Nieman Watchdog > Commentary > For low-volume users, phone costs have risen sharply

For low-volume users, phone costs have risen sharply
COMMENTARY | January 04, 2007

Despite phone company pledges to reduce charges, millions of people are paying more for long distance calls, sometimes as much as $1 a minute. Meanwhile, the FCC chairman says rates are in a free-fall.

By Bruce Kushnick
bruce@newnetworks.com

In a previous article, we outlined how local phone service in New York City increased 426 percent since 1984. But charges for local service are only part of the deceptive price increases that phone companies, encouraged by the federal government, are passing on to consumers. Long distance charges for AT&T have gone up 237 percent for low-volume users since 2000, and about 80 percent for average customers. AT&T’s “basic rate” is now 42 cents a minute, and with added charges the rate can range from 50 cents to $1 a minute.

Despite these increases, FCC (Federal Communications Commission) Chairman Kevin J. Martin says rates have been decreasing sharply – a free-fall is how he puts it, adopting a phrase used in a 2005 report of the Phoenix Center, a phone company-funded group.

Because of unreadable phone bills, lack of oversight, and no real competition for stand-alone local or long distance services, SBC-AT&T and Verizon-MCI have milked customers out of billions of dollars annually. It is a nasty story of corporate greed – and those who trusted AT&T and MCI, especially seniors, got harmed. And it’s a story for reporters to work on in every community in America.

Let’s walk through the materials.

In 2001, AT&T and MCI controlled interstate calls for 62 percent of households. At about the same time, AT&T claimed that it had 26 million ‘basic rate’ customers. Since then, prices have continually gone up. For so-called low volume customers, they have more than tripled. Along the line, in 2005, AT&T was sold to SBC and MCI was sold to Verizon.

The AT&T current ‘basic rate’ for low-volume users is currently 42 cents a minute, as shown on an actual phone bill page, up from 19 cents a minute in 2000. Low-volume users are customers who make up to 15 minutes of long distance calls a month. About 30 percent of American customers are in that category. In addition, since 2000 AT&T has added a Minimum Usage Fee, a Plan Fee, a Cost Recovery Fee, and an In-state Connection fee. So-called universal service fees were 3.9 percent in 2000 and now average about 10 percent. Taxes and surcharges are applied to these new fees. [Click here for AT&T’s definitions for some of these charges.]

The “Minimum Usage” fee works so that customers who don’t make a certain number of calls are penalized. It has gone up dramatically in recent months. According to AT&T’s Web site, the minimum for customers in some plans has been $9 a month since August 2006, and $9.99 a month for customers since September 2006 for customers in other low-volume plans.

MCI has had similar increases. Its basic rate is now 35 cents a day; on top of that it has added a “Plan Fee”, a “Cost Recovery Fee”, a “Single Bill Fee”, and others. AT&T and MCI are lock-stepped in price increases.

The increases have occurred during a period in which prices were supposed to decline. In 2000, the FCC put forward a plan to lower long distance rates, known as the CALLs plan. In a letter to the FCC, AT&T said it was going to remove plan fees, minimums and lower the price for basic rate services to 19 cents a minute. But the basic rate has gone up, to 42 cents a minute, a 120 percent increase, not counting the new charges.

Teletruth estimates that 20 million to 30 million AT&T and MCI customers have had increases (and could still be customers), and at least half are mostly seniors and low volume users, mainly paying ‘basic rate plans’.

Next in the series:The issue of competition or, rather, the lack of it. Are consumers incapable of reading their bills, or is it questionable business practices, or both?

Bruce Kushnick has been a telecom analyst for 28 years, and is currently the chairman of Teletruth, an independent customer advocacy group focusing on broadband and telecom issues, as well as executive director of New Networks Institute, a market research firm.

E-mail: bruce@newnetworks.com

Comments

Submit a comment - Jump to bottom of list

Exploiting Seniors
Posted by R C - Ra Conteur
02/07/2007, 06:11 PM
Not only do rates claim to go down, while actually going up - there is little oversight of these practices. As a result the most vulnerable in society are hurt. At one point a New York City phone bill contained as many as fifteen (15) additional fees, taxes, levies etc. If one could slog their way through the "billing" mess they discovered that one or two of these fees were actually NY MTA taxes - taxes to pay for the subway system! Huh? The phone company was collecting money for the subway?? What a load of horse puckey. At some point we can no longer rely on old school suspension of disbelief.

Immediate legislation is needed to streamline phone bills to the minimum they actually need to be. Flat fees, "long distance" and tax. These categories should not change without FCC/regualtory oversight. We disrespect our senior population by offering low cost, low volume plans and then over-complicate them to bilk the customer. Utilities employing such deceptive practices should be sued, fined punitively with the fines generating grants for new, alternative startup competitors.

Submit a comment - Jump to top of list