Much of the money given to General Motors and Chrysler to prevent them from collapsing will never be recovered, according to a report released Wednesday by the Congressional Oversight Panel.
"Although taxpayers may recover some portion of their investment in Chrysler and GM, it is unlikely they will recover the entire amount," the report says, citing estimates from the Treasury Department and Congressional Budget Office.
The oversight panel, headed by Harvard University professor Elizabeth Warren, was created by Congress last year to oversee the $700 billion Troubled Asset Relief Program.
GM and Chrysler were each teetering on collapse this spring when the Obama administration effectively forced both automakers into bankruptcy, lending them enough to survive. Both have shed billions of dollars in debt and are now rebuilding.
All told, since late last year, the government has provided or pledged the two companies, icons of American manufacturing, more than $60 billion in aid.
Treasury estimates that about $23 billion of initial loans to the two companies "will be subject to ‘much lower recoveries,’ " the panel’s report says. In particular, $5.4 billion of loans to Chrysler are "highly unlikely to be recovered," it continued.
"The initial loans made last fall as the industry was imploding and when no restructuring plan was in place are not likely to be repaid in full," Warren said during a conference call with reporters.
How much of the remaining funds will be recovered is impossible to predict, Warren said, because the loans have been converted to stock.
"The American taxpayer is now an equity investor in Chrysler and GM," Warren said. "And the return on its investment depends on what those companies are worth in a year or two."
The government owns 10% of Chrysler and 61% of GM.
Rep. Jeb Hensarling, R-Texas, who is the only member of Congress on the oversight panel, declined to sign the final report. In a statement, Hensarling cited his objections to the use of TARP funds to help the auto industry and the structured bankruptcies of the two automakers.
"By making such an unprecedented investment in Chrysler and GM the Administration by definition chose not to assist other Americans that are in need," Hensarling said in a statement. "The government clearly picked winners and losers."
‘Somewhat mixed’ record
On the whole, the report said Treasury had a "somewhat mixed" record in how it handled the two bailouts.
Officials acted "aggressively" and demanded concessions from the companies. Yet they were not fully clear with the public about "the decisions to enter into the transactions in the first place."
The report made several recommendations. One was that the government’s shares in GM and Chrysler should be placed in an independently managed trust to prevent any potential political entanglements, the report said. That would be preferable to simply holding the shares as a "passive" investor.
Warren said the question of whether TARP gave Treasury authority to help the auto industry "is the subject of considerable debate," the report said.
Treasury should provide a detailed legal analysis of this use of TARP funds, Warren said. Still, she said, there is unlikely to be a serious legal challenge to Treasury’s actions in this case.
One of the signature proposals in the Obama administration’s efforts to reshape the regulatory framework for banks has been slowed as supporters regroup in the midst of mounting opposition.
The creation of a new consumer protection agency to regulate mortgages, credit cards and credit insurance was never going to be easy. But the forces trying to stop or water down the proposal have grown beyond banks and financial sector lobbyists.
Federal Reserve Chairman Ben Bernanke, testifying Wednesday before the Senate Banking Committee, argued strongly that the central bank should keep its consumer protection powers, which would otherwise move to the new agency.
Bernanke also suggested that Congress take steps to elevate consumer protection to a more prominent role at the Fed.
Fed leaders have been making their case behind the scenes for weeks. Bernanke’s comments represented the Fed’s most high-profile public opposition to a stand-alone consumer agency.
The push-back has prompted top Democrats supporting the consumer agency to change strategies.
House Financial Services Chairman Barney Frank, D-Mass., said he would delay pushing for a vote on the consumer agency bill until September, in part to give top Democrats more time to win more support in Congress and outside of Washington.
"This became somewhat more controversial than I expected," Frank said Wednesday at a press conference with consumer advocates. "I believe the votes were there, on the part of the Democrats, to put it through. Even a few Republicans or two had talked about it … but this is worthy of an actual debate."
How it would work: The Consumer Financial Protection Agency would be run by a presidentially-appointed, five member board and would wield broad power, including the ability to examine and subpoena information from banks.
A main task of the new agency would be to create simple templates for basic financial products, such as fixed-rate, 30-year mortgages. All banks and mortgage brokers would have to offer the simpler product and use an agency-approved standard, one-page application. More complicated mortgages would have to spell out how they differ from the simpler "plain-vanilla" financial product.
The agency would also have the power to ban products deemed deceptive. That has prompted critics to warn that the new agency could stifle innovation in financial products and make credit less available for consumers.
The debate: The financial services sector has come out swinging against the proposed new agency.
The head of the Financial Services Roundtable, a powerful lobbying group representing Wall Street, has talked publicly about efforts to kill the proposal. On Wednesday, the U.S. Chamber of Commerce issued a press release praising the delay of the "flawed" proposal.
Lawmakers opposed to the plan are also speaking out.
"I think this is a tremendous overreach and very disturbing to listen to," said Sen. Bob Corker, R-Tenn., last week during a hearing on the new consumer panel. "And I hope that as [the bill goes forward], we will be able to work together to do something that is not an overreach, where the federal government is telling citizens the types of products they should and shouldn’t buy and telling companies what they should and shouldn’t offer life insurance rates."
On the other side of the debate, the Treasury Department joined in the public campaign Wednesday. Deputy Treasury Secretary Neal Wolin pressed for the new agency at a meeting of the American Bankers Association, which is strongly opposed to the idea.
"The agency will not limit consumers’ ability to choose the products they want," Wolin said. "Quite the contrary, our proposed legislation explicitly charges the CFPA with preventing abusive and unfair practices and, at the same time, promoting efficiency, innovation and consumer access to financial services."
Fed pushback: On Wednesday, Bernanke added his voice to the list of those trying to reshape the proposal.
While agreeing the Fed was not "aggressive enough to address consumer issues earlier in this decade," Bernanke defended the Fed’s role as an advocate for consumers.
"We have the capacity, we have the ability [and] we have the expertise … to be effective when we are working in that direction," Bernanke said.
He recommended that Congress rewrite the Federal Reserve Act to elevate consumer protection as a "major goal" of the Fed, equal in importance to assuring full employment and price stability.
The Fed chairman could report regularly on how they’re monitoring consumer protection — similar to monetary policy updates, Bernanke said. He suggested Congress could hold hearings to question how the Fed is addressing consumer protection.
Bernanke also suggested beefing up the Fed’s Consumer Advisory Council, giving the group more power and requiring it to meet more often. Currently, the 30-member council comprises industry and consumer representatives and meets three times a year. Yet, its authority is limited to advising the Federal Reserve Board.
"I think there are steps that could strengthen the institutional framework that would address your legitimate concern about the long-term commitment of the Fed to this particular area," Bernanke said.
Campaign continues: While Bernanke testified, on the opposite side of the Capitol, House financial leaders, including Frank and Rep. Maxine Waters, D-Calif., held a press conference with a new group organized last month to push for the new consumer agency.
Americans for Financial Reform is comprised of union and consumer advocate groups. It has also signed on a few financial firms to its cause.
The coalition was the brainchild of consumer groups disappointed with their failure to convince Congress to pass a measure that would have allowed judges to modify underwater mortgages, a move successfully blocked by the financial sector industry.
The number of Americans filing initial unemployment claims fell sharply last week, while those filing ongoing claims rose to another all-time high, according to government data released Thursday.
There were 565,000 initial jobless claims filed in the week ended July 4, down 52,000 from a revised 617,000 the previous week, the Labor Department said.
It was the lowest number since January and was below the consensus estimate of 603,000 from economists surveyed by Briefing.com.
Analysts said last week’s drop was distorted by a change in the pattern of seasonal layoffs in the automotive industry.
Initial claims typically spike in July as automakers idle certain manufacturing plants, and the Labor Department adjusts its data for such seasonal factors.
However, many plant closures occurred early this year, said Mark Vitner, an economist at Wacovia Economics Group.
On a non-seasonally adjusted basis, initial claims were 577,506.
"The improvement in first week of July was exaggerated by the timing of plant closures," Vitner said. "This is something we’re going to be dealing with throughout the month."
Meanwhile, the number of people requesting continued jobless benefits rose to a record high, indicating that the labor market remains weak business cards.
The government said continuing claims rose to 6,883,000 in the week ended June 27, the most recent data available.
That’s an increase of 159,000 from the previous week’s revised total of 6,724,000 and was the highest reading since the Labor Department began keeping records in 1967.
The 4-week moving average of continuing claims rose 12,000 to 6,769,000.
The ongoing rise in continuing claims suggests that more workers are struggling to re-enter the work force.
"While layoffs have topped out, hiring has not picked up," Vitner said. "The increase in unemployment rate going forward will be more a result of lack of hiring rather than layoffs," he said.
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The Obama administration is weighing a plan that would put the Federal Reserve in charge of monitoring systemic risk and give the Federal Deposit Insurance Corp. authority to unwind insolvent bank holding companies, sources familiar with the proposal said on Wednesday.
The idea, which is being circulated to U.S. lawmakers as they embark upon an overhaul of financial regulation, could be announced soon after June 8, the two sources said. They spoke on condition of anonymity because the plan has not been widely shared and cautioned that the plan is not final.
Treasury Secretary Tim Geithner has said the administration will come out with a comprehensive proposal in mid-June. June 8 is the Monday after President Barack Obama returns from a trip to Saudi Arabia, Egypt, Germany and France.
White House spokeswoman Jen Psaki said no final decision had been made about the shape of the regulatory proposal.
"Officials at the White House and the Treasury department are continuing work with Congress on the final phases of a proposal, but there is no final proposal in place and any announcement will not be for a couple of weeks," she said.
The sources said the administration is mulling a consumer protection agency to supervise financial products, such as credit cards and mortgage-related products. Securities would not fall under the consumer supervisor’s jurisdiction.
The revamp could also create an agency in charge of investor protection and market integrity, which would likely be a merged Securities and Exchange Commission and Commodity Futures Trading Commission.
Such a move would stop short of trying to eliminate either the SEC, which regulates securities, or the CFTC, which oversees commodity futures, one of the sources said. The new investor protection agency would oversee all investment products, the source said.
The administration will also try to stop banks from shopping for their regulator by creating a new, single government agency to be the hands-on regulator for most banks and insurers, the sources said easy cash advance.
Many financial institutions can currently choose between four bank regulators, creating the opportunity for regulatory arbitrage. The plan being considered would have the new agency be the primary supervisor of state and federally chartered depository institutions, bank holding companies and insurers, according to the sources.
It was not immediately clear what such a plan would mean for the current primary regulators of banks.
Some policymakers have suggested merging the Office of the Comptroller of the Currency, which regulates the nation’s largest banks, and the Office of Thrift Supervision, which regulates many mortgage-related financial firms.
The administration is also considering a financial regulatory advisory council, which would include the heads of major financial regulators. This would be similar to the President’s Working Group on Financial Markets, which is chaired by the Treasury secretary and composed of the chairmen of agencies like the SEC, the Fed and the CFTC.
"It is important to modernize the system to prevent the financial crisis from happening again," said Scott Talbott, a senior vice president with the Financial Services Roundtable, which represents the largest financial services companies.
The Obama administration has said it wants financial regulatory reform legislation passed by the end of the year. But any overhaul faces difficult turf battles among the agencies who could be stripped of responsibilities and among the congressional committees that oversee the agencies.
Frivolous spending, one of the hallmarks of America’s consumer-driven economy, is on its way out, with budget shopping becoming the mantra for households.
April store sales results Thursday showed clearly how the recession is training consumers to embrace value at all levels - whether it is shopping for food at Wal-Mart (WMT, Fortune 500), or buying clothes for your kids at a discount department store such as Ross Stores (ROST, Fortune 500) instead of at Macy’s (M, Fortune 500).
Consumer psychology expert Paco Underhill believes this change in the "mindset" of the consumer will define the post-recession shopper.
"Our retail culture is in a major transition. Conspicuous consumption is now bad manners," he said. "Too many of us have spread ourselves far beyond our means. We can’t do this anymore."
"Our closets are full, are houses are too big, we have too many cars," he said. "It’s time to make some very wrenching changes."
Post-recession consumers will spend very carefully. Buying previously owned products, for instance, will lose its stigma.
Also, more consumers will feel comfortable buying stores’ "private label" products versus higher-priced branded goods.
Luxury market expert Andrew Sacks, head of advertising firm AgencySacks, said even high-income shoppers will shop a little differently in the months ahead americashadvance.
"Even for those whose jobs haven’t been affected, they will be thinking about putting more money away. Everyone values their dollars more now," he said.
Not all high-income shoppers will trade down in prices, but they will be "more selective" with what they buy, focusing on quality rather than quantity, Sacks said.
Underhill, who’s also CEO of retail-focused consulting firm Envirosell, said the recession — whenever it ends — will dramatically change not only the "shop at any cost" mentality of the American consumer but also retailers’ approach to selling.
Retailers, he said, will have to adapt to a new reality in American consumerism by really selling the concept of "value."
Merchants will also have to focus on how they sell rather than "how much" they sell.
"I am 6′ 4". I can walk into a Gap store and find just two pairs of pants that will fit me," Underhill said. "I don’t think this makes any sense. Retailers have to become more sophisticated sellers."
Microsoft Corp. said Thursday that declining PC sales hurt revenue, as the software giant reported quarterly sales that fell for the first time in its 23-year history as a public company.
The Redmond, Wash.-based company said sales fell 6% from a year earlier to $13.7 billion, missing analysts’ expectations of $14.1 billion.
Meanwhile, the company’s net income fell 32% to $2.98 billion, or 33 cents per share, in its third quarter ended March 31.
Results included charges totaling 6 cents per share for job cuts and investments that took place in the quarter. Without the charges, Microsoft earned 39 per share, in line with forecasts by analysts polled by Thomson Reuters, which typically exclude one-time items.
Microsoft said weakness in the global PC market negatively impacted its results.
Still, shares of Microsoft (MSFT, Fortune 500) rose 4% after hours, as the company performed roughly in-line with expectations. In the previous quarter, results came in well below forecasts, and Microsoft rescinded its prior outlook for 2009.
"Expectations were much more tempered now," said Katherine Egbert, analyst with Jefferies & Co. "People now understand that near-term business won’t be so good."
On a conference call with analysts, Chris Liddell, Microsoft’s chief financial officer, said the current recession has been "the most difficult economic environment we’ve faced in our history." He noted that he expects the recovery to be slow and gradual, but again he declined to give a specific outlook for the next three-month period.
Still, Liddell said he was encouraged by the company’s ability to cut costs.
"While I can’t be happy in any quarter in which our revenue and earnings per share decrease, I’m pleased with our relative performance," he added.
Demand quagmire: The company has had a difficult time combating slumping demand for its Windows operating system, as the economic slowdown has dragged PC sales down 7% to 9%, according to Microsoft’s estimates.
The recession has also prompted many consumers to opt for cheaper, scaled-down "netbooks" that perform only basic tasks such as e-mail and accessing the Internet. They typically run a lower-cost version of Windows or an open-source operating system such as Linux.
"The trouble for Microsoft is that its cash cow is shifting," said Carl Howe, analyst with Yankee Group. "PC sales are troubled, and they’re getting hurt by the move to cheaper notebooks."
In January, Microsoft announced its first mass job cuts in its 34-year history in an effort to bolster its bottom line The company slashed 1,400 position during the quarter with another 3,600 expected to be cut by mid-2010 instant payday loans completely online. At that time, the company said it was also adding a few thousand positions, mainly in its online advertising division.
"While market conditions remained weak during the quarter, I was pleased with the organization’s ability to offset revenue pressures with the swift implementation of cost-savings initiatives," said Liddell. "We expect the weakness to continue through at least the next quarter."
Sales and profit fell in all of Microsoft’s businesses, except its server business, which managed to squeeze out a 7% rise in revenue and a 24% jump in earnings. The entertainment and devices division, which includes the Xbox 360, suffered a 2% revenue decline and an operating loss of $31 million from a year earlier. The company’s business division sales dropped 5%.
Windows: The company is banking on a new operating system to break out of its slump.
Microsoft’s Vista operating system, which was released in early 2007, never took off like the company had hoped. Sales in the division that produces Vista fell 16% in the previous quarter. User satisfaction has been underwhelming, and IT departments have largely opted to stick with Vista’s predecessor, Windows XP.
"Microsoft can’t point to anything in their mix of products that excites people right now," said Allen Weiner, analyst with tech consultancy firm Gartner Research.
Early reviews of Microsoft’s new Windows 7 system have been largely positive, but the stated release date isn’t until late early 2010. Analysts think that Microsoft will push up the release date to later this year to help spur PC sales around the holiday season. The company expects the unveiling of its new operating system will help increase sales even if economic conditions remain challenging.
Online advertising funk: Microsoft has also continued to struggle to compete with rivals Google (GOOG, Fortune 500) and Yahoo (YHOO, Fortune 500) in the online advertising business. Microsoft’s Online Services division, which includes the online portal MSN and its Internet advertising sales, lost $575 million in the quarter, and sales in the division were down 14% from the same quarter a year earlier.
Microsoft said the loss in its ad sales division was due to the significant decline of average rates in display advertising.
"Borrow, buy, burn. Every part of that has got to stop" is a rallying cry for John Doerr. Sadly, Doerr’s firm, Kleiner Perkins, did not consider these goals before making its investment in Terralliance Technologies. Terralliance is an oil-exploration company funded by Kleiner, Goldman Sachs (GS, Fortune 500), and others. It has burned through hundreds of millions of dollars, much of it borrowed, and now finds itself in serious trouble.
Only last summer, when Fortune featured Kleiner and its capital-intensive shift into energy, Terralliance, based in Newport Beach, Calif., was viewed as the great green hope. (See "Kleiner Bets the Farm.") At the time, Terralliance was weeks away from raising more than $1 billion at a valuation of $4.4 billion (including the new cash) from Temasek, the Singaporean sovereign wealth fund.
Kleiner’s dirtying its hands in the oil patch was something of a head-scratcher. Back then the firm had recently hired Al Gore as a partner. But money is money, oil was trading for $140 a barrel, and Terralliance was said to have developed software that reduced the risk of drilling dry holes. It looked as if Terralliance could be a moneymaker for Kleiner, which had sunk a total of $65 million into the venture, an extraordinary sum for a VC firm - possibly its biggest single investment ever.
Not even a year later, Kleiner is learning the hard way how difficult it can be to enter new sectors online cash loans. The Temasek deal never closed, and its collapse coincided with the removal of Terralliance founder and NASA alumnus Erlend Olson as CEO. As a Mr. Fix-It, Kleiner has installed Mike Long, a Doerr confidant who has previously overseen Kleiner turnarounds, including Move.com. Another investor, influential San Francisco hedge fund Passport Capital, lent Terralliance $150 million, a loan currently in technical default.
What went wrong at Terralliance is a common story line in Silicon Valley - rapid cash burn. Drilling an oil well on land (which is less costly than in the water) can cost as much as $25 million. The company has raised at least $500 million in debt and equity, most of which it has spent.
Kleiner, which recently took the unusual step of raising hundreds of millions of dollars to supplement its existing funds, declined to comment. So did Temasek, Goldman, and Olson. Oil prices at $50 a barrel can’t be helping the VC firm’s multiple eco-themed investments. Never truer are the immortal words of the great American philosopher Kermit the Frog: It’s not easy being green.
Americans are fed up with the Detroit drama.
Three out of four Americans would rather see General Motors (GM, Fortune 500) and Chrysler face bankruptcy than watch the government pour yet another round of bailout cash into the big U.S. automakers, according to a CNN/Opinion Research poll released Thursday.
While 76% of survey respondents want to see the automakers face bankruptcy, 22% are willing to prop them up with more bailout cash, according to the poll, which surveyed 1,000 Americans from April 3-5.
While GM still hopes to avoid going bankrupt, preparations for a bankruptcy filing have become "intense and earnest" at the Detroit giant, according to a source familiar with the company’s plans.
Americans are more divided on the Obama administration’s increased involvement in the way businesses and financial institutions are run. According to the survey, which has margin of error of plus or minus 3%, 42% of Americans think the Obama administration has done what it should, while 23% think the government ought to have even more oversight powers. But 35% of respondents say the government has gone too far.
One of the reasons Americans are willing to let the Big Three head into bankruptcy is that many don’t see Detroit’s woes significantly affecting the national economy.
Of those surveyed, 44% said auto bankruptcies would only cause "minor problems" for the U.S. economy. That’s an increase from December’s poll results, when 28% of those questioned said the bankruptcy effects would be minor. (For more on Detroit’s ripple effects, see "Auto bankruptcy: What it means")
But only 37% of those surveyed in April thought a Detroit bankruptcy would cause "major problems" for the U cash til payday.S. economy, down from 51% of those polled in December. More than half of Americans think that a Detroit bankruptcy would have no impact on their personal financial situation.
If a major manufacturer does fall into bankruptcy, government guarantees on their warranties could prove critical to maintaining consumer demand for their inventory of cars. The CNN/Opinion Research pollsters divided their respondent pool in half, asking one group about their willingness to buy a car from a bankrupt auto company. Almost half of those asked - 47% - said they were "not likely at all" to do so, and only 12% said they were "very likely" to buy from a bankrupt company.
But when researchers asked the other half of their survey pool about buying a car from a bankrupt auto maker, they asked how likely the respondent would be to buy if they knew the government would stand behind the warranty on the car. Among those respondents, the "very likely" to buy response rate doubled, to 24%, while the "not likely at all" response declined to 27%.
President Barack Obama said late last month that the federal government would stand behind the warranties on all purchases of GM and Chrysler vehicles going forward. Analysts are waiting to see how much the moves pump up sales.
NEW YORK — Investors retreated from Wall Street again, driven by worries about the nation’s big banks and General Motors Corp.
Thursday’s slide more than wiped out the previous day’s rally. Short selling — bets that stocks will fall — exacerbated the losses, slashing 281 points from the Dow Jones industrials and sending all the major indexes down more than 4 percent.
The latest torrent of selling came ahead of the February Labor Department report that is likely to show hundreds of thousands of jobs were lost. Reports showing better-than-expected retail sales and factory orders Thursday weren’t enough to stoke investor confidence.
The Dow fell 281.40, or 4.1 percent, to 6,594.44, its lowest close since April 1997.
Broader indicators also tumbled. The S&P 500 index dropped 30.32, or 4.3 percent, to 682.55, its lowest close since September 1996. The Nasdaq composite index fell 54.15, or 4 percent, to 1,299.59.
The Russell 2000 index of smaller companies fell 21.85, or 5.9 percent, to 349.45.
On the New York Stock Exchange, only 235 stocks advanced while 2,887 fell. Consolidated volume came to a heavy 7.28 billion shares compared with 7.51 billion shares traded Wednesday.
Government bond prices rose as investors sought a safe haven. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.81 percent from 2.98 percent late Wednesday. The yield on the three-month T-bill, considered one of the safest investments, slipped to 0.20 percent from 0.25 percent Wednesday.
Stocks fell in every industry, with beleaguered banks posting some of the steepest drops after negative comments from Moody’s Investors Service weighed on the already depressed financial stocks free instant credit reports. Citigroup Inc., still shaky despite receiving billions in government aid, at times sank below $1 and finished down 9.7 percent at $1.02. Bank of America Corp. dropped 42 cents, or 11.7 percent, to $3.17; Wells Fargo & Co. tumbled $1.54, or 15.9 percent, to $8.12; JPMorgan Chase & Co. fell $2.70, or 14 percent, to $16.60.
General Motors, meanwhile, ended with a loss of 15 percent at $1.86. The automaker said in its annual report that auditors raised serious doubt about its ability to continue operating. GM has already received $13.4 billion in federal loans, and is seeking a total of $30 billion from the government. GM dove 34 cents, or 15.5 percent, to $1.86.
General Electric Co. closed down 3 cents at $6.66. Trading in the stock was volatile, but losses were limited as analysts expressed differing views on the health of its finance unit.
Exxon-Mobil Corp. closed at $62.22, down $3.46. The oil giant said it plans to increase spending on capital and exploration projects, even as many rivals scale back operations.
Blockbuster Inc. closed down 2 cents at 45 cents. Fourth-quarter sales climbed 4.4 percent, as increased sales of games and merchandise offset movie-rental declines.
Limited Brands Inc. closed at $6.40, down 62 cents. The operator of Victoria’s Secret reported that sales at stores open at least one year fell 7 percent in February.
Bell Mobility subscribers will once again be able to receive "tweets," the brief updates transmitted over social networking service Twitter, on their cellphones via text messages.
But it’s not going to be … er, cheep.
Bell said yesterday that it will become the first Canadian wireless carrier to offer full short message service support for Twitter users after the company behind the micro-blogging phenomenon pulled the plug on the SMS portion of the service in Canada late last year.
The catch is that it will cost Twitter users 15 cents per incoming and outgoing message – and the charges will apply to subscribers even if they have a monthly plan that already includes text messages.
"Because Twitter is a third-party service, the messages are considered premium and not covered by our plans," said Julie Smithers, a Bell spokesperson. "This aligns with industry standards regarding third-party premium messaging."
Twitter is a social networking service that allows users to send and receive short, text-based updates – "I’m eating pizza for dinner" – to others who have signed up to follow them. The messages, which can’t be longer than 140 characters, are posted on subscribers’ profile pages on the Web and can be sent in real-time to their mobile devices.
The service has been used by several high-profile people, including U guaranteed personal loan approval.S. President Barack Obama, and was credited for providing the first reports of the recent US Airways crash in New York’s Hudson River.
However, Twitter’s Canadian users were dealt a blow last year after part of the service was discontinued because of the high cost of sending and receiving text messages in Canada. Twitter had apparently been footing the bill for its Canadian subscribers’ incoming text messages.
"We can’t afford to support this service given our current arrangement with our providers (where costs have been doubling for the past several months)," according to a Twitter blog posting from November.
Now, the costs will be borne by the users themselves.
Carmi Levy, the senior vice-president of strategic consulting for AR Communications Inc., said his Twitter use was unaffected by last year’s SMS blackout because he uses a smartphone version of the service that is supported by his monthly data plan.
But he said that Twitter subscribers who don’t own iPhones or BlackBerry-type devices can expect some hefty monthly bills depending on how many other Twitter users they are following.
"It can be dozens or even hundreds of messages (per day)," Levy said. "I sent out just one question earlier this afternoon and I got 15 responses."
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