Read the Report:



Deregulation and Consolidation have Harmed Telephone and Broadband Customers.

Phone Bill Survey Reveals Market Failure: Less Choice Equals, Continuous Rate Increases.


In 2004, Teletruth and UCAN, a San Diego-based consumer advocacy group, working  under a grant from the California Consumer Protection fund, created a survey collecting actual local, long distance, broadband,  wireless and cable bills, then interviewing these customers.   In 2008 we repeated the process and the findings are disturbing and startling.


  • One minute wireless call averaged $3.02
  • One minute long distance call averaged $.55 – more expensive then 1980.
  • Increases for every part of local service; 346% for unlisted numbers, 1630% for Directory Assistance.


Since 2004, the two largest competitors, AT&T and MCI, were merged into the former SBC and Verizon respectively. On the wireless side, AT&T was purchased by Cingular (a joint venture of SBC and BellSouth) and Sprint acquired Nextel.


Because of these mergers, long distance prices have been able to have continuous increases; and as of 2008, there are few, if any choices being offered customers.  And through faulty state deregulation, local service has also had major increases. 


Based on over 700 wireline, local, long distance, wireless and broadband bills from San Diego California we found a startling fact --- This survey is a model of how deregulation as well as consolidation of the players created a market failure: less choice equals continuous rate increases. It also shows that a failure to collect accurate, timely and primary-research data is an imperative to track market trends or failures. Without accurate data, both the FCC and the state commission created harmful deregulatory policies.


A one minute long distance call averaged $.55 cents.   This price per minute is higher than in 1980, before the break up of AT&T. How can this be? It’s easy.  AT&T currently controls the long distance market for wireline service and there are few competitors left. And because AT&T has loyal customers and they receive unreadable phone bills, most customers don’t realize that the company has not only increased the cost per minute, but also increased all of the ancillary costs like plan fees or additional, questionable “cost recovery charges.”  Right now AT&T’s basic  long distance rate is $.42 a minute, not counting all of the other fees.  But even customers on $.05 or  $.10 minute plans, can be paying $20.00 plan fees, not counting taxes and surcharges.


The other major problem is the actual usage of customers. While it is believed that most people are heavy users, the average customer only makes 87 minutes of long distance or ‘intra-lata’ calls (in-state long distance) --- and this means that only 15% of the population are heavy users. And at the other extreme, over 60% would be considered low usage customers --- i.e., the majority.


As we discussed in a previous article about AT&T increases, the company is ‘harvesting’ their customers – raising rates post the AT&T-SBC mergers. The survey clearly shows that the increases to AT&T long distance service, especially when the old AT&T customers have been combined with the previous SBC Long Distance service, have directly harmed customers.



What about packages? What about VOIP services?  In our survey, there were virtually no AT&T packages – the old AT&T before the merger and MCI offered local and long distance combination packages;  i.e. one price for both services. As we discovered in a previous survey of New Jersey and New York customers, where Verizon sells packages, unless the customer makes a large number of calls, a package does not save the customer money.


And VOIP services are also not competitive because they require the customer to already have a broadband connection—and in order to get a reasonable price; the customer has to also purchase local service.


Local Service Increases Occurred On All Services.  Since 2004, the California Public Service Commission has simply allowed a continuous set of increases on virtually all parts of local service. Our survey found that Call Waiting has increased 86%, unlisted numbers 346% and directory assistance (DA) went up. 1630%. For example, in 2004, local service included 3 free DA calls then $.46 cents. Today, the cost is $1.99 per directory call. 


We note that more recently, at the end of 2008, there have been new increases to the phone charges by the state commission.  It includes, Flat Rate – up to 24% per month, while Measured Rate went up 25%. This cost doesn’t include the taxes or surcharges that also go up.


There Were A Host Of Other Disturbing Findings. Over 10% of the customers were charged over $12.00 a month for a service that they never ordered. Known as “cramming”, where the customer is charged by a different phone company for a service they never ordered, this problem is happening throughout the US.


Cable Services and Competition. Cox is the only serious competitor to AT&T’s local and long distance service and they have an estimated 20% of the market. (Nationwide, the cable companies only have 15% of the local and long distance markets.) However, the average cable bill was $70 and AT&T does not offer a competitive, read lower cost service except for some satellite TV customers. Thus cable rates continue to rise as well.


Wireless Services. On average, a one minute wireless call came to $3.02 --- and like long distance service, the reason this cost per minute is so high is that average wireless bill for 1 line was $37 dollars while 2 line accounts came to over $80.00. And like long distance over 30% of customers make less than 10 minutes of calls.  However, one piece of good news for talkative families with more than one line --- over 50% of customers are paying less than $.25 per minute for a wireless call.


One interesting note was that in our 2004 survey we found  over 30% of customers were going over their plan minutes, known as “overages”, In our survey it was less than 5%. However, customers have compensated buy purchasing plans that are too large and thus customers are only utilizing 32% of their plan allowance.


Lifeline Customers Were Particularly Hit By These Increases.  In all of these increases, it is clear that the “Lifeline” customers were hit the hardest in terms of increases. Lifeline is a federal and state plan to give low income households phone service with some discounts. It is funded through the Universal Service Fund as well as the state Lifeline funds and it is totally broken. First, the discounts are only on some services. It doesn’t cover actual phone calls, local or long distance and it doesn’t cover any features, including the popular inside wiring or the calling features, like Call Waiting, so the average Lifeline bill is almost as much as the regular phone bill. According to AARP only 30% of those eligible are on Lifeline because it cost too much when the total is added up.


Customer Confusion Makes Money. Even though all of those surveyed were UCAN members and thus a ‘more educated’ group, the reality is that phone bills are unreadable, that there is no enough information given to the customer to make any decision, such as a comparison of prices and offerings. For example, the AT&T or Verizon web site information does not include many of the plans, the actual costs of the plans or even make suggestions of better plans. The links provided on the phone bill are generic links to nowhere useful.


DSL Scam.  One other significant finding was about the selling of DSL. Under the AT&T-BellSouth merger, AT&T was required to offer DSL at speeds of 200K in one direction for a $10.00 per month charge to new customers. In our interviews, only 1 in 30 were paying $10.00 and it was clear that this offer was never made publicly, persons  who called to get this discount were told that it didn’t exist by AT&T representatives, and only a few were persistent enough to get the service.  You would think with all this talk of getting broadband to customers, some regulator would have noticed and taken some action.


The FCC’s Flawed Methodologies Used on Phone Bill Charges Hide the Issues. The FCC has created a myth about long distance as well as wireless charges..


On long distance, the Agency claimed that there aren’t any long distance customers left, but the worst part of their fantasy is that they claim that the cost of a long distance call is $.06. a minute.Teletruth filed a complaint about this issue.



How can it be that the FCC’s numbers so dramatically misses what happens in phone bills? First, the FCC doesn’t collect its own phone bills; it uses an outside service and only publishes top level data.  Next, the FCC doesn’t add the fees, taxes and surcharges that come with the phone bill. Some plans are $20.00 and have multiple, additional, questionable fees.  And finally, the FCC doesn’t distinguish between low, medium and high volume customers or minutes – it adds everything together – So, a high volume customer making 3000 calls a month is replacing 300 customers making only 10 minutes of calls.


The FCC’s wireless report, published in January 2009 claims that the cost for a wireless call was $.06 in 2009. With wireless the data is simply made up and has no relationship to phone bill charges. http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-09-54A1.pdf



The FCC states that it uses an estimate of minutes against an estimate of the revenue per minute, not through actual bills but through 3rd party data, in this case the CTIA, the wireless industry association.


“Some analysts believe average revenue per minute (“RPM”) is a good proxy for mobile pricing.  This is calculated by dividing a provider’s estimate of average monthly revenue per subscriber (often referred to as average revenue per unit, or “ARPU”) by its estimate of MOUs (minutes of use), yielding the RPM that the provider is receiving. Using estimates of industry-wide ARPU and MOUs from CTIA’s survey, (the wireless association) we estimate that RPM was $.06 in December of 2007, which is a decrease of one percent from December of 2006."


The Methodology We Used to Calculate Cost Per Minute: Account-based.


As this report gets covered by the media, many have their own methods on how to calculate cost per minute, including the FCC.  Our analysis  is consumer-simple:  


Cost per minute = Total cost divided by the number of minutes per account.


To read about our methodology and issues with the FCC and other data analysis in detail: http://www.newnetworks.com/Methodteletruthsurvey.htm


We are  also proposing a ‘per-minute’ box on every phone bill --- imagine a customer finding out that are paying $4.50 a minute for calls.


Deregulation, Consolidation and No Competition. In 2004, AT&T, MCI, Cox and even Sprint were all selling against SBC-California, formerly Pacific Bell. Today, only Cox offers local and long distance to about 20% of customers. There are no other major players to help lower rates or explain to customers they are being gouged.


Meanwhile, the state commission has not confronted the cost increases, and simply increases local service, which is now the cornerstone of multiple revenue streams --- Local, long distance, DSL/Internet connectivity, and it can be argued wireless and sometimes satellite (DISH) as some customers get one bill with these services.


Worse, the California Public Utility Commission has 'deregulated' AT&T so much that they are ‘detariffed'.  They claim that AT&T is now a ‘free market company’, no longer a utility,  and customers now get ‘contracts’ instead of the traditional ‘tariffs’.  All because there is serious competition.



“In light of competition in the telephone marketplace by new providers, the CPUC allowed landline phone companies to “detariff” their service offerings and to do business in this new way to further promote competition and empower consumers in the rapidly changing telecommunications market.


“What is detarrifing” A landline phone company is no longer required to file tariffs with the CPUC. Instead, the company may enter into Service Agreements with consumers. These Service Agreements contain the prices, terms, and conditions for services. The telephone company must still file tariffs for basic residential telephone service (the dial tone and local service of a residential customer’s phone service, exclusive of special options) with the CPUC, but can detariff other types of services, such as Call Waiting, Call Forwarding, and Caller ID.”


In short, in California, there is no longer competition, but the state believes there is. If there was actual competition, our survey would have found decreases in local, long distance, and wireless services, etc.


Competition must mean there are competitors offering service through the media that a customer can actually get. We found no serious competition in San Diego telecom and broadband markets – just less providers offering higher cost services. We found AT&T, in particular, the state’s incumbent phone company, is taking advantage of loyal customers through continued local and long distance rate increases with no where else to go. And we found that the regulators are asleep at the wheel, allowing customers to be gouged.


The state never put through a comprehensive “truth-in-billing” plan that would have cleaned up some of the confusion and misrepresentation of the carriers about the costs of services, and so, today, we’re now back to the Old West – every customer for themselves. We note one bright spot are the active consumer groups, such as UCAN and TURN in California. Without them, things would be worse.