In
the phone business, why raise prices when all you need is a new
fee?
by
Bruce Meyerson
Associated Press
NEW YORK - It's hard for phone companies to raise prices in the
hyper competitive telecom business. But since phone bills are already
a blur of surcharges and taxes, many companies find there's no need
to risk angering customers with a rate hike. They can just tack
on another fee with a confusing name.
The latest example comes from AT&T Inc., which is imposing a
new "Local Connectivity Charge" of up to $4 a month for
1.6 million of its local phone subscribers rather than boosting
its basic rates.
As with so many other surcharges assessed by AT&T and just about
every other major wired and wireless phone company, this new fee
is designed to defray a basic cost of supplying the service provided
by the company. Like the other fees, it will generate tens of millions
of dollars per year in added revenue for the company.
In just about every other industry but telecommunications, the advertised
price of a good or service reflects the entire cost of that product
except for taxes and, in cases such as a cab or restaurant, the
tip. Sometimes, as with gasoline, the advertised price covers all
applicable taxes.
Not so with phone service, where it's become a widely accepted norm
for companies to advertise rates that don't come close to reflecting
the final tab a customer will pay. Airlines have been treading this
path as well, advertising one rate, then adding on surcharges for
rising fuel and security costs.
To be sure, a century of federal and state regulation has saddled
the telecom industry with an array of costly burdens, from providing
911 emergency calling capabilities to ensuring that rural and low
income customers have phone service.
Federal and local lawmakers have also set a poor example for companies
to follow. For a century, elected officials treated phone bills
as a piggy bank to cover unrelated government spending. In recent
years, state and local governments have repeatedly diverted funds
that were supposed to be used to upgrade 911 emergency systems so
dispatchers can better locate cell phone callers.
Phone companies often argue that surcharges drive home a point to
customers and government officials, highlighting the costs of regulatory
compliance they bear. While this argument has merit, it's fast become
an addictive excuse for stealth rate hikes. In reality, these surcharges
cover the full cost of doing business in the telecom industry, even
if these companies believe them unfair.
Automakers don't tack on a special fee for the costs of complying
with factory safety laws. A supermarket doesn't add a nickel surcharge
for every quart of ice cream or milk to cover the store's rising
refrigeration costs. Those expenses are reflected in the price.
But in the telecom business, there's an extra "Supplier FUSF
Recovery Fee" on a DSL Internet bill from Verizon Communications
Inc. Sprint Nextel Corp. charges a fee for "Federal Wireless
Number Pooling and Portability" to Sprint cell phone users
and a surcharge for "Federal Program Cost Recovery" to
Nextel customers.
Thanks to all this conveniently confusing terminology, consumers
are hard pressed to understand what the fees mean. Many mistakenly
presume that their phone company is collecting taxes for the government
rather than additional cash for its own bottom line.
To its credit, AT&T is being forthright about its new charge.
"This fee will help AT&T recover increased connectivity
costs associated with providing local service," a notice to
customers states. "This fee is not a tax or charge required
by the government."
Still, the rationale is twisted. The expense being "recovered"
by AT&T does not involve some peripheral regulatory burden.
It is central to the cost of providing phone service, not unlike
the price of cotton for a clothing manufacturer or the cost of washing
the dishes at a restaurant.
The new fee is being charged to 1.6 million subscribers who live
outside the 13 states where AT&T owns most of the local phone
network. Because it can't use its own phone lines to serve these
customers, AT&T has to pay a monthly fee to other companies
such as Verizon to use their local networks. Likewise, rivals such
as MCI, now a unit of Verizon, pay a monthly fee to AT&T so
they can sell local service in AT&T's 13 state region.
Until recently, local network owners were forced to discount these
wholesale rates under regulations designed to fuel competition.
AT&T was among the most outspoken opponents of this system,
arguing that the discounted rate didn't cover its operating costs.
Once the Federal Communications Commission backed away from dictating
wholesale rates, AT&T and other local operators began charging
more.
By imposing the new fee, it would appear AT&T wants it both
ways: to charge rivals more for access to its network, but to pay
the old discounted rates to use another company's property. Otherwise,
it makes no sense to start treating the recent increase in the wholesale
rates AT&T pays Verizon and others as a separate expense from
what it already pays those companies to serve the 1.6 million customers
affected.
It doesn't make sense, that is, unless the company would like to
continue to give the appearance that its prices are $4 less per
month than the company is actually charging.
|
