Analyst hits Bell Atlantic

Phone firm denies gouging customers in state for $1b

By Peter J. Howe, Globe Staff, 10/06/99


New York telecommunications analyst who has been on a national crusade against what he calls rampant consumer ripoffs by Baby Bell phone companies is coming to Massachusetts with a dramatic charge: That Bell Atlantic has gouged Bay State telephone customers for $1 billion over the past four years.

The analyst, Bruce A. Kushnick, is filing a complaint today with state telecommunications regulators asking them to recoup vast sums of money Bell has been allowed to charge customers for an ''information superhighway'' network it largely never wound up building.

The charges, strongly disputed by Bell Atlantic and a top state regulator, involve a major change enacted in September 1995 in the way Massachusetts regulates local phone bills.

Beginning in 1995, New England Telephone - now part of Bell Atlantic - has been subject to a cap through 2001 on the prices it can charge customers, giving it an incentive to lower costs to increase profits. Previously, state regulators determined Bell's cost of providing service and allowed the utility a roughly 11 percent profit margin.

Kushnick contends Bell won the lucrative regulatory changes through promises it would use increased profits to rewire Massachusetts with a vast system of fiber-optic wires providing hundreds of television channels and fast data services, beginning with 330,000 homes within a year.

But within months after persuading state regulators to change their price regulation, Kushnick argues, Bell abandoned the ambitious ''information superhighway'' plans - but has still collected hundreds of millions in extra profits and valuable tax breaks for writing off its old copper wire network. Virtually every other Baby Bell has used the same strategy in dozens of states to make billions in extra profits, he said.

In a 24-page complaint to be filed with the Department of Telecommunications and Energy today, Kushnick, author of a self-published book on alleged widespread Baby Bell customer overcharges, contends the changes have yielded over $1 billion in added profits for Bell Atlantic in Massachusetts alone.

''Massachusetts consumers paid for a network that was never delivered,'' Kushnick argues in the complaint, filed jointly with Peter J. Brennan of Jamaica Plain, a former co-chairman of a Clinton administration White House Roundtable for Telephone Information Services.

Bell spokesman John Johnson said yesterday, ''I don't have a clue what he is talking about.'' Johnson said the company believes Kushnick's motivation in making dramatic charges is to create publicity and increase sales of his $49 book, ''The Unauthorized Bio of the Baby Bells & Info Scandal.''

News accounts from 1994 and 1995 show telephone company officials repeatedly cited the prospect of developing enhanced cable and video telephone services as a major reason for moving to price-based regulation.

But Paul Vasington, a DTE commissioner who was a midlevel staffer in 1994-95 and helped draft the new plan, said yesterday, ''It was not at all a quid pro quo, and there were other reasons for going to price-based regulation.''

Vasington agreed with Kushnick that in public statements, phone company officials ''played up big-time'' promises they would use increased profits to offer new services. But, he said, ''If you look at our order, we were pretty darned clear that we weren't basing anything'' on those promises.

New England Telephone did roll out some of the so-called video dial-tone services experimentally in Somerville and elsewhere, but quickly determined ''it just did not prove to be the right technology and the right price at the right time,'' Johnson said.

'We never said that video dial-tone and price regulation went hand-in-hand,'' Johnson said. Moreover, Johnson said, Bell Atlantic has invested $3 billion since 1995 upgrading its network while rates have dropped every year since, producing $170 million in savings for Massachusetts telephone customers.

When the 1995 regulatory change took effect, capping prices through 2001 subject to a formula that requires Bell Atlantic to improve its efficiency each year, Attorney General Scott Harshbarger's office said rates were artificially high and should have been cut more.

Kushnick acknowledged that the Massachusetts regulatory change ''does not immediately link the Bell Atlantic deployment plan with the alternate regulation,'' but said for four years the company repeatedly ''made a verbal commitment to its customers and to regulators that they would deliver on their promise.''

''I've always been in awe that they got away with it, and in shock that no one called them on it,'' said Kushnick.

This story ran on page D01 of the Boston Globe on 10/06/99.
Copyright 1999 Globe Newspaper Company.