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Phone Companies' $100 Billion Rip-off -- Where Is That Hidden $6 a Month Going in Our Phone Bills?

The phone companies are soaking all of us for a good chunk of money every month, and they're allowed to conceal it in the fine print of your monthly bill.

Next time you open your phone bill, check out the numerous anonymous charges listed on it.  In particular, note the one identified as the "FCC Line Charge" or the "Federal Subscriber Line Charge" (SLC).  Ask yourself two questions:  What is it for and why am I paying it? 

If you look at your bill, you'll likely have a hard time finding the SLC.  Each state's phone billing method is different and the SLC is often hidden in what is labeled the "taxes and surcharges" section or the "monthly service" section -- or completely missing but added to the bill.   

[An example of an SLC can be found athttp://www.newnetworks.com/dirtyphonebill.htm]  

The SLC is a monthly fee imposed on every residential and business wireline phone customer.  The FCC permits telephone companies to charge subscribers a fee which was originally intended to help them recoup part of the cost of having phone lines connect from the customer's home and office to a long distance service provider. It is currently capped at $6.50 a month for residential and businesses; multi-line businesses fees are up to $9.20 per month.  

At the end of 2010, the U.S. will have an estimated 160 million business and residential telephone lines.  Since 2000, it is estimated that the phone companies have pocketed about $100 billion or an estimated $750.00 per line through the SLC and have done little to benefit the customer. 

Few known that, no matter what it is called, the SLC is not a tax, it is not a surcharge, it is not part of local service and - whatever it name implies -- it does not go to fund the FCC or any government.  It is a direct subsidy to your telephone or wireline telecommunications provider; and, adding insult to injury, your pay taxes on this charge.   

The SLC was originally created nearly three decades ago through a massive campaign called "CALLS," i.e., the Coalition for Affordable Local and Long Distance Service.  CALLS is the model for what is known in the telecommunications world as "regulatory capture," the process by which the phone companies, astroturf shills and co-opted consumer groups have, in effect, taken control of the FCC and state Public Utilities Commissions (PUCs).  [The CALLS regulatory capture is the subject of an upcoming article.] 

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The FCC first imposed line charges on telephone customers in 1984 in the wake of the breakup of AT&T.  Then, AT&T was the largest company in the country serving as a regulated monopoly over 80 percent of U.S. telephone households, controlling 22 local phone companies as well as long distance service.  Faced with an antitrust challenge from a tiny upstart, MCI, and others, AT&T, through a civil suit settlement, was broken into seven regional phone companies, the "Baby Bells"; AT&T and MCI would be long distance phone companies. 

The SLC is part of a group "Access Fees" that the long distance telephone company pays the local telephone company for the use of or "access" to the parts of the local network necessary to complete a long distance call.  They were originally designed to subsidize long distance costs of the local networks and it was passed through to the customer as an add-on to their monthly phone bill. The initial charge, imposed in 1985, was $1.00 per month; by 1992, it had increased to $3.50 per month; in 2000, it was again raised and capped at capped at $6.50 in 2004.  

Access charges were fixed at a rate of return of 11.25 percent. However, based on company-supplied information, in 2007, AT&T, Verizon, Qwest and the other phone companies had profit margins more than three times great or 37.5 percent.  

Adding insult to injury, New York wireline customers, for example, pay over 30 percent for an assortment of taxes, including the Universal Service Fund set at 15.2 percent.   

As phone bill fees have steadily gone up, the cost of offering service has dropped - and, over the last two decades, the telecom companies have become enormously profitable.  First, they cut employees-per-line costs by an estimated 65 percent and, over most of the last decade, they cut new construction costs by half.  Second, since 1991, the original phone networks that were given to the Bell companies have been written-off and these companies continue to write-off more new construction than they replace.   

The telecom's profitability is not simply an example of gouging the customer, but has social consequence: it is harming the economy. Excess profits are one of the reasons that the U.S.'s high-speed broadband and wireless services are inferior to that of the other developed countries.   

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The FCC adopted the SLC fee through the CALLS process, a very dubious procedure.  At the time, former FCC commissioner Harold Furchtgott-Roth raised serious questions about the proceedings under which the charges were accepted.  As he wrote in his dissent: 

    In the early part of [2000], [the FCC] held a series of meetings with a select group of some - but by no means all - of the parties with interests in this proceeding. And a number of parties with interests in the outcome of this proceeding, including the Ad Hoc Telecommunications Users Committee, Time Warner Telecom, and the Association for Local Telecommunications Services,  (ALTS, the competitive carrier association) were not allowed to participate. 

    [I]t is undeniable that the [SLC] proposal was a product of the negotiations that took place between the Commission and those parties that were allowed to participate in the negotiations - that is, members of the Coalition and some groups that purport to represent the interests of residential and small-business consumers. 

Commissioner Furchtgott-Roth's suspicions only get darker when assessed against the FCC's assurance that it would initiate and complete before July 1, 2002, a cost review to ensure that consumers were not overpaying for their telecom services.  In 2002, FCC Commissioner Michael Copps identified the inherent problems associated with the SLC:  

    I am troubled that consumers will face an increase in the line charge of their local bill without the Commission undertaking a thorough analysis of forward-looking cost data.    The Commission [has] failed to conduct its own independent analysis of the cost data. By failing to undertake the thorough analysis of cost data that was promised in the access reform order, we are neglecting our obligation to consumers.  

Now, a decade later, the FCC has yet to conduct a cost review and the telecom companies have continued to pocket billions of dollars. Rumors are circulating that, under the FCC's new National Broadband Plan, the SLC fee will rise to $10.00 a month. 

Next time you open your phone bill, check out the list of taxes and surcharges you pay every month.  Ask yourself two questions: What are these charges for and why do I continue to pay them?  If you feel ripped-off, focus your anger at the telecom companies, the regulators and the paid shills who promote corporate interest as the public good.   

In a time of economic crisis, consumer interests should take priority over those of unearned corporate profits.  And to meet the public good, telecommunications companies should once again become public utilities.   

[Note: New Networks and Teletruth have filed multiple complaints pertaining to truth-in-billing violations of the FCC Line Charge:

http://www.teletruth.org/docs/FCC LineChargeTIB.pdf