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Local phone charges have soared since the break-up of AT&T

ASK THIS | September 18, 2006

One in a series: Activist Bruce Kushnick examines local telephone charges. Is the sum greater than the parts? No, they’re all extremely high, he finds, and basically unregulated.

By Bruce Kushnick

Q. On phone bills in your area, how much has “local service” increased, counting all taxes, surcharges and revenues?

Q. How can the phone companies keep raising local phone rates while the costs of service keep going down?

Q. Why is NO regulator examining ALL of the charges on the phone bill?

Q. How many customers get harmed when local service prices increase? Are packages the solution?

We keep hearing that local telephone service prices are falling because of “competition”. This is simply not true. In New York City, for example, local phone service prices have increased a whopping 426 percent since the break up of AT&T in 1983, even though there’s been a dramatic decrease in the costs of offering service, from massive staff cuts to cuts in construction. It seems no regulator has been interested in protecting the public interest; instead they keep granting the phone companies excessive, unaudited increases.

Phone bills don’t lie. In 1980, local phone service in New York City was a ‘bundled’ package of services. It included 6 free directory calls, (10 cents each after that or a 30-cent credit if not used), a $4.00 allowance for local phone calling, the wire in the home and even the telephone. Without the telephone, the cost was $7.63, counting taxes.

[Click here for other pieces by Bruce Kushnick]


Over time, the phone companies were able to ‘deregulate’ every charge, thus raising every charge as well as adding new fees. Since Verizon has taken over, no directory calls are included and the price-per-call now, in 2006, is $1.46 each, counting tax. The cost for the wire in the home has gone up to $4.48 a month, a 261 percent increase. The FCC Line Charge was added to local bills, amounting to $6.40 a month in New York City. This charge is direct revenue to the phone companies and is growing.

Each state is different. For example, New Jersey’s local service included unlimited local calling and unlimited directory assistance. But from our studies, the increases in New York seem typical.

There are also a host of new dubious charges, some of them dubious ones, from fees for the Universal Service Fund and for 911 service. While described as ‘public interest’, these new charges have become corporate slush funds or state regulator playthings. Less than half of the 911 service charges goes for emergency service. Verizon was given the lion’s share of the money to run the service; it was never put up for bid. Meanwhile, Universal Service is now a corporate subsidy for the carriers, as the largest portion of this goes to something called the “high-cost fund”.  

The question comes to mind: How can there be a “high cost” when there is no real oversight of the total telephone bill anymore? Worse, proposed bills in Congress would raise the Universal Service Fee more than 200 percent and even add a new fee.

Every increase also increases every tax and surcharge. Some local charges, like the FCC Line charge, have 27 percent taxes applied, while over 17 percent is applied to the rest of the bill. We include the ironic fact that the FCC Line Charge is taxed a Universal Service charge.

Telephone Rental: In 1980, the phone rental was $1.18; by 1988 it was $6.98 including tax. A class action suit was successfully taken to help the millions who had rented phones. We excluded it from this analysis since rental charges were controlled by AT&T, not the Bell companies.

Calling Features: According to a study by the Florida Public Service Commission, most of the costs to phone companies for services such as Call Waiting, Call Forwarding, and Caller ID cost less than a penny to offer, making for profit margins of over 48,000 percent.

Packages: Verizon will argue that packages save money. But most customers spend more money if they go on a package because the advertised price doesn’t include the 35 percent added on as taxes and surcharges. This includes the FCC Line Charge, which is allowed to be placed in the ‘taxes and surcharges’ section of the bill even though it is revenue to the company.

Plans for an FCC Line Charge increase: The FCC is now considering a plan that to raise the FCC Line Charge to $10 a month, and add a new charge as well. The argument is that it will lower long distance prices.  

In 2000, the FCC created the “CALLs” Proposal, which raised the FCC Line Charge from $3.50 to a cap of $6.50, claiming that it would lower long distance prices and not harm local charges. Data show that the costs to customers did not go down but went up for long distance as well.

The FCC’s new plan is called the “Missoula Intercarrier Compensation Plan.” With a name like that, the plan sounds more like a healthcare proposal than something that would increase customers’ local phone charges. How do customers know they should complain to the FCC about these increases when they are disguised in obscure proceedings at the FCC?

Click here for an analysis of the FCC Line Charge.

In two states, Ohio and New Jersey, AT&T and Verizon have had a continuous series of increases, some in the form of new fees, others simply increasing each part of the bill. For example, in Ohio, the Ohio Consumers’ Counsel wrote:

Verizon customers paying more for local telephone packages, features COLUMBUS, Ohio – August 10, 2006 – The Office of the Ohio Consumers’ Counsel (OCC), the residential utility advocate, is alerting Verizon customers of increased prices for several local telephone packages and commonly used services.

• Call Forwarding – now $2 per month, up from $0.75

• Caller ID w/ Name and Number – now $9.25 per month, up from $7.95

• Three-Way Calling – now $3.50 per month, up from $2.75

• “Big Deal” calling features packages – now $3 more per month.

Prices Should Be Declining Because Expenses Are Declining.

The increases are playing against a backdrop where costs to offer service have been continually declining since 1984. For example, there has been a whopping 65 percent drop in employees-per-line, and a 60 percent drop in construction costs. Thus, the companies make more profits during every increase.

No regulator is examining either the total charges on the phone bill or the profits – and so, in New York and other states, the phone companies have been able to get massive local phone price increases just by asking for them.

In addition, no regulator has jurisdiction over the entire local phone bill. The FCC Line Charge and Universal Service Fund are federal charges, while local service falls under the purview of the state Public Service Commissions. The FCC data on local phone charges is seriously flawed. In 1993, New Networks Institute, where I am executive director, showed that the FCC’s data on phone charges had major errors, such as not including the ‘value’ of the directory calls in local service packages.

More Info:

Click here for related reports by Teletruth and New Networks Institute.

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