Wednesday, March 9, 2011

Collusion Between AT&T and Verizon on Tiered Pricing Invites Class Action Lawsuits

If you live in Hong Kong, you can have superfast gig-a-second broadband for just $26 a month.  If you live in the United States, you're screwed.  America’s leading internet provider, Verizon, doesn't offer anything that fast.  Its fastest service one twentieth as quick and costs a whopping $144.99 a month.  Why nothing faster (let alone cheaper)?  According to The New York Times, Verizon says its customers simply don't need it, they're already in "satisfying demand" with their current slow, expensive service.

But the truth is Verizon doesn't want you to have true high speed internet.  At any price.  It's working in collusion with American cable companies and AT&T to make sure you don't get it.  One of the reasons is an unwillingness to invest in the infrastructure necessary to provide great service.  The other is a desire to use the unfulfilled promise of broadband to push U.S. Government regulators to give them concessions (and corporate bailouts) to further strengthen their monopolies on American telecom.

But even those aren't the main reason.  Verizon and other companies could easily offer super high speed internet as a high priced option (as if $149.99 a month isn't high enough) and pay for whatever infrastructure they need.  By keeping it expensive, they could still claim to regulators they need "help" to bring down the price.  The problem is, even at a high price, there is probably enough demand for true broadband that any offered service might take off quickly, and that would create real problems for Verizon's bigger plans for the internet.

So why are the big telecoms holding back on true broadband?  Because they are obsessed with tiered pricing, aka "pay per bit."  They already lost the war on pay per bit for regular internet access.  They are currently fighting like crazy to force it down the throats of customers on cell service, and they refuse to offer true broadband until customers "accept" the a new pricing policy that would fundamentally change the way people use the internet.  And not for the better.

There is no logical reason to charge people per bit for information, it's bad business and bad technology.  Yet Verizon and AT&T both sprung from the split head of old Ma Bell.  And old Ma Bell was built on the idea of gaining monopoly control, suppressing technology,  and charging customers outrageous rates for things that cost almost nothing (like long distance calling).  This hatred for customers seems to be engrained in the DNA of both of these former baby bells, who are determined to cram much hated tiered pricing down the throats of unwilling cell users even if it ends up hurting their own business.

Case in point, Verizon announced that this summer, unlimited data plans for its iPhone will be going away.  New iPhone customers will be forced into various "pay per bit" offerings.

How does Verizon justify changing its policy?  Because the current policy is not a "long term solution." Why isn't it a long term solution?  More customers mean more money for infrastructure and should make it even easier to offer unlimited service to everyone.  Moving bits around gets cheaper and cheaper every day, thanks to advances in technology, but for some reason Verizon (like AT&T) wants to charge more and more for what costs them less and less.  It's a shame they can't blame the datahogs anymore.  They can't even manage to come up with a good lie for why they want to gouge customers.

Meanwhile, it seems some smoky room meetings between Verizon and AT&T have settled on a basic price for data access.

It just so happens that both of these telecoms want to charge on average $10 a gig for iPad 2 data access.  Now, isn't that convenient?  The only two providers of wireless service for the iPad happen to charge almost exactly the same amount, and neither offer unlimited data.  Anyone want to start a class action lawsuit into telecom collusion?  This seems like a good place to start.  I'm sure it would quickly prove that it costs more to keep track of how much data the iPad is using than it does to provide it with the data in the first place.

Which is why Verizon doesn’t want people to have 1 gig per second data access.  How can you charge $10 for something that you get in less than a second?  But a better question should be, how is it that Verizon and AT&T think you should pay $10 a gig for something you can get an unlimited amount of in Hong Kong for a low monthly rate?  Or for free at your local McDonald’s?  Or free for the life of your Kindle (offered by AT&T)?  It simply makes no sense and the public is not going to buy it.

Which is why AT&T is offering to grandfather in unlimited data for old iPad subscribers.  But, again, how does it justify charging $10 per gig for one customer, and then an unlimited amount for another?  Both AT&T and Verizon are playing a ridiculous game of offering unlimited data the second they need to keep a hold of customers, but assuming they can push it new customers.

Long term, it’s a losing battle.  Competitors won't sit around on their hands while AT&T and Verizon get away with charging $10 per gig.  It's exactly how they destroyed their long distance phone business, charging too much for something that cost almost nothing, until they created so many competitors they virtually lost the business.  It’s also how they destroyed their basic cell service model, by gouging customers and forcing everyone to switch to pay as you go phones.  Until the iPhone saved them.  Now they’re determined to kill the golden goose.

But even short term, it's bad business.  There is no reason every iPad shouldn’t be purchased with 3G at a reasonable low price.  By gouging a few customers, they’re going to encourage a lot of people to stick to wi-fi and that’s a huge lost opportunity.    Likewise, a lot of people simply can't afford smart phones, but would love to have them.  If prices went down on monthly fees, every cell phone would become a smart phone.  Forcing pay per bit on customers simply suppresses sales growth.

If these companies were smart, they would understand that in a wireless future, every car, printer, computer, toy, etc, could benefit from wireless access, if the rates were low enough.  Rather than trying to squeeze $100 a month out of a customer by making his life miserable charging per bit, it would be better for that customer to pay $100 to have wireless access on many devices.  Rather than getting rid of an old iPhone as soon as you can, because it simply costs too much a month to have more than one, it would be better in the long run for AT&T if someone kept it as a spare and tucked in their car.  Likewise, when a teenager replaces their iPad with an iPad 2, if the price was right, they would keep both connected to AT&T, rather than cutting off the monthly bill as quickly as possible.  The amount of money AT&T and Verizon could make by customers keeping subscriptions for devices they only occasionally use would be far greater than what can be make by simply inflating bills and creating wary customers reluctant to be ripped off.

While hating customers might be a short sighted business model for Verizon and AT&T, it’s a really horrible business model for  Apple, Google, Facebook, and a lot of other really huge companies.  There is no upside to those big players in return to Ma Bell style “master switch” technology suppression.  They aren’t likely to sit by as people become frustrated with unpredictable bills for accessing the internet.  The last thing anyone, but the telcoms, want is for internet users to start going “those stupid advertisements just cost me 10 cents to watch.”  Or, updating my photos on Facebook will cost 50 cents.   It’s not going to happen.  Those big companies have the money and technology to quickly step in and provide innovate technological alternatives rather than sit by and watch Verizon and AT&T tax every internet interaction.

Americans haven’t quite clued into the fact that they have the slowest and most expense internet service in the civilized world simply because the big telecoms want it that way, but eventually they will catch on.  Someone will send them a high def video from Hong Kong.  It will take a second to upload from Hong Kong (for free) and ten minutes and $10 to watch in America.


  1. confused customerMarch 9, 2011 at 3:19 AM

    amen to that :(

  2. nice post... I just found this shit out while my roommate was getting a new phone for renewing a 2-year contract with AT&T. He told me Verizon was doing it too and I flipped lol. Short story is he didn't get the contract because it is stupid to buy a smartphone with two cameras and a high def screen, if when you stream a high def movie to it, you get charged a whopping $150 dollars for the bandwith. I googled somethin along the lines of "Verizon AT&T collusion tier pricing" and got here =P

    Class action lawsuit... I'd be behind that.

  3. This is the government's fault for allowing these companies to merge with the smaller companies. Which has reconstructed these two giant companies. Stop the AT&T take over of T-Mobile USA and maybe these things can begin to change.

  4. Does anyone else see the Verizon ad on the page. Don't get me wrong, this was a great article and a real eye opener, BUT OH GOD THE IRONY. It makes me giggle.

  5. Heck, we'll take ads from whoever will put them on. Even AT&T.