The Charade of the Touch-Tone Service Fee

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In California, the two main telephone companies, Pacific Bell and GTE, plan to “eliminate” their charges for residential touch-tone service. One assumes that this would save customers $1.20 and $1 a month, respectively.

But wait. “Eliminate” doesn’t mean wipe out. To both companies and to California’s Public Utilities Commission, “eliminate” just means that the charge will be removed from touch-tone and added on elsewhere--in the base rate perhaps, or on another optional service. It’s “a matter of semantics,” says GTE-California spokesman Larry Cox.

For this kind of retailing, they broke up a perfectly good phone system.

Touch-tone, for example, is now so standard a function that there would probably be no charge at all in other industries. But it represents billions of dollars for phone companies nationwide--a situation approved by regulators, accepted by consumers and illustrative of how telephone companies work today.


Touch-tone is no longer new or special. Introduced in the 1960s and widely marketed in the mid-1970s, it’s now almost universally available and heavily subscribed: Up to three-quarters of telephone subscribers nationwide have it, instead of old-fashioned rotary dialing.

Offering it saves phone companies money. The early electronic switches that made touch-tone possible involved costly upgrades of central office equipment. But current “digital” equipment has touch-tone capability built in, along with greater call capacity, faster call processing and less maintenance.

What’s more, “the people who have touch-tone,” says New York Telephone spokesman Steve Marcus, “are making the most efficient use of the network.” Line for line, “rotary is more costly to provide than touch-tone, because they have to modify the digital switches to provide it,” says Ron Binz, Colorado’s consumer counsel. “So the system of charging for touch-tone is perverse.”

For company as well as customer, today’s telephone, combining push buttons and touch-tones, is considered the “gateway to information services,” says PacBell spokeswoman Kate Flynn. At the least, the accessibility and growth of home banking, databases, even 900 numbers, will increase phone usage. If phone companies are someday allowed by regulators to develop and market such products themselves--their great hope--they’ll profit twice.

Given such gain, phone companies should give away touch-tone. But if touch-tone charges were truly eliminated, they’d give up some money. And phone companies--notwithstanding their new, semi-competitive position--always point out that they cannot pass up any money because they have special responsibilities. They still have to provide universal phone service at affordable rates.

Those basic rates--kept well below cost, they say--are subsidized by optional services, including touch-tone, says New York Telephone’s John Hopley, general manager for pricing and costing. It’s “a discrete, luxury service,” he says, “overpriced compared to its cost to take care of all (the company’s) social responsibilities.”


The consumer’s need for touch-tone is less clear, although “85 out of a hundred people think you need touch-tone service” for everything from push-button phones to custom calling, says Washington attorney Kathleen O’Reilly, a consultant on telephone issues. Most phone companies encourage this belief.

In fact, one can live nicely without it, dialing out on a rotary phone or on the “pulse” mode of today’s dual-switch push-button phones. One can even use all of today’s custom-calling features--call-forwarding, call-waiting, conference calls.

Few people know--phone company representations to the contrary--that they don’t even need touch-tone service to make “interactive” calls, phone-to-computer or computer-to-computer. Given rotary service and a dual-switch push-button phone, they can usually just dial out on “pulse” and, once the connection is made, switch to “tone” to talk to the equipment at the number called.

Fewer still know that, in some areas, all subscribers have touch-tone service--whether or not they order it. Only the charge is optional. The first electronic equipment that provided touch-tone gave it to all lines in an area. Customer usage was controlled by the type of phone used (back when phone companies provided most phones) or just by the customer’s awareness that he had touch-tone capability. With today’s digital equipment, phone companies “can program each of 10,000 lines to have touch-tone or not,” says Hopley.

“Eliminating” the charge is the latest wrinkle. What consumers won’t know now is whether they’re paying for touch-tone--and where on their bill--even when it becomes “free” to all.

GTE-California expects that “the revenue we lose from that elimination ($33.3 million annually) will be recovered from a surcharge on the local services,” says Anastacio Ramos, staff manager for revenues and earnings. New York Telephone (which charges residential customers $2.21 a month) expects to “re-balance rates” to offset its loss of $200 million a year of “pure profit,” Hopley says.


Some critics think such juggling is unfair, particularly when the service already saves companies money. Some accept the juggling, but criticize the misrepresentation.

Phone companies should at least be confined to telephone services. If this is how they must handle communications, God forbid that they should get into information services as well.