In Our Opinion: AT&T, MCI Verizon Continues To Harvest Customers

Telecom Policy Report, Feb 20, 2007

The following feature is part of a larger report just released by activist group TeleTruth. Telecom Policy Report welcomes your comments on this subject. Please send them to Debra Wayne at dwayne@accessintel.com.

In 2001, AT&T and MCI had 62 percent of households using their long- distance service. What happened is one of the largest shams in American history. To put it bluntly, the "new" AT&T and MCI-Verizon are intentionally harvesting customers. Is it collusion and is it being done with the Federal Communications Commission's permission?

What is harvesting? According to the FCC's AT&T-SBC merger order: "Harvesting refers to AT&T's increasing price increases to encourage customers to discontinue service."

As we report, between 30 million and 40 million AT&T and MCI customers were harmed with increases for long distance of 200 percent+ since 2000, especially loyal seniors and low-volume customers. And millions are paying between $0.50 and $1 a minute.

Weren't the mergers of AT&T with SBC and MCI with Verizon supposed to make these new companies strong competitors? Instead, it seems, they're working in collusion to raise the rates of their 'loyal' customers, especially impacting seniors and low-volume customers. And it also seems that they had no plans of competing. Customers who were loyal to the most famous brand in telecom history, AT&T, were intentionally duped.

The FCC is clearly part of the problem as the agency knew that these companies were not going to compete in the consumer market. AT&T would not take on MCI, and SBC and Verizon were not going to enter each other's markets, even though Verizon and SBC had made prior commitments to compete. To make matters worse, the FCC's data is so flawed that it didn't notice that prices for many customers are continuously on the rise and it is using this flawed data to create bad policy on multiple fronts.

In short, what is happening is a tale of the underbelly of our Digital Age, the consequence of bad policies with no regulatory oversight or even accurate data to assess the issues. While it may not be readily apparent to professionals and upper-income consumers, rates have increased many times over for low-volume users, particularly seniors, despite the apparent reduction in prices experienced by heavy-volume telephony consumers. The vast majority of American telephony customers are low-to-middle-volume users, and it is they who have borne the brunt of price and rate increases since the AT&T/SBC and MCI/Verizon mergers.

[Our new] report, based on actual phone bills, phone-company tariffs and FCC data tells a compelling, yet appalling story:

>>Between 30 million and 40 million AT&T and MCI customers were harmed with increases of 200 percent+ since 2000, especially seniors and low-volume customers.

>>Millions of customers are paying $0.50 to $1 a minute or more for long distance when all of the charges are added together.

>>The "basic" long-distance rate for AT&T is $.42 a minute (day rate) and does not include increases or new fees like "Minimum Usage," "Monthly Fee," "Cost Recovery," "Single Bill Fee," "In-State Connection Fees" and increases to the Universal Service Fund since 2000.

We note that AT&T had made commitments in 2000 to supply long-distance service basic service at $0.19 with no monthly fees or minimums.

FCC Data: So Flawed It Should Be Used To Wrap Fish

FCC Chairman Martin claims the price of every service is falling: "Since 1996, the prices of every other communications service have declined while cable rates have risen year after year after year."

A chart from the report shows that while the FCC claims that long distance service went from $0.09 in 2000 to $0.06 in 2004, AT&T's basic rate increases went from $0.19 in 2000 to $0.42. And that doesn't include the increases to "Minimum Usage," "Single Bill Fee," "Cost Recovery Fee" and other questionable charges.

More to the point, the FCC's data is so flawed that it has no accurate information about how one third of the population, especially low-volume users, including seniors, were impacted by the merger increases.

The FCC's reports only address "high-volume" users, who are not the majority of users. In fact, the FCC no longer collects accurate data and is giving out "astroturf groups" information as "accurate" sources.

There is no true competition for the majority of U.S. customers:

>>The majority of customers, especially low-volume users, do not benefit from packages, including those supplied by cable companies or Voice over Internet Protocol (VoIP) providers. No brand names are selling standalone local or long-distance competitive service. VoIP requires broadband, and packages require the purchase of two or more services. Worse, the advertised price can leave out between 35 percent and 45 percent of the actual costs or the companies' prices are a "gimme," a soon-to-leave promotional price.

>>Wireless is also not a competitive option for low-volume customers.

An AARP study shows that most seniors, if they have a cellphone, have it because of security and emergency reasons.