Wireless

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.

AT&T has lost the first battle in a legal war against Verizon Wireless to force the company to stop showing advertisements that compare its 3G wireless network coverage with Verizon's coverage.

A federal judge in Atlanta on Wednesday declined to grant AT&T a temporary restraining order that would force Verizon to stop showing the ads.

(Credit: Verizon Wireless)

AT&T filed a lawsuit in federal district court in Atlanta earlier this month 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.

AT&T had asked the court to keep Verizon from running the advertisements until the matter is settled in court. But the judge on Wednesday declined this request.

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.

AT&T doesn't argue that the maps are incorrect in terms of showing its 3G coverage. But it says that Verizon is misleading customers by implying that they cannot use their phones or access the mobile Web when they aren't in 3G coverage areas. The reality is that customers can make phone calls and access the Internet from their phones using the company's slower EDGE or GPR networks.

Verizon argues its advertisements are simply pointing out the fact that AT&T has not invested enough in upgrading its network to handle increased traffic from smartphone devices, such as the Apple iPhone.

Verizon has modified its ads slightly to indicate that the map applies only to 3G coverage and not regular 2.5G service, which is adequate for making voice calls and connecting to the wireless Internet at slower speeds.

Verizon said in its 53-page rebuttal to the court earlier this week that AT&T is not suing Verizon because the claims are false, but because it doesn't want to face the truth about its network.

AT&T said it plans to press on with its case despite the fact that it lost the latest legal battle.

"While we are disappointed with the court's decision on our request for a temporary restraining order, we still feel strongly that Verizon's ads mislead consumers into thinking that AT&T doesn't offer wireless service in large portions of the country, which is clearly not the case," Mark Siegel, a spokesman for AT&T, said in an e-mail. "We look forward to presenting our case to the court in the near future."

Verizon Wireless said AT&T is suing the wireless operator not because its recent ads are untrue, but because the truth hurts.

AT&T earlier this month filed a lawsuit claiming that Verizon is misleading customers by suggesting that AT&T subscribers cannot access wireless Internet services throughout its network. In the opening paragraph of its legal rebuttal to the suit, Verizon very plainly surmised its argument: "AT&T did not file this lawsuit because Verizon's 'There's A Map For That' advertisements are untrue; AT&T sued because Verizon's ads are true and the truth hurts."

The rebuttal filed on Monday in a Georgia district court was in response to two complaints AT&T filed with the court asking that the Verizon advertisements be pulled from the airwaves. AT&T has called the claims in the advertisement "false" and "misleading." And the company claims it has caused "irreparable harm" to AT&T's wireless business.

Verizon representatives have responded to the press on these claims. But now the company has filed its official response to the court in a 53-page document that lays out the company's defense.

Verizon argues its advertisements are simply pointing out the fact that AT&T has not invested enough in upgrading its network to handle the tidal wave of data traffic experienced by the release of the Apple iPhone, which AT&T sells exclusively in the U.S. Verizon says that it is simply highlighting what many AT&T iPhone customers have already recognized.

"In the final analysis," Verizon said in its filing. "AT&T seeks emergency relief because Verizon's side-by-side, apples-to-apples comparison of its own 3G coverage with AT&T's confirms what the marketplace has been saying for months: AT&T failed to invest adequately in the necessary infrastructure to expand its 3G coverage to support its growth in smartphone business, and the usefulness of its service to smartphone users has suffered accordingly. AT&T may not like the message that the ads send, but this Court should reject its efforts to silence the messenger."

Verizon's initial advertisement, which began airing on TV November 3, shows two maps with red and white splotches indicating 3G wireless coverage. The white area indicates no 3G coverage, and the red indicates areas where 3G service is available. In the ad, Verizon shows an AT&T map that has lots of white spaces, whereas the Verizon map is almost covered in red.

AT&T claims the ad is misleading because it implies that AT&T customers can't use their phones and cannot access the mobile Internet in areas where the carrier does not offer 3G wireless coverage. The truth is that AT&T customers can use their phones and they are able to access the wireless Net using the company's slower EDGE network.

Verizon has modified its ad slightly to indicate that the map applies only to 3G coverage and not regular 2.5G service, which is adequate for making voice calls and connecting to the wireless Internet at slower speeds.

In its filing, Verizon argues that its ads refer explicitly and solely to AT&T's 3G network coverage. And therefore the advertisements should be evaluated on that basis. Verizon claims that it is a fact that its 3G wireless network covers five times more geographic area than AT&T's 3G network. And because this is an undisputable fact, the company should be able to use this in its advertisements.

Verizon pointed to AT&T's own advertisement claims that it operates the nation's fastest 3G wireless network.

"Despite the far smaller size of its 3G network, AT&T has spent tens of millions of dollars making its 3G network, which it dubs the "Nation's Fastest 3G Network," the centerpiece of its national advertising since at least the summer of 2008," Verizon argued. "AT&T now is attempting to silence Verizon's ads that include maps graphically depicting the geographic reach of AT&T's 3G network as compared to Verizon's own 3G network because AT&T does not like the truthful picture painted by that comparison."

But AT&T still asserts that the advertisements Verizon is running are misleading.

"We filed the lawsuit because Verizon's ads mislead customers into thinking that AT&T does not offer wireless service in the vast majority of the country," said Mark Siegel, a spokesman for AT&T. "We look forward to presenting our case."

AT&T wants to set the record straight about its 3G wireless coverage.

The company has placed a statement on its Web site defending itself against critical advertisements Verizon Wireless has been running that highlight areas of the country where AT&T lacks 3G coverage.

"We typically don't respond to competitors' advertising," AT&T said in its statement. "However, some recent ads from Verizon are so blatantly false and misleading that we want to set the record straight about AT&T's wireless-data coverage."

Verizon's initial advertisement, which began airing on TV a couple of weeks ago, mocks Apple's "there's an app for that" slogan. Instead, Verizon's advertisement says "there's a map for that."

The ad campaign shows two maps with red-and-white splotches. The white area indicates no 3G coverage, and the red indicates areas where 3G service is available. In the ad, Verizon shows an AT&T map that has lots of white spaces, whereas the Verizon map is almost covered in red.

AT&T has filed a lawsuit claiming that the ad is misleading because it implies that AT&T customers can't use their phones in areas where the carrier does not offer 3G wireless coverage.

Verizon has modified its ad slightly to indicate that the map applies only to 3G coverage and not regular 2.5G service, which is adequate for making voice calls and connecting to the wireless Internet at slower speeds.

But AT&T is still not happy with the adjustment, and the company wants Verizon to stop running the ads or to alter them further.

What's more, AT&T has added a complaint about a newer Verizon commercial, which characterizes the iPhone as a new arrival to the Isles of Misfit Toys, to the lawsuit. The Isles of Misfit Toys refers to an island where broken toys and misfits would go in the popular Rudolph the Red Nosed Reindeer Christmas special.

In the ad, a toy elephant asks the iPhone what it's doing with the misfits, since it has so many cool apps. The iPhone doesn't really answer, instead flashing the AT&T map, which indicates the spotty 3G coverage. All the toys seem to understand.

AT&T hasn't launched ads of its own to combat the Verizon commercials. But the company's statement on its Web site is its attempt to refute many of Verizon's claims. For example, AT&T points out that its data coverage reaches 303 million people, or 97 percent of the U.S. population, using a mix of wireless technologies. Of course, AT&T admits that not all of these customers are able to access the faster 3G network; only 75 percent of the U.S. population can get access to AT&T's 3G wireless network.

AT&T also emphasizes in its statement that it has twice as many smartphone customers as Verizon. And it says it offers the most popular smarpthone in the industry, the Apple iPhone. AT&T says it offers more mobile applications than its competitors. And finally, it points out that it has the fastest 3G wireless network in the nation, a claim some customers who use the service may question.

There's no question that Verizon's ads are hard-hitting. But it's difficult to say whether they have affected consumers' purchase decisions. Anecdotally, it looks like the ads might have helped Verizon win a few customers. One Motorola Droid customer I interviewed at a Verizon store in New York this week said he decided not to buy the iPhone because of the Verizon ads he saw on TV.

"I was considering the iPhone," said Henry Goodison, of the Bronx borough. "But I saw a commercial about AT&T's 3G coverage. It said, 'Here is AT&T's 3G coverage, and here is ours.' And I thought it would be better to have Verizon, if I travel to another state, where AT&T doesn't have 3G coverage."

Mobile chip maker Qualcomm said Thursday that it has started providing new wireless chipsets that combine 3G and 4G wireless technology to help carriers transition to the next generation of wireless technology.

The company said Huawei Technologies, LG Electronics Novatel Wireless, Sierra Wireless, and ZTE are among the first mobile-device manufacturers to test the new chips.

Qualcomm said that devices that use the new chips could be available in commercial products starting in the second half of 2010.

The new chips will allow wireless phones and other portable devices to switch between a 4G wireless network using LTE, or long-term evolution, technology and HSPA Plus, a 3G wireless technology.

This is important because many carriers around the world plan to upgrade their networks to 4G using LTE. But these networks won't be ubiquitous overnight, and consumers will not be able to get 4G signals everywhere and will need to roam on 3G networks so they can have coverage almost everywhere. This means that devices will need chips that allow them to switch between networks.

HSPA Plus is the next iteration of 3G wireless technology that can provide download speeds of up to 21 megabits per second. Many wireless operators, including Telstra of Australia and AT&T in the U.S., are upgrading their networks now. These carriers eventually plan to upgrade their networks to LTE.

Qualcomm also announced it is providing a new set of mobile-device chips to manufacturers for testing that will add more robust multimedia features to new smartphones.

This new chipset family supports high-definition video recording and playback, enhanced graphics, and an overall chip design that is optimized for a highly responsive Web experience. Qualcomm expects phone makers to have devices that use the new MSM7x30 family of chipsets commercially available by the end of 2010.

The new chipsets will allow phones to operate on the most advanced 3G wireless networks, such as those running the latest generation of HSPA and EV-DO (Evolution Data Optimized).

The chips will support handsets that use the Android, Brew, Symbian, and Windows Mobile operating systems. Some of the features that the new chips could enable include a 12-megapixel camera, 720p video recording, and 3D gaming.

Google said Tuesday it will subsidize free wireless network access in 47 airports from now until January 15--and indefinitely in the airports of Burbank, Calif., and Seattle.

The promotion, in cooperation with Boingo Wireless, Advanced Wireless Group, and Airport Marketing Income, is the latest effort to use free Wi-Fi to boost a brand. Among others: Yahoo is sponsoring Wi-Fi in Times Square in New York, and Google is sponsoring Internet access on Virgin America flights during the holidays.

Among the larger participating airports are those in Houston, Boston, Miami, Las Vegas, Nashville, San Diego, Baltimore, and St. Louis. A full list of the airports is at Google's free holiday Wi-Fi site.

The move, though not cheap, is probably smart. Plenty of business travelers have a laptop and time to kill, and today's consumers are increasingly likely to be equipped with laptops, iPod Touches, or other devices that can use wireless Internet access. Google is spending some money for an opportunity to give a lot of people the warm fuzzies when they encounter the Google brand.

And in the big picture, Google gets to show people what the world might be like if there were more high-speed wireless Internet access--something the company has been aggressively lobbying for in Washington, D.C. Many people are used to wireless networking in their homes, but it's a different matter on the road.

There are downsides, though, too. Having been to dozens of conferences where the wireless Net access collapses as soon as the keynote speech begins, I'm acutely aware that providing large-scale wireless Internet access is technically demanding--and people get unhappy when a promised benefit evaporates. And public, anonymous places such as airports and urban population centers are great spots for hackers to launch main-in-the-middle attacks by offering "Free Wi-Fi," so exercise caution when logging on to these networks.

(Credit: Marguerite Reardon/CNET)

Early indications suggest that the Motorola Droid could be the breakout hit phone of the holiday season.

You might not have guessed it from the lack of long lines this past weekend, but analysts believe that Verizon is seeing strong sales of the Motorola Droid. The device went on sale on Friday across the country. And unlike other big launches for phones such as Apple's iPhone or even the Palm Pre, retailers had plenty of devices in stock, and customers didn't have to stand in long lines to get their phones.

Neither Verizon nor Motorola is providing exact sales figures, but David Samberg, a spokesman for Verizon, said sales were very strong over the weekend, with a steady stream of customers Friday, Saturday, and Sunday. Store representatives in Manhattan confirmed this, with one sales associate telling me on Monday afternoon that there had been a steady stream of customers in the store all weekend and even through Monday.

Analysts also believe that the phone is selling well. Mark McKechnie, an analyst at Broadpoint AmTech, who covers Motorola, checked with a small sample of Verizon retailers around the country and said in a research note on Monday that he is encouraged by the anecdotal reports.

"While it is early, and the sample size is small, we are encouraged by our findings," he said.

McKechnie estimates that Verizon had about 200,000 phones in retail channels for the launch, with many stores in larger metropolitan markets, such as New York and Los Angeles, getting about 300 devices. Stores in cities such as San Francisco got more than a 100 devices, and retailers in smaller cities got between 25 and 40 devices each.

Locations were stocked well enough that there were no reports of any stores that were completely sold out. An employee at the Verizon Wireless store on West 34th Street in New York said his store had gotten about 500 Motorola Droids and HTC Android Eris phones for Friday. The store didn't sell out of either phone, but much of its stock is now gone.

That said, the store employee, who didn't want his name used, said his store did sell out of the $29.99 Droid docking station, which charges the device. As of Monday, the company still hadn't restocked its supply of that accessory.

McKechnie reported in his research note that the Droid outsold the HTC Eris, which also went on sale Friday. And checks with Verizon stores in Manhattan back up this claim. While there were plenty of customers looking at the HTC Android Eris in the Verizon stores I visited Monday afternoon, most people said they planned to buy the Droid. The main reasons were the device's higher-resolution screen, better camera, faster processor, and latest Android software.

Still, plenty of customers noted that they preferred the look of the HTC Eris over that of the Droid.

Verizon's marketing may also be paying off. Verizon is spending more money on the Droid advertising campaign than it has on any other device launch. At least one customer at the West 34th Street said Verizon's advertisements had convinced him to get the Droid instead of Apple's iPhone, which runs on AT&T's network.

"I was considering the iPhone," said Henry Goodison of the Bronx borough. "But I saw a commercial about AT&T's 3G coverage. It said, 'Here is AT&T's 3G coverage, and here is ours.' And I thought it would be better to have Verizon, if I travel to another state, where AT&T doesn't have 3G coverage."

AT&T is actually suing Verizon Wireless over this commercial, asserting that Verizon's advertisement is misleading consumers. Verizon dismisses this claim as untrue.

The new Verizon Droid, like many a high-profile smartphone just coming onto the market, has been hailed by some as a potential--you know what's coming--iPhone killer. (Chronicling the very first Droid sales in Manhattan the other day, CNET's Maggie Reardon observed that the gadget may actually turn out to be more of a BlackBerry killer.)

But does Verizon Wireless want to deliver a knockout to the iPhone? There's long been speculation that the carrier would sooner or later be offering the Apple smartphone, which since its launch has been solely in the hands of AT&T in the United States. (In some other countries, Apple has deals with multiple carriers.)

The latest posting to suggest an imminent rapprochement between Verizon and the iPhone comes from the AppleInsider blog, which on Friday said that it's gotten wind of Apple having contracted to build a Verizon iPhone that would debut in the third quarter of 2010.

More broadly, according to AppleInsider, the new "hybrid iPhone" will work on both the GSM/UMTS and the CDMA systems, meaning that Apple will be able "to sell a single global handset to all carriers, and specifically to Verizon Wireless in the US." In the U.S., carriers AT&T and T-Mobile are in the GSM/UMTS camp, while Verizon Wireless and Sprint Nextel are in the CDMA camp. (For more on that topic, see "Going abroad? Don't be afraid to pack the cell phone.")

The "world mode" phone reportedly would have a 2.8-inch screen--that is, roughly 20 percent smaller than the screen on the existing iPhone.

AppleInsider cites a report from the investment research firm OTR Global, which in turn cites "sources in the Taiwan handset supply chain." According to AppleInsider:

The report by OTR Global, provided to AppleInsider by an industry analyst, says the new "world mode" iPhone will gain compatibility with CDMA2000 networks (including Verizon's US network, which is currently incompatible with existing iPhone models) while retaining compatibility with UMTS 3G networks globally using a new hybrid chip produced by Qualcomm.

According to OTR's sources, Asustek subsidiary Pegatron will build the new hybrid phone devices for Apple rather than Hon Hai, the iPhone's current manufacturer. This decision was reportedly made to prevent the company from being "constrained by a single-source assembler."

In the third quarter of 2009, Apple shipped 7.4 million iPhones worldwide, raising its global market share slightly to 17 percent, according to market researcher IDC.

Apple, Verizon, and OTR were not immediately available for comment.

See also:
• Inside the Motorola Droid, an iPhone likeness
• Slow start for the Motorola Droid?
• Survey shows iPhone threatens BlackBerry; Palm holds steady