The FCC’s Buzz Words to have AT&T and Verizon Raise Your Rates and Add New Fees: Broadband, Jobs & Economic Growth

 

RE: National Broadband Plan, Universal Service Reform, Intercarrier Compensation and Connect 2 Compete.

 

The FCC has just raised everyone’s phone rates and added new taxes, among other odious things. This is all being done in the name of getting broadband to America’s unserved and fixing the broken Universal Service Fund – but in reality much of the money,  even the new  taxes are just more money to AT&T, Verizon and the other phone companies.

 

The FCC even claims that raising rates and new fees will add “500,000 jobs and $50 billion in economic growth over this period”.  Did you know that increasing your rates and adding new taxes is even good for you?  It will save consumers who make long distance calls money, and wireless customers alone will have a billion dollars in benefits.  http://www.fcc.gov/encyclopedia/connecting-america#factoids

 

According to the official FCC blog:

 

“Consumers who make long-distance calls – including nearly all landline and mobile phone subscribers – will benefit from reduced prices or greater value for the money – or both, with an FCC-estimated $1 billion or more per year in benefits for wireless consumers alone.”

http://www.fcc.gov/blog/connect-america-fund-putting-consumers-map

 

We’ve written about this before, but now it’s up close and personal. http://www.niemanwatchdog.org/index.cfm?fuseaction=Background.view&backgroundid=461

 

The FCC has bought the phone companies’ plan hook, dialtone line and sinker.  In fact, we’re all going to be charged about $10-$15 billion annually and history shows that the ‘savings’ are never accrued, they are simply hype. That means they are collecting $50-$75 billion from us customers over the next 5-6 years.

 

We estimate that residential customers will be spending $40-$75 a year more and small businesses $150-$300 a year, and this amount increases with the number of phone and wireless services they have. That’s on top of the current 15% tax applied for the Universal Service Tax of which, ultimately, AT&T and Verizon are the largest recipients.

 

Is the economic ‘growth’ really nothing more than you are paying more to the phone companies?

 

The FCC claims that these increases aren’t going to amount to much money for each customer, i.e. you, as the phone companies would never, ever, charge the maximum. The FCC doesn’t have a clue about the reality of these changes as they don’t collect actual phone bills nor have they done any analysis on what the entire costs will be, including taxes, fees and surcharges being applied today, much less when the increases hit. History, as well as Teletruth’s own extensive phone bill auditing and surveys shows that if there’s a way to get the maximum, the companies will figure out how to bill you for it.

 

What Does America Get for this Money? Tin Cans and String.

 

The FCC has set broadband standards for wireline and wireless services at new lows.  Here are my personal favorites from the FCC’s National Broadband Plan. Wireless is less than 1 megabit in both directions; wireline is 4mbps which can not support basic HD video, such as cable service. I guess you didn’t know the FCC has a sense of humor.

• Wireless: “4G (768 kbps/200 kbps minimum at cell edge)
• Wireline:  “4 Mbps/1 Mbps to all supported locations 

 

Worse, as we will discuss, the National Broadband Plan is just a put-on job by AT&T and Verizon. They created a massive skunkworks campaign called “Connect 2 Compete” - which has nothing to do with competition – to push through the plan. They have paid off thousands of non-profits through foundation grants and other perks,  created multiple astroturf groups as front groups, greased the skids of state and federal politicians, created research through corporate-funded think tanks -  all claiming it will be good for America. Sadly, these same organizations or individuals do not mention how it harms the very constituents that they purport to be assisting.

 

And competition? In most of America it’s dead-on-arrival as the FCC’s new plans do not open the phone/broadband networks to competition, which historically drove innovation and economic growth in the 1990’s.

 

Here’s how They Will Be Overcharging You.

 

Let’s expose all the money as this entire plan has multiple moving parts. There is the Universal Service reform, the Connect America Fund and something called “intercarrier compensation”, (which are the payments made between the phone companies to handle traffic), but are all tied to the National Broadband Plan.  Because it’s very complicated and these various documents are over 1,360 pages, the FCC has not bothered to actually show anyone what all of these charges are going to look like (but only gives the total amount raised in some cases).

 

Let’s start with a summary. Appendix 1 gives the summary of how we calculated to the corporate largesse and tax implications.

• Universal Service Fund (USF) remains at the all time high.  Currently around a 15% tax collected on all ‘interstate’ services, wireline or wireless service, the USF is running around $8-$9 billion annually  About half of the money goes to “high cost funds”; the other half goes to Lifeline, Schools & Libraries and Rural Healthcare Funds. 
• High Cost Fund Capped at $4.5 billion. The FCC capped the high cost fund $4.5 billion and this is, in fact, not changed from the current 12-year high amount.
• “Access Recovery Charge (ARC)” on wireline telephone service, is a new tax/charge that could add $2.50-$3.00 a month per line after 6 years. Originally the phone companies’ plan was to raise the FCC Subscriber Line Charge on customers’ bills, but that would be too obvious. Note: This is direct revenue to the phone companies.
• ARC Multi-line Business customers are really hosed as they can be charged $5.00-$6.00 or more a month extra as “ARC plus the existing FCC Subscriber Line Charge can go to $12.20 per line”.  There is NO cap on the rate increases on businesses. The current FCC Line Charge is capped at $6.50 a month per line, (with other caveats).
• Connect America Fund (CAF) – This is a new tax collecting $1.8 billion annually. Named after the astroturf group, it gives more money to the phone companies.
• The Mobility Fund – has a “$500 million total budget”, as if the cell phone companies needed a $2.5 billion 5-year subsidy, though in principle it should be going to underserved areas.
• Tribal Areas – are “up to $100 million per year” (out of the Mobility Fund).
• Remote Areas Fund – The FCC states is “at least $100 million per year to ensure that Americans living in the most remote areas in the nation, where the cost of deploying traditional terrestrial broadband networks is extremely high can make use of ‘alternative’ methods of Internet access). It is designed for areas that the Bell companies won’t bother with. Previously, remote areas could receive $5,000-$10,000 per line per year. (However notice the words “at least”, meaning it could be a lot more.) 
• FCC Subscriber Line Charge –(on all local bills) does not go to fund the FCC but is direct revenue to the phone companies and it may also get raised. The FCC claims that they are “reassessing existing FCC subscriber line charges (SLCs), which are not otherwise implicated by this Order, to determine whether those charges are set at appropriate levels”. NOTE:  The “ARC is a combination of new charge and SLC”, so how can the FCC claim this isn’t directly related if it’s tied directly to the ARC increase? Moreover, the FCC doesn’t want people to figure out that this increase was planned by the phone companies at least 5 years ago.  

 

There are some other charges that we expect, most specifically: 

• “We’re the phone company and this is our plan and all of this money goes to us charge”, 
• “Please Sir, may I have another charge?” 

 

Each component is designed to nickel and dime everyone with multiple buckets that goes to the phone companies. According to the FCC the phone companies are the “Bell Operating Companies and other large and mid-sized carriers”— AT&T, Verizon and Centurylink-Qwest are the Bell companies.

 

How Much Does All this Add Up To?

 

The FCC does not bother to do an itemization, but the total amounts after 5 years (not counting transitional changes to ‘ramp up” these fees) is at least $50-$75 billion, including the new additional taxes, as well as taxes, fees and surcharges applied to the original numbers.

 

NOTE: This doesn’t include the additional $4.5 billion per year for the high cost fund, which the FCC claims will be transitioned into the Connect America Fund.  Based on history, there’s no proof that this will occur. (Also, some believe that the CAF is part of the high-cost fund. If that were the case, the FCC should spell it out.)

 

Simply put, residential customers could pay $40-$75 or more a year; businesses could pay $150-$300 or more extra. And this could be higher depending on which services and how many lines the customer has. Also, there are still details about the actual costs to customers that need to be worked out.

 

However, the FCC claims that some of the increases and charges won’t happen.

 

“The ARC, with a maximum annual increase of $0.50 for consumers and small businesses, and $1.00 per line for multi-line businesses, to partially offset ICC revenue declines. To protect consumers, we adopt a strict ceiling that prevents carriers from assessing any ARC for any consumer whose total monthly rate for local telephone service, inclusive of various rate-related fees, is at or above $30. Although the maximum ARC is $0.50 per month, we expect the actual average increase across all wireline consumers to be no more than $0.10-$0.15 a month, which translates into an expected maximum of $1.20-$1.80 per year that the average consumer will pay.”

 

And yet, in the FCC’s Connect America Summary they have, only as a footnote, the following:

 

“The maximum theoretical ARC for customers of price cap carriers would be $2.50 after 5 years and for customers of rate-of-return carriers would be $3 after 6 years, although we expect the average actual ARC to be less than half of those totals.”

 

This is pure garbage. The FCC doesn’t currently collect actual phone bills so they won’t know the actual consequence.  Also, the FCC doesn’t actually audit any of this, thus the companies will simply charge the maximum.

 

All of this is being played out against a landscape of massive phone rate increases that were created by the FCC’s previous decisions to close down almost all competition for wireline services. Verizon and AT&T, in most states, increased local rates 50%-90% over the last 5 years and almost every ancillary charge is up 50%-250%, based on actual phone bills. The FCC has not audited this nor has the state commissions and so this is just dumping more charges on a Christmas tree of other charges.

 

Take Out Your Phone Bills if You Want to Get Angry.

 

These new increases and taxes are a lot worse than the FCC claims because of how the taxes, fees and surcharges are applied to these other charges. Let me explain.

 

Verizon New York’s FCC Line Charge on residential bills and small business bills is $6.42 per line per month, (which can vary by month), but since it’s a federal charge it is also taxed a “Universal Service Fund: tax at 15%. Then there are various ‘tax surcharges’ that are actually taxes on Verizon but they are passed-through to the customer which adds almost 7%-9% to these other charges.  Not bad enough?  Then all of these ’tax surcharges’ and services are taxed and surcharged federal, state and local taxes and surcharges, adding about 12% on everything. That’s right; it is double and triple taxation. --- Where’s Grover Norquist when we need him?

 

The total comes to $8.72 in 2011 in New York City, not $6.42  and many of these, like the surcharge pass-throughs or adding the Universal Service fund to a part of local service, while outrageous, are going to add their own $.10 -$.15 a month per tax to any increases of the FCC Line Charge or ARC.  --- Example? If the ARC is $3.00 a month, the USF tax at 15% would add $.45 per month.

 

The FCC has presented none of this actual cost analysis, yet has raised rates and applied new taxes arbitrarily.

 

This recent Verizon, New York small business phone bill has lots of mistakes, http://www.teletruth.org/rammedexample.htm  but it indicates how these various taxes and surcharges, hidden on the monthly bills, are all being pushed onto the customer. Who knows how the Connect America Fund will be applied, then double taxed with the FCC’s ignorance (or obfuscation) costing you, your business, school, library or municipality more money.

 

The Speed is Atrocious: We Pay $50-$75 Billion and We Get Tin Cans & Sting?

 

The National Broadband Plan’s primary goal is 100mbps services:

 

“Goal No. 1: At least 100 million U.S. homes should have affordable access to actual download speeds of at least 100 megabits per second and actual upload speeds of at least 50 megabits per second.”

 

But this is what the current plan calls for. Please do not laugh. This is what we get for spending all this money, as told by the FCC Connect America Fund documents. Personal favorites --- “4G (768 kbps/200 kbps minimum at cell edge)” or “4 Mbps/1 Mbps to all supported locations”.  

 

Component of CAF Broadband Performance Characteristics

 

This speed can’t compete with cable as it requires at least 6-10mbps speeds to supply HD video. It’s can’t do HD-telemedicine as the upload speeds are too slow. On mobility, these speeds are just embarrassing as the FCC has fallen back on using “200kbps” for broadband.  That is 1/5 of 1 mbps. 200Kbps was originally initiated in 1998; it’s now almost 2012 and we are still using a standard that was embarrassing 14 years ago.

 

Sleaze Factor: Connect 2 Compete

America’s broadband is snail-band slow and they are  taxing and raising rates  --- then why aren’t the non-profits like the NAACP or LULAC, one of the largest Hispanic groups, or the Broadband Coalition not up in arms at charging customers, especially seniors, low income families, disabled and minorities, not to mention all small businesses more money?

 

“Connect 2 Compete is a front group we believe was created to co-opt the FCC and shut everyone up about the actual monies being charged to customers by AT&T and Verizon, throw in Comcast.  There are thousands of AT&T and Verizon non-profits and other corporations who have a business relationship with the telcos that are part of this cabal.  In fact, some of these astroturf-y groups have arranged to get stimulus monies, but were started by the phone companies to essentially be used as human shields so as to get more money for Verizon and AT&T, both wireline and wireless.

 

Why has not one group called for an investigation of what happened to the $340 billion and counting that’s been collected by the phone companies and that was supposed to be dedicated to upgrading the Public Switched Telephone Networks, the utilities, replacing the old copper wiring with fiber optics to the home and office?  In our first Harvard Nieman Watchdog story we highlighted how the companies had gone to the state regulators and got massive financial incentives to upgrade the utility plant to fiber. These payments were in the form of tax breaks and higher rates through deregulation. Those networks were never properly upgraded. Little, if anything has significantly changed.

http://www.niemanwatchdog.org/index.cfm?fuseaction=about.viewcontributors&bioid=130

 

Moreover, there is no competition in Connect 2 Compete. It’s all about obfuscating the bottom-line truth; the FCC has granted major new rate increases and taxes and is covering it over with help from the AT&T, Verizon and Comcast funded groups and a create massive skunkworks campaigns to cover over their tracks. We outlined this deception in our new Alternet article “Occupy Telecom, Occupy the FCC”.

 

Is it really ethical for the FCC, a regulatory agency, to work with companies and non-profits who have direct financial ties to the companies the FCC regulates? Think of it as -- a person decides to take a company to court and sees thar the judge and the company's lawyers are good friends. On the jury of your peers, 80% have some financial relationship to the company. Then you ask the jurors and the judge to side with you or to make the company change it's behavior. Do you think the jury would make vote to do something that would harm the company who they work with/for?

 

Déjà Vu: History Repeats Itself.

 

In 2000, the FCC raised the FCC Subscriber Line Charge from $3.50 to a cap of $6.50 on residential and business bills and added the Universal Service Fund; originally at 3.9%, now at 15%. This was a campaign called “CALLS” and it was created by the phone companies with the same message – tax and rate increases are good for you.

 

CALLs gives us a historic look at just how flawed the FCC’s claims of ‘transition’ of services will be through these machinations. CALLs not only raised rates; there were no major savings.  The companies simply kept the extra monies. Moreover, there were items that were supposed to be removed from the bills, such as the “Federal Access Charge”, commonly known in the industry as “PICC”, but after more than a decade, it is still on small business bills. Verizon, New York charges $1.60 per line per month and it can be as much as $2.00-$3.00 per line per month depending on the company.  The FCC claims that the remaining phone bills that have this charge are being assessed $.04. The FCC should post a bill that shows this or do a survey of bills to see what customers are actually paying.

 

I end with a model of this deception – a document that was put up at the FCC in 2000 (which was removed from the FCC’s web site), outlining how groups, such as the National Consumer League, were given money to proselytize for CALLs. This has many of the same usual, phone company corporate-funded non-profits, such as the NAACP and LULAC. Read it and weep.  Proof that nothing has changed in DC and history repeats itself.

http://www.teletruth.org/docs/CALLSFCCtelco.pdf   

 

A Potential Reprieve?

 

As of this writing there has been a flurry of legal actions and filings that could pick away as some of the issues we just raised. Some groups are asserting ‘states’ rights over the federal FCC’s jurisdiction, some against the impacts on changes to universal service or to payments between the phone companies. However, as of this writing, it is hard to discern if there’s anything to stop the major increases from proceeding as planned.

 

Appendix 1

Monies Collected in a 5 Year Period for National Broadband Plan, Universal Service Reform, And Intercarrier Compensation.

 

 

Assumptions & Caveats: 

• Phone companies will always charge the maximum
• We did not use ‘ramp’ up fee structure as that’s more like a ‘promotional’ price to the actual annual costs.
• All of the FCC’s new fees, such as ARC, will be taxed Universal Service (at 15%), pass-through telephone company taxes and surcharges, then taxed federal, state and local taxes, though all this varies by state. We allowed 10% for taxes, though in New York it adds 20% above the 15% for the USF to the FCC Subscriber Line Charge today.
• We used the most recent available line data from the FCC’s Statistics of Common Carriers, which is for 2006. The FCC stopped collecting and publishing this data.
• Residential charges were calculated at $2.50 extra, Businesses $5.70 extra, (NOTE: This could be higher as businesses are not capped and “rate-of-return” carriers can charge up to $3.00 for residential customers.)
• “State Based Additions” are taxes that are like Universal Service, Connect America, or other taxes that are ‘state based’. California, for example, has two high cost funds, as well as a broadband tax, lifeline, etc.
• We included the addition of special access lines because many lines, like alarm circuits, are not counted as ‘switched access’, and therefore are not included by the FCC in their line accounting,  even though they still pay FCC Line charges, use the exact same network wiring, etc.
• If we added the ‘high cost fund’ to the equation; the total would come to $95 billion over the 5  years, though as of this writing it is unclear whether the CAF is coming out of the current high cost.