Telecom Riot Act of 1998:
Part One: The
Riot Act of 1998
We Demand the Following:
The Bells are still monopolies and should be treated as such.
Congress, the States and the FCC should immediately start the following
- Investigate the Bells’ failure to deliver on promised technologies
- Investigate the PUCs’ failure to adequately protect the public Interest
- Get accurate statistics
- Require a “Total Bill Analysis” of Baby Bell profits,
- Demand refunds and rebates, and lower prices immediately
- Amend the Telecom Act to remedy its failure to bring in competition
- Perform independent examinations into cross-subsidization of businesses.
- Audit the most critical functions.
Step I: Audits and Investigations
FAILURE TO DELIVER ON PROMISED ADVANCED TECHNOLOGIES
States should investigate all alternate regulations that have
promised technology roll-outs, from early ISDN, to I-Way construction
and refund the approximately $30 billion that was granted due the removal
of profit regulations.
In some cases, such as Ameritech, who rolled out out cable services instead
of the full-service network, the monies for these new networks should
be refunded to the subscribers, or the subscribers should become de-facto
owners, since almost all of the funds came from overcharging.
Congress and the FCC should set-up their own separate investigations,
- Fiber-optic technology deployments,
- state PUCs' ability to adequately monitor the Bells, both for company
profits and delivering technology.
The Department of Justice should answer the question: "When did
the Bells and their consultants know that they wouldn't roll-out the technology
deployments and were the documents submitted by the consultants biased
or were there ‘cooked books?’"
The IRS, the SEC and the Department of Justice should investigate
the "$21 billion dollar 'give-away’"-- the excess depreciation charges
garnered from the Bells’ changing their accounting principles prematurely,
from a utility to a free marker company -- and all based on their deployment
of fiber-optic technology.
The FCC should be required to get accurate statistics. In 1993,
NNI filed a formal complaint with the FCC because the statistics presented
had serious flaws, from the prices listed for items such as installations,
being over 370 percent different from actual costs, to the fact that directory
not accounted for basic telephone services. These numbers hide many of
the problems. Also, the FCC does not examine the actual telephone charges
someone pays nor do they calculate the profits. In fact, according to
a 1992 GAO study, the FCC only completes 17 percent of the audits it has
declared "most critical."
State and Federal statistics should match. When comparing
state and federal information -- for the exact same item, no two statistics
match, almost ever, and there is no one trying to rectify the problem
or figure out which number, or even if all statistics are inaccurate.
Cross-subsidization is rampant and unchecked -- fix it. Almost
every partial audit done to date has shown that the Bell's have charged
subscribers for items that should have been paid for by shareholders.
And these partial audits should have been repeated by every state, since
many of the audits found identical problems.
The PhoneBill Audit -- “Total Bill Analysis”
Today, no regulator looks
at the entire profits of the telephone subscribers bills, and we believe
that an independent analysis will show that the profits are 100 percent
higher than a regulated monopoly should be making.
For example, almost all "deregulated"
product revenues, from Caller ID to Call Waiting, were declared "competitive"
primarily to fund the I-Way projects, meaning that there was no on looking
at profits -- so while Call Waiting may cost the customer $5, it only
cost a few pennies to provide -- and the company pockets the remainder.
These services were never open to competitors offering the service.
Demand that The FCC and each state be required to do an cost analysis
for all residential and business customers and all services.
And all would include every telephone service, from inside wiring
to unlisted numbers, as well as "Access fees", which are fees that are
paid by the long distance company to the local phone company to connect
every calls. These charges should be considered pass-throughs that are
paid by customers.
This analysis should not include
the multitude of expenses that are not germane to offering services, from
lawyers and lobbyists to corporate staff. Nor should it include dividends
paid by the local phone company to the parent Baby Bell.
We estimate that the price of all services would drop 30 percent immediately.
Immediately remove all charges for services that have no costs, such
as Touchtone Service and Unlisted Numbers, to mention two.
Repeal all Surcharges and taxes. From the NYS/MTA tax in New York
that pays the phone company taxes and gives money to the Transit Authority,
to the hard-wired revenues from Deaf Relay or E911, all charges should
be a) germane to phone service, and b) all revenues for mandated services
should be put up for bid and not direct revenue to the phone companies.
Right now, there is little if any competition for any of these services
and even for "public Interest services" the public is paying Super-Retail.
Remove the FCC Line Charge and all new FCC additions. The
Bells are some of the most profitable companies in America. It isn't rocket
science to show that an additional charge, known as the subscriber or
FCC Line Charge ($3.50 per residential line; $6.00 per business line)
is one of the ways the Bells are so profitable.
Never let the Bells into Long Distance. The Bells are currently
suing the FCC and parts of the telecommunications Act in an attempt
to enter the long distance markets. Since there is no other second network
being built, and therefore no competition for Access fees, the Bells are
still in control and can keep prices inflated. Therefore, the Bells should
never be allowed into the long-distance market because they can and will
cross-subsidize these markets with excess profits.
Never let the Bells create a new data network. The Bells have requested
to create new data networks in exchange for entering the long distance
markets. Their failure to deliver on their promises of fiber-optic and
technology deployment should be a trigger that allows them into Long Distance.
Until these prior commitments are met, or until the monies have been refunded,
the Bell's should not be allowed into Long Distance.
Bell Mergers Were Never "Merger of Equals" and Congress Should Investigate
the Misrepresentation. While the Bells billed their mergers as "a
merger of equals", the truth is that they were buyouts purchases, and
their statements were misleading. In fact, the companies used this business
arrangement so that Congressional approval would no be required. Also,
making the companies larger was not in the public interest. It has not
lowered prices. It just made the monopoly stronger.
Also, the Department of Justice
should wake up. Compared to the Bells, Microsoft is Mother Teresa, and
the DOJ should have been investigating the Bell's mergers and other anti-competitive
business practices and it's abuse of using it's monopoly power. Demand
an analysis of these buy-outs by the Department of Justice.
Examine the Bells’ Impacts on Other "Competitive" Industries. The
Bells are currently moving into other industries, from Internet access
and Alarm services to the cable industry. Since many of these services
are being developed with customer overcharging, all of these competitive
For example, some of the Bells
are including Internet access for free when a customer gets a second line,
thus using its regulated monopoly to help sell its non-regulated products.
Investigate The School Wiring Scandal. Pac Bell promised
that all of California schools would be wired with ISDN by 1995, yet according
to CNN (10/3/97) only 60% of schools even had computers and only have
of those were wired, almost all to POTS. Also, even schools that try to
get supposed discount rates, they are finding that these funds are either
tied to specific phone companies, and problems abound from there.
With billions of dollars tied
to the new Universal Service fund, or state funding for school wiring,
which is adding new charges on telephone bills, this entire process is
another way for the phone companies to make more revenues.
STEP III: Fiber-Optics was a Lie, Copper Lives,
Where do we go from here?
Tear down the Walls that protect the monopolies- Remove and Repeal
the Rate Doctrine.
Ma Bell, and then it's
children, the Baby Bells, had over 100 years to build walls around their
revenues, and they effectively used lobbyists and lawyers to carefully
create legal and regulatory structures that protect their interests.
For example, the author acted
as consultant to a series of court cases that tried to get refunds for
telephone subscribers. In one case, the plan was to get refunds for Bellcore
expenses that were being charged to all Bell customers but were not related
to telephone subscribers. Even though Bellcore is owned by the Holding
companies, the Bells apply the fees to each state, which in turn is charged
to customers. However, because of the laws protecting the utility, the
cases could not be taken in a regular court, but had to be taken by the
PUCs. In the case of New Jersey, it was the PUC that had caused the problems
be allowing the charges in the first place and then not examining them
since 1985. In fact, any rate the PUC sets can not be sued for,
unless one want to sue the PUC, which to date, is incredibly hard and
Similarly, there is something
called the "Rate Doctrine", which essentially states that any rate set
by the PUCs is unquestionable, unless there is fraud, even if the data
used to set that rate was seriously flawed! -- a rate is a rate.
Like the stone walls of a medieval
castle, trying to attack the ramparts is virtually impossible because
it is so time consuming and expensive, and the laws for rate on the side
of the monopoly, not on the side of the customer. And it does not
allow due process and the legal system to get money back for customers
-it is jury-rigged for the Bells advantage and needs to be repealed.
The Holding Companies Were A Bad Idea - It's Time To Separate, Partition,
Break-Up, Or Just Get Rid Of Them.
The seven, (now five) artificially
created Bell Holding companies have, in almost every way, put shareholders
before subscribers. They have drained the local companies of profits,
assets, and staff, and have used the monies to purchase everything from
furniture leasing companies and Real Estate to ownership to telephone
companies from New Zealand to Czechoslovakia.
In fact, from the start, the
Holding Companies have pleaded poverty, but rarely returned the money
to the local subscribers in the form of new services. After 13 years we
never received the promise of the Information Age, from delivering ISDN
to delivery the Info Bahn.
And telephone rates, the money
that customers paid, just keeps going up even though every year the telephone
network gets cheaper and cheaper to supply basic services. It's only electrons
traveling through wires, controlled by large computers.
And though the telecommunications
Act of 1996 was supposed to bring in lots of competitors, the truth is
that the Bells still control the local phone customers because they own
In 1992, we proposed "Divestiture
II", a plan that would dismantle the holding companies and allow for the
local phone companies to be made into local open access companies to all
competitors -- and have the network costs be 'regulated'. This would
allow prices to remain as low as feasible, provide the customer with great
service, and allow competition to drive new enhanced services -- all over
the primary telephone wire -- copper. The cost to customers would
fall dramatically because the holding companies dividends and markups
would be eliminated.
Other companies, such as Probe
Research, have also proposed a plan for the separation of the local
phone companies. Bob Metcalfe, inventor of
Ethernet and founder of 3Com, has put forth what he calls the "Coppertone
Though the plan would be fiercely
argued by the Bells, because their cash cow would no longer fund their
other ventures, from a customer perspective, or a competitor's perspective,
if this doesn't happen, the Bells will always be able to local control
telecommunications in America.
So Join Us:
The facts clearly demonstrate
that the local phone service is not going to get better by itself, so
joining us in your enlightened-self-interest.
This document is meant to outline the problems and next steps and it should
be sent to every regulator, legislator, the FCC, Congress, and send it