Phone Tax Complaints Get Congress Moving

The relentless growth of telephone taxes has finally hit a political flash point, triggering demands by lawmakers this week that phone companies be blocked from imposing billions of dollars in new fees on customers this summer.

After a deluge of complaints from consumers across the nation, members of Congress are demanding the Federal Communications Commission--which regulates the phone industry--roll back an Internet wiring program that was championed by Vice President Al Gore.

Under the landmark Telecommunications Act enacted by Congress in 1996, the FCC was directed to subsidize the wiring of schools, libraries and rural health-care facilities for high-speed Internet access. The program was an extension of existing federal subsidies to underwrite phone service in costly-to-serve rural and urban areas.

But as the cost estimates for the programs have skyrocketed to more than $4 billion a year, many who never paid attention to the impenetrable world of telephone regulation are fed up over levies that critics derisively refer to as the Gore tax.

They say the FCC is trying to implement funding schemes that obscure the massive cost of the programs by hiding the subsidies in consumers’ phone bills.

The FCC effort has “been a spectacular failure, and . . . a raw deal for consumers,” said angry Democratic and Republican lawmakers in a letter sent this week to FCC Chairman William Kennard.

Not since the cable TV industry drew the wrath of consumers by raising monthly cable fees at more than twice the rate of inflation in the early 1990s has Congress been so up in arms about FCC oversight of the $600-billion-a-year telecommunications industry.

Political furor over the telephone rate increases, in part, reflects the issue’s proximity to coming federal elections.

Outrage has also been fueled by disclosures that some bureaucrats running the subsidy programs are paid lavish salaries, including $200,000 annually to the chief executive of Schools & Libraries Corp., a nonprofit corporation created by the FCC to oversee the wiring of the schools.

“The [FCC] should simply pull the plug on its discredited . . . program,” said Rep. John D. Dingell of Michigan, the ranking Democrat on the House Commerce Committee. “Anything less may force the Congress to address this problem with a legislative remedy that would very sharply circumscribe your authorities in this area.”

Gore said Friday that he is not backing away from his support for the program, adding: “It would be a terrible mistake for the Congress to back away from it.”

But even supporters fault the FCC’s handling of the program.

“We love the program--and we hate the way they’re paying for it,” added Mark Cooper, research director of the Consumer Federation of America.

It was only a year ago that the FCC thought it had averted an uproar over phone subsidies, which are known as universal service fees and paid to the FCC by both local and long-distance companies. The FCC turns the money over to federally chartered nonprofit companies to administer.

The nonprofits then give the money back to telecommunications carriers to offset the cost of providing phone service to the poor and those in high-cost areas, as well as to underwrite Internet access.

Last May, AT&T; Corp. promised Congress it would not pass along the additional cost of the subsidies for schools and libraries to customers if regulators agreed to reduce the special fees that long-distance carriers pay local phone firms to handle the local portion of toll calls.

The FCC agreed to that plan. But last month, AT&T; reversed itself and announced plans to charge residential customers an additional 5% of their interstate long-distance calls beginning July 1.

MCI Communications quickly followed suit, saying it will impose a 5.9% charge on residential customers’ long-distance bills. A spokesman for Sprint said it has no plans to charge residential customers.

Long-distance carriers feel they are burdened by the universal service fees because, unlike their local rivals, they cannot recover the cost of the program.

“We’ve been saying for some time that we cannot eat $1.6 billion in [universal service] charges,” said AT&T; spokesman Jim McGann. If the FCC modified the charge, he added, “then we could adjust our [rate hike] accordingly.”

Long-distance carriers have been passing on higher costs related to the phone subsidy program to their business customers with little fanfare since the beginning of the year.

But it is the prospect of rate hikes for residential customers that has sparked a full-blown controversy.

In the wake of the new phone charges, some critics are questioning the need for any wiring effort at all, noting that 80% of U.S. schools already enjoy some Internet access.

These critics question the need for what White House officials have depicted as a 21st century Marshall Plan to wire schools for the Digital Age.

But the Department of Education says only 27% of U.S. classrooms actually have Internet access--and the percentage of wired classrooms within impoverished neighborhoods plunges to half of that.

The Clinton administration’s telecommunications czar, Larry Irving, an assistant secretary at the Commerce Department, made a bid to referee the controversy when he called on phone companies last month to fund the program without passing on higher costs to consumers. He maintained that, in any case, the costs should come to no more than $1 per month for an individual.

Therefore, “under no circumstances, should consumers be charged more,” Irving wrote in a letter to the FCC.

But some who support the wiring program say it is the phone companies that need to be reined in.

“I’m gravely disappointed in the long-distance companies’ behavior,” said Sen. Bob Kerrey (D-Neb.), adding that he might introduce legislation to require long-distance carriers to add another line to phone bills disclosing their own profits so consumers could judge whether they actually needed to raise prices.