Zer01 service still vapor, distributors empty-handed

Further delays and leadership changes have pushed out the launch of Zer01's "unlimited everything" mobile phone service, casting further doubt about whether it will see the light of day.

IDG News Service recently questioned whether the unlimited mobile voice and data service that Zer01 had advertised could actually be delivered as described. The service, originally targeted for a July 1 launch, is not available yet.

Zer01's service is being marketed through a multilevel marketing program run by a company called Global Verge. That company has had its own share of problems in the wake of CEO Mark Petschel stepping down after it was revealed he is on probation for a securities fraud conviction. He remains chairman of Global Verge.

Now there are more leadership changes. A month after saying they had been put in charge, some other Global Verge executives said last week that they have been dismissed. Each has a history of working with marketing companies that have come under fire for questionable practices.

In recent weeks the executives had delivered sometimes conflicting reasons for why the service has yet to launch. One now says he doubts that sales people will receive commissions or that the service will launch at all.

Even before the most recent changes, some onlookers began having second thoughts about the mobile service, despite the early accolades it won.

Last Tuesday, for instance, Laptop magazine rescinded an award it offered to Zer01 earlier this year for having the best product at the CTIA wireless conference. "We're taking this extraordinary step because of serious ethical questions that have arisen about the company. We can no longer endorse its service and therefore are compelled to warn our readers to avoid it," the magazine wrote in a blog post.

Zer01, the supplier of the service that would cost end users $70 per month for true unlimited mobile voice and data services, is still touting the award on its Web site.

Gartner analyst Tole Hart, who was once keen on Zer01's concept, is now suspicious about whether the company can do what it promises. That's partly because while Zer01 claims to have partnerships that give it nationwide coverage using GSM (Global System for Mobile Communications) technology, neither of the nationwide GSM operators say they are working with Zer01.

In addition, he wonders, "why would they let someone come on their network and undercut them?" Zer01's unlimited offering would cost less than that of many of the operators, which also typically impose a cap on data usage.

Some observers allow that Zer01 may have developed a new type of technology that could enable its unlimited offering. Zer01 claims to have applied for a patent that "allows each smart phone user to make voice calls or transmit data by sending voice communications through a VoIP system." The patent number is in the format of a provisional application and those are not publically available, according to the patent office.

When the phone service did not launch on July 1 as planned, executives from Zer01 and Global Verge began offering a variety of explanations for the delay.

The most recent is a problem with the SIM (subscriber identity module) cards. Steve Lewis, who served as interim CEO for Global Verge for about a month, recently said the cards are being "defragged" so that they can be used in any phone. Warren Hanchey, whom Lewis described as an international businessman and scientist and who was expected to take over as CEO, said via e-mail that a "cab software" program was being installed on the cards.

An expert from SIM card maker Gemalto said he'd never heard of defragging a SIM card. However, mobile virtual network operators such as Zer01 sometimes install Java applets called .cap programs on the cards, said Jean-Louis Carrara, vice president of business development for Gemalto's telecommunications business unit.

Beyond the technology, there have been problems with the marketing program. Global Verge claims that more than 40,000 people have signed onto its marketing program to sell the Zer01 phone service under the Buzzirk brand.

Sales associates pay at least $70 to get into the program and at least $40 each month thereafter for back-office support. They hope to earn commissions by enlisting other sales people and, eventually, $10 per month for each customer they sign up.

On a July 30 conference call, Global Verge told its sales associates that the phones would start shipping on Aug. 10. That was also to be the first week that sales people would earn commission checks after a credit card processing glitch hampered the process, Lewis said on the call. Cards are now being processed in Antigua because Global Verge's U.S. merchant bank cancelled its account for heavy usage, he said.

Global Verge recently offered associates the opportunity to quit the program due to the delays. In an online forum and in the comments left after other stories, several people said they have opted out and their credit cards continue to be charged.

Experts say that the marketing set-up sounds suspicious. The fact that many people appear to be joining the program even though no product is available is a red flag, said Robert FitzPatrick, a respected multilevel marketing expert and president of Pyramid Scheme Alert.

"This indicates the business proposition is as important, and perhaps more so, as the products themselves. It is so compelling that this many people would invest money and recruit friends and not do due diligence on the product. In a recession, a company claiming that new salespeople -- without education or training -- can earn $29,000 a month through a 'unique' compensation plan will obviously get a lot of people's attention," he said.

Others said the Global Verge and Buzzirk sales recruitment process has some of the telltale signs of illegal marketing schemes. "Any time someone says, 'You pay me money for the opportunity to make money just from recruiting new people,' that's violation of law," James Toma, deputy attorney general for California, said.

"Often you see them talk about a product and they're saying it's ready to launch at a certain period. Then they're always ready to launch and it never happens," Toma said.

"Or, what also happens is certain products will be used to get excitement and as they have the sense that people are wisening up or saturating the market or word gets out that people aren't making any money, they'll switch to a different product," he said. Global Verge executives have recently begun discussing other products beyond the mobile service that sales associates can sell.

It's unclear what will happen to the whole program now that the newest leaders have stepped down. On a conference call with sales associates last Thursday, a recording of which is posted online, Lewis said he had been fired from Global Verge and that Petschel and his associate Ted Robbins remain in charge of the company.

Lewis said on the call that he had planned to step down before he was fired. He also warned the sales associates: "My opinion is, if they pay commission checks next week it'll be a miracle."

Lewis, Hanchey and Teresa Curtis, who served as CFO for Global Verge for a few weeks, all have been involved with multilevel marketing programs that have had legal troubles in the past. Hanchey founded a multilevel marketing company called Lifewave that sells a variety of health products. He's named as a defendant in a lawsuit in the Superior Court for Gwinnett County in Georgia, related to the program, which is the subject of criticism online from people who suggest that the products don't work.

In a 2003 bankruptcy filing, Hanchey owed over $941,000 as part of a settlement dispute with Transamerica Financial Resources. That dispute was arbitrated by the National Association of Securities Dealers, now the Financial Industry Regulatory Authority, which does not have records of the settlement, possibly because it dates back to 1997.

At the time of the bankruptcy filing, he was listed as being employed as a construction manager by the Philly Franchise Co.

Curtis was CEO of the HBO Tax Academy, a company that has been the subject of much criticism online. It is also one of a few groups used by a Texas man who was charged for promoting fraudulent tax schemes.

Curtis also sold products for Your Travel Business (YTB), which was sued by the state of California for running a gigantic pyramid scheme.

Curtis declared bankruptcy in 2005, owing $45,000 to a variety of sources, including, ironically, AT&T Wireless, Cingular, Sprint and Lightyear, as well as a casino and Moneytree. Lewis recently said that Curtis is a CPA (Certified Public Accountant) and has a master's degree in computer technology, though she is not listed as a licensed CPA on the Nevada State Board of Accountancy. In Nevada, CPAs who reside in the state or work for an employer in the state must be licensed with the board, said Viki Windfeldt, executive director of the Nevada State Board of Accountancy. Global Verge is registered as a corporation in Nevada.

Lewis, whose address is sometimes the same as Curtis' in various documents online, also sold products through YTB and was involved with HBO Tax Academy. He says the tax business closed not because of the disputes surrounding it but because he had a heart attack and needed time to recuperate. He also is the founder of the Keerthi Foundation, which sells a low cost phone service.

Zer01 declined to be interviewed for this report unless the story was in a question-and-answer format. Petschel has not replied to a request for comment. Despite claims from Lewis that Global Verge had hired a public relations representative, that person's contact details have not been disclosed. Global Verge has no contact information on its Web site. Prior to the most recent leadership change, Hanchey offered some information via e-mail and said he'd call to respond to further questions but did not.

While the discussion about Global Verge on sites like scam.com continues, fewer people who say they are claiming to be sales associates in the program seem to be defending it. Those still paying into the program are likely awaiting the Monday deadline when they are supposed to start getting their commission checks. But the skeptics are awaiting the same date to hear a new reason for why those checks won't be issued.

Copyright © 2009 IDG Communications, Inc.

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