Regulator smacks Verizon for blocking mobile apps

@CNNMoneyTech July 31, 2012: 6:57 PM ET

NEW YORK (CNNMoney) -- The Federal Communications Commission on Tuesday rapped Verizon Wireless on the knuckles for maneuvering to block its customers from accessing certain mobile apps.

Verizon (VZ, Fortune 500) agreed to pay $1.25 million to end the agency's probe of Verizon's efforts to prevent its customers from getting hold of so-called "tethering" apps.

Tethering is the practice of linking a mobile phone to another device, such as a laptop computer, to give the device Internet access through the phone's cellular network.

Both Verizon and its biggest rival, AT&T (T, Fortune 500), used to charge customers extra monthly fees for tethering devices to their phones, and both viewed the use of third-party tethering apps -- which let customers duck the added fees -- as a violation of their service terms.

The FCC began investigating Verizon after the company successfully demanded that Google (GOOG, Fortune 500) stop selling tethering apps to Verizon customers in its Android app store.

That ran afoul of the licensing rules for Verizon's broadcast spectrum, according to the FCC, which requires that licensees of that spectrum "allow customers to freely use the devices and applications of their choosing."

Here's the catch: The blocking of tethering apps went way behind just Verizon and the Android store. Apple (AAPL, Fortune 500) doesn't allow tethering apps in its iTunes store at all, and AT&T customers have reported having no access to tethering apps through Google's Android store.

Last year, AT&T forced its customers who were using third-party tethering to make a choice: either stop tethering altogether, or be signed up automatically for an AT&T tethering package.

So why did only Verizon get paddled?

Verizon's spectrum holdings include a chunk called "C Block" spectrum, which the FCC singled out in its enforcement action. The rules governing those bands are especially tight, according to FCC officials. Carriers using other blocks of spectrum, such as AT&T, are not subject to the same openness obligations.

"This case was the first of its kind in enforcing the pro-consumer open access obligations of the C Block rules," P. Michele Ellison, chief of the Enforcement Bureau, said in a written statement. "It underscores the agency's commitment to guarantee consumers the benefits of an open wireless broadband platform."

The FCC's action is an important symbolic blow, but its real-world effects will be fairly limited. Both Verizon and AT&T recently moved to new, metered billing plans that do away with their tethering restrictions.

Verizon scrapped its unlimited data plans more than a year ago, and even customers who are currently enjoying legacy plans will be required to switch to a new, tiered plan when they upgrade to a new phone. The tiered plans allow users to share a single allotment of data among multiple devices.

These changes to Verizon's revenue model mean that it no longer minds when its customers use third-party tethering apps. AT&T has followed Verizon down the shared-data path and also lifted its tethering restrictions.

That leaves the FCC playing whack-a-mole, levying penalties long after violations actually occur.

The FCC says it's serious about heading off these kinds of things. "Compliance with FCC obligations is not optional," FCC Chairman Julius Genachowski said.

Verizon responded to a request for comment by stating that it "has always allowed its customers to use the lawful applications of their choice on its networks." To top of page

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