FCC's Wheeler calls Verizon's LTE 'network optimization' policy 'disturbing'

FCC Chairman Tom Wheeler told Verizon Wireless (NYSE: VZ) CEO Dan Mead he is "deeply troubled" by the carrier's decision to start slowing down the speeds of some customers who still have legacy unlimited data plans and who cross into the top 5 percent of heavy data users on Verizon's LTE network when they are on high-traffic cell sites.

Verizon announced the change last week to its "network optimization" policy, and the change is expected to go into effect in the fourth quarter. The policy had previously applied to customers on grandfathered unlimited 3G data plans.

"'Reasonable network management' concerns the technical management of your network; it is not a loophole designed to enhance your revenue streams," Wheeler wrote in his letter to Mead dated Wednesday. "It is disturbing to me that Verizon Wireless would base its 'network management' on distinctions among its customers' data plans, rather than on network architecture or technology."

Wheeler noted that the FCC defined a network management practice to be reasonable "if it is appropriate and tailored to achieving a legitimate network management purpose, taking into account the particular network architecture and technology of the broadband Internet access service." That could include ensuring network security and integrity; addressing traffic that is unwanted by consumers, including parental controls; and reducing or mitigating the effects of congestion on the network.

"I know of no past Commission statement that would treat as 'reasonable network management' a decision to slow traffic to a user who has paid, after all, for 'unlimited" service,'" Wheeler wrote.

The FCC chairman asked Mead and Verizon to answer why Verizon is "treating customers differently based on the type of data plan to which they subscribe, rather than network architecture or technological factors." In particular, Wheeler wrote that he wants to know why Verizon suggested to customers with unlimited data plans that they could switch to usage-based data plans to avoid any issues.

Wheeler also inquired why Verizon is extending the 3G policy to its more efficient LTE network. He also wants to know how Verizon justifies the policy as being "consistent with its continuing obligations under the 700 MHz C Block open platform rules, under which Verizon Wireless may not deny, limit, or restrict the ability of end users to download and utilize applications of their choosing on the C Block networks." Wheeler also wants to know how Verizon's move can be justified under the FCC's 2010 net neutrality rules, including the transparency rule that remains in effect.

"We will officially respond to the Chairman's letter once we have received and reviewed it," Verizon said in a statement. "However, what we announced last week was a highly targeted and very limited network optimization effort, only targeting cell sites experiencing high demand. The purpose is to ensure there is capacity for everyone in those limited circumstances, and that high users don't limit capacity for others."

Verizon has said to cross into the top 5 percent of LTE data users, customers will need to use roughly 4.7 GB of data on a device during a billing cycle. However, that threshold is likely to go up over time as more customers use more data via LTE.

If customers do cross that threshold, they will be marked as a customer that can have their speeds slowed for the rest of the customer's billing cycle and next billing cycle. However, that will only happen when a marked customer is connected to a cell site that is "highly utilized." In those cases, marked customers using high-bandwidth applications like video streaming could have their speeds slowed.

Verizon emphasized last week that the optimization policy is applicable only to customers with grandfathered unlimited data plans and who have fulfilled their minimum contract, and not customers on usage-based plans or More Everything shared data plans. Verizon introduced usage-based pricing in July 2011.

Verizon recently said 55 percent of its postpaid customers are on More Everything shared data plans, and there is presumably a large chunk of the remaining subscriber base that is on usage-based pricing but not a shared data plan. Still, there are likely millions of customers with unlimited data plans still in Verizon's customer base.

For more:
- see this FCC letter (PDF)
- see this WSJ article (sub. req.)

Related Articles:
Verizon expands 'network optimization' policy to LTE customers with unlimited data plans
Verizon's Q2 subscriber growth driven largely by 1.15M postpaid tablet additions
Verizon resolves massive billing system outage, rolls out XLTE to 300-plus markets
Verizon fine-tunes video optimization based on networks, devices and plans
Verizon's network optimization policy is about pricing as much as the network 
Verizon begins limiting bandwidth of heavy 3G smartphone data users