An explosion in the number of telephone lines, services and rates is taxing phone company computers, costing users an estimated $160 million a year in overcharges and spawning a cottage industry of billing-error "bounty hunters."
The main culprit is progress. Spurred by lower rates born of competition, the number of long-distance calls has doubled in the last decade. Fax machines and computer modems mean more and more phone lines, while new taxes and services have increased the complexity of billing. Yet many telephone billing departments are using antiquated computers that are not up to the new demands.
Indeed, for all the talk of a futuristic Information Age in which telephone, television and computer technologies gradually converge, developing an error-free billing system for increasingly complex telecommunications services could prove to be a daunting task for phone companies.
"One of the major long-term challenges of this industry--the thing that will determine who wins and loses--is going to be billing," said Robert Atkins, a senior vice president at Teleport Communications Group, a New York-based local telephone carrier. "Billing accuracy is critical, and we are spending a lot of money and time on it."
A key test of the industry's ability to cope with the new era of complexity began recently when businesses gained the right to choose any long-distance carrier for their toll-free 800-number service without giving up their "signature" numbers if they switch.
Phone billing errors are still amazingly rare, amounting to just 0.1% of overall telephone charges. But any mistakes can add up to big numbers in an industry that generates more than $160 billion in revenue annually, said Richard Nespola, a Leawood, Kan., telephone consultant.
Consider these examples:
* On April 7, a California Public Utilities Commission judge recommended that Pacific Bell be fined $65 million for repeatedly charging its customers improper late fees.
* A month earlier, American Telephone & Telegraph Co. agreed to pay the state of Maryland $3 million after ORS Associates of McLean, Va., uncovered phone equipment and maintenance overcharges on the state's phone bills.
* Last fall, New York Telephone Co. excused half of a disputed $3.5-million phone bill it sent to the New York Housing Authority, acknowledging double-billing and other errors.
Utility Solutions of Miami, another of the firms that look for phone overcharges in exchange for a percentage of any recoveries, says it finds mistakes in more than half the bills sent to its clients. In one case, MCI refunded $6,000 to a Miami community center that was being charged for unanswered calls.
The challenge facing the industry mirrors the travails of other businesses that deal with complex bills. In 1990, the Comptroller of the Currency warned banks that they could face billions of dollars in financial liability stemming from errors on adjustable-rate mortgages. The warning came after a government study estimated that as many as one-fourth of all interest charges on adjustable mortgages are improperly calculated.
A recent study by the General Accounting Office found that the number of formal customer complaints against telephone companies filed with the Federal Communications Commission rose to 670 in 1992 from 167 in 1988.
Some of the increase arises from competitive sniping over rates by rival telephone companies. Still, a big chunk of the complaints involved allegations by customers that companies had exceeded the legally proscribed rate of return on phone charges, said Thomas Wyatt, chief of formal complaints and investigations at the FCC. In the majority of those cases, the FCC found in favor of the complainers.
Billing errors didn't emerge as a big issue until 1982, when AT&T; signed an agreement with the federal government requiring it to separate its long-distance business from its local Bell operating companies. A further splintering of the market came in 1984, when the local Bell companies were organized into seven independent concerns.
The breakup sparked complaints about bills as local phone companies struggled to accommodate new long-distance carriers such as MCI and Sprint. The long-distance companies often required customers to dial lengthy access codes to make calls, and couldn't coordinate their billing with the local telephone exchanges.
The full extent of telephone billing errors can only be estimated. Since telephone service accounts for only 2% of all consumer expenditures, mistakes on residential bills are often so small they go unnoticed.
But for many service firms, telecommunications is the largest business expense after salaries and benefits. Since 1976, when there were only about a dozen practitioners, about 150 consultants and phone auditing firms have sprung up to serve business, according to the Society of Telecommunications Consultants in Boca Raton, Fla.
At the heart of the phone industry's problems is new technology that was supposed to make telephones more user-friendly, but that has instead taxed the ability of the billing computers, many of which were designed in the 1950s.
Telephone billing systems "have been throwbacks to a bygone era," Jack L. Hancock, an executive vice president at Pacific Bell, wrote recently in British Telecommunications Engineering. "The existing billing systems are incapable of quickly adapting to accommodate new service offerings."
Besides tracking the type of call its customers make--operator-assisted, toll-free or cellular, for instance--a long-distance phone company must also determine the time of day a call was placed, its duration, distance and other variables. In addition, local and long-distance carriers must keep track of hundreds of different telephone rates filed with the FCC and state public utility bodies, as well as about 4,100 state and local taxes, according to Vertex Inc., a Berwyn, Pa., firm that markets computer tax software.
Telephone industry officials say they have spent hundreds of millions of dollars in recent years to upgrade their billing systems.
This month, for example, Pacific Bell will mail its 11 million customers newly formatted bills that reflect about $100 million and five years of effort the company has invested in overhauling its billing system. Pacific Bell has blasted the proposed $65-million PUC fine, saying it has refunded $5 million of the $6 million in late fees that it believes were erroneously collected and modified its billing system in 1991 to avert future problems.
Sprint is completing a similar make-over. As a result, said Rod C. Mack, Sprint's vice president of business systems, billing accuracy is vastly improved from the days when the company sent out error-riddled bills months late.
AT&T; has "a great deal of confidence in our billing procedures," spokeswoman Candace Humphrey said.
"But from time to time," she acknowledged, "discrepancies do occur."
Humphrey said the $3-million overcharge in Maryland was not typical and stemmed from a discrepancy over phone equipment that had been leased by the state.
Billing systems have improved, especially those used by the major long-distance carriers.
"They have managed to apply a great deal of sophistication to a very complex task," consultant Nespola said. "When you call AT&T; to question a call, they can pull it right up on their computer screen while you are on the line and delete the charges. Can you imagine your cable company doing that?"
Still, experts say that heavy users need to examine their bills carefully.
The $3 million in overcharges to Maryland, for example, was not the first such problem there. In 1992, Maryland got a $530,000 refund from Bell Atlantic's subsidiary, C&P; Telephone Co., after it discovered it was paying for lines that had been disconnected.
Ringing in the New
Technology and competition have led to an explosion in new telephone services. The increased activity has made for more complicated billing--and more opporunities for error.
U.S. telephone lines (in millions):
Interstate long-distance calls (in billions of minutes):
SOURCE: Federal Communications Commission