This is your wake up call.  We need your help to restructure telecommunications by:

• taking class action suits;
• filing complaints with Congress, the FCC, and the state regulators against the Baby Bells;
• getting refunds and lower prices for customers; and
• fostering real competition. 

Why do we need a new group?  What's broken?

        Over the last seven years New Networks has worked to effect change in telecommunications.  Our efforts have largely been ineffective. Lack of consumer and customer education, a threadbare regulatory structure, and a fragmented, underfunded, outflanked non-Bell opponent side has only added to the Bells’ ability to convince America that they are just poor babies. 

        A case in point?  Though the Bells collectively make over $100 billion dollars annually, there has never been a major investigation of the Bells’ business practices and profits -- not by the regulators, not by Congress, not by the FCC, and not by any of the major media.  There's never even been a book about the Baby Bells.

        The fact that the Bells are still monopolies, and have virtually stopped all competition through law suits and excessive costs to competitors shouldn't surprise the reader. However, they have also failed to deploy on promised Information Age technologies and services, and through a regulatory slight of hand,  have become some of the most profitable companies in America. In fact, no regulator examines the Bell's profits.  How else can Ameritech, a Baby Bell,  exclaim: 

"Federal and state regulators no longer limit the company's profits."  (Source: Ameritech: Investor Alert 1/95)

        And  those profits are really billions of pennies, nickels, dimes and quarters... that costs you, your company, and everyone you know money.  So if you use a telephone, your participation is crucial for changing what's wrong. 

First, let's talk about the problems:

1)  The Bells have failed to deliver on advanced, promised telecom products and services. We call it "Info-Scandal” - By 1998 over one-quarter of all American households were supposed to be rewired for fiber-optic, 500 channel full-motion services, - half of America by the year 2000.  And these wonderous services in just a few short years, would change our lives.

And billions would be spent per company. Pacific Telesis promised $16 billion in new network expenditures, while Bell Atlantic promised $11 billion.

“In November 1993, Pacific Bell announced a capital investment plan totaling $16 billion over the next seven years to upgrade core network infrastructure and to begin building California's "Communications superhighway". This will be an integrated telecommunications, information and entertainment network providing advanced voice, data and video services. Using a combination of fiber optics and coaxial cable, Pacific Bell expects to provide broadband services to more than 1.5 million homes by the end of 1996, 5 million homes by the end of the decade.”  (Source: Pacific Telesis 1994 Annual Report)

 In fact, the promises of advanced technology started  in the 1980's with ISDN, the buzz word for enhanced services. Southwestern Bell 1986 annual report states:

"At the forefront of new technology is ISDN. Scheduled for commercial availability in 1988, ISDN will revolutionize day-to-day communications by allowing simultaneous transmission of voice, data and images over a single telephone line."

FACT:    There are no 500 channel full-motion video services in 1998 and almost plans have been cancelled. ISDN was not rolled out in 1988 and is still having numerous problems.

2)  State Alternate Regulation Scandals. It is a little known fact that in order to fund this fiber-optic future, the Bells applied for and received, state by state, new regulations called "Alternate Regulations" which allowed the Bells more profits  to be applied for new construction.

However, in a complaint filed with the New Jersey Public Service Commission by the New Jersey Public Advocate, April, 1997, Bell Atlantic/NJ had promised to spend $1.5 billion additional dollars, but only spent $79 million dollars.  At the same time, New Jersey/Bell Atlantic dividends were an additional $1 billion dollars.  As the advocate stated:

"...low-income and residential customers have paid for the fiber-optic wire lines every month but had not yet benefited."

These laws happened in almost all states,  though each state differs.

3) Excess Profits -- Billions of Pennies, Nickels, Dimes and Quarters:  If the networks weren't built, where did all the money go? Today, America still pays for Touchtone Service or Call Waiting, services that cost
virtually nothing to offer and virtually all services have excess expenses.

Instead of building the highway, the Bells most probably pocketed the money. We estimate that $30 billion dollars should be refunded immediately.

4) Baby Bell profits are out of control.  The Bells are currently some of the richest companies in America. In 1996, Bell profits were about 150 percent higher than the Business Week ScoreBoard for Utilities, while profit
margins were over 100% for the Business Week 1000. They out-perform companies as diverse as GM and Ford, or Sears & Roebuck and PepsiCo.

Ameritech put it this way:

"Since our stock began trading in November 1983, Ameritech investors have earned a cumulative total return of 965%-- more than double the total return of 457 percent for the S&P 500."

In fact, the Bells are currently making 150% more that a regulated monopoly is supposed to earn, since there is guaranteed earnings from a captive customer base.

5)  Prices should have plummeted.  Arthur C Clark, inventor of the communications satellite once predicted that the costs of the network would decrease to the point that the cost of a call would be almost zero --- elections over wire or through the air.... However, he didn't take into account the Bells. The  price of service has steadily increased----

Here's  three FACTS to show why prices should have plummeted:

• FACT: Massive Local Phone Company Staff Cuts.  Since 1984, over 235,000 employees have been cut from the local telephone company --  that's a 50 percent drop in employees-per-line, the staff that handles your company's services or the rollout of new services. If fact, we believe that the Bells never had adequate staff or training to rollout ISDN or fiber-optic technologies. 
• FACT: Virtually No New Construction. Over the last decade, the Bells spent more in 1985 and 1986 than they did in the 1990's. Let's put it a different way, they make 40 percent more money but their spending is less than a decade ago. As we point out, in court papers, Bell Atlantic's New Jersey was supposed to spend $1.5 billion extra --- but only spent $79 million.  Meanwhile, New Jersey dividends to Bell Atlantic went up ONE BILLION DOLLARS in the same time-frame. 
• FACT: The Bells Wrote-off the Entire Original Copper Network.  We have filed a complaint with the Criminal Division of the IRS for an investigation of $21 billion dollars. It turns out that even though the Bells didn't roll out their networks they wrote off the current network anyway. That means that, on the books the cost of the local copper network is -- almost 0.

6) Where's the Regulators in All of this? The phone companies are regulated by a fabric of state and federal laws, and regulations, that is more like swiss cheese. On the State level:  There are 50 States and a Telecom Patchwork Quilt of Rules No two states have the same alternate regulation laws, and no two telephone services have the same price, even though the services offered are identical. This has caused three major problems:

• 50 states require 50 regulatory battles - at millions of dollars each.
• Fifty consumer fights for protection- In order to protect subscribers,      a group has to fight 50 separate PUC battles, instead of aggregating them.
• Total customer confusion about the price of any service. - 0 percent of the population are able to answer basic questions about the price of any service.

On the Federal Level:

There's Bad Data at the FCC, and its ability to regulate is in question.  The FCC relies on data from telephone companies and over the last year has not completed even 7% of the audits they deemed most critical. According to the General Accounting Office (GAO) report titled "FCC's Oversight Efforts to Control Cross-Subsidization," February 1993:

"At the present staffing level, the FCC could cover each area once every 18 years [there are 297 audit areas]. If the FCC confined its efforts to the 183 areas that it has designated most critical, it could audit each area
about once every 11 years".

Without good data, how can the agency hope to make good laws? And with the new FCC, the problems have just gotten worse.

The Telecom Act of 96 is Seriously Flawed.  The Telecom Act was really a band-aid act, when what was needed was a complete overhaul. The Act was written to bring in local competition and stimulate new technology deployment. Unfortunately, it was based on a series of bad assumptions, and manipulated by a great deal of phone company lobbying -"The most lobbied bill in history", according to Senator Pressler. No wonder there is still no competition almost two years after the fact.

And the problems mentioned, from the patchwork quilt of regulation, to inaccurate FCC data, never addressed by the Telecommunications Act. 

The Phone Bill is a Regulatory Mess.   With all of these various state and federal government agencies, the most surprising fact is that no agency actually looks at all of the charges and therefore profits of your telephone bill. For example, a typical telephone bill has some charges, such as the Subscriber Line Charge, that is controlled by the FCC, while some services, such as Inside Wiring, have no regulator examining the charges to customers.

• “Basic Service” is now one of the few line items on the phone bill that is regulated anymore. It is controlled by the State PUCs.
• Toll Call Revenues are regulated by the state PUCs.
• FCC Line Charge, on all business and residential bills, is an FCC controlled service.
• Calling Features, included Call Waiting to Caller ID have varying rules per state but most services are no longer examined by any state regulator for profits.
• Inside wiring is deregulated and no longer examined for profits.
• Long Distance Access Charges, which are not considered charges   to subscribers, and are examined by the FCC
• State and Local Taxes and Surcharges: Various government agencies, have added a wide variety of surcharges - including everything from a 911 to Deaf Relay.---and these are almost all just more telco revenues.

This jurisdictional morass allows for a serious revenue and profits shell game to have take place. Because each regulator only examines specific charges on the phone bill, the Bells have been able to state that they are "losing money" on "basic service" and even today, are requesting rate increases. How can this be when they are so profitable?

• State and Federal Regulators are seriously out-flanked. Where alternate regulation plans have been presented, the phone company has out-spent the advocates and PSC staff by approximately 30-1, from hiring consultants to using the Bell's legal staff. This has left few safeguards for customer protections.

Finally, no one is watching anymore.  Since the 1990's, the  implementation of Alternate Regulation has strip-mined the regulators' ability to examine RBOC profits.  Price Caps,  where the price stay the same for a few years, has become the standard for all telecom price regulation. While it sounds like a bargain, since the network gets continually cheaper to offer service, the profits just keep accruing.

7) The Competition Myth.  Competition was supposed to fix everything - Lower prices, bring in new technologies,  However, as of 1998, competition is still stillborn, especially for residential customers.

Here's the problem: Try to pick up this line:

                __________________________________________

You can't, and that's why there will not be other competition, because the Bells own the 'final mile' of wire to the customer's home.  Cable companies must redo their networks and wireless is still too expensive.  Therefore, no other phone competitors can offer service without renting from the local Bells. 

As of 1998, the two hopefuls, AT&T and MCI,  have all but pulled out of residential local service offerings. AT&T stated "they were losing $3 per customer", and have "stopped marketing local service" while MCI's President, Timothy F. Price stated that they "would not offer resale service to any new residential customers because... the Bells have  managed to ensure that the business is not a profitable one for new entrants, who don't have government protected territories".

And the Bells have successfully used lawsuits to stop all attempts at competitors entering the market.. They are monopolies and they own the network and the Telecom Act never adequately address this most
important fact.

8)  Dark Secrets.  Another $70-90 Billion in Massive Fraud, and a Host of Other Improper If Not Illegal Activities. The few audits of  the Bells have clearly shown that  behind the Bell curtain, there's a serious dark side where expenses are charged to customers that should have been paid by the company.   A clear example is an e-mail to us from a former Bell accountant, cooroborating many of our findings. (The Bell has been replaced the actual holding company name.)

"You are absolutely correct when you state that The Bell has been allowed to overcharge for local phone service, because I know for a fact that the numbers we reported to the PUC were false. The instructions I received from my manager were that we had to back out all new sources of revenue created since the divestiture from AT&T in 1983, with the stated intention of providing as bleak a picture as possible to the regulatory agencies. This meant that what the PUC's received was a false picture of the true profitability of the directory business, which then helped to skew the rate calculations in favor of The Bells' contention that they were losing money
on local phone service."

• Telecom Subsidies are Corporate Welfare Subsidies: A shell game with your money. Arguments abound that local service must fund a host of subsidies, such as Universal Service.  Meanwhile, there are those that argue that Business customers subsidize residential subscribers and that Urban users subsidize Rural and suburban subscribers.

Unfortunately, after all of the revenues and profits are totaled the only real subsidy is that telephone subscribers are subsidizing the Bell shareholders' excessive profits and entry into other businesses.  Without audits and actual costs being analyzed, and to date no total audits exist by any government regulator, all other arguments of subsidy are moot.

9) Failure To Deliver on Essential Products. Consider the facts - that all of the services listed below should have been rolled out long before promises of fiber-optic, full motion video, 500 channel services were ever going to be implemented. 

• the Bells still can't deliver two telephone channels over the same wire, (requiring second wires to be added into the home),
• telephone numbers must be changed when someone moves,
• millions of people had to receive new area codes because the Bells never bothered to create basic software to solve this problem.

Why were these services never mandated and delivered over the last decade?

10) Internet Providers should get angry. The Bells have asked for surcharge on the Internet and stopping Internet Telephony.  Their argument is that their network is being congested by the Net, and that Internet Telephony should have extra charges paid to them.  However,  if they had kept their promises of network deployment, there would be excess capacity. 

Worse, an e-mail message we received stated

"Most recently they have been trying to price the ISP's out of the market place by increasing their cost structure. The argument they have been using is that the users of the Internet are placing an undue burden on their networks, so the ISP's should foot the bill for improvements to that network. This at the same time that The Bell is offering Internet connectivity to the public."

11) Telecom Act Actually Brought in New Charges -- and Other Scandals. From an "Internet & Small Business Tax", implemented by the FCC which put a new surcharge on all second lines in the home or office in 1988, or the common "Digital Spew” (which adds charges to telephone bills that have not been ordered). to other surcharges that are supposed to be used for the wiring of schools or allow competition, there are hundreds of problem -adding up to multiple Billions of dollars annually.

We believe that total overcharging is $14 billion dollars annually -- and rising -- and it affects every Bell subscriber.  And overcharging is just the tip of the iceberg. 

And the reasons why we formed?  To review:

Customers Don't Have a Clue.  Based on proprietary consumer surveys, New Networks Institute (NNI) has found that consumers do not know or believe that the Bells are doing anything wrong - from overcharging to blocking competition. Case in point:

Zero percent of the population can  answer basic questions about their telephone bill, This attitude leads to customer complacency - Why change the local telephone company if nothing is wrong?

The Business Community Is No Better Educated.  It also does not know the facts, and does not have an adequate voice in making necessary changes. for example, Bill Gates, CEO of Microsoft, thinks that local telephone service is being 'undercharged". In his article titled "Bill Gates predicts what's ahead in '97" (1/2/97) appearing in the New York Post. 

"The rate scheme used to pay for telecommunications in the United States will change dramatically. Regulators will end the current practice that forces phone companies to undercharge for local service and overcharge for long-distance service. As a result, heavy user of the local telephone network -- including people who keep computer modems connected hour after hour -- will see their bill rise."

FACT: In 1997, 90-plus percent of all the Bells’ profits came from local phone services!

As we stated,

• Telecom Laws Resemble Swiss Cheese and are not  protecting subscribers
• Audits have not been done.
• The Media?  No Stories, No Investigations. To date, there has never been an investigation of the Baby Bells by any media concern, and interviews with telecom advocates show that in many cases stories have been squelched because of the advertising monies spent by the Bells.

The worst problem ---Fragmented, Threadbare, Opposition to the Bells. The most insidious problem is a failure of the Bells’ opponents to present a unified, forceful group to take actions. While the Bells present a unified front, via everything from the USTA and heavily-paid lobbyists, to the former MFJ Task Force, the other side, including the long distance companies, the local CAPS, and even the consumer groups, all take rabbit punches for their own, very private agendas.