Telecom Rip-Off: The Hidden Fees in Your Wireless and Phone Bills

As a New Year’s present to its subscribers, Verizon Wireless announced a plan to start charging a $2 “convenience fee” for payments subscribers make over the phone or online with their credit or debit cards. 

To Verizon’s chagrin, and in the spirit of the spreading Occupy Wall Street movement, people across the country railed against the new fee. Molly Katchpole, who had led a campaign against Bank of America’s effort to impose a $5-per-month fee for debit-card use, kickstarted an online petition against the Verizon fee on Change.org. The petition generated nearly 100,000 signatures and pushed Verizon to drop the new fee.

Verizon’s capitulation over the new payment-processing fee, like the battle against Bank of America debit fee, illustrate the power of ordinary people to contest corporate greed. However, it’s important to recognize that the convenience fee is but one of a growing number of charges and fees that telco and cable providers are charging unsuspecting subscribers.

The media attention to Verizon’s new fee obscured the far more significant fact that many other bogus fees are already on a subscriber's wireline, wireless and cable bills. More consequential, the FCC’s recent capitulation to the Communication Trust over the National Broadband Plan (NBP) -- an initiative seemingly designed to promote the public good through the expansion of broadband -- will generate a host of new fees that will plague consumers for years to come. Unfortunately, there has been little to no outcry regarding this massive ripoff.

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While Verizon Wireless’ convenience fee, like the Bank of America debit fee, drew the public’s ire, little attention has been given to other hidden fees that squeeze subscribers. For example, Verizon charges $3 to pay in person at an authorized payment center; there's no charge at self-serve kiosks in Verizon stores. Verizon also charges $3.50 to “pay-by-phone” using a credit card or even your bank account.

The convenience fee is an example of corporate America’s effort to squeeze more money out of customers without delivering any new or improved services. In addition, in their ceaseless efforts to cut costs, the telecom trust, like other corporate sectors, are automating – thus cutting -- customer service positions.

Verizon convenience fee scam is not the only creative fee being inflicted on customers. Nearly all the leading telcos have introduced schemes to get subscribers to move to automatic bill payments programs. AT&T offers a $10 gift card for those who set up AutoPay. Sprint Nextel charges subscribers $5 monthly unless they set up automatic payments and some Sprint's indirect dealers levy a convenience fee for use of their in-store payment machines.

One of the most widespread “inconvenience” charges being adopted by some telco and cable companies is the fee to speak to a live agent. AT&T Wireless and T-Mobile charge $5 to pay by phone with a live agent; AT&T also charges a $5 fee to pay through a clerk at a store, but it's free at self-serve kiosks. (It should be noted that U.S. Cellular, Sprint, Alltell, CenturyLink/Qwest and Vonage do not charge for connecting to a live agent.)

The cable companies have adopted a similar program. To pay by phone, Cablevision charges $5, Charter charges $1.99, Comcast charges $4, Cox charges $5, Time Warner Cable charges $5 and Verizon Telecom charges $3.50. These are just the tip of the iceberg of the growing number of direct and hidden charges, fees and taxes telecom subscribers are getting whacked by.

However, a new round of fees will come with the FCC’s National Broadband Plan, an old con in a new outfit. With the passage of the Telecommunications Act of 1996, the telcos promised to fulfill Al Gore’s vision and bring broadband, the Information Superhighway, to the nation. Now, nearly a decade-and-half later, the broadband promise has not been met and the FCC is calling for still new fees to remedy its past failures. Two facts frame the underlying issues behind this failure:

1. As of June 2011, Europe’s Organization for Economic Co-operation and Development (OECD) ranked the U.S. 15th in “broadband” subscribers.

2. As of Q-2 2011, Akamai ranked the U.S. 12th globally in average connection data rate speed of 5.8 megabytes per second.

An estimated $320 billion was raised to upgrade the nation’s telecom infrastructure. These monies have gone to the telcos and the U.S. has become a second-rate telecommunications nation. It’s good that American politicians, the media and the public have short memories. (See “How the Phone Companies Are Screwing America: The $320 Billion Broadband Rip-Off.")

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The NBP includes, among a host of initiatives, a revision of the Universal Service Fund (USF) and renamed the Connect America Fund (CAF). The original USF fund was ostensibly intended to provide financial support to underserved rural and disadvantaged urban communities. It imposed an approximate 15 percent tax on all “interstate” services, whether wireline or wireless telecom services, and generated around $8-$9 billion annually. Sadly, the USF turned out to be a boon to the telcos, leaving the intended customers with poor and/or overpriced services.

In a recent article, we detailed how the USF was repackaged into the CAF. With the new CAF, monies are essentially divided between what is known as “high-cost funds” to subsidize the service providers of rural telecom and Lifeline, Schools & Libraries and Rural Healthcare Funds. This repackaging is part of President Obama’s stimulus plan, the American Recovery and Reinvestment Act of 2009. CAF is intended to collect approximately $2 billion annually; how it will be fully implemented has yet to be determined. The FCC projects that, over the next five years, the CAF will lead to the building out of broadband in rural areas and create 500,000 new jobs. Want to bet on this promise? 

Additional new charges include:

The Access Recovery Charge -- ARC is applied as what is called “intercarrier compensation” to cover phone traffic costs. This fee adds about $2.50-$3 a month to residential customer’s bill and between $5-$6 a month, per line, or more to a small business’s bill. While most of the details are vague, ARC is expected to raise between $50-$75 billion a year and will run for the next five years.

The Mobility Fund, a Remote Areas Fund and a Tribal Areas Fund -- the Mobility Fund, for example, is intended to expand wireless 3G and 4G broadband access along the nation’s roads and highways; the fund starts with a $300 million capital commitment in 2012 and then increases to $500 million annually.

And who gets most of the money? ARC is a direct payment to local phone companies; CAF and Mobility may also end up in the phone companies’ pockets. AT&T and Verizon are the largest recipients of USF dollars because they own the wires and are the largest wireless companies.

Finally and perhaps the most scandalous of hidden fees associated with the CAF is the Federal Subscriber Line Charge (SLC). It is imposed on all local bills and the money generated does not go to the FCC but is taken as direct revenue by the phone companies. The SLC is a fee the FCC allows phone companies to charge to recoup the cost of having phone lines connecting your house to the network. It is currently capped at $6.50 per line. However, the NBP specifically says it will be reexamined, which is a euphemism for get ready for a rate increase.

Making matters worse, the FCC doesn’t actually collect phone bills and so it has no idea what is currently being charged to customers. Even more disturbing, FCC doesn’t examine state-based funds collecting for broadband, how they are allocated and what they accomplish.

Federal fees are not the only charges subscribers are required to pay on their telecom services. In New York State, like all other states, a host of hidden taxes and fees are added to a subscriber’s bill. A subscriber is required to pay the Federal SLC that is a direct subsidy to the telcos. Even more scandalous, resident subscribers are required to pay a “New York State Gross Revenue Tax Surcharge.” The tax is described as follows:

This surcharge recovers telephone company expenses associated with mandated New York State Transportation and Transmission Corporation Franchise Taxes (Section 184 Tax) and Excise Taxes on Telecommunications Services (Section 186E Tax). This surcharge is not required by the Commission.

Basically, this “surcharge” is imposed on subscribes to cover the taxes that the telcos would traditional have to pay for revenue generated from the SLC. It is, in effect, a “pass-through tax,” meaning it is being charged to the company, e.g., Verizon, but the company gets to pass it directly to the customer. This is but one of the many pass-through taxes imposed to subsidies companies in New York and other states.

The USF adds 15 percent to the SLC as it’s considered an “interstate” transaction. Adding further insult to injury, state and local governments add taxes and surcharges onto the charge. So, in 2011, in New York City these charges added $8.72 to a telco subscriber’s bill.

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These are but a handful of the growing number of fees, taxes and surcharges that federal, state and local regulators are piling onto telecom subscribers’ wireline and wireless bills.

Cable subscribers are not currently subject to federal USF requirements. According to the industry trade association, the National Cable Television Association (NCTA), cable operators “do not separately offer telecommunications to end users, but rather only use telecommunications to provide cable modem service to end users.”

However, NCTA is in discussion with the FCC to find ways to “expand the contribution base” of the USF. To this end, subscribers who sign up for new cable digital packages will soon likely see new taxes and fees added to their bills. These charges will cover everything from broadband Internet, texting and VoIP services (such as Skype and Google Voice) to even “web based enterprises that place substantial burdens on networks” (i.e., movies) such as offered by Amazon, YouTube and Netflix. (By the way, NCTA’s head is none other than Michael Powell, Colin’s son and former head of the FCC under Pres. George Bush.)

The small, popular victory against Verizon’s convenience fee, like that against Bank of America’s debt card fee, is a valuable lesson. But truthfully, the $2 fee was really chump change when measured against the host of other fees, taxes and surcharges subscribers current pay and, most disturbing, will likely pay over the coming years.

Sadly, there has been little outrage from consumer groups, minority groups and other non-profit organizations against the mounting fees being imposed by the FCC and the Communications Trust. Part of the reason for this is the effective way the FCC and the trust have captured many of the leading non-profit groups. And this is most evident in NBP.

The FCC’s plan established the “Connect to Compete” initiative to increase broadband adoption in rural and disadvantaged communities. It pulled together a coalition of groups including the National Association for the Advancement of Colored People, League of United Latin American Citizens, National Council of La Raza, National Urban League and the National Association of the Deaf. The telecom trust has long cultivated moderate non-profits to create a false popular groundswell to influence regulatory and legal actions. This strategy was evident in AT&T’s failed effort to acquire T-Mobile and Comcast’s successful effort in 2010 to acquire NBC-Universal. (See "Shills R Us: Organizations That Get AT&T Cash Endorse its Mega-Merger with T-Mobile" and "The Comcast-NBC Merger & the Future of Internet Video.")

The model for how non-profits can become shills for the telecom trust was established in their role in what was known as the Coalition for Affordable Local and Long Distance Service (“CALLS”), part of the 1996 Telecom Act. It had the FCC pull together a host of front or astroturf groups, including the Alliance for Public Technology (APT) and Telecommunications and Research Action Center (TRAC). The FCC also recruited some non-profits that received money from the telcos, including the Association of Persons with Disabilities, Consumer Action, NAACP, National Grange, United Homeowners Association, United Seniors Health Cooperative, the U.S. Hispanic Chamber of Commerce and the National Consumer League. The Act’s ostensible purpose was to build-out Al Gore’s Information Superhighway, which has yet to be realized. The non-profit groups gave the effort a blue-ribbon seal of approval and helped further media consolidation.

Everyone hates their telecom services, whether it's from their phone, wireless and/or cable provider. Everyone knows they are being ripped off: no one can read their bill; their wireless service sucks; they are being overcharged; and there is no real competition. With rare exception, when most consumers get their telecom bill they simply bitch about it, pay it and hope their service works. Most telecoms and government regulators, after going through ritualized sham public hearings, blindly pass along new fees, taxes and surcharges, knowing that consumers can and will do little about them.

We should use the lessons from the fight over Verizon’s convenience fee to push a national Occupy Telecom and fight rate increases and poor service.