Will the FCC ever force AT&T and Verizon to revive unlimited data?

A reader asks if the FCC might investigate AT&T and Verizon for getting rid of their unlimited data plans and raising rates via the share plans. Ask Maggie's Marguerite Reardon offers her opinion.

More than a year after the unlimited data plans were eliminated from AT&T and Verizon, subscribers are still grumbling, especially as these carriers further tweak their policies for those grandfathered into the plans. Is it time for the FCC to step in and investigate?

In this edition of Ask Maggie, I explain why I think it's unlikely the FCC will fight to force carriers to revive the unlimited data plan. And I explain why I think frustrated wireless subscribers may have a good argument for getting reduced service fees when they bring their own device to a carrier service.

I also offer some advice to a Peace Corps volunteer about using a smartphone in Africa.

Fighting the good fight

Dear Maggie,

I'm a fan of your articles, specifically the ones about Verizon tethering. I was wondering what you thought the chance was of the government cracking down on Verizon and AT&T for getting rid of their unlimited data plans and replacing them with these high-priced share plans? It might be OK for some, but I think it's terrible long term. It smells like price-fixing to me.

Another thing I think regulators should look into is the fact that Verizon is double charging customers who want to keep their unlimited data plans. I have an unlimited data plan from Verizon, which I'd like to keep. But to do so, I have to pay full price for the phone and still pay the full price of the service. I thought part of my monthly fee was supposed to be to subsidize the phone. The whole thing seems sketchy to me.

Keep up the good writing. Hopefully you can offer your thoughts on these two points sometime soon. I think I am going to try to complain to the FCC about the data plans and hopefully they will be able to do something to keep unlimited data.

Thanks,

Chris

 

Dear Chris,

Thanks for the kind words about my articles. I'm glad you've found them helpful.

FCC Chairman Julius Genachowski outlined the agency's plan for bringing more spectrum to market at the CTIA show in New Orleans. CNET/Marguerite Reardon

Now onto the topics you posed in your note. Do I think the FCC will take action against Verizon and AT&T for getting rid of unlimited data? The short answer to this question is no. And the main reason is that the FCC doesn't seem to object to this idea of consumers paying for the data they use instead of paying a flat fee for a service.

Earlier this year, FCC Julius Genachowski told attendees at the National Cable and Telecommunications Association trade show that he views data caps as simply another "business model innovation." He added that pricing based on usage "could be healthy and beneficial" to consumers.

Based on these comments, it seems pretty clear that the FCC wants to stay out of the debate about how much wireless operators or even cable companies should charge for services. And in all fairness to Chairman Genachowski, it seems reasonable that a business would charge customers for the volume of service they use rather than charging them a flat rate.

As a consumer, I prefer the all-you-can-eat model to a usage-based model, if I think I'm going to consume a lot of a service. And I get your annoyance at the fact that you may be paying more money for access to less data. But I can understand why AT&T and Verizon would change their pricing.

You're correct that wireless customers are using more capacity on the network than they did a couple of years ago. In fact, wireless carriers say that the rate at which data usage is growing is way beyond what they would have predicted just a few years ago. Keeping up with this demand on the network means upgrading to newer technologies and investing more in the networks.

If you're a business that's charging a flat rate for that service, that means you're adding more capacity to the network to keep up with demand but you aren't generating any more revenue for that network usage. At the end of the day, that just isn't a sustainable business model.

What's more, flat-rate pricing for unlimited consumption doesn't provide any incentive for consumers, handset makers, or app developers to use wireless spectrum more efficiently. As a result, there's a lot of waste.

In case you haven't heard, the industry is experiencing a "spectrum crunch." Operators say they're running out of capacity on their networks because of demand, and they need more wireless spectrum to help alleviate the crunch. Unfortunately, there isn't much unused spectrum available for the FCC to auction. So companies are going to have to get more creative with how they use their spectrum. AT&T just said it plans to shut down its 2G voice service by 2017 so that it can repurpose that spectrum for 3G and 4G services.

Many carriers are also transitioning to newer and faster technologies, such as 4G LTE, which is more efficient than older technologies. And others, like Verizon Wireless, are looking to buy spectrum directly from other license holders to keep up with demand. Meanwhile, the FCC is trying to find more spectrum it can put up for auction.

Think of it this way: If you paid a flat rate for unlimited use of electricity, you'd likely run your air conditioner all day when you're at work so your house would be nice and cool when you got home at night. And you might not care if your appliances, such as your refrigerator or washer and dryer, were Energy Star rated. As a result, you'd likely use more energy than you actually needed.

But if you pay for energy based on how much you use, you're more likely to limit your usage and buy only products that use energy more efficiently.

In a sense, this is what the wireless carriers are doing by putting the kibosh on unlimited data plans.

Genachowski's stance on usage-based billing may be his way of acknowledging that these wireless companies also need to change consumer behavior so that capacity is not wasted. It's also very difficult for a regulator, particularly in today's political environment where many a tea-party member cries that the government is too interventionist, to step in and regulate pricing in what it considers to be a competitive market.

Regarding the first part of the question, I don't think the FCC will intervene and force carriers to go back to selling unlimited data plans. I also don't think the FCC would find that the new plans AT&T and Verizon have introduced are a result of price-fixing. It's true the plans are very similar. But there's no evidence that the carriers sat down together and colluded to set the market price.

That said, prices are going up for data services. And it's true that AT&T and Verizon control more than 70 percent of the market. I think the bigger risk to pricing that the FCC should look at is industry consolidation. As AT&T and Verizon control more of the market, it's easier for them to set pricing and merely follow each other. Additional players in the market offer consumers more choices. For example, if you look at prepaid carriers and carriers like T-Mobile, there are lower-cost options and options that offer more so-called unlimited plans.

From a policy standpoint, it makes more sense for the FCC try to preserve competition in the marketplace, which should keep prices in check, rather than attempt to regulate pricing. If there is robust competition, prices should remain in check.

I also think you bring up a very interesting point with the second part of your question, regarding the price of your monthly service even though you have had to pay for a phone at full price.

When the FCC questioned wireless carriers in 2009 and 2010 about their early termination fees, which customers must pay if they terminate their contracts before the term is up, the wireless carriers argued the fee existed because it offset the cost of the phone during that contract period. They explained that a portion of the fee that customers pay each month for their service was going toward paying off the cost of the subsidy that the customer got when he bought a new phone on the network.

In other words, the $200 a customer pays to get the phone is only a fraction of the total cost of owning that device. The carrier picks up the other $400 or so on that device. And the carrier claims it recovers the rest of the cost over the life of the two-year contract.

But what happens when you buy the phone at full price? Or what about when your contract ends? Does the cost of your monthly service get reduced because you've finished paying off your device? The answer to this question under most carrier plans is no. (T-Mobile is the only major U.S. carrier that reduces your monthly service charge once your phone subsidy is paid off.)

I'd argue that if carriers are subsidizing phones and arguing that they must charge ETFs (early termination fees) to cover the cost of phones when customers cancel their service early, then they should reduce the cost of the service once the phone is paid off. And they should offer a discount on the service if you bring your own phone.

To the best of my knowledge, the FCC has not looked into this matter. The agency seemed to drop its inquiry into ETFs when wireless operators adopted new policies that reduced the cost of the ETF over the life of the wireless contract. But the FCC never addressed whether the cost of the service should be reduced to reflect the fact that the phone has been paid for.

The FCC does have a Consumer Task Force, which was established to promote cross-agency collaboration on the commission's consumer agenda. So there's a chance it may look into this issue in the future if there is some pressure to do so. I doubt this is a fight the FCC will willingly pick with wireless carriers. Still, I think it's a valid argument. My suggestion to you is that you send a complaint to the FCC. You can do that directly on the agency's Web site: http://www.fcc.gov/complaints/. You could also organize a petition and write letters to your Congressional representatives.

It was Congressional outrage and hearings about the ETFs that spurred the FCC to look into that issue. And perhaps you could draw similar attention to this issue. After all, members of Congress are smartphone customers, too. And I'd bet there are some Verizon unlimited data subscribers who are just as annoyed as you are by the changes in the plan.

Good luck fighting the good fight!

Africa-bound and needing advice on smartphones

Dear Maggie,

I currently have a Motorola Android, from about three years ago. It is not functioning well, and I want to switch phones before I move to Africa. I will also need to get my phone unlocked before I move, since I am joining the Peace Corps and will be gone for two years. I have Verizon and am confused as to which phone is the best for me. I want a phone with a great camera and amazing battery life. I want a reliable phone, one that will be problem free for two years. Besides that, I was wondering if you could clarify how Internet works in a foreign country. I was also wondering if you think it makes more sense for me to cancel my membership and just buy an unlocked phone. Sorry for all the questions, hopefully you can help!

Thanks,

Natalie

 

Dear Natalie,

My advice to you is to cancel your Verizon Wireless service. It doesn't make any sense for you to sign up for a new contract with Verizon if you will be out of the country for the next two years. Using your Verizon service in Africa would be ridiculously expensive. Carriers charge huge fees to users who roam internationally. So that's just simply not a good idea.

It's also very hard to say which smartphone I think will last you for two years without any troubles. I think it really depends on how you use the device and how well you take care of it. For example, I know several people who are still using their iPhone 3G, which they bought three years ago. But my iPhone 3GS, which came out a year after the iPhone 3G, died three months shy of its two-year anniversary.

In general, I wouldn't count on your smartphone lasting much longer than two years. It seems that batteries often wear out and die, screens get cracked, and the software, which is upgraded, just generally gets buggy.

But since, as you mentioned, battery life is a big concern, you may want to consider a BlackBerry smartphone. While BlackBerrys seem old and clunky in the U.S. market, I know they have been popular in the developing world. One of the reasons for this is the fact that they tend to have very good battery life. Most smartphones need to be charged at least once a day, but a BlackBerry can often go longer between charges. What's more, BlackBerrys use data more efficiently, so even if you don't have a great data connection where you're going, you are still likely to get access to e-mail.

The downsides are the fact that Blackberry devices aren't known for having great browsers or terrific cameras.

I think more than the specific phone you buy, you should consider the service that you'll be able to get in the region where you'll be living. Africa is a big place and there are hundreds of providers.

Once you know where you are going and which providers operate there, then you can start looking into services and phones. You may be able to get a smartphone for a subsidized price from a carrier in Africa. Also, some companies, such as Nokia, make phones specifically for developing markets like Africa where power consumption and battery life is a top concern. Depending on where you're going and what the network situation is there, you may be better served by a phone developed for the needs of that market.

The other option is to buy an unlocked smartphone in the U.S., which you can take with you. If you go the unlocked phone route, you must make sure that the device operates using the same network technology and on the same frequencies that are used by the carrier in Africa. If you buy an unlocked GSM quad-band "world phone," you should be in good shape. But you should still check to be sure.

I hope this advice is helpful. And good luck in Africa! It sounds like an interesting adventure.

Ask Maggie is an advice column that answers readers' wireless and broadband questions. The column now appears twice a week on CNET offering readers a double dosage of Ask Maggie's advice. If you have a question, I'd love to hear from you. Please send me an e-mail at maggie dot reardon at cbs dot com. And please put "Ask Maggie" in the subject header. You can also follow me on Facebook on my Ask Maggie page.

 

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