Dialing for dollars

AT&T; AND VERIZON wasted little time taking advantage of the freedom that the California Public Utilities Commission granted them in August. Unleashed from regulations that limited how they priced many of their services, California’s largest telcos quickly hiked the fees they charged for many of their custom calling services, such as caller ID and call waiting.

The phone companies had argued for unlimited “pricing flexibility” by pointing to the many phone lines they were losing to rivals, such as cable TV operators. They also said allowing them to respond quickly to competitors’ promotional offers would (in AT&T;'s words) ensure that “customers reap the full benefits of competition.”

Here are a few of the benefits: AT&T; has upped the monthly charge for caller ID service from $6.17 to $9, an increase of more than 45%. And call waiting is up 55% to $5.

These increases say a lot about the nature of competition in phone service. AT&T;, Verizon, Time Warner and Cox Communications have aimed their biggest discounts at the heaviest consumers, who’ll buy bundles of wired, wireless and Internet services. In addition, in the market segments where competition is widespread, such as long-distance calling and broadband connections, phone and cable companies have kept their prices down. But providers have to make money somewhere, so they’ve turned to the segments where competition is weakest. For example, while Cox Communications in Orange County has discounted its phone service aggressively -- it now offers a phone line free for six months -- it has steadily raised the price of cable TV programming.


When it comes to extra services on their lines, AT&T; and Verizon face no effective competition. If AT&T; supplies your home phone and you want to add caller ID or call waiting, the only source is AT&T.; The alternative is to give up the phone company’s wires and use either a mobile phone (a service also dominated by Verizon and AT&T;) or service from the local cable operator. These may not be perfect substitutes, especially in the case of wireless phones, which can’t compete with the reliability of wired ones. But for those who aren’t interested in buying packages of services that can cost $100 or more, an imperfect substitute is better than no alternative at all.

It’s worth noting that it costs a telephone company almost nothing to provide custom calling services, which are a function of the software built into phone switches. Thus, the rate hikes will generate more revenue to subsidize other services, such as DSL. Consumers with modest appetites for phone service shouldn’t let themselves be milked to support other, heavier users. It may be time for them to cut the cord.