New Phone Bills : Hung Up on Wrong Numbers?

Pacific Bell, California’s biggest phone company, has redesigned its bills. It had to: customers complained to the state utilities commission that they’d been signed up for all kinds of special services and didn’t know it. So instead of throwing all individual charges into a single monthly total, the company volunteered to itemize everything, so that customers--in the words of a press release--can “clearly understand our services and what they cost.”

“Clearly” isn’t quite the word.

There are now sections for Regulated Monthly Charges, Regulated Other Charges, Non-Regulated Monthly Charges and Non-Regulated Other Charges. Not including basics such as long distance or “premises equipment” (phones), there could be two dozen items. There are charges for call-waiting and call-forwarding and for Touch Tone; there are also charges for ordering those services and maybe for changing them.

New Charges, Old Services

There are new charges for old services that used to be covered by the monthly rate--repairs, or insurance against repairs, or installation of jacks and wires, plus start-up fees for “giving you dial-tone.” There’s even a charge for “network access for interstate calling.” Actually, Pacific’s customers are lucky to have such a bill. Few phone companies itemize charges, and even fewer regularly. New York Telephone, for example, provides a break-down only twice a year, and that only under order of that state’s utilities commission.

For all the detail, too many consumers have only a bewildered sense of mounting charges, and of resignation. “The industry, to its advantage, has persuaded the public and the media that it’s all too hard to understand,” says Kathleen O’Reilly, attorney and executive director of Wisconsin’s Citizens’ Utility Board, a legislature-funded advocacy group. “It’s easy to control the debate when the consumer needs a forklift to get his phone bill and an MBA from Wharton to understand it.”

‘Plain Old Service’

Many consumers assumed that the deregulation of the telephone industry, accelerated since the 1984 breakup of AT&T;, would have some effect on the cost of “Plain Old Telephone Service,” or POTS, as the industry calls it. But few expected that deregulation would consist of the periodic “breaking off of pieces of service and charging separately for them,” says consumer advocate Sylvia Siegel, director of San Francisco-based Toward Utility Rate Normalization.

“The telephone companies are trying to get money out of us drip by drip,” says O’Reilly. “It’s their theory that nobody is going to shoot out the lights on 20 cents here and 20 cents there. But it’s our view that when you take on a monopoly, with its lawyers and its accountants, you do not win by going into a lotus position and chanting. You fight.”

Indeed, item by item, there have been vigorous complaints and challenges--from customers, consumer advocates, legislators, regulators, plaintiff’s attorneys and prosecutors. They’ve questioned and sometimes toppled base rate increases, installation and repair fees, charges for Touch Tone service, late payments, service start-ups and directory assistance, measured service plans, pay phone rates, investor rates of return, over-collection of taxes and the phone company’s exclusive right to open the phone box on the outside of a house.

Some of the first deregulatory changes met with little fight--the deregulation of phone equipment and long distance calling, for example, though both procedures caused some confusion. Having to buy phones didn’t seem like a terrible burden. Competitive long distance service even seemed like a good thing.

Looked Competitive

For a while, long distance looked competitive, given the number of carriers soliciting customers by phone, mail and media ads, some promising savings of 30% over American Telephone & Telegraph. But studies soon appeared indicating that the deregulation of long distance offered little in the way of savings to consumers, while precipitating increases in many other charges.

“The only (rate) category that’s cheaper is interstate long distance,” says Gene Kimmelman, legislative director of the Consumer Federation of America, “with the largest rate reductions for large volume users or daytime calling.” The two go together, says O’Reilly: “Seventy-five percent of long distance phone calls made at peak hours are made by big corporate users.” By comparison, says Kimmelman, “residential users only do 15% of their (long distance) calling during the day, and over 50% of households make less than $6 of interstate calls a month.”

At the same time, says Sylvia Siegel, “local rates have gone up 20% to 40%”--in good part because long distance was deregulated. Local companies no longer have the “subsidy” of long distance revenues, says the industry, and therefore have to charge a lot for local services.

One of the first big fights involved inside wiring--something few consumers had ever noticed, fewer businesses wanted to service and telephone companies had to repair less than once in a decade. But as one deregulatory move, the Federal Communications Commission decided in 1985 that the servicing of inside wire should be open to competition, i.e., the installation, maintenance and repair of telephone conduits in the walls of a home or small business would no longer be the responsibility of local telephone companies.

“It’s up to you,” warned a bill insert from General Telephone of California, “to figure out how to take care of the telephone wiring in your home on your own.” But General and all the nation’s other phone companies could “continue serving you,” offering inside wire service contracts with catchy names like Lines Keeper Service and Linebacker Plan and Guardian, each for a dollar or two a month.

‘Negative Enrollment’

Some companies marketed their plans by “negative enrollment”: no response meant the customer was automatically signed up. Pacific Bell required an answer, even sending out an official-looking “Second Notice,” but offered customers only two choices--”Yes” or “I’d like further information.” California’s General Telephone threatened people who didn’t sign up by a cutoff date with an $85 “inspection” fee before they could have the service (“We’re in the business to make money, Ma’am,” a customer service rep told a customer).

Telephone companies apparently worked out their new marketing more carefully than their new programs. They left open the question whether damage to inside wires from water, fire, or rodents within an apartment’s walls was the responsibility of tenant or landlord. “Right now, we’re billing the person who has the telephone number,” says Pacific Bell’s regional marketing manager Win Bowen, “because they’re the ones we have the relationship with.”

Furthermore, when inside wire maintenance became a separate business, separately charged, few telephone companies actually “unbundled,” or removed the cost from the monthly service rate. “If you charge for the maintenance separately but don’t change your monthly rates,” says Florida public counsel Jack Shreve, “some customers aren’t receiving the service they’re paying for.” Those who take the plans would be paying for it twice.

Still others paid more times yet, because some companies unbundled every possible charge ever associated with inside wiring--just the wiring, exclusive of phone and “dial tone.” New York Telephone, for example, added a wire investment charge (“the cost of previously installing everyone’s inside wiring so we can recapture our investment,” says a spokesman) and a charge for telephone outlet wire (“the rental fee for that inside wire because we installed it and we still own it”).

Unfortunately, there’s even less competition in wire maintenance than in long distance. “When you deregulate,” says telecommunications consultant Walter Bolter at the Bethesda Research Institute, “you set up open country, not competition. Competition takes a while.”

“Half of the telephone service and repair places in our yellow pages handled only commercial jobs,” says Ken McEldowney, director of San Francisco’s Consumer Action. “A third were out of business, and only a couple did residences. No one wants to diddle around with tiny repairs.”

‘Tremendous Barrier’

Those who want to do such repairs find a telephone company “a tremendous barrier to competition,” says Dan Clearfield in Pennsylvania’s Consumer Advocate’s Office. “How can you compete against a company that’s reached through a 611 number and offers its service in everyone’s utility envelope?” asks Dennis Love, whose Novato, Calif., “Extension Connection” went bankrupt trying to establish an inside wire maintenance business.

In many places, it was the marketing of the plans that drew public ire. There have already been several lawsuits, including a well-publicized class action filed by the law firm of Holstein, Mack & Dupree in Chicago against Illinois Bell over the negative enrollment. Holstein Mack won the first round in trial court, but subsequently settled the case, with Illinois Bell offering affected customers a combination of cash refunds and a discount on certain phone services.

There has also been some pressure to force telephone companies to adjust monthly rates when they started offering wiring plans. At the insistence of the Public Counsel, Florida’s Southern Bell, which serves 60% of the state’s phones, agreed to reduce everyone’s rates 55 cents a month--its charge for the wiring plans.

California’s utility regulators, on the other hand, say the state no longer has authority over inside wiring repairs or repair plans. But the commission ordered the phone companies to set aside all inside wiring revenues until regulators decide whether everyone’s basic rates should be adjusted as a result.

Wisconsin’s Citizens’ Utility Board maneuvered a change in both the price and policy of Wisconsin Bell’s basic inside wire plans, challenging them as insurance policies subject to rate review. “It sounded like insurance to me,” says O’Reilly. “They were taking premiums and risk and had exclusionary language that made cancer insurance sound good, like no coverage in case of war or flood or an act of God. And even if it was insurance, the payout compared to the amount taken in was scandalous.”

Wisconsin’s Insurance Department issued a cease-and-desist order, hearings were held, and the state’s two biggest phone companies--Wisconsin Bell and General Telephone--soon volunteered to cut the exclusionary language and to lower the charge to 30 cents a month. By the next year, says O’Reilly, insurance departments in 14 other states were investigating.

Regulation Again?

Not surprisingly, one suggested answer to the problems precipitated is re-regulation. Within a year of the deregulation order, the National Assn. of Regulatory Utility Commissioners and eight individual states petitioned the FCC to return inside wiring to state authority. Even state legislatures entered the fray: California’s, for one, has bills before it asking the same thing.

The single biggest increase on phone bills, and the most hotly debated, doesn’t pretend to be optional or competitive. Network access charges, also known as “subscriber line charges,” are, however, a direct result of deregulation, and a good example of the complicated fallout.

Access charges started as the local companies’ charge to long distance carriers for access to their local lines. Long distance revenues had supposedly subsidized much of the cost of maintaining local lines, and access charges were meant to make up for “what we lost,” says Mike Miller, executive director of Pacific Bell’s state regulatory department.

Long distance carriers could pass those costs on to their customers, of course, but “there was concern (among telephone companies) that if some large businesses were charged too much, they’d say the heck with it and bypass the local network: the long distance carriers can run lines directly to companies that are big enough,” says Steve Marcus, spokesman for New York Telephone.

To give local phone companies a surer source of funds, the FCC therefore transferred some of the obligation to small users--residential and single-line business customers--who are “captive customers,” in Bolter’s words. “If you charge residential users $100, they gotta pay it,” says Bruce Weston, associate Consumers’ Counsel in Ohio, or their phone is cut off.

For several years, the consumer’s share of these access charges has been $2, but the FCC has ordered it boosted by “three modest increments” to $3.50-- 60 cents now, 60 cents next year, and 30 cents in 1989. Consumers may eventually have to cover the whole cost of carrier access charges, whether or not they make long distance calls.

What seems eminently reasonable to telephone companies strikes outsiders as nothing more than “a federally mandated local telephone rate hike,” in the words of Rep. Ron Wyden (D-Ore.), who has introduced a House bill to freeze the interstate access charge at $2. “For most consumers, who make mostly local calls and a few long distance,” he says, “this is very unfair.”

Access charges are part of the biggest debate over telephone deregulation--the question of “subsidy,” or the assertion that it was long distance revenues that kept local rates low so everyone could afford service. The question is basic, because it’s the “loss” of that subsidy that led to access charges and other fees that fall most heavily on small users.

Accepted Fact

Industry officials tend to present the idea of subsidy as an accepted fact. Pacific Bell, for example, simply states that long distance made up the difference between its basic monthly rate of $8.25 and the actual $22-to-$27 cost of providing the service and maintaining its local network. “Most people accept the fact there is subsidy,” says Mark Miller. “We’ve had several rate cases, where we showed the true costs . . . Even the (public utilities) commission staff admits there’s subsidy.”

But plenty of people speak of “the myth of subsidy” and say the case was never proved. “AT&T; and Bell for years have said long distance subsidized local calls,” says Jack Shreve, “and they said it so often that people believed it.”

Indeed, the FCC had only “assumed” that subsidy existed when it began shifting access costs from carriers to local subscribers, wrote Judge Harold Greene, who presided over the settlement that divided up AT&T.; “In investigations extending over many years,” he continued, “the Commission was never able to determine whether, in fact, local rates had been subsidized by long distance rates.”

All kinds of figures are flung around to support each side, often in public, none really comprehensible to the average telephone user. There is discussion of stand-alone costing, and non-traffic sensitive plants, of telecommunications infrastructures and rate of return regulations. But “the perception of the customer,” says Pennsylvania’s Clearfield, “is just that it’s tremendously complicated and there are a lot of charges.”

It’s also their perception, says Wyden, “that while their bills are going up and up, the local companies are not hurting.” They see that in 1986, New York Telephone made an $830.3-million profit on gross revenues of $7.1 billion. The same year, Pacific Bell had gross revenues of $8.98 billion and made a profit of $1.08 billion--enough to fill the purported gap between cost and charge for its 7.2 million residential customers 8 to 10 times over.

An associated debate, equally inaccessible to the layman, involves the “trickle down” theory, which says that consumers are only temporarily losers under deregulation, and that things will get better. Local telephone companies are rushing to lay cable and build switching stations and digital systems for data processing, developing new products and services to compete in the new environment. All the technology and innovations will benefit the big users, of course, who want the worlds of telecommunications and data processing linked, but the benefit will ultimately “trickle down” to the masses.

Bypass Threat

Meantime, “residential consumers are increasingly being asked to pay for network services they don’t use,” says Weston. They don’t care about fiber optics or digital systems or even “telecommunications.” Most, says Zimmelman, just want “voice communication,” or that Plain Old Telephone Service.

For those who don’t buy the trickle-down theory, there’s always the threat of Bypass. “You may not need (digital systems) today,” says Pacific’s Mike Miller, “and you may not tomorrow, but there are large business customers who do need it, and they say they’ll go directly to the (long distance) carriers. And if they don’t give us that subsidy, we don’t keep your rate at $8.25.”

Nevertheless, there is growing effort to rally customers against their network access fees. Unlike some other phone bill items, variously named, and variously priced, this fee affects everyone equally, country-wide, and is separate and visible on everyone’s bill.

Avoiding the thickets of comparative accounting, many observers simply oppose the charge as unfair and unreasonable: Sylvia Siegel, on behalf of TURN, calls it “the Gouge.” “If long distance money has shifted from the phone companies to AT&T;,” says Florida’s Shreve, “they should get it from AT&T;, not our users.”

On this issue, consumer advocates are not without higher support. Judge Greene even “noted with considerable surprise and some dismay that the Federal Communications Commission, far from using the access charge tool as a means for easing the burdens on the users of local telephone service, has opted . . . to saddle the local subscribers with the access costs of interexchange carriers.”

“The agency’s action,” he continued, “runs directly counter to one of the (divestiture) decree’s principal assumptions and purposes--that the fostering of competition in the telecommunications field need not and should not be the cause of increases in local telephone rates.”