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Is Verizon Following in AT&T's Flawed Footsteps?


Changing to usage-based billing would be a mistake.

There was a time when Verizon (VZ) was a beacon of hope. A tranquil pond beyond the harsh desert landscape of AT&T (T). A realm of possibility for the legions of iPhone (AAPL) users who kept wishing that maybe, just maybe, they too could reap its benefits. But has the fame gone to its head?

Soon after introducing the surprisingly solid Motorola Droid (MOT) to its lineup, Verizon raised its early termination fees for smartphone cancellation to $350 from $175 -- spurring an FCC inquiry on the matter. And how did Verizon follow up? It announced the fee for terminating Verizon FiOS will double to $360. Also, no grace period.

And now, after the Washington Post conducted a one-on-one interview with Verizon's Chief Technical Officer Dick Lynch, the executive's comments could prove to be a harbinger of even more disgruntled customers ahead.

Based on the exponential growth in smartphone data usage, Lynch asserted that all wireless companies, not just Verizon, will have to alter their current billing plans, going so far as to predict the elimination of unlimited data plans and the introduction usage-based data billing. The troubling issue, as Lynch sees it, lies in the hands of so-called "bandwidth hogs" -- the small number of customers who are responsible for the lion's share of network congestion.

"The problem we have today with flat-based usage is that you are trying to encourage customers to be efficient in use and applications but you are getting some people who are bandwidth hogs using gigabytes a month and they are paying for something like megabytes a month," Lynch claimed. "That isn't long-term sustainable. Why should customers using an average amount of bandwidth be subsidizing bandwidth hogs?"

The rhetoric Lynch uses is frighteningly close to that of another division head who presides over the most-maligned carrier in the country: Ralph de la Vega of AT&T. Last month, de la Vega suggested a mere 3% of smartphone customers on AT&T comprise 40% of data usage and added that the typical customer needs to be educated on what represents a megabyte of data.

That is to say, the reason you have so many dropped calls is your fault, not theirs. (See Why AT&T Is the Biggest Loser of 2009.)

Although de la Vega hasn't confirmed the adoption of usage-based billing in AT&T's future, Lynch believes the end of flat-rate plans may be coming as early as this year when Verizon rolls out its high-speed LTE network.

The Bandwidth Hog Excuse has been trotted out by a number of mobile and internet carriers. It was the basis behind the infamous Comcast (CMCSA) and Time Warner Cable (TWC) data caps and claims that the internet is becoming "overloaded." (See Time Warner Abandons Plan to Gouge You - For Now.) It's used as an excuse when cable providers attempt to limit the amount of streaming video on their networks and destroy net neutrality. (See Why Net Neutrality Is Not a Solution.) And it sometimes drives mobile providers to cut off sales of its product from a major metropolitan city. (See AT&T: New York City "Not Ready" for iPhone.)

But do actual "bandwidth hogs" exist? Yankee Group analyst Benoit Felten maintains that telecoms and cable providers have no real method of identifying a bandwidth hog or determine that they definitively slow down a network or cause congestion. To Felton -- and many other smartphone users -- they are "imaginary creatures" and a scapegoat for a company's buggy infrastructure.

Or most likely, it's simply an excuse to charge higher fees.

An unlimited data plan has been a standard policy since the propagation of broadband throughout the country. To eliminate it as an option from phone bills is to assume that customers would not only be tolerant of this action, but notice any difference in call or data quality -- on bills that vary wildly month to month.

For Verizon to introduce compulsory usage-based pricing will only make customers hyper-aware of every email they send and factoid they double-check online -- making the very use of smartphones an unenjoyable and stressful experience.

Kinda like being an AT&T customer.

If a cell provider admits to being unable to maintain adequate coverage and bandwidth to its customers as it stands, it shouldn't introduce any more phones to the network and it should, instead, pool its profits into rebuilding its infrastructure.

And for cryin' out loud, stop blaming the customer!
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