Wireless

Correction made December 9 at 7:51 p.m. PDT: An earlier version of this story incorrectly stated that AT&T had announced a tiered pricing plan. The company is considering incentives to curb heavy wireless data usage.

AT&T wants its iPhone users to use less wireless data, and it may consider new pricing models to curb users' data usage as it tries to keep up with growing demand.

At an investor conference in New York on Wednesday, Ralph de la Vega, AT&T's head of wireless, said the wireless operator is considering incentives to get consumers to reduce their data usage.

De la Vega said 3 percent of smartphone users are consuming 40 percent of the network capacity.

"We're going to try to focus on making sure we give incentives to those small percentages to either reduce or modify their usage so they don't crowd out the other customers in those same cell sites," said de la Vega according to a transcript of the conference. "And you'll see us address that more in detail."

He went on to say that most consumers aren't aware which applications use a lot of bandwidth and which do not. For example, email does not consume a lot of bandwidth, whereas streaming video and audio do consume a great deal of bandwidth.

"What's driving usage on the network and driving these high usage situations are things like video, or audio that keeps playing around the clock," he said, according to the transcript provided by AT&T. "And so we've got to get to those customers and have them recognize that they need to change their pattern, or there will be other things that they are going to have to do to reduce their usage."

AT&T has been struggling to keep up with demand for wireless-data usage on its network. The iPhone, launched more than two years ago, has revolutionized mobile Web usage. The device, which was built more for accessing the Net than making calls, can access more than 100,000 applications, many of which use the mobile Internet.

iPhone users on average consume five to seven times more data per month than average wireless subscribers, according to analyst firm Sanford Bernstein. And all this usage is clogging the network, causing many iPhone users, especially in large cities such as New York and San Francisco, to experience dropped calls, slow 3G service, and issues connecting to the network at all.

AT&T has been reluctant to admit that there is a problem, but recently, the company has acknowledged that problems exist. According to The Wall Street Journal, de la Vega admitted that New York and San Francisco have been experiencing service issues. And the company recently launched an iPhone application that allows users to report service problems.

AT&T has been upgrading its network to the next generation of 3G wireless service to increase network capacity. But now the company is saying it needs to actually curb usage in order to get a handle on demand.

De la Vega didn't provide specifics about how the company would actually get consumers to use less data. But he said that a usage-based pricing model may be considered in the future.

"I think longer-term, there's got to be some sort of a pricing scheme that addresses the usage," he said. "But that's going to be determined by industry competitive factors, regulatory factors and customer [successes]."

The idea is that usage based pricing may actually deter consumers from using high-bandwidth applications. Unlike voice service, which is already tiered, wireless-data service is charged at an all-you-can-eat flat rate. iPhone users select a voice plan, then pay an extra $30 a month for unlimited data usage. By contrast, AT&T has limited the amount of data that its wireless-data card users can consume each month to 5GB. After that limit has been reached, customers who use the AT&T network to access the Net from their laptops get charged more based on their usage.

But asking iPhone users and other smartphone subscribers to cut back on their data usage may be somewhat unrealistic, and it could actually stifle innovation and development of the mobile Internet.

AT&T seems to realize that this is not a long-term solution. And not only is the carrier upgrading its network, but it's also asking the Federal Communications Commission to find more spectrum to auction off that can be used for wireless-data services. Jim Cicconi, senior executive vice president of external and legislative affairs for AT&T, said in a separate interview with CNET on Wednesday that something needs to be done to deal with the flood of wireless-data traffic.

Cicconi and AT&T's CEO Randall Stephenson met with FCC staff members earlier this week to discuss the spectrum issue.

"Clearly, there is a looming crisis that needs to be addressed when it comes to spectrum availability," Cicconi said in an interview at his office in Washington, D.C. "Wireless-data usage is growing far faster than anyone had expected. And if we don't do something soon, we will run out very fast. And then we will have to start telling wireless customers that they can't do all the things they want to do with their devices."

FCC Chairman Julius Genachowski has made freeing up more spectrum a top priority. And he has already proposed that the FCC look into taking some spectrum away from TV broadcasters to give to wireless operators to deliver more wireless-broadband services.

Naturally, the TV broadcasters oppose such a proposal.

Verizon Wireless, AT&T's main competitor, has already amended wireless-data pricing for its low-end phones in an effort to squeeze out more revenue from users. But drastic changes in data pricing could scare off some customers and curb smartphone adoption altogether.

If you were watching Florida impersonate a headless chicken against Alabama Saturday, you might have been aware that Luke Wilson, AT&T's disarming new pitchman, had also lost his head.

For the game was interrupted by Wilson's need to talk, with his filmic features and without.

The battle between AT&T and Verizon has been peppered by startling doses of objectivity. So to demonstrate the clear, obvious, incontrovertible fact that Verizon's 3G is but a Wendy's-stuffing, cake-loving, 15-beers-a-night slob when compared with AT&T's Usain Bolt, Wilson performs a side-by-side that would put the Pepsi Challenge to shame.

On AT&T's 3G, Wilson, finally not dressed in a painful shade of tree bark, downloads himself with the speed of an unfaithful, burglarizing vicar fleeing from the press.

When he tries using the Verizon 3G, which AT&T declares is very much slower, Wilson is up to his neck in it. There is no time to bring his head into the picture.

Naturally, AT&T's hope is that Wilson's charm will encourage people to use their hearts at least as much as their heads. No one using the latter will really believe he is using Verizon's 3G to materialize his headless self.

So smartphone seekers will be left trying to decide between a network that is allegedly everywhere, but is slow, and one which, according to critics, isn't remotely everywhere, but is faster and, oh, has that supposed digitally clueless pageant queen of an iPhone.

It's not quite George Clooney vs. Brad Pitt, is it? It's more, well, Luke Wilson vs. Owen Wilson.

Verizon Wireless and AT&T have ended their public legal spat over advertising, and have thus agreed to stop complaining about each other's advertising campaigns.

On Wednesday AT&T announced it dropped its suit against Verizon Wireless for allegedly misleading customers by showing its weak 3G coverage. And Verizon said it agreed to drop a suit it filed earlier this year against AT&T for claiming it had the "More Bars in More Places," the "Best Coverage," and the "Best Worldwide Coverage."

In its amended suit filed in August, Verizon said that AT&T had no basis to refer to its network as the best, because Verizon claims in its own advertising to have "America's Most Reliable 3G Network" and "America's Best 3G Network."

"Through these advertisements, AT&T claims to have a wireless network that is superior, both qualitatively ("More Bars") and quantitatively ("More Places") to the wireless networks of all other U.S. wireless carriers, including Verizon Wireless, both in the United States and worldwide, when in fact, none of those claims is true," Verizon said in its complaint.

But now it looks like AT&T and Verizon have made peace with one another, as AT&T dropped its case in Atlanta and Verizon dismissed its case filed in New York.

However, the lawsuits bring up an interesting trend that was noted recently in an article published by The New York Times. Increasingly, companies are suing each other over claims made in their advertising campaigns.

In addition to AT&T and Verizon Wireless, other longtime foes, such as shampoo and soap makers Pantene and Dove, dog food makers Science Diet and Iams, and soup companies Campbell Soup and Progresso have all haggled over ads, challenging competitors to prove their claims.

Some complaints over "misleading" advertising are filed with the National Advertising Division of the Council of Better Business Bureaus, which is the industry's main self-regulatory program for national ads. But others go to court and file lawsuits under the Lanham Act, which was passed in 1946 to strengthen trademark law. Verizon's lawsuit cited the Lanham Act.

While these lawsuits and complaints may be legitimate, the truth is that most consumers take these advertisements claiming to be the "best" or the "strongest" at anything with a grain of salt. And there is some indication that the mere publicity from these lawsuits can backfire on companies, giving consumers a negative impression of the company that files the lawsuit.

It can be argued that this has happened to AT&T. There have already been numerous reports about problems with AT&T's network, particularly for iPhone users. And when the company filed its lawsuit against Verizon, many consumers expressed anger at AT&T for whining about the advertisement, when many felt that the claims expressed in the advertisement were true.

By contrast, Verizon's lawsuit against AT&T was not well-publicized. In fact, most technology reporters and bloggers hadn't even known about or mentioned the suit until Wednesday when the two companies agreed to drop litigation against each other. It remains to be seen if consumers will also deem the dismissed Verizon lawsuit a bit whiny.

AT&T has dismissed its lawsuit against Verizon Wireless for using an advertisement that AT&T complained confused customers about its 3G wireless coverage.

(Credit: Verizon Wireless)

On Wednesday, AT&T formally dismissed the lawsuit. Last month, the wireless operator suffered a major legal setback when a judge rejected the company's request to force Verizon to pull its "There's A Map For That" advertising campaign.

AT&T filed its lawsuit in federal court in Atlanta in early November asserting that Verizon Wireless' advertisements mislead customers by suggesting that AT&T subscribers cannot access wireless Internet services throughout its network. AT&T has called the ads blatantly false and has said that the commercials have caused irreparable harm to the company.

The advertisements that Verizon is running show two maps that each indicate 3G wireless coverage. One map shows coverage for Verizon and the other depicts AT&T's coverage. Verizon just recently started airing another commercial that depicts Santa Claus' reindeer referring to Verizon's and AT&T's 3G coverage maps.

AT&T has also started running its own advertisements that are critical of Verizon Wireless. The ads feature Luke Wilson and slam Verizon for not allowing users to talk and surf the Web at the same time, something that wireless subscribers can do on AT&T smartphones.

Verizon Wireless declined to comment on the news of the dismissal. And AT&T also declined to comment further on the matter.

Motorola's and Verizon Wireless' $100 million marketing campaign for the Motorola Droid seems to be paying off with strong sales that will likely result in more than 1 million devices being sold by the end of the year.

The Droid, the only smartphone currently on the market that uses Google Android's 2.0 operating system, is Motorola's second Android device and it's available only on Verizon Wireless's network. The device is turning out to be the hit phone of the season, thanks in large part to an expensive and extensive advertising campaign.

Motorola Droid

(Credit: Motorola)

Neither company is reporting sales figures. But analysts say sales look good. The companies have likely sold between 700,000 and 800,000 Droids since the device was launched in early November, according to equity analyst Mark Sue of RBC Capital Markets.

"Verizon's big marketing push for the Droid is strengthening as we close in on the holidays, and following our round of checks, we believe about 700,000 to 800,000 Droids have been sold, making our hurdle of 1 [million] Motorola Droids achievable for 4Q09 [ending December 31]," Sue said in his research note. "Motorola, for its part, has done a good job on the production side, and our survey of over 100 stores indicates strong demand, limited stock outs, and very few returns."

John Stratton, executive vice president and chief marketing officer for Verizon Wireless, said when the device was launched in late October that Verizon would be pouring in more money to market this device than any other phone it has ever sold. And now it looks like the money has been well spent. From advertisements that specifically highlight the Droid to ones that focus on Verizon's extensive and reliable 3G wireless network, it's clear that the company has AT&T and the Apple iPhone in its crosshairs.

AT&T has actually sued Verizon over the advertisements about its 3G wireless network coverage.

Some Verizon Wireless stores, especially in major cities, are selling between 100 and 200 Droids per week since the launch in early November, Sue added.

The success of the Droid is good news both for Motorola and for Verizon Wireless.

Motorola comeback
For Motorola, the Droid represents a chance to make a comeback in the cell phone market. The iconic American company that practically invented the cell phone market has struggled for the past several years now. After the runaway success of the ultra-thin Motorola Razr in 2004, the company has been unable to come up with a hit phone. And it has steadily lost market share to other competitors, such as Nokia, Samsung, and LG Electronics. It's also ceded market share in the fastest growing segment of the market, smartphones, to newcomers like Apple and Research In Motion.

Motorola's mobile devices CEO Sanjay Jha took a bold gamble more than a year ago when he decided to dedicate the company's resources to building phones using the Google Android operating system. The Droid and the Motorola Cliq, which is exclusively sold on T-Mobile USA's network, are the first two Motorola Android phones to hit the market.

But Jha said the Google Android operating system will not only be used in high-end devices like the Droid, but it will also be used to power less expensive phones, creating a new tier of smartphones that will eventually replace the basic feature phone category. Jha said the company will launch at least 20 more Android devices in 2010.

The success of the Droid is an important first step in getting Motorola back on track. But equity analyst Ittai Kidron of Oppenheimer said in a research note Monday that sales of the Motorola Cliq are falling short of expectations. Motorola is expected to sell 1.5 million smartphones in the fourth quarter. And two-thirds of them are expected to be Droids.

Kidron said the Cliq is not selling well mostly because of issues with battery life. Motorola is supposedly preparing a software patch to fix the problem. But he also noted that T-Mobile appears to be losing interest in the device and is not marketing it heavily.

But T-Mobile says that the Cliq is doing just fine. And the carrier said that it's committed to marketing the phone through the holiday season.

"The Motorola Cliq is very popular among our highly connected customers and is the only device with Motorola's innovative Motoblur solution," a company spokesman said. "T-Mobile is excited about the Motorola Cliq for the holidays and continues to showcase it prominently in T-Mobile retail stores and with recent holiday deals."

Verizon's iPhone alternative
The Droid's success is also important to Verizon Wireless, the nation's largest wireless operator in the country. It is the first device that offers a true challenge to Apple's iPhone, which runs exclusively in the U.S. on AT&T's network. While Verizon has a strong reputation for its network, consumers often complain about its lack of cool phones. Up to this point, Verizon has mainly competed against AT&T and the iPhone with RIM's BlackBerry devices. But RIM's touch-screen BlackBerry Storm, which was first introduced a year ago, was largely a disappointment.

The Droid offers Verizon customers an alternative to the iPhone on the Verizon network. This fact could help Verizon retain some consumers who were thinking of leaving for the iPhone. But it might also attract new customers who are either disappointed with AT&T's service or have heard bad things about the network.

Verizon Wireless representatives say the Droid is certainly an important part of the company's device line-up.

"We are pleased with sales over the holiday weekend," Brenda Raney, a spokeswoman for the carrier said in an e-mail. "This phone clearly fits the needs of a number of customers who are excited about its availability on the Verizon Wireless network."

But if analyst data is to be trusted, it is clear that the huge marketing budget for the Droid is at least part of the reason why the device has been so successful. The HTC Droid Eris, another Android device sold exclusively on Verizon's network, is not selling as well as the Droid, Sue said in his note. The HTC Droid Eris went on sale the same day the Droid was launched, but with much less fanfare.

Part of the problem is the fact that there are many Android devices coming to market. And the number will only increase next year. The lesson from the success of the Motorola Droid is clear. If device makers and carriers hope for break-out success, then they will have to spend big on marketing.

(Credit: Jacques Gene)

Chances are good that someone on your shopping list is pining for an iPhone for the holiday season. If you know of such a person, then we've got a surprise Black Friday deal for you. AT&T is offering refurbished 16GB iPhone 3Gs for $49 for new customers. That's the shipped price, and they're even waiving the activation fee, normally $35.

The refurbished units have the same warranty as new units so you don't have to worry about getting someone junk. As an owner of a refurbished 3G I can attest to the quality of the devices.

Of course a two-year contract with AT&T's iPhone plan is required, but anyone who's asking for an iPhone probably already knows this. Currently, the 16GB black is out of stock, but the 16GB in white is still available.

In its attempt to redress the imbalance created by the latest Verizon ads, AT&T has hurriedly cobbled together not just one Luke Wilson ad, but several.

Curiously, one ad features precisely the same strategy as that of the latest iPhone advertising: reminding those who might still be on the fence, on the phone, or even on the lam that you can't simultaneously enjoy voice and Web surfing on the Verizon 3G network--and hence on the Motorola Droid.

So here we have Luke Wilson, still looking a little peaky and dressed in a difficult brown. Behind Luke, we have a man trying to use two phones (by implication, Verizon phones) to perform a task the iPhone will manage alone.

Some might find it entertaining that as his friend attempts to download something on one of his Verizon phones, he complains that it's all going rather slowly. Others might find this both true and funny.

AT&T hasn't merely paid Wilson a little more than 3G to make this comparison. Someone, somewhere, has, perhaps even wisely, said, "We need a map to counter Verizon's map."

So the writers hit upon the idea of a two-part extravaganza (this already aired during Tuesday's "Dancing with the Stars" finale), in which Wilson produces postcards from all the different American towns that really do--no, really--have AT&T 3G coverage.

Wilson says his job is to set the record straight, with respect to Verizon's vicious besmirching of the AT&T network. He tries his best. He tells us that AT&T covers 97 percent of all Americans--yes, 300 million people.

The AT&T map also seems far more filled-in and far more colorful than it appears in Verizon spots, though one suspects that local word of mouth might be rather stronger, in this instance, than national advertising. If you live in Spokane, Wash., for example, and you know someone there who has spotty 3G service on a particular network, that is far more powerful an influencer than any number of Wilson's postcards or Verizon's barbs.

It's enlightening, however, to discover that Wilson once dated someone in Tulsa, Okla., and it didn't work out. Did she catch him simultaneously calling and Web surfing? Perhaps we will never know.

AT&T launched a prepaid wireless broadband service on Monday, following the lead of competitor Verizon Wireless.

Pricing for the new AT&T DataConnect Pass plans are the same as what Verizon Wireless is charging. Customers can pay $15 for a daily pass with a data usage cap of 75 megabytes. A weekly plan costs $30 and allows for 250MB of data usage. And the monthly plan is $50 and offers 500MB of usage.

While AT&T and Verizon Wireless have offered prepaid cell phone service for years, up until now the companies have required customers sign a contract for their wireless broadband services. Wireless broadband services allow users to connect their laptops to the Internet via the carriers 3G wireless network. These services have mostly been targeted at business users.

As these big phone companies move mobile broadband services into the mainstream, they are expanding their payment options to attract more consumers. But for many consumers in this tough economic environment, taking on a new contract and monthly service fee is simply too much. As such, the prepaid model is now moving to these services as well.

Prepaid niche players, such as Leap Wireless and Virgin Mobile, have recognized the demand for prepaid wireless broadband services, and they are already selling services to address the market. Leap Wireless offers an unlimited usage plan for $40 a month. And Virgin Mobile, which is now owned by Sprint, offers a $60 plan that has a usage cap of 1 gigabyte for a month.

Will these new prepaid offerings be enough to entice consumers to sign up for 3G wireless broadband service? That's a question yet to be answered. But AT&T, especially, should be careful what it wishes for. The company's 3G wireless network is already overburdened with iPhone users' heavy wireless data usage.

If you are considering buying a new BlackBerry, Android phone, or Netbook from Verizon Wireless, you better make sure you won't want to break your contract early, as the penalty for ditching your service before the end of the contract has just gotten a lot steeper.

But what does Verizon's move to increase early-termination fees mean for the rest of the wireless industry? That's a good question.

Verizon Wireless recently doubled its early-termination fee for what it calls 'advanced devices.'

(Credit: Verizon Wireless )

Early-termination fees are not new to the wireless industry. For as long as wireless operators have been selling and subsidizing cell phones, they've required customers to sign contracts. And they've penalized them for canceling their contracts early.

The phone companies say they must charge a fee to recover the cost if a customer quits his or her service early. These fees have angered many customers. Several class action lawsuits have been filed against cell phone carriers and some customers have won. Congress and the Federal Communications Commission have challenged the industry on this practice.

While it's very unlikely these fees will ever go away, as of mid-2008, all four of the major wireless carriers in the U.S. have been prorating their early-termination fees, so that customers near their end of their contracts don't pay the same fee as those just starting their contracts.

But now Verizon Wireless has shocked consumers and the industry by doubling its early-termination fee. Verizon representatives say it only makes sense that Verizon would raise this fee since it is subsidizing far more of the cost of sophisticated devices, such as smartphones.

In an effort to help consumers better understand these changes and to understand how other national wireless operators stack up, CNET has put together this FAQ.

How much is Verizon's new early-termination fee?
The new fee has been increased to $350 from $175.

Does this fee apply to all Verizon phones?
No, it only applies to contracts associated with the purchase of what Verizon calls an advanced device, such as a smartphone or Netbook at a reduced price. This change only applies to new contracts that started on or after November 15. For customers who signed a contract before November 15, the old $175 early-termination fee applies when they choose to end their contract early. This means that new Droid customers who bought their phones the first weekend it launched will not be required to pay the $350 ETF if they terminate service early.

Verizon and the three other major phone companies have been prorating their early-termination fees. Will this fee be prorated?
Yes, Verizon will continue to prorate the early-termination fee over the life of the contract. The rate will decrease by $10 each month of the contract. Verizon's previous prorate rate was $5 per month.

What about for non-smartphones or feature phones that run on Verizon's network? What is the early-termination fee for those devices?
The fee for non-smartphones will remain the same, $175. And the rate will decline by $5 a month during the contract.

Why is Verizon changing its policy now? It seems like it is just being stingy.
The company says that the $175 early-termination fee was set long before people were walking around with expensive, sophisticated, mini-computers in their pockets. The new early-termination fee more fairly reflects higher costs associated with advanced devices due to their more complex chip sets, microprocessors, and licensed software that perform more functions than other phones, the company claims.

Is there any way to avoid an early-termination fee or contract?
Yes. First, early-termination fees only apply if you cancel your service before the contract ends. But you also don't need to sign a contract if you'd rather not. But without a contract, customers will pay full retail price for the devices.

Verizon says it offers the option to purchase all its phones with either a two-year contract, one-year contract, or month to month, which requires people to pay full retail price for the phone. For example, the new BlackBerry Storm 2 is $179 with a two-year contract. But the phone would cost $539 without a contract. The new Motorola Droid is $199 after a rebate with a two-year contract. And it is $559 without a contract at the full retail price.

Verizon also offers prepaid wireless phones and service, which allow customers to buy their phones and add minutes of use in advance.

What about other national wireless operators? Have any of them announced they are following Verizon's lead?
So far neither AT&T, nor Sprint Nextel, nor T-Mobile USA have said they plan to raise the early-termination fees on their smartphone devices. An AT&T spokesman said he couldn't speculate on what the company might do in the future, but for now, the company is sticking with its current fee.

T-Mobile USA's spokesman didn't elaborate, but simply said the company has no plans to raise its rate right now.

Sprint Nextel also said it wouldn't raise its early-termination fees, and it criticized Verizon for doing it.

"We have no intention of matching Verizon's new ETF," said Sprint spokesman John Taylor. "We think the decision to double the early-termination fee just on smartphones doesn't make much sense. Why is Verizon trying to disincentive people from buying smartphones? We want people buying smartphones and using more data."

How much do these other national wireless operators charge for their early-termination fees?
Sprint 's early-termination fee is $200. The company reduces that fee beginning in the fifth month of the contract. Then the fee goes down $10 a month until it reaches $50.

AT&T's early-termination fee is $175 and it decreases by $5 for each month of your contract.

T-Mobile USA's early-termination fee schedule is a little more complicated. As of June 28, customers with a one-year or two-year contract with T-Mobile will see their early-termination fee drop from $200 to $100 if they end their contract with 91 to 180 days remaining on their agreement. If they end a contract with fewer than 91 days left on it, they will pay a termination of fee of $50. For customers who terminate their service in the last 30 days of their contract they will either pay the $50 fee or their standard monthly charge, depending on which one is cheaper.

Do these other carriers offer no-contract options?
Sprint allows some of its phones to be purchased for full retail price without a contract. However, the Palm Pre, which went on sale in June, requires a two-year data plan.

Sprint's prepaid brands Boost Mobile and Virgin Mobile USA also offer customers prepaid options that don't require a contract. And phones are purchased at full retail prices.

AT&T allows some phones to be purchased at full price without a contract, but phones such as the Apple iPhone must be purchased with a two-year contract and a $30 a month data plan. AT&T also offers prepaid phones.

T-Mobile USA also offers customers who don't want a contract different options, including T-Mobile Prepaid phones and plans, FlexPay, and month-to-month services including its new Even More plans.

Its Even More Plus plan allows customers to purchase any phone in T-Mobile's device lineup and sign up for a month-to-month rate plan without signing a contract. Customers pay full retail price for the phones, but have the option to purchase their phones using an Equipment Installment Plan over time until the phone is paid off.

For example, a customer purchasing the Google Android myTouch smartphone would pay $150 for the phone with a two-year contract. But with the Even More Plus plan, the customer would pay $400 for the phone with no contract. If the customer wanted to use the Equipment Installment Plan, he or she would pay $20 a month for the phone over 20 months.