Minute By Minute: A Telecom Scam
Mike Ross paces around the dusty, cluttered office in the back room of his house near William Land Park. With his long sideburns and ponytail, the 6-foot 2-inch Sacramento resident is an imposing figure in the cramped room, which is filled with sports memorabilia, odd collectibles and stacks and stacks of papers on state legislative issues. Ross, who identifies himself as a Republican and the "self-proclaimed Ralph Nader of California," is on a roll, gesticulating and talking boisterously. The Fab Four stare down from a poster on the ceiling. So does Seka, a nearly naked porn star who personally autographed this poster for Ross with the words "Lustfully yours, Seka." "When I die, they're going to say: 'Mike Ross changed the telecommunications industry for the better,'" he declares in a bluster. Within the halls of the state Capitol, this maverick consumer advocate is mostly known for winning new legislation to protect the rights of sports memorabilia collectors. But now he's turned his focus on an arcane issue within the telecommunications industry known as subminute billing. Long-distance phone carriers such as AT&T, MCI and Sprint offer it to business customers. They get billed for the actual time they're on a long-distance phone call, even when the length of a call involves fractions of a second. However, almost all residential phone customers throughout the country are billed for long distance calls in "minute" increments. Plus, the phone companies round up all fractions to the next minute. For example, if you spend two minutes and one second on a long distance phone call, you get billed for three minutes. Phone companies reap literally billions of dollars in additional revenues from this bill-padding practice, according to Ross and other phone company critics. If you're like most consumers, you didn't even realize this sleight of hand occurs. That's because your phone company doesn't tell you about it. Not even in the fine print of your monthly bill. If that sounds like a deceptive business practice to you, you're not alone. In the past six months, Ross and a growing army of consumer activists and attorneys around the country have filed at least a dozen lawsuits against long-distance carriers, cellular phone providers and even online computer services such as America Online, alleging that the telecommunications firms have engaged in fraud, deception and other unfair business practices by not disclosing the rounding-up practice to customers. "You can look in vain for any explanation of this in the phone book," said Stephen Hagen, a Palo Alto attorney who is a plaintiff in one of the suits. "It's not disclosed by anybody anywhere." Telephone company representatives would not specifically comment on litigation. But they claim that subminute billing is not offered to consumers because they make much fewer long-distance calls than businesses. The rounding-up practice amounts to mere pennies for a typical residential phone bill and it would be expensive to switch all consumers to subminute billing, they argue. Additionally, phone companies would have to raise other rates to make up for lost revenues if they eliminated the rounding-up practice, say phone companies. "It doesn't make a huge difference for the average person," said Bryant Hilton, a spokesman for MCI Communications Corp. MCI's customers are also offered special discounts that are not offered to business customers, he added. As to why the rounding-up practice is not disclosed to consumers, companies gave varied answers. In general, the companies claim that the practice is not a big secret because long-distance carriers disclose the practice in tariffs that are filed with the Federal Communications Commission. "Why we don't put it on a bill, I don't know," said Dan Lawler, a spokesman for AT&T. "There's probably a zillion things we could put on a customer's bill. To say it's a deceptive business practice is certainly incorrect. Most consumers, even when they're informed about it, say, 'OK, that's fine', once they're explained the rationale for doing it." It's a sleeper issue that's been around for years with scant notice. Apparently, phone companies first began billing in increments of minutes, because subminute billing was technologically impossible. But they stuck with the practice even after they began offering subminute billing of increments of as low as six seconds to business customers a number of years ago. Some phone company critics claim consumers' ignorance of the issue may be tied to a conspiracy of silence by big corporations aimed at keeping consumers in the dark. Telephone companies call the practice of billing residential customers in increments of minutes and rounding up all fractions an "industry standard." Critics suggest that phone companies may be violating antitrust laws by colluding on the practice. "Isn't it interesting that all of these corporations are lined up in lockstep to round up and keep quiet about it, too," said Stephen Laudig, an Indianapolis attorney who filed a class action suit last year against a Cellular One carrier in Indiana for not disclosing the practice to consumers. "It's definitely not collusion," said Hilton, the MCI spokesman. "Our billing procedures are certainly not discussed with other carriers."STRANGE ALLIES The battle against phone companies' residential long-distance billing practices has brought together some unlikely allies, including Republican consumer activist Ross; Morton Friedman, a highly influential Sacramento attorney and shopping center developer who is notorious for raising big sums for Democratic political candidates; and Quentin Kopp, the independent state assemblyman who represents San Francisco. Ross, one of the state's most unusual and controversial consumer advocates, works under the umbrella of an organization known as the California Alliance for Consumer Protection. The brusque activist insists that he has taken no money from anyone regarding his lobbying efforts on a number of issues in the past 18 years. He has made a living from other business interests, he says. Some of those other business interests include serving as spokesman for Tail Feathers, a classy strip joint in Rancho Cordova, and selling trading cards that feature famous landmarks of the Holy Land. Ross has even gained national notoriety in the sports world for his efforts in getting laws passed that protect the rights of memorabilia collectors. He first got involved in the subminute billing issue in 1994 after he noticed that a one minute, one second fax he sent showed up as a two-minute charge on his phone bill. It led Ross to sponsor Senate Bill 1998, which was carried by Kopp. The legislation, opposed by phone carriers, said it was the intent of the Legislature "to create a billing standard for telephone corporations that accurately reflects the actual usage by the consumers." But lawmakers stopped short of implementing a subminute billing requirement and asked the state Public Utilities Commission to hold workshops on the issue and report back to the state Legislature. In its report, the Republican-dominated PUC came down clearly on the side of the phone carriers, according to Ross. "The PUC is a Republican organization," said Ross. "The commissioners are Republican, and I'm a Republican, but they're so off base." Feeling stymied by the state commission, Ross decided to turn to the courts for a remedy. He picked Friedman as his attorney because he considers him the best lawyer in Sacramento, he said. Friedman filed a class action suit on behalf of Ross and other consumers in November in San Francisco County Superior Court, alleging that carriers have engaged in unfair business practices and false advertising by not disclosing the rounding-up practice to consumers. It names Pacific Bell, AT&T, MCI, GTE and Sprint as defendants and seeks damages and injunctive relief under the state's Consumer Legal Remedies Act. C. Brooks Cutter, a partner in Friedman's Sacramento law firm, said phone companies' argument that the rounding-up practice is disclosed in tariffs is invalid, because the information in the tariffs doesn't go to the average consumer. Carriers contacted would not comment on the suit. But they had a lot to say at the PUC's two workshops on the subminute billing issue that were held last July in San Francisco and Los Angeles. All the major long-distance carriers and cellular phone companies showed up en masse at the two workshops. The only consumer representatives at the two meetings were Ross and Lisa Briggs, a legislative strategist for Utilities Consumer Action Network, a public advocacy group based in San Diego. The workshops were considered informal, so no minutes or transcripts were kept. Ross claims that when he asked company representatives at the San Francisco workshop how much money they would lose if they had to provide subminute billing to their California consumers, each company quoted figures that added up to more than $1 billion a year in lost revenues within the state. He also claims that one company at the meeting offered him a job in a ploy to get him to drop his crusade for subminute billing, but he declines to identify the company. The PUC's report on the two workshops, issued Dec. 29, was not considered a formal recommendation to the Legislature, said Jack Leutza, chief of the PUC's telecommunications branch. But both sides of the issue agree that the PUC's conclusions clearly favor the wishes of the industry. The PUC said there are no significant barriers to prevent carriers from offering subminute billing to consumers. Yet, the commission claimed that mandating subminute billing would "potentially reduce competition" in the marketplace. That's because companies could use subminute billing to differentiate their product as a competitive tool in the current market. It's a strange argument considering that only one or two small companies now offer subminute billing in California and they control a tiny portion of the state's market, said Ross and others. The PUC also said mandating the use of subminute increments would lead to "a significant reduction in revenues" for carriers and may result in rate increases to achieve "revenue neutrality" or offset the revenue impact of a mandate. That's because the PUC allows phone companies a certain guaranteed rate of return. They would simply push for rate increases in other areas to cover the losses they would accrue on the subminute billing side. "Essentially, what the PUC found is that there's no need to change to subminute billing," said Larry Cox, a spokesman for GTE Corp. "If there is a need for it, the marketplace will drive that."CLASS ACTION Michael Shames, executive director of the Utilities Consumer Action Network in San Diego, said the PUC's argument that mandating subminute billing would reduce competition is based on a fallacy because "in a competitive market there is no such thing as revenue neutrality." His group thinks that requiring subminute billing will have just the opposite effect: It will stimulate competition because most consumers are not aware that they have subminute billing as an option. "To have minute billing is fraudulent," said Shames. "It's systematically overcharging customers." Although Toward Utility Rate Normalization, the Bay Area Consumer Group known as TURN, did not show up at the PUC workshops, it supported Ross' bill in the Legislature. In theory, subminute billing makes sense, said Tom Long, TURN's senior telecommunications attorney. Unfortunately, mandating it would probably mean little for consumers, because phone carriers would push for offsetting rate hikes in other areas. "Should that happen?" Long said. "The answer is probably no. Unfortunately, [phone carriers] usually have their way." Ross is still angry about the PUC report and the workshops, because he claims that his viewpoints were not adequately represented in the report, a claim with which PUC spokesman Leutza disagreed. "He wanted us to conclude that his position was the right one and [that it] should be implemented as law in California," said Leutza. Ross has tried to get the PUC to release information provided by phone carriers that shows how much money they would lose if they could no longer round up long-distance charges to the next minute. But the PUC has agreed with telephone company requests to keep the information secret, claiming that it's proprietary business information. That's what has led Ross and others to battle the phone companies over the subminute billing issue in the court system. Stephen Hagen's class action suit, for example, filed in July against America Online, alleges that the popular online service overcharges its 3.5 million subscribers by rounding up bills to the next minute without disclosing it. His suit alleges that America Online has used deceit and breach of contract to overcharge its subscribers by at least $5 million. Steven Case, chairman of America Online, responded to the suit by claiming that his company was using a practice that is "common" in the industry. Laudig, the Indianapolis attorney, filed his suit in October against Westel-Indianapolis Co., a firm that provides Cellular One service in Indiana. The attorney alleged that the cellular phone provider was using a classic "bait and switch" scheme, because it lured in customers by offering free minutes of calling time, but didn't disclose its rounding-up practice until after customers had already signed up for the service. Cellular One attorney Michael McGovern declined to comment on the case. "We have a joke for this," said Laudig, snickering. "When is a minute not 60 seconds? When Cellular One is keeping time." The attorney, still snickering, said he plans to use the joke as part of his opening arguments to the jury. "We're not saying it's illegal to do what they're doing if they disclosed to their consumers [they] were doing it," said Laudig. In his cramped office, Ross suddenly stops his bluster and gestures toward his sound system with a mysterious air. His radio is playing "Rebel Rebel," a song by rock musician David Bowie. "Listen, this song came on at an opportune time," says Ross. "I'm a rebel with a cause." And Ross is convinced that the subminute billing case is his cause celebre. "This lawsuit has international implications," he continues. "It's going to change everything. You're going to get what you pay for and pay for what you get."