Phone Bill Independence, 2004Introduction
In 2002-2003, Teletruth, along with New Networks Institute and LTC Consulting, conducted the “Send Us Your Phone Bill” campaign, garnering 110, mostly Verizon residential and small business phone bills from New York and New Jersey. We set out to do the impossible: examine phone bills in detail. (Note: Verizon is the phone provider for most of New York City and New Jersey.) We can now say with confidence that the customer does not have even a basic understanding about the charges on their phone bill and that what the customer does not know about the phone bill will ultimately hurt them. Let’s look at some of the findings. Phone Bills are Unreadable and They Hide Many, Dirty Secrets. Verizon’s “easier-to read” phone bills receive an “F” – a failing grade. Hidden are numerous charges, surcharges, mistakes including missing discounts, overbilling, triple, quadruple, and quintuple taxation and a slew of violations of basic “Truth in Billing” guidelines which were designed to make phone bills tell-the-truth and be readable. We found 59 violations in just Verizon New York and New Jersey phone bills. However, the problem isn’t just the cosmetics of the phone bills. Verizon has failed to address the primary issues with their new easier-to-read phone bills. The phone bill has become a Christmas tree of misnamed taxes, “Idiot Items”, surcharges and bogus fees. In fact the authors, two telecom and phone bill experts, are still not sure about some of the charges on the phone bill, even after months of research and analysis. We would also place a bet that customers receiving the new “easier-to-read” phone bills would not have any higher scores in their ability to understand the charges on the phone bill. We need to stress that the problem is not simply Verizon or the other local phone companies. The real problem is that there are no regulators to examine the phone bills’ charges, taxes, surcharges, or even profits today – not the state commissions, Congress or even the FCC – and the American phone customer has been paying for it for decades. Taxes and Surcharges – A Mache Pit of Taxes and Hidden Revenues to the Phone Companies FACT: In New York, the “Surcharges and Taxes” section of the phone bill is 112% more than the cost of local “dialtone”. For an example of just how absurd and disturbing the situation is, one needs only to take the “FCC Line Charge” (also known as the “Subscriber Line Charge”) located somewhere on every US phone bill. Nearly everyone we polled believes it is a charge to pay for the FCC, but in reality it goes directly back to the local monopolies as revenue. Since 2000, the FCC raised this rate from $3.50 to $6.50 per line without proper cost support, even though Verizon’s major costs have been slashed in the last three years. To make matters worse, this charge is also taxed a Universal Service Fund charge, despite the fact that Universal Service is supposed to only be applied to long distance service and not a local charge. In New York, it is also taxed a mysterious series of unmarked “surcharges” which we found there are some of Verizon’s own Utility taxes that are passed through and paid for by customers, as well as Federal, state and local taxes. In New York, the FCC Line Charge, which resides in the “Taxes and Surcharges” section of the New York City bill is taxed an additional 27%; It is a tax on top of a tax on top of a tax. None of this can be discerned by the newly formatted phone bills or even the information supplied on the Verizon website. In New Jersey, Verizon has placed this charge under “Basic Local Charges”. That phone bill states the FCC Line Charge is “mandated”, part of “local telephone service” and “regulated by the New Jersey Board of Public Utilities”, none of which is correct. Verizon NJ claims that it hasn’t raised local phone service since 1985 even though the FCC Line Charge went up 86% in the last three years and is defined by them as a local telephone service. Based on cost analyses done in 1998 by various economists, Teletruth believes that the FCC Line charge should be reduced 85% or immediately removed. Other Taxes and Surcharges are Equally Perplexing The FCC Line Charge isn’t the only questionable surcharge on the phone bill. There are a host of other extra charges that have been added by regulators for pet projects or other reasons. Items such as “phone number portability” or “E911” are being funded not by the telecom companies, but added as additional fees to customers’ services. There are also items that are just plain outrageous. In New York City, somewhere there is a hidden tax for the Metropolitan Transit Authority – the subway. Meanwhile, the Spanish American War Tax (Federal Excise Tax) was initiated on phone bills in 1898 to fund the Spanish American War. There are major issues surrounding something called the “Universal Service Fund” (USF), which has been recently cited as a large “out of control” slush fund of billions of dollars without proper oversight and which supplies funds to these companies in numerous ways. This fund not only funds school and library connections to the Internet, but the largest portion is for the “high-cost” fund to subsidize phone companies in high-cost areas. In many states, Verizon and the other companies are getting paid by customers to provide these services at business retail rates, sometimes without any competitive bidding. In other cases, many companies receiving high cost funds are highly profitable. We support the need for Universal Service, phone numbers that are moveable and emergency services; we do not support the addition of multiple charges without oversight. What should annoy the reader is that the USF, portability and these other “taxes” are also taxed surcharges, Federal, state and local taxes. Once again, taxes being applied to taxes in the “Taxes and Surcharges” section of the phone bill. Without any regulator examining the total bill for the profits from the services being provided, it is easy to surreptitiously bill customers with multiple charges without anyone taking notice or claiming responsibility. Who can read the phone bills? Who can complain? NOTE: The FCC’s own data on this topic is totally flawed as well and is in part responsible for the various problems. Case in point: The FCC Line Charge should have been renamed and cost support analysis should have been applied. However, the major problem with the FCC data is that it is not based on actual phone bills. How Did This Happen? Deregulation Without Oversight and the Devaluation of the Definition of “Basic Service”. Examining a 20-year history of phone bill charges demonstrates that these problems did not just start today. Aunt Ethel’s phone bill of 1980 from Brooklyn, New York was $9.51 in total, because local phone service was a “package”. It included the telephone, six free local directory calls, the wire in her home and a $4.00 allowance for local phone calling. By 2003, local service in New York went up 409% to $48.37 for the exact same service. If you remove the controversial phone rental, the total increase is still over 400%. Ironically, the reason the phone companies can continually ask for increases is that the regulators have “Deregulated” or “devalued” each item. The regulators do not examine the profits from various services nor add up all of the charges. By redefining the words “Basic Service” “Local Service”, etc. to NOT include anything, they can use this slight of hand to show declines. How bad does it get? Take the case of “Calling Features”, such as the popular Call Waiting, Call Forwarding, or Caller ID. According to the Florida Public Service Commission, the costs to offer Call Waiting or Call Forwarding is less than a penny, yet in New York customers pay $5.30 a month for Call Waiting – a 52,900% profit margin. In New Jersey, Verizon still charges for Touchtone, a service that costs nothing to offer, while Verizon in all states also charges for non-published numbers – a service with no cost as well. Meanwhile, the price of local service should be continually decreasing since the costs of offering local phone service have been steadily dropping. In the last three years, Verizon has cut its construction budget by 53%, while over the last two decades there’s been a decrease of over 65% in the number of employees-per-line. In New York, Verizon received a number of increases in many services over the last year, even though they claim it is only 3%. As we demonstrate, the rates for local phone calls went up 16%, with heavy users paying $70 or more a year from this increase. The FCC Line Charge went up 86%, inside wiring went up 232%, local directory calls went up 60%, and “dialtone” went up over 40%. The game, of course, is to redefine the definition so that nothing is included and the calculations are nothing more than a shell game. Even the actual cost of the network is in question. In 2000, the FCC released an audit of the Bell companies’ network equipment that found $19 billion in unverifiable or missing equipment, commonly called “Vaporware”. This represented only ¼ of the audits that should have been conducted. The New York State Public Service Commission continued the audit and released a report (which was later taken off their website) that found $633 million of missing equipment in just New York with only ¼ of the equipment examined. This means that the costs used to compute rates were inflated and it therefore ALL phone bill charges have been inflated for decades. Packages Have Problems Today, many customers are being told that a bundle of services such as the combination of local and long distance, or adding DSL, could save them money. Unfortunately the entire story is not told to customers before they buy. Verizon NY advertises its “Freedom” package for $59.95, but they do not tell the customer that the bill is really $81.70 – an additional 36% in taxes and surcharges are missing from the stated price, including the FCC Line Charge, USF, portability, surcharges, etc.. No wonder our analysis found 15-25% of the population are paying more for the package than it would have cost as an ala carte purchase of services! More to the point, the majority of customers do not spend enough money for the services separately to get any benefit from a package when the taxes are included. For the majority of users, there is no local wireline residential phone competition today. Virtually all services offered by the large competitors are for packages only. We also found that while Lifeline, the discounted government program, gives customers a break on some of the costs, customers can still have large phone bills because all calling features and just using the telephone to make calls can make using these services prohibitive. Packaged Services Getting a Free Ride? Massive Cross-Subsidization There are even deeper issues than the ones already touched upon. For example, not only do we have to worry about the phone charges, but also the “cross-subsidization” – paying for Verizon’s other products that are not part of local phone service. When you pay your local phone bill, the charges are supposed to be “fair and reasonable”. You are not supposed to be paying for another competitive service to be created, such as DSL, or to fund the company’s long distance or wireless rollouts and advertising. The costs you pay are supposed to be related to the service you buy. For example, when you buy a car, you are not going to pay an additional fee to say, create a car wash, or to fund the design of a new commercial jet plane. A simple example of cross-subsidization is the phone bill “Insert”. This insert was supposed to be for “consumer education” and the cost of printing and inserting this insert is built into the cost of local service. The insert has since turned into a free marketing vehicle for Verizon’s other products such as long distance, wireless or DSL. Based on a year’s worth of Inserts, we discovered that over 75% of the entire space was dedicated to the companies’ products or campaigns, and only 25% ever ended up to be discussing important “consumer” information, usually on the last page at that. Should customers have to pay to be advertised to? If these companies paid their fair share to advertise it would lower phone rates as well. The insert is only one of many free rides Verizon is getting instead of lowering phone rates. Competitive Issues In our research we found two very disturbing competitive issues that gives Verizon an unfair advantage over their competition. Verizon’s competitive services are supposed to have their own subsidiaries that pay their own fair share of expenses. First, it seems that independent Internet Service Providers (ISPs) who offer DSL bundled with their own Internet access pay multiple taxes and surcharges, while Verizon, in its own DSL offering (as part of their “Freedom Package”), is not paying any taxes. Clearly something is wrong with this. It gives Verizon an obvious market advantage, but it is also most likely improper, if not illegal, since the ISP subsidiary of Verizon should be paying or charging these taxes and surcharges. Secondly, when examining the costs to competitive long distance companies, Verizon seems to be charging these companies numerous fees, which, once again their own long distance service (as part of their “Freedom Package”) does not pay. Other Problems – Missing Lines, Mistakes on Phone Bills Cost Customers We also documented that many phone bills have mistakes that add costs to the customers. In the state of New Jersey we found that approximately 40% of Small Business customers (under 5 lines) were missing a discount. In another case, we found a large percentage of small businesses were paying for non-existent special circuits they didn’t order or had canceled. In our survey, we found 11% of the NY households were charged extra for the FCC Line Charge which also increased all taxes. Even worse, on many phone bills the numbers simply do not add up. Verizon claims that their billing is 100% accurate – We have documented evidence that that is far from the truth. Probably the most amusing problem was the discovery of “Idiot” items – thousands of random billing fragments on the majority of New York phone bills, all showing $0.00 charge for items like “Touchtone”- a charge that was dropped in New York in 1995. These, of course, not only add to the unreadability of the phone bill, but also demonstrate the obvious problems plaguing Verizon’s billing systems. Conclusion Rather than go into the details about the history of phone charges, the negative effects of deregulation on phone bills, the jurisdictional issues of phone bill regulations, the costs and profits of phone service, this report is dedicated to an autopsy of phone bills; what we found and what we believe it means. The reader should also be aware that Teletruth did not undertake this survey sample as an intellectual exercise. To date, Teletruth has found over $20,000 in potential refunds and using the survey data, has acted as consultant in two New Jersey Class Action suits against Verizon for missing small business discounts and non-existent special circuits being billed to business and residential customers. Finally, phone bills don’t lie. All phone charge information has been taken directly from customers’ phone bills. Teletruth is also calling on the FCC, Congress and the state commissions to:
NOTE: New Networks Institute, LTC Consulting and Teletruth have filed numerous Comments and Complaints with the FCC over phone bill issues. See:
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