Telecom Riot Act of 1998:

Part II


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 investigations:

  • Investigate the Bells’ failure to deliver on promised technologies and services.
  • 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


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, focusing on:

  • 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 charges are
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.

Step II

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 areas should
be examined.

        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 expensive.

        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 the wires.

        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 Decision".

        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 to: