-GPS provides location information about where someone is inside a building," while University of Colorado assistant professor Blake Reid noted that the technology can triangulate a person's location to "within just a few meters ... constructing a detailed record of everywhere you travel."
A-GPS is, by its nature, meant to be an extremely private form of data, only used to help first responders locate people in life-threatening emergencies — not to help bail bondsmen hunt down low-income people who missed their court date. And CerCareOne seemed to realize selling this information would cause an uproar — as part of the terms of use, bounty hunters were required to never mention the existence of the database.
Bail bonds have increasingly become controversial, as the entire practice of cash bail has resulted in millions of low-income people being forced to sit in jail pending trial for minor offenses, despite them posing no threat to the public. Only a few states require bounty hunters to have any sort of licensing or training, and there have been horror stories of bounty hunters killing their targets, or sometimes even the wrong person, including a 2017 incident where seven bounty hunters surrounded a car in Tennessee and fatally shot a man who wasn't wanted for anything.
"This scandal keeps getting worse," said Sen. Ron Wyden (D-OR) when contacted by Motherboard about the story. "Carriers assured customers location tracking abuses were isolated incidents. Now it appears that hundreds of people could track our phones, and they were doing it for years before anyone at the wireless companies took action. That's more than an oversight — that's flagrant, willful disregard for the safety and security of Americans."
Groups against a two-tiered Internet are rallying to beat back FCC Commissioner Ajit Pai’s plan to end Net Neutrality, which will affect users’ ability to access thousands of websites. They are mobilizing with support from activists for a two-day “Break The Internet” effort to temporarily shut down websites and flood Congress with phone calls and messages. They hope to convince Congress not to allow the FCC to vote for the internet to be handed over to a handful of telecoms.
Up until this time, the Internet–the modern backbone of nearly all U.S. communications–has been free and open to anyone with a connection. This principle of open and free communications access has been guided by Title II of the Telecommunications Act of 1934. But the FCC plans to vote on Thursday, December 14, to remove the language from the rule which would in effect deregulate it and allow some Internet Service Providers to take full control of access to it. Activists say this will have a chilling effect on business websites that rely on the Internet for their transactions because it will force them to go through the big telecoms. Verizon, AT&T, Comcast, T-Mobile and Sprint would be able to create access criteria that charge different prices for faster service, limit access to sites that compete with their services or throttle data to any website at their discretion.
Groups plan to stage an occupation by camping out on the sidewalk at the FCC on December 13, the night before the vote. They also plan a massive protest there on the morning of December 13. There are other unspecified direct protest actions being planned for December 14, but activists have not released any details.
The FCC is located in a sleepy part of Washington, DC, buried behind layers on nondescript government buildings. Typically there are no protests there. But in 2014-15, this same issue was fought, and pro-Net Neutrality campaigns supported by hundreds of thousands of people pressured the Obama administration to keep the Internet free from telecom control–and won.
The concept of Net Neutrality was a wonky topic back in 2014 with few understanding what it was and what was at stake. In general, everyone took open Internet access for granted. Internet freedom groups and activists had to not only educate the public on what Net Neutrality was, they also had to get the public involved. With a few lucky political breaks and a helping hand by comedian John Oliver, they succeeded and the FCC eventually voted 3-2 to keep the Internet free and open by not changing Title II.
But in 2016, the tables turned with the election of Trump and his administration’s self-professed agenda to deregulate much of government oversight in every agency it has control of, and the FCC was no exception.
A protest for Net Neutrality outside FCC headquarters in May 2015. Photo by John Zangas
The days could be numbered for Internet freedom if Internet groups and activists can’t pull in enough bipartisan political support to save it. But they are not going down without a fight. At this point, they think they can still win against Ajit Pai and the FCC.
Pai previously worked as a lawyer for Verizon, so few were surprised when he came out against the Title II regulations. “Ajit Pai brings his Verizon lawyer viewpoint to the FCC, and when he leaves the FCC, Verizon, Comcast and other ISP’s will be his close colleagues and his retirement plan,” said Kevin Zeese of Popular Resistance.
Republicans in Congress may pay a heavy price for not supporting Net Neutrality. “The Republicans will regret that Pai took this action, as it will be a political issue that will be very costly politically,” said Zeese. Over 700,000 phone calls have been logged at the FCC over the past few months against Ajit Pai’s plan to end Internet Freedom.
If the fight to keep the Internet free and open fails, it is certain to end up in federal court. There were a number of controversial issues that plagued the FCC public comments process regarding a review of Title II during 2017. One such issue involved alleged robo calls using stolen emails to end Net Neutrality. Another issue involved the FCC resistance in providing transparency to the cause of its public comment servers going down when the comment period was at a peak in public responses.
Here's what you can do to keep the Internet open and free:
Contact your Member of Congress by writing or calling and ask them to vote for Internet Freedom (Net Neutrality) and keep the Internet free and open to everyone.
Participate in a twitter storm “Break The Internet” which will be held two days prior to the vote, starting on December 12.
You would think torturing customers is so bad for business that companies would try to avoid it. Isn’t the invisible hand of the market supposed to bitchslap businesses that thumb their nose at the people who buy the stuff? Polls show 85 percent of consumers will retaliate against a company if customer service sucks, and the younger ones are likely to pour out their grievances on social media. Billions in revenue are at stake.
And yet… a recent “customer rage” survey shows that American consumers feel that they are getting shafted more and more. The truth is that markets fail us all the time. Too often, oligopolistic conditions and poor regulation conspire to allow companies to get away with all sorts of abuse, making it hard for the consumers to fight back. Some companies actually seem to be turning screwing consumers into a business model (see: Spirit Airlines).
Let’s take a look at five companies that are currently competing in the Customer Dissatisfaction Olympics.
1. Sprint
How do customers hate thee? Let us count the ways. Over at the Consumer Affairs website, you can actually read 2,366 accounts of rage, frustration and bewilderment with issues ranging from dropped calls to confusing plans to unexpected charges. Here’s a typical cri de coeur from a customer who attempted to deal with a simple issue of moving abroad and needing to cancel plans:
“I spent 7 hours on the phone to solve the problem. 7 crazy hours!” —Petro, Arlington, VA, March 15, 2014
Some people are so emotionally drained by the experience of dealing with customer service that they break down in tears:
“…Today I actually cried because I feel trapped in a service that can’t help me…” —Kimbra, Frisco, TX, March 11, 2014
Sprint gets away with this poor treatment of customers largely because the cell phone industry is an oligopoly and customers have limited choices and get roped into unfriendly contracts and plans. The CEO of SoftBank, which just purchased Sprint, acknowledges the oligopolistic conditions and has a curious solution: Let Sprint get even bigger by gobbling up T-Mobile. Then T-Mobile customers can enjoy the same level of poor service! Regulators are quite naturally suspicious of this logic, but given their generally complacent attitude, Sprint might just be allowed to do it. Ah, the joys of unbridled capitalism.
2. Spirit Airlines
Spirit wins the prize for most customer complaints of any airline, and it has dedicated extraordinary effort to the project of bamboozling customers with outrageous fees. Spirit has mastered the art of charging what appear to be low prices and then extracting money through various sneaky practices. Its business model depends on customers not knowing where and how they’re going to get hit. Spirit makes 41 percent of its revenues in fees.
If you peruse the Spirit Airlines Twitter feed, you will see endless streams of passenger anger over such practices as charging $50 for a carry-on bag (and make that $100 if you don’t pay these skyway robbers at check-in). I just looked at the feed, and here are the three latest postings:
“$80 in baggage fees and choosing my seat fees! #spiritairlines #whatajoke #neveragain #wastingmoney
Pretti_N_Sadity10:38am via Twitter for iPhone”
“I will NEVER fly #SpiritAirlines again.
Luisohyes7:58am via Twitter for iPhone”
“RT @sapnam: Heart is breaking at seeing kids in line for #spiritairlines at #ORD—too young for such trauma #dontflyspirit #protectyouthsfrmspirit
Luisohyes7:57am via Twitter for iPhone”
It’s truly astonishing to see the amount of apoplectic rage directed at one company. How does Spirit get away with it? And how is it making record-breaking profits while doing it? Part of the problem is that America has put corporate profits and limited government over our access affordable and reliable air travel. As I’ve noted before, airline service in America is similar to what citizens of communist countries used to suffer in phone service. Our trouble started with deregulation, which has taught us that increased competition without adequate regulation is not much better than monopoly conditions.
Spirit Airlines CEO Ben Baldanza, among America’s most rapacious corporate predators, knows he can hop around from city to city, luring in new victims with cheap tickets to tourist hotspots like the Caribbean and Myrtle Beach. Some customers will learn to avoid the high fees, but if others fly into a rage, that’s OK, because there’s always another to fleece.
Not every company gets its own Onion parody, but Spirit did:
"'The FAA has come to the determination that Spirit Airlines treats its customers like pieces of shit and that everyone should boycott this airline,' the report read in part, adding that there are so many hidden fucking fees that it makes customers want to blow their brains out. 'The airline touts its low fares, but it costs $45 to check your bag at the airport, and if you don’t check the bag when you get your ticket, it costs a mandatory $100 at the gate. So the flight could end up costing over $300 anyway'....'You’ve got to be fucking kidding with this bullshit,' the report added."
The best part of all? Spirit Airlines will charge you to call customer service if you want to complain!
3. Time Warner Cable
Pity the customer of Time Warner Cable. Service frequently goes on the fritz, and should you dare to call customer service, you will be treated to an experience that would challenge the imagination of George Orwell.
After my TV recently refused to turn on, I called and spoke to three different customer service representatives, who each told me three different things, including the recommendations that I buy a new modem and that nothing could be done. Calls were dropped, rudeness seemed par for the course, and it wasn’t until I finally reached a supervisor that I learned I simply needed to unplug a wire for a couple of seconds.
Again, it is the oligopoly monster that allows Time Warner Cable to treat customers with such malice. And things are only going to get worse if Comcast is allowed to purchase the company, a deal currently under review by the antitrust division of the Justice Department. It’s kind of like two giant bullies joining forces to create one horrific Terminator. As Catherine Rampbell put it in the Washington Post, it is a deal “where America’s most hated company wants to join forces with America’s second-most hated company (Time Warner Cable and Comcast, in no particular order).”
A recent report by Marchex found that consumers are more likely to go on “profanity-laced tirades” while on the phone with their TV provider than with almost any other company they call. You can effing say that again.
4. Walmart
As Time magazine recently reported, Walmart gets abysmal marks on customer satisfaction among retail stores:
“No retailer had a worse ACSI [American Customer Satisfaction Index] score than Wal-Mart’s 71 for customer satisfaction. Not only did the company have the lowest score of any department or discount store, but it also scored just 72 when graded as a supermarket — the lowest in that sector as well.”
On the supermarket side, perhaps Walmart ought to consult Trader Joe’s about how to interact with customers: According to a new survey, Trader Joe's leads Consumer Reports supermarket chain ratings, while Walmart supercenters are at the bottom. Customers cited bad service, poor quality, and dirty stores as the major offenders.
Walmart’s problems are many and widespread. Recently, a wave of restocking issues gained media attention, as have reports of a labor force spread too thin.
On the Consumer Affairs website, shoppers call out the retail behemoth for being harassed by security, warranty problems, and rude treatment by employees. Of course, it’s not just customers who are unsatisfied with Walmart —employees are very tired of getting crap benefits and wages, so perhaps that explains their lack of enthusiasm.
For many customers, the price is right at Walmart, but everything else is very, very wrong.
5. Town Sports International
Town Sports International operates New York Sports Club as well as clubs in many large eastern cities, including Boston, Washington, D.C., and Philadelphia. If you don’t expect fancy and can handle the occasional hairball in the shower, this gym has fit the bill of cheap and convenient for many, including myself. But in recent years, management seems to have taken a nasty turn against its own customers.
In 2012, the company slapped a $29 “rate lock fee” on customer bills each January. In other words, it charges you for the privilege of not charging you more! Other small fees — tiny enough they hope you won’t notice them — creep into bills with no rhyme or reason. Contracts for plans and programs now contain fine print about the necessity to cancel in writing 30 days before the end of the term or they will go right on charging your credit card. Never mind that in many states, like New York, this kind of subscription system is unlawful unless the company informs you in writing that your credit card will be charged after the term you have agreed to.
One customer, Mike Murphy, had his credit card charged for over a year despite having called to cancel membership and submitting a written letter. In his long odyssey to try to get his money back, he found that New York Sports Club has received an “F” rating from the Better Business Bureau, in part because customer complaints are so badly handled, or not handled at all.
Often, the “member services” line puts you on interminable hold or the call is simply dropped. Sadly, employees at local branches are often hard-working and eager to please customers, and obviously feel uncomfortable about some of the practices management has adopted. Town Sports International clearly needs a good customer service workout.
If you do not love cell phone companies, you’re not alone. Polls show the industry gets dismal marks for customer satisfaction, with Sprint ranking dead last in the latest surveys.
You may have felt a stirring of pleasure to hear that there’s a war going on in the industry, with companies trying to steal customers and vie for dominance. Changes in pricing and newfangled plans may sound exciting, but be warned: cell phone companies are still up to their old sneaky ways. They may drop the price of this or that in the short-term, but you can bet they will attempt to get it back over the long haul.
That’s what happens when you have an oligopoly. In oligopolies, a small number of players call the shots, and they tend to work together to keep prices high, defend their turf, and screw over consumers. And they keep plenty of money flowing through the political system to accomplish these goals.
The major players in the cell phone industry are AT&T and Verizon, with Sprint and T-Mobile considered the challengers on the fringe. Consolidation has been a big concern of industry watchdogs: In 2013, AT&T bought Leap Wireless, T-Mobile ate up MetrocPCS and Japan-based Softbank purchased Sprint.
Despite all the media chatter about price wars, data show that spending on wireless bills actually went up in the last quarter of 2013. Part of what’s going on is clever bait-and-switch tactics. T-Mobile, for example, which has been luring customers to its rolls, brags that it doesn’t force you to sign a two-year contract. But if you want to buy a new phone, you’ll either have to shell out the full-price for their device upfront or pay for it over time for up to two years. Want to cancel? Go right ahead, but you’ll have to pay off the value of your phone first.
Another chapter of the cell phone wars is heating up, and unfortunately, it's hard to see how consumers will come out ahead.
In mid-2015, the FCC is going to auction off something called the 600 MHz spectrum. What the heck is this, you ask? It’s a low-frequency spectrum, the kind that is highly desirable because it carries signals farther than high-frequency spectrums and it's better at getting through obstacles like buildings. Low-frequency spectrums don’t require as many towers, which makes them cheaper to maintain. They are good for widening coverage in suburban and rural areas (high frequency is better for urban areas).
Sprint and T-Mobile are currently lacking in low frequency. If you travel to a small town and suddenly find your phone does not work in the entire county, welcome to the world of Sprint and T-Mobile service.
Sprint is using the FCC auction to make a case for acquiring T-Mobile. The CEO of SoftBank, which owns Sprint, claims that by merging Sprint and T-Mobile he could start a "massive price war" in the U.S. In an interview with PBS’s Charlie Rose, Masayoshi Son said, "I would like to have the real fight, OK? Not the pseudo fight, the real fight.”
It's true that Verizon and AT&T have both more money and more lobbying muscle than Sprint or T-Mobile, so they’re likely to end up with big pieces of the spectrum pie. If Sprint and T-Mobile can’t get in on the low-frequency action, they’ll continue to have problems competing with the Big Boys.
Sprint insists it can only compete by getting bigger, by gobbling up T-Mobile. (AT&T tried this in 2011, but the antitrust division of the U.S. Department of Justice nixed the deal.)
As Son put it: "I would like to provide an alternative to the oligopolistic situation that two-thirds of American households can only get access to one or two providers. I'd like to be a third alternative with 10 times the speed and lower price."
That all sounds very noble, but here’s the trouble: if Sprint acquired T-Mobile, it would probably just act like the other Big Boys and work with them to keep prices high and customers lacking options. The folks at the DOJ and the FCC are hip to this possibility and have expressed skepticism on the deal.
The FCC, it must be said, is tasked with ensuring that wireless carriers, which are leaseholders on the public spectrum, actually serve you and me. But let’s just say the people over there haven’t really been on top of this job. It didn’t help that in 2012, President Obama appointed Tom Wheeler to head the FCC — a man whose CV includes stints as a venture capitalist, former top telecom lobbyist, and Obama fundraiser. At the moment he is keeping an “open mind” about the potential merger.
The FCC could do a number of things to strengthen policies that stoke competition if it felt like it, such as promoting competitive access to devices and limiting the amount of spectrum a single company can buy. But until our regulators get off their duff, oligopolies will continue to drain American pockets, and they will use part of this windfall to purchase politicians.
If Sprint is allowed to buy T-Mobile, the Big Boys will be the winners, not the customers. At the moment, it’s pretty much a game of heads they win, tails you lose.
The setting was ornate, the subject esoteric, but the implications huge.
The crowd that filed last month into the wood-paneled room 226 in the Dirksen Senate Office Building included lawmakers, lobbyists, company executives, and a few mystery guests — a roster that reflected the enormity of the issue at hand: nothing less than control of the growing wireless market and the hundreds of billions of dollars that go with it.
Verizon Communications Inc. and T-Mobile USA Inc. were out in force, as were some of the most powerful lobbyists in Washington, D.C. Along with those household names was the little-known but quietly influential Jonathan Spalter.
The chairman of Mobile Future, a Washington, D.C.-based nonprofit group, sat at the witness table along with the big wireless carriers and well-known consumer advocates to tell senators how the government should auction valuable airwaves that the telecommunications companies say they need to keep up with the exploding use of smartphones and tablet computers.
Spalter told the senators that the best way to ensure a successful auction — one that would best serve customers and promote innovative technologies — is to allow all wireless companies to bid without restrictions on as many frequencies as they want.
What Spalter didn’t reveal is that Mobile Future, which describes itself as “a coalition of cutting-edge technology and communications companies and a diverse group of non-profit organizations,” is funded in part by wireless giants AT&T Inc. and Verizon, which are also advocating for an auction free of limits. The group also didn’t detail that relationship when it submitted three research papers to the Federal Communications Commission arguing against restricting how much spectrum a company can obtain in an auction.
And it didn’t disclose the fact that data from a research paper it used to create a graphic arguing against limits was commissioned by AT&T and filed with the FCC, which is writing rules for the auction. Mobile Future does list AT&T and Verizon as among its 82 members on its website.
Sally Aman, principal of Aman & Associates, the public relations firm hired by Mobile Future, said the committee “is and was fully aware of Mobile Future's membership.”
But the relationship wasn’t clear to almost anyone watching the proceedings.
Orchestration of influence
Mobile Future is just one thread in the massive influence web being deployed by AT&T and Verizon as they fight proposals advocated by their smaller competitors and the Justice Department to limit how much of the new wireless frequencies they’ll be allowed to bid on at the auction that’s scheduled for next year.
The spectrum that’s up for sale is highly coveted because it allows transmissions to travel long distances and penetrate buildings. Good spectrum is crucial for wireless companies to attract customers by delivering an ever-increasing amount of information to smartphones and computer tablets.
The competition for control of the airwaves has set off an intense lobbying fight that rivals some of the largest battles over telecommunications policies of the past. The four biggest carriers together spent $37.3 million in 2013 trying to influence lawmakers and the FCC on a host of policy issues ranging from taxes to cyber security as well as spectrum — and the auction is still more than a year away.
But the carriers led by AT&T and Verizon likely have spent at least twice as much more on behind-the-scenes influence campaigns — hiring Ivy-league academics, giving cash to think tanks, associations and universities, and employing public relations firms — all part of a synchronized effort to sway the FCC to establish rules that favor them, said James Thurber, a professor at American University who has been studying lobbying for 30 years.
“This includes all the advertising, white papers, surveys, grass-roots and top-roots activities going on,” Thurber said. “Lobbying isn’t just what the federal registered lobbyists do. It’s an orchestration of a variety of techniques and influence.”
Battling AT&T and Verizon are Sprint Corp. and T-Mobile, the third- and fourth-largest carriers whose networks and customer bases are dwarfed by their larger rivals. The two have put together their own influence campaigns, hiring teams of paid academics and building connections with consumer groups and associations. But Sprint and T-Mobile are at a disadvantage against the deeper pockets and vast network of political ties of AT&T and Verizon, according to those who track Washington lobbying efforts.
At stake is no less than who may ultimately control the public’s wireless access to the Internet, on which all kinds of data — from medical records and bank transactions to Amazon purchases and movie downloads — travel from providers to smartphones and tablets.
The sale of the newly available airwaves also will determine if the wireless market becomes one ruled by two companies or if a recent burst of competition initiated by T-Mobile will continue, said Harold Feld, a senior vice president at Public Knowledge, a consumer advocacy group in Washington that wants to limit how much spectrum each carrier can purchase in the upcoming auction.
“For wireless carriers, the stakes are enormously high,” Feld said. If the smaller companies are shut out of the auction, “it’s hard to imagine they can overcome that and compete with AT&T and Verizon over time.”
‘Stupid, arrogant, broken’
Three years ago the Justice Department blocked AT&T from buying T-Mobile, arguing “consumers across the country, including those in rural areas and those with lower incomes, benefit from competition among the nation’s wireless carriers.”
The government was soon proven right.
John Legere (pronounced Ledger), the trash-talking chief executive officer who took over T-Mobile in September 2012, has cut prices, eliminated two-year contracts and roaming charges, and offered to pay early termination fees for customers who switch to T-Mobile.
Wearing his iconic hot-pink T-Mobile T-shirt and black leather jacket, the maverick CEO declared his industry “stupid, arrogant, broken” in a Jan. 9 interview with Yahoo Tech at the Consumer Electronics Show in Las Vegas, and said he doesn’t much care how his competitors respond to his changes.
“I don’t give a s---,” Legere said, the expletive bleeped by Yahoo. “Ultimately, I’m deploying a set of capabilities or a way that the marketplace should behave on behalf of consumers.”
But respond they have. All three of his larger rivals — Verizon, AT&T, and Sprint — have cut prices, offered rebates and instituted less restrictive plans.
“I don’t think the people at the Department of Justice are at all surprised at the new competitive options that have emerged in the marketplace,” said Gene Kimmelman, who worked in the anti-trust division when it blocked AT&T’s purchase of T-Mobile and is now president of Public Knowledge. “This is what they hoped would occur and had strong reasons to believe could occur.”
The economic benefits to consumers may be short lived, however. To remain competitive, smaller wireless carriers such as T-Mobile will need to win a significant chunk of the newly available spectrum, or they may never be able to compete with AT&T and Verizon, which as of August 2012 controlled a combined 74 percent of the prime spectrum according to statistics released by the FCC. If left unfettered, the two giants are in a position to buy much of what’s left.
“Depending on the outcomes of the spectrum auctions, it could get a whole lot worse in terms of a handful of companies being able to tilt the field in their favor,” said Matthew Hindman, a professor at George Washington University, who researches Internet politics.
Overcrowded airwaves
Spectrum is the life blood for wireless carriers as Americans ditch their desktop computers for mobile devices.
The share of people in the United States who own a smartphone — a mobile computer that can both make calls and access the Internet — increased from 35 percent in May 2011 to 58 percent in January, according to a survey by the Pew Internet and American Life Project. The percentage of adults 18 years old and older who own a tablet computer jumped from 8 percent to 42 percent during the same period, Pew reported.
Wireless gadgets are quickly becoming the devices Americans use to run their everyday lives, from making purchases, managing finances, working, studying, listening to music or watching movies. The amount of data downloaded from the Internet using a wireless device will, for the first time, surpass the amount of online information flowing through wired connections in 2016, according to an annual report issued by Cisco Corp.
By 2017, residents in North America will download and send 2.1 petabytes of data a month, equivalent to 468,000 DVDs, according to Cisco. And wearable computers and sensors that can track and store information about an individual’s health, monitor a building’s security, measure pollutants, track a car’s performance, regulate a home’s energy consumption or perform a multitude of as-yet-unimagined tasks are expected to increase into the billions of connections by 2018, Cisco reported.
All that data will ride on radio frequencies. The growth has caused the airwaves to become overcrowded, slowing data transmissions.
“It is unlikely that wireless carriers will be able to accommodate this surging demand without additional spectrum,” the White House Council of Economic Advisers reported in 2012. “Other approaches to expanding the capacity of wireless networks … will likely be insufficient to allow capacity to keep up with demand. In short, the projected growth in data traffic can be achieved only by making more spectrum available for wireless use.”
The airwaves to be auctioned next year are some of the most valuable that will ever, in the foreseeable future, be available to wireless providers. Most of the spectrum targeted for sale is in the 600 megahertz band of frequencies — what wireless carriers call “beachfront property.”
The frequencies are currently occupied by television broadcasters. The FCC will ask them to give up their airwaves voluntarily and if they don’t, some may be moved to another part of the spectrum. The FCC plans to share the proceeds of the auction with those television stations that choose to sell their licenses.
The 600 megahertz band is the kind of airwaves that wireless companies want and need. It travels farther than frequencies above 1,000 megahertz, can penetrate buildings, navigate hilly terrain and more easily go through vegetation, all of which makes it less likely to lose a connection compared with those traveling on higher bands. It’s also cheaper to operate because it requires fewer towers.
As of August 2012, Verizon and AT&T together owned 74 percent of the low-band airwaves, according to calculations using the FCC’s most recent annual report on the competitiveness of the mobile wireless market. Sprint controlled 12 percent, and T-Mobile owned just 0.2 percent.
Most of T-Mobile’s and Sprint’s frequencies are in the higher bands. AT&T and Verizon argue that the high-band spectrum is equally good because it can carry more data, a characteristic that is desirable in urban areas where demand for wireless data is greatest.
Corporate accountants, however, put a higher value on the lower frequencies. Verizon says in its company filings that its frequencies are worth $75.7 billion, second only to the combined value of all of its plants, properties and equipment.
AT&T reports its licenses are worth $56.4 billion. Sprint owns more spectrum than any carrier but it is almost all above 1,000 megahertz. The company priced its spectrum at $41.8 billion. T-Mobile, which has about half the spectrum Verizon has, reported its wireless licenses are worth $18.1 billion.
Verizon and AT&T have used their low-band spectrum to build networks that cover much of the United States, allowing them to attract more customers. Verizon has about 119 million subscriptions, or about 35 percent of all U.S. wireless subscribers, and AT&T has 32 percent, according to the latest report by Strategy Analytics, a technology consulting firm.
Sprint and T-Mobile, whose networks are spotty by comparison, trail a distant third and fourth with 16 percent and 13 percent of the market, respectively, according to the report.
Competition or revenue?
When Congress ordered the FCC in 2012 to hold the spectrum auction, the goals were to increase the frequencies available to wireless carriers, raise money to build a nationwide emergency radio network and pay down the national debt.
The agency now is writing the auction rules to balance the need to raise money with the desire to maintain competition.
Verizon and AT&T argue that capping what they can buy will lower the price paid for the spectrum, cutting the revenue to the government, or worse, cause the auction to fail altogether.
Sprint and T-Mobile argue caps will allow them and other carriers to obtain low-band frequencies needed to compete against their two bigger rivals. The competition will lower prices and encourage the carriers to develop advanced technologies to decrease costs and improve services.
They also argue limits will encourage more bidders, because companies will believe they have a chance of submitting winning bids if AT&T and Verizon cannot bid in every market. More bidders, they argue, means more revenue for the government.
The Justice Department agrees with Sprint and T-Mobile.
In a filing with the FCC in April that drew sharp criticism from supporters of an open auction, the department’s antitrust division argued “rules that ensure the smaller nationwide networks, which currently lack substantial low-frequency spectrum, have an opportunity to acquire such spectrum could improve the competitive dynamic among nationwide carriers and benefit consumers.”
Lobbying war
Those opposing arguments are at the center of the lobbying war.
AT&T and Verizon operate some of the most powerful influence operations in Washington.
Source: Center for Responsive Politics
Last year AT&T doled out $15.9 million for lobbying on a range of issues, according to the Center for Responsive Politics, which tracks lobbying spending. AT&T spent the 11th largest amount of all companies that year, while Verizon ranked 18th.
T-Mobile has increased its lobbying 74 percent in the past three years since its purchase by AT&T was blocked, but at $5.2 million it remains far behind AT&T and Verizon. Sprint spent even less, $2.8 million in 2013.
The spending pays for lobbyists to visit members of Congress, or to urge them to call or write the agency. Sen. Chuck Schumer, D-N.Y., who sits on the Judiciary Committee, sent a letter Nov. 20 to FCC Chairman Tom Wheeler to urge Wheeler not to institute spectrum limits.
Schumer wrote that the caps “would simply … reduce the amount of spectrum offered for auction as well as the revenue that would be generated in return” as broadcasters would choose not to put up their frequencies for sale for fear that they wouldn’t be able to get the high price that the big carriers could offer — an argument found in FCC filings submitted by AT&T, Verizon and their hired economists.
AT&T’s and Verizon’s political action committees gave Schumer a combined $18,000 between 2009 and 2013, compared with $10,000 from Sprint and T-Mobile PACs during the same period, according to CRP.
Six Republican House lawmakers — including Fred Upton, R-Mich., chairman of the Energy and Commerce Committee, which oversees the FCC, and Greg Walden, R-Ore., chairman of the committee’s communications and technology subcommittee — wrote FCC commissioners in April in response to the Justice Department’s filing, arguing that spectrum caps “will reduce the potential revenues from the auction and possibly cause the auction to fail.”
The six authors, who also included committee members Marsha Blackburn from Tennessee, Ed Whitfield from Kentucky, Billy Long from Missouri, and Robert Latta from Ohio, received among the largest campaign contributions in Congress from AT&T’s and Verizon’s PACs for the 2012 elections — a total of $107,000 from both carriers, according to CRP.
T-Mobile’s and Sprint’s PACs gave the group as a whole about half that much, a total of $42,000, according to the center.
Spokesman for Latta and Whitfield said AT&T’s and Verizon’s campaign donations didn’t influence the representatives’ positions on spectrum limits. The other members didn’t reply to requests for comment.
“AT&T and Verizon have put on a full-scale lobbying campaign and they’re spreading money all over town and writing op-eds,” said Michael Calabrese, director of the Wireless Future Project at the New America Foundation, which supports limits. “Each side is trying to pressure the FCC, sometimes with public letters, and sometimes with research, and equally often it’s with private phone calls.”
The spending also pays for lobbyists to visit the FCC, where they meet with the staff writing the auction rules and with commissioners who will ultimately vote on them.
Between October 2012, when the FCC issued its notice to develop rules for the incentive auctions, and Jan. 30, when the FCC held a public meeting to discuss its progress, the agency received more than 400 filings that include comments, papers, presentations and information about visits, Gary Epstein, head of the commission task force writing the auction rules, said at the Jan. 30 meeting.
The outpouring ranks the incentive auction among the most active issues at the FCC in years, said a senior FCC administrator. “It’s a lot,” the administrator said. “A whole lot.”
T-Mobile, which views the auction as a make-or-break event for the company, has been a fixture at the agency.
From October 2012 through March 13, lobbyists and executives for the company visited the FCC 36 times, and submitted 20 comments, presentations, letters and research papers for a total of 56 filings, the most of any organization or company, according to data compiled by the Center for Public Integrity.
One of the biggest complaints T-Mobile gets from customers is the inability to get access deep inside buildings, which can be alleviated with low-band spectrum, said Tim O’Regan, a spokesman for T-Mobile. “Lack of low-band spectrum is the biggest challenge T-Mobile faces,” he said. “It’s critical to the future of our network and critical for the future of the company.”
AT&T and Verizon visited the FCC 15 times each during the same period, according to the Center’s analysis, ranking the carriers as the fifth most active. Sprint met with commissioners and agency staff 11 times during the same period, which ranked it tied at 11th.
It’s not the number of FCC filings “that matters most, but rather the quality and depth of a stakeholder’s conversation and advocacy with FCC staff,” said John Taylor, a Sprint spokesman.
The Expanding Opportunities for Broadcasters Coalition, a group of more than 70 television stations that support the auction, had the second most meetings with the FCC, and the National Association of Broadcasters, which may lose members if stations choose to sell their frequencies, was the third-most active group. Other organizations that have frequented the FCC’s offices in southwest D.C. the most have been the Competitive Carriers Association, a group that includes as members Sprint and T-Mobile and supports spectrum limits, and Dish Network Corp., which is considering launching its own nationwide wireless network.
Buying academic research
But tracking traditional lobbying doesn’t tell half the story of the spectrum influence game.
Wireless carriers have hired economists from some of the most prestigious universities to conduct research to support specific positions and attend FCC meetings where they can explain arcane auction theories and rebut other economists’ papers filed by their rivals.
“With this [spectrum auction], the number of factors that go into what is right and wrong is very complicated and subject to debate,” Public Knowledge’s Feld said, “so this has been an extraordinary boon to academic economists. If you do spectrum auction research, you are making a lot of money now.”
AT&T has assembled the largest team of consultants and economists, most from top universities including Yale, Columbia, and the University of Pennsylvania.
One of the key studies the company has cited during its meetings with the FCC, according to the center’s research, was conducted by Philip Haile, an economics professor at Yale University, with co-authors Maya Meidan, an economist at the consulting firm Compass Lexecon LLC, and Jonathan Orszag, also at Compass Lexecon, a former member of President Bill Clinton’s National Economic Council.
The authors conclude the government would lose up to $13.4 billion if the FCC institutes the mildest limitations and twice that if tougher restrictions are followed. In a footnote on the front page of the study, the authors disclose that the study “was supported by funding from AT&T.”
T-Mobile has the second-largest team, with Greg Rosston, deputy director of Stanford University’s Institute for Economic Policy Research and a former deputy chief economist at the FCC, figuring prominently. Rosston and another Stanford economist proposed a bidding process in which spectrum limits are sequentially eased if not enough revenue is raised under the caps. T-Mobile also paid Jonathan Baker, an economist at American University, who argued spectrum limits can increase auction revenue.
“We have retained a number of experts … to help us respond and provide expert guidance on complex issues,” said T-Mobile’s O’Regan. He declined to disclose how much T-Mobile paid the economists, saying the compensation was “consistent with what gets charged in the market and the field” for such research.
Enjoying financial support
Verizon also has paid a former FCC economist on its team, Leslie Marx, who researches auction theory at Duke University’s Fuqua School of Business. Marx concluded in her research submitted to the FCC that an auction with no limits increases revenue and the amount of spectrum applied for mobile use.
AT&T and Verizon didn’t reply to repeated requests to comment on its spending on spectrum lobbying and support of research and associations.
Sometimes relationships are less obvious. Economists at Georgetown University’s Center for Business and Public Policy Research — including a former undersecretary of commerce in the Clinton administration and a former director of the Congressional Budget Office, Congress’ economic research arm — published a study in April 2013 that found spectrum limits would result in “a less robust and competitive auction and reduce auction revenues by as much as 40 percent” and slow the transition to faster networks, all arguments that are similar to AT&T’s and Verizon’s.
The center states on its website that it “has enjoyed the financial support” of AT&T and the Verizon Foundation and more than a dozen other organizations. John Mayo, an economics professor and executive director of the center, said the financial support didn’t lead to the study or influence its conclusions. He declined to say how much AT&T and Verizon gave to the center.
Spectrum caps “is an important topic that the Center’s experts in telecommunications policy proposed would be ripe for research, ultimately leading to our study,” Mayo said in an email. “The research methods, analysis, and findings in all Center studies are designed and determined solely by the authors and are released subject to internal quality review with no external input.”
The authors state on the front page of the study that their research “is not dependent upon any of the policy positions of current, previous or prospective Center supporters.”
“You can have a peer-reviewed journal article with good data by distinguished scholars that comes to a conclusion that goes to a corporate point of view, and that’s fine,” American University’s Thurber said. “But we should clearly know that it does [support a corporate view], and then we can make a judgment about whether there is a conflict of interest.”
Sprint has been much less active. The company filed a study by two European economists who found “restrictions on the amount of sub-1 GHz spectrum operators can acquire at auction have not resulted in any reduction in auction revenue in the myriad European nations that have adopted them.”
Sprint and T-Mobile also have funded groups supporting spectrum limits. The two carriers and Dish each gave between $10,000 and $24,999 in 2013 to the New America Foundation, which has met with the FCC to argue for caps on frequencies, according to the New America Foundation website.
“As always we are aligned with the other consumer groups and we are all in a coalition with the smaller carriers,” the foundations’ Calabrese wrote in an email. The financial support from T-Mobile, Sprint and Dish, however, was “not for any research papers or anything in particular.”
Free Press, a consumer advocacy and journalism organization in Washington that supports restricting spectrum purchases and has testified before Congress, doesn’t accept money from corporations and has funded no independent research, according to the group’s website. Public Knowledge has received donations from all four carriers for an awards program, and Sprint gave money to the group to analyze FCC spectrum data to develop Public Knowledge’s position on limits, according to Feld.
But consumer groups are outgunned by AT&T and Verizon. With their big spending on traditional lobbying and funding of associations, think tanks and universities, the corporations play the influence game better than anyone else, said Kevin Werbach, who studies Internet and communications policy at the University of Pennsylvania’s Wharton School of Business.
“This is their core competency, and they have been playing this game for a long time,” Werbach said. “These are companies that support foundations and other groups that do a lot of good work, but in the end are strategically designed to advance [AT&T’s and Verizon’s] interests.”
Two sides of Wheeler
FCC commissioners are scheduled to vote on proposed auction rules, including whether it will include limits, at its May 15 meeting. That could open another round of public comments, and at that point the lobbying “will hit its peak,” said an executive at one of the wireless carriers.
Two of the Democrats on the commission, Jessica Rosenworcel and Mignon Clyburn are likely to support limits. The two Republicans, Ajit Pai and Michael O’Rielly, are less likely to.
That leaves the affable FCC chairman, Tom Wheeler, who President Barack Obama appointed last year, to decide. Wheeler knows a lot of about lobbying, having headed up the National Cable Television Association, one of the biggest lobbying spenders in Washington, and the Cellular Telecommunications & Internet Association.
Wheeler, who wields a lot of power as chairman, hasn’t indicated how he would vote. At a speech at his alma mater, Ohio State University, he described himself both as “a rabid believer in the marketplace” and as “an unabashed supporter of competition.”
“A key goal of our spectrum allocation efforts is ensuring that multiple carriers have access to airwaves needed to operate their networks,” he then said.
It remains to be seen which Wheeler will show up to vote — the former lobbyist who fought federal regulations and whom AT&T lobbyist called “an inspired pick to lead the FCC” or the Obama appointee who believes that the wireless market needs more, not less, competition.
If you live in America, there’s a good chance you’ve not been overjoyed by your wireless plan. Simply by using a device essential to your daily life, you have been screwed. Let us count the ways.
If you overestimate how many voice minutes, text messages and data usage you need, you get screwed. If you underestimate, you also get screwed. If you have a contract, you get screwed if the service ends up being bad. If you don’t have a contract, you may find that a company can suddenly raise prices, and so you may get screwed there, too. Studying your bill often reveals still more ways you have been screwed. Did someone with a foreign number text you? Unlucky you! Did you download a ringtone thinking it was free? Oops! You’re screwed. Your bill is a maze of fees: activation fees, upgrade fees, early-termination fees, 411 fees, mysterious third-party fees, fees no one can understand. Customer service is mostly a joke.
Why is this happening to you? Because of a game called Oligopoly.
Heads They Win, Tails You Lose
Does Oligopoly sound familiar? Remind you of another game you used to play called Monopoly? You’ve got it. Oligopoly is its first cousin.
An oligopoly is a market dominated not by one, but by a small number of players. Because the number of players is so small, serious price competition doesn’t happen very much. Instead oligopolists tend to do sneaky things like put their heads together to figure out ways to raise prices, protect their turf, and limit consumer choices. They typically deploy armies of lobbyists to accomplish these goals. Some of these lobbyists go on to careers as regulators or vice versa (more on that in a moment).
The market for wireless providers is a classic case of oligopoly, currently dominated by AT&T, Verizon and Sprint, with T-Mobile bringing up the rear. In recent years, the number of players in the carrier market has shrunk, with the size of individual players increasing through mergers and acquisitions. Last year, AT&T gobbled up Leap Wireless, T-Mobile swallowed MetrocPCS and Japan’s Softbank bought Sprint.
When you get down to it, the wireless market is really a duopoly between AT&T and Verizon, which have about two-thirds of the market between them. They are the big boys, with Sprint and T-Mobile considered the challengers.
T-Mobile, the smallest of the four, has been shaking up the industry with its "Un-carrier" strategy — chucking contracts, eliminating roaming charges for international carriers, and getting rid of other annoying features of standard wireless plans in order to attract customers. T-Mobile CEO John Legere, a blustery character, recently tweeted that he plans to keep up the heat in early 2014. He might, for example, just get crazy and bundle all the service fees and taxes into one simple price for consumers.
In an oligopoly, this behavior will not do. Customers must not get better deals and lower prices. They should not get simple bills that an ordinary human can understand.
The other companies could take comfort that they already have millions of customers locked into unfriendly plans, but that’s not foolproof, because some customers will just break their contracts, and others will refuse to renew. What the big boys really want to do is just gobble up T-Mobile and be done with it. AT&T tried this in 2011, but was thwarted by the antitrust division of the United States Department of Justice.
Sprint, thinking it had a better shot at taking over T-Mobile because it is smaller than the big boys, is now trying to buy the company. Some argue it would be a good thing for consumers if Sprint bought T-Mobile, because the newer, larger company would be in a better position to compete with Verizon and AT&T. On the other hand, in oligopoly, three is not a crowd. Eventually, it is likely that Sprint would act like it was one of three carriers and coordinate with the big boys to keep prices high and customers powerless.
Federal regulators have taken a break from doing not much of anything to mull all this over.
What we’ve got here is a big nasty oligopoly slugfest. The business media are cheering that all of this is going to be good for customers, because in their free-market fairy tale, the market is self-regulating and competition rises to give the consumer the best deal.
Don’t count on it. Pretty much since the 1980s, oligopolies have been running the show in America. In the era of deregulation, only the most extreme anti-trust violations get the attention of the Justice Department. The revolving door between industry and government ensures that everybody ends up playing golf together and cutting deals that don’t do much for you and me.
American consumers are held hostage by oligopolies in nearly every aspect of our lives: when we go to the bank, when we flip on the TV, when we sign up for health insurance plans. These highly concentrated industries regularly bilk us, but alas, we have nowhere else to turn. As Tim Wu explained in a recent New Yorker article, oligopolies are simply monopolies wearing a mask:
“…Our scrutiny and regulation of monopolists is well established—just ask Microsoft or the old AT&T. But when three or four firms pursue identical practices, we say that the market is ‘competitive’ and everything is fine. To state the obvious, when companies act in parallel, the consumer is in the same position as if he were dealing with just one big firm. There is, in short, a major blind spot in our nation’s oversight of private power, one that affects both consumers and competition.”
You can say that again. It looks like we have choices on everything from breakfast cereal to credit cards. But even when we try to choose an “independent” brand, chances are we’re just dealing with a ginormous company in disguise.
Sleeping Watchdog
In theory, the Federal Communications Commission is supposed to make sure that wireless carriers, who are leaseholders on the public spectrum, actually serve the public interest. In reality, the agency has been letting the wireless industry screw Americans for more than a decade under the laughable theory that there’s actually real competition in the market.
Delara Derakhshani, policy counsel of the Consumers Union, testified before the Senate Commerce Committee in June 2013 on the numerous ways consumers get screwed because the wireless industry is particularly uncompetitive and consumer unfriendly, allowed by regulators to do horrible things like locking mobile devices when a customer tries to switch carriers. The industry appears to be caving to public pressure on unlocking, so that’s a little bit of good news. But the FCC clearly needs to rouse itself and crack down on a whole host of abusive practices.
Tom Wheeler has shown some openness to setting aside spectrum for smaller companies so that the big boys don’t eat it all up. But let’s face it. This guy is a former industry lobbyist, and one would have to set aside quite a bit of skepticism to imagine him turning into the caped crusader for consumers.
If Sprint is allowed to buy T-Mobile, there’s a chance that many of those customer-friendly changes introduced by T-Mobile could disappear. The big boys could be the big winners, which is why investors are looking to put their money in AT&T if the merger happens. But even if T-Mobile remains a separate company, the oligopolists have plenty of tricks up their sleeve to make sure consumers don’t win in the end. If the public gets too angry about certain forms of gouging, like two-year contracts with high termination fees, the companies will just move to other practices. A fee here, a reduced service there. You know, business as usual.
Until we have regulators who are committed to working for the public, oligopolies will continue to rule the roost. And Americans will pay and pay, while the oligopolies recycle some of those earnings right back to one place where their messages always get through: Congress and “our” political parties.
Cellphone companies hold onto your location information for years and routinely provide it to police and, in anonymized form, to outside companies.
As they note in their privacy policies, Verizon, Sprint, AT&T, and T-Mobile all analyze your information to send you targeted ads for their own services or from outside companies. At least tens of thousands of times a year, they also hand cellphone location information to the FBI or police officers who have a court order.
But ProPublica discovered that there’s one person cell phone companies will not share your location information with: You.
We asked three ProPublica staffers and one friend to request their own geo-location data from the four largest cellphone providers. All four companies refused to provide it.
Here’s how they responded:
Verizon
On releasing location data to you: “Verizon Wireless will release a subscriber’s location information to law enforcement with that subscriber’s written consent. These requests must come to Verizon Wireless through law enforcement; so we would provide info on your account to law enforcement— with your consent— but not directly to you.”
On responding to requests from law enforcement: “Unless a customer consents to the release of information or law enforcement certifies that there is an emergency involving danger of death or serious physical injury, Verizon Wireless does not release information to law enforcement without appropriate legal process.” A spokesman said being more specific would “require us to share proprietary information.”
Sprint
On releasing location data to you: “We do not normally release this information to customers for privacy reasons because call detail records contain all calls made or received, including calls where numbers are ‘blocked.’ Because of an FCC rule requiring that we not disclose ‘blocked’ numbers, we only release this information to a customer when we receive a valid legal demand for it.”
On responding to requests from law enforcement: “If the government is seeking “basic subscriber information” (defined in 18 USC sec. 2701, et seq) it can obtain that information by issuing a subpoena. If the government is seeking Sprint records relating to our customers that go beyond “basic subscriber information” then the government must furnish Sprint with a court order based on specific and articulable facts. If the government is seeking customer’s content then it must obtain a warrant based on probable cause.”
AT&T
On releasing location data to you: “Giving customers location data for their wireless phones is not a service we provide.”
On responding to requests from law enforcement: "We do share data with law enforcement as part of a valid legal process - for example, a court order or a subpoena."
T-Mobile
On releasing location data to you: “No comment.”
On responding to requests from law enforcement: “For law enforcement agencies, we release customer information only when compelled or permitted under existing laws. This includes, but is not limited to, circumstances under which there is a declaration from law enforcement of an exigent circumstance, as well as other valid legal process, such as subpoenas, search warrants, and court orders.”
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As location tracking by cell phone companies becomes increasingly accurate and widespread, the question of who your location data actually belongs to remains unresolved. Privacy activists in the U.S. say the law has not kept pace with developing technology and argue for more stringent privacy standards for cell phone companies. As Matt Blaze, a University of Pennsylvania professor put it, “all of the rules are in a state of enormous uncertainty and flux.”
The Obama administration has maintained that mobile phone users have “no reasonable expectation of privacy.” The administration has argued against more stringent standards for police and the FBI to obtain location data.
The FBI also says data collected by cell phones is not necessarily accurate enough to pose much of a threat to your privacy— for instance, in a strip mall, cell phone records may not show whether you are in a coffee shop or the apartment next door.
But that is quickly changing. Blaze said as the number of mobile phones continues to rise, cell phone companies are now installing thousands of small boxes known as microcells in crowded places like parking garages and shopping malls to enable them to provide better service. Microcells, he said, also enable the phone companies to record highly precise location data. While your phone is on, he said, it is constantly recording your location.
T-Mobile, Sprint, Verizon and AT&T all refused to disclose how many requests from law enforcement they receive.
Our idea to test whether cellphone companies will give users their own location data came from a German politician who successfully obtained his data last year from Deutsche Telekom. Consumers in Europe have greater protections.
On May 11, the U.S. Senate Judiciary Committee held a hearing astutely titled, "The AT&T/T-Mobile Merger: Is Humpty Dumpty Being Put Back Together Again?"
At the hearing, Chairman Patrick Leahy, D-Vermont, raised a fundamental challenge: “At present, four companies control nearly 90 percent of the national wireless market. The proposed acquisition would further consolidate an already concentrated market for wireless communication.”
The four companies that control the market (and their estimated market share) are: AT&T (26.8%), Verizon (26.0%), Sprint (22.9%) and T-Mobile (11.0%). With the merger of AT&T and T-Mobile, AT&T (44.0%) and Verizon (30.5%) will control nearly three-fourths of the market; Sprint’s share will increase to 16 percent; and the rest of the providers will drop to 6.3 percent.
If history is our guide, the FCC will approve the merger and come up with loosey-goosey voluntary commitments. And Verizon will most likely seek to acquire Sprint. This will return the U.S. to a wireless duopoly.
In 1984, when AT&T was broken up, only two wireless licenses were allowed per market. The local Bell Operating phone companies received one of the licenses for their entire territories and the second license was put up for bid.
In 1992, the U.S. General Accounting Office (GAO) issued a report that stated: “by giving consumers an additional choice, the new PCS provider could spur cellular telephone carriers to improve their services and lower their prices.” In 1993, Congress pushed for multiple carriers in each market by including competition from “small” and “very small competitors” to service local markets.
* * *
In our "Break ‘Em Up" series, we argue that the only way to improve the U.S. telecommunications system is by breaking the stranglehold exercised by the dominant conglomerates – the Communications Trust – that control it.
Sadly, at the Senate hearing, none of the esteemed senators raised the most disturbing episode in the recent history of wireless communications. AT&T, T-Mobile and Verizon gamed the regulatory system and were able to garner over $8 billion worth of discounted spectrum by posing as “very small businesses.” It was a massive rip-off of wireless spectrum that blocked legitimate small competitors from offering services, as they were “out-bid” by deep-pocketed impostors.
Three examples of the “very small business” scam are:
Salmon -- in November 2000, Cingular formed Salmon PCS LLC to bid on certain 1900 MHz band PCS licenses.
Edge Mobile -- in November 2004, Cingular partnered with Edge Mobile Wireless to bid as an “entrepreneur” for certain 1900 MHz band PCS licenses. [AT&T Wireless’s financial statements include other “variable interest entities” (i.e., very small business), similar to Salmon and Edge Mobile Wireless.]
Vista -- in February 2005, the FCC’s auction of broadband personal communications services licenses ended and Verizon Wireless and Vista PCS, a Verizon partner, were the highest bidders for 63 licenses totaling approximately $697 million.
Fearing no action from the FCC or other federal regulatory agencies, the major telecoms openly acknowledged this duplicity. For example, Cingular (a joint venture of SBC and BellSouth was acquired by AT&T in 2004), reported in its 2002 annual report:
The Company has investments in affiliates for which it does not have a controlling interest that are accounted for under the equity method. The more significant of these investments are GSM Facilities, LLC (Factory), a jointly-controlled infrastructure venture with T-Mobile for networks in the New York City metropolitan area, California and Nevada, and Salmon, formed to bid as a “very small business” on FCC licenses and build out and operate wireless voice and data communications systems using those licenses.
The scam continued after the first round of spectrum auctions took place. However, the scheme did not escape the notice of all FCC commissioners. For example, in April 2006, Commissioner Jonathan Adelstein noted:
We missed a real opportunity to shut down what almost everyone recognizes has the potential for the largest abuse of our Designated Entity program: giant wireless companies using false fronts to get spectrum on the cheap.
Commissioner Michael Copps echoed this assessment:
News reports indicate that, in prior auctions, entities with deep pockets helped themselves to discounts they were never meant to enjoy. This unacceptable behavior threatens the integrity of our auctions and, worse, it cheats consumers. … It also means that spectrum goes to those most willing and able to manipulate the rules of the game, rather than to the entities Congress actually intended to benefit...
Obviously, AT&T, Verizon and the rest of the telecom trust are not very small businesses. Nor can one honestly claim that dummy “small businesses” – or, better yet, false fronts for the majors – should be entitled to the benefits set aside for truly small companies in the name of competitiveness.
Failure to address this issue during the AT&T/T-Mobile merger process will only encourage further duplicity.
* * *
While Adelstein and Copps made comments about this practice, it is clear that the FCC’s role in this was – and is! -- to foster deception. It does this by using market analytic data that is more than a decade old. In 2011, the FCC data about small business wireless spectrum markets is from 1997, 1999, 2000 and 2001. And it uses this same out-of-date data in every docket pertaining to broadband Internet, net neutrality and wireless spectrum. The FCC is required to undertake a “Regulatory Flexibility Act” analysis to examine how their regulations will impact small businesses.
A telling insight into how this plays out is revealed in a 2011 FCC docket about the wireless auction in 1997 for very small business wireless spectrum:
Wireless Communications Services. This service can be used for fixed, mobile, radiolocation, and digital audio broadcasting satellite uses. The Commission established small business size standards for the wireless communications services (WCS) auction. A "small business" is an entity with average gross revenues of $40 million for each of the three preceding years, and a "very small business" is an entity with average gross revenues of $15 million for each of the three preceding years. … In the auction, held in April 1997, there were seven winning bidders that qualified as "very small business" entities, and one that qualified as a "small business" entity.
The FCC is the overseer of nation’s wireless spectrum. It has avoided an investigation to fix this data because they would find that the large companies essentially gamed the regulatory system, costing the government billions of dollars and harming both American consumes and wireless competitors.
* * *
Is a wireless duopoly in our future?
For those with short memories, old Ma Bell, the original AT&T system of local and long-distance services, equipment manufacturing and research, was broken up in 1984 into seven companies know as RBOCs: Regional Bell Operating Companies.
Over the intervening three decades, federal regulatory policies have helped propel the RBOCs into what Victor "Hu" Meena, the president and CEO of Mississippi-based Cellular South who spoke in opposition to the Senate merger hearing, identifies “a duopoly made up of Ma Bell's two behemoth descendants."
Meena was joined by Sprint’s CEO Daniel Hesse in opposing the merger. He addressed Sen. Leahy’s concern for the needs of rural customers. “If AT&T’s real goal was to reach more people in rural areas,” he said, “it could invest the $39 billion it is spending to buy T-Mobile to build out service to rural areas rather than raise the prospect of rural development as a pretext to swallow a competitor.”
Approval of the T-Mobile acquisition will likely set the scene for the remaining piece of the puzzle, Sprint Nextel. Will it be absorbed by Verizon to complete the duopoly? Stay tuned.
At the Senate hearing, Sen. Al Franken noted, “It took the Department of Justice more than 35 years of litigation before they eventually broke up Ma Bell, so it’s important to keep in mind the stakes of a merger of this size and scope.” He added, “I hope that this will be the first of several hearings on the proposed merger. We all know the merger is going to raise prices for American families and may cost thousands of jobs.”
Before the AT&T/T-Mobile is approved, the Senate needs to expose the scandal about the misuse of “small business” status and the awarding of wireless spectrum to the telecom behemoths. Equally critical, senators should insist that the FCC use accurate and current data in its deliberations.
In all likelihood the AT&T/T-Mobile merger will go forward – the federal government works for the trusts. Sen. Leahy and his Vermont constituency, along with the rest of the country, will be left holding the bag, witnesses to greater industry consolidation, inferior services and higher prices. And AT&T executives will laugh all the way to the bank.
If you're not angry with AT&T, Verizon, T-Mobile and Sprint -- America's four national wireless providers that reportedly control 90 percent of the market -- then here's some ridiculous news to raise your righteous ire.
Perhaps you'd be interested to know about one of the most outrageous cell phone scams? It's simple: Charge customers for being forced to listen to 15 seconds of unnecessary voicemail instructions reminding them how to leave a message after the beep. According to New York Times technology writer David Pogue, if Verizon customers leave voicemails or check their messages twice a day, the mammoth New Jersey-based telco takes in around $620 million. In return, you lose wasted hours of your life and have to pay for it.
Speaking of Verizon, have you heard about the representative who refused to shut down a dead man's service, even though his daughter produced a death certificate and needed the account closed so settlement of his estate could proceed? Or the rep who tried to collect an overdue $308 bill from customer Al Burrows by threatening to, and I quote, "blow your muthafucking house up"? Do we need to even talk about AT&T's various controversies, from censoring Pearl Jam to allegedly helping the National Security Agency unlawfully monitor the American people's communications?
The telco giants' latest disgrace, according to a recent Federal Communications Commission report, has been given the egregious name of "bill shock" (PDF). Which is a misnomer, actually: it's certainly not shocking to find, as the FCC explains, that "30 million Americans -- or one in six mobile users -- have experienced...a sudden increase in their monthly bill that is not caused by a change in service plan." It's even less alarming to discover that "nearly half of cell phone users who have plans with early termination fees (ETFs) -- and almost two-thirds of home broadband users with ETFs --don’t know the amount of the fees they’re accountable for."
"In January, we sent letters to the major wireless providers asking the rationale for their ETFs," FCC spokesperson Rosemary Kimballl told AlterNet. "While the business model of subsidizing phones by the ETFs is the carriers' choice, our position is that the ETF charge must be made clear to the consumer when he is signing the contract. And this does not seem to be the case in many instances."
It is the kind of obscure legalese the industry is known for. Their contracts are dense with clauses that no self-respecting human should have to wade through, just to place a call or send a text. ETFs are a particularly blatant insult to wireless customers, who can't leave an underperforming carrier (and that's really all of them) without forking over hundreds of hard-earned dollars. In fact, AT&T just nearly doubled its $175 early termination fee to $325 in May. That cold, capitalist logic is built specifically for bottom lines and earnings reports, not for flawless customer service. ETFs are financial shackles to mediocrity, and they're just the start.
According to Wisconsin Democratic Senator Herb Kohl, the telcos have fortified their industry monopoly with other scandalous pricing. Between 2006-2008, the cost of sending and receiving a text message rose 100 percent. The average American consumer pays approximately $500-$600 a year for wireless service, which is practically more than any other developed nation. Of course, iPhone addicts -- who are chained to Apple's exclusive contract with AT&T until the probably inevitable Verizon contract arrives in 2011 -- pay around twice that annually in various subscription fees. This in spite of the fact that AT&T, Verizon and Sprint continually rank among the worst in the nation when it comes to customer service. Or that such early termination fees are arguably illegal, depending on which judge you ask.
"We want consumers to know that they can avoid the ETF by using prepaid phones," Kimball added. "And we have recently released a public notice (PDF) asking for comments from consumers and the industry on how customers can be made aware they are about to incur unexpected charges. We asked whether a model like that used in the European Union, where customers must be alerted when they are about to incur roaming charges, would work in the United States."
Mandating that the wireless industry warn their customers before they variously fleece them is a great start. But bridging the price gaps between the carriers and their carrion is going to take a while.
"A big part of the problem is that this country is such a huge landmass," Pogue told AlterNet. "No one cell phone carrier can cover it all, unlike in Europe and Japan. Therefore, people have to buy from the company or two with coverage where they live, so there's very little competition. The cell companies can essentially get away with whatever they want."
This geographical reality has produced a wireless market that is a functional duopoly. Although Verizon and AT&T are only half of the big four carriers, they actually control 60 percent of the wireless market between them. Can you hear me now?
"We don't have equivalent providers in the marketplace," Consumers Union's wireless, phone and Internet policy analyst Joel Kelsey told AlterNet by phone. "There are tell-tale signs that this is not a competitive market: the ubiquitous existence of early termination fees that have been continually raised; the inability of consumers to bring their smart phone investments with them from carrier to carrier; parallel and consistent price increases in text messaging, despite the fact that the cost to provide that service is declining; the opaque nature of data overage charges. Everything seems randomly tacked on."
Bringing transparency and purpose to that random pricing is a primary objective of the FCC, which seems to have finally come to its senses under the leadership of chairman Julius Genachowski, who was nominated by President Obama and confirmed by Congress in 2009. He's a long way from the national joke that was FCC chairman Michael Powell, son of Colin, who disastrously deregulated the industry while simultaneously levying ridiculous obscenity penalties on networks airing Janet Jackson's breast, Bono's expletives, Howard Stern's show, and even Saving Private Ryan. But the new FCC regime is going to have its hands full bringing AT&T and Verizon to heel, although its task will be helped by the telco titans' continuing insults. But they're not giving up without a fight, especially when they can charge anything for whatever.
"The FCC is talking about a common sense way of giving consumers more control to help them realize cost savings," Kelsey said. "Consolidation is increasing and the market is dwindling toward a duopoly, because AT&T and Verizon have the best deals with the handset providers, who have the most consumers. And they have very little incentive to invest in their own network; investment in the network as a percentage of revenue has actually declined. And they own the lion's share of the wireless spectrum."
At the 2008 wireless spectrum auction, Verizon actually sued the FCC for having the temerity to rule in Google's favor that the five available spectrum blocks remain open to services, applications, devices and networks. Verizon eventually dropped the lawsuit, and nearly $5 billion on the FCC for the coveted open-access C-block, but we're a long way from non-exclusivity. And further auctions kicking off in the years to come are sure to be as contentious, especially now that FCC chairman Genachowski has argued that the nation is due for a "looming spectrum crisis" because of the burgeoning desire for mobile broadband.
"There are a number of political undercurrents at play," Kelsey explained. "The government has been trying to get as much money as possible out of auctions, and that certainly raises the question about what is the most effective use of the spectrum and doesn't take into account the interest in public use or social good. It's not clear what the FCC wants or plans to do, but their actions over the last several weeks have been great. They're showing that they're interested in broadband mobile as a check on current practices."
Which is great, because the bill for current practices is getting larger and more unreasonable by the year. The check is going to need to be a big one. Those purposefully ridiculous fees and charges from the telcos aren't going to pay themselves.
