It's Time to Break Up the Bells.
The Customer Costs of the Bell Monopoly:
- Overcharging: We estimate that the Bell companies overcharged customers over $17 billion dollars in 2001 because of the lack of competition. ---- That's about $200 per household for 2001
- Higher Prices: We estimate that prices have gone up over 300% since the Bell companies came into being and that is primarily because there has been no competition to lower rates. For example, Local Directory Assistance is up 1800%.
- Bells Profits Violate "Fair and Reasonable' Statutes -- According to Business Week, Bell profits in 2000 were 250% higher than the Business Week 500. Monopolies are supposed to have "regulated" profits to protect captive customers.
- The Phonebill is a Mess: Customers still can't understand their phonebills.
- Many Charges are Bogus. Why are customers paying a "portability" charge when they can't take their number when they move?
- Failed Broadband Rollouts: By 2002, more than half of America was supposed to have fiber-optic wiring to their homes and schools. Today, virtually none exists even though customers paid over $58 billion in added charges.
- Opportunity Costs: A Bell funded Brookings Report states that broadband would increase the US Economy $500 billion --- How much have we lost per year?
- Competitive Harm: Competition in America is on life-support, with numerous bankruptcies, and the major problem has been the Bell companies, not competitor business plans.
- DSL Chain of Pain: The entire DSL roll-out has been a nightmare for customers and competitors alike.
- The FCC and the State Regulators? Their track records shows they are not going to fix the problems anytime soon.
We believe the Bell monopolies stole your digital future, harmed competitors that would have given you new services, overcharged you hundreds of dollars that should be refunded --- $200 per household for 2000 alone ----and prices should be lowered immediately.The only way you may get what is yours may be to finally "break up" the Bell local monopolies.
Back up Documentation: NNI has issued extensive reports on each of these topics. To read the reference material and other documentation from numerous sources go to http://www.newnetworks.com
Overview
Since the creation of the Bell companies in 1984, local phone services have skyrocketed, the continued promises of new broadband networks never materialized, and the Bells still have a stranglehold on the local phone network, with competitors being frozen out of the market, or even put out of business.
A decade ago, (1992) New Networks Institute proposed that the only way to fix these problems was with the enforcement of laws, or if that failed, the Bell companies should be "broken up", separating the Bell companies from the local phone networks. We proposed "Divestiture II". (To read our original 1992 analysis, see: "Ten Years Since Divestiture: The Future of the Information Age" http://www.newnetworks.com/originaldivest2.htm
In 1996 Congress recognized that there were problems and passed "The Telecom Act of 1996", which was supposed to remedy the issues. The Act's intention was to lower prices by creating an even-playing field for competitors and this would also deliver to the American public fast-new-advanced networks.... supposedly based on fiber-optics.
Instead, in 2002, six years after the Telecom Act, local prices keep increasing, there is little choice for local service because competitors have not been able to compete and are still being closed out of competition, and the broadband networks that were supposed to be based on fiber-optics, have now reduced to "ADSL" (Asymmetric Digital Subscriber Lines) an inferior product that still goes over the old 100 year old copper wiring. (Fiber-optics can handle hundreds of times more data than copper.)
Worse, numerous studies by the FCC and other groups show that service is actually getting worse for customers, numerous expenses have been added to the phonebill unjustly, and prices are not "fair and reasonable". In fact, the Bells are now some of the richest companies in America, surpassing companies with profits 256% higher than the Business Week 500. How is this possible if they are still monopolies with "regulated" profits?
The good news is that in 2001, Senator Hollings has proposed a new bill to enforce the laws, and do a 'structural separation' of the local phone companies' --- meaning that the wholesale parts of the companies would be separate from from their retail parts, thus making sure that the local networks are open to all competitors on an equal footing.
Some states, such as Pennsylvania have also proposed such a change.
To read more about this see: http://www.newnetworks.com/breakupthebells.htm
However, it is an uphill battle. It has become obvious that the state and federal governments have not been able to stem the tide of problems with the current regulatory framework, both for lack of enforcement of the current laws, as well as influence through campaign finances.
The main problem still remains --- the Bells are still monopolies and they control the wire into customer's homes and offices, and therefore virtually all wireline phone services, including competitors, must go through the Bell companies' control.
Instead of all the high-faluting, complex minutia of telecom regulation and law, let's go through how you are directly effected by the Bell monopoly control --- The cost to you, your family, and your business.
Overcharging, Bell Profits and Phonebill Issues.
The Bell companies have become some of the most profitable companies in America. Business Week's Annual Corporate Scoreboard (published 2/26/01) found that the Bell companies' overall profits was 256% above the Business Week 500, and the Bell profits above the top 10 American companies, including EXXON, Wal-Mart, GM, Ford, and Citicorp, was 170%. Also, the Bell profits compared to the other Utilities was 212%.
While the Bell companies make claims that their profits are from a diversified portfolio, the truth is that 90+% of all Bell profits still comes directly from the local phone customers in the form of higher prices--- pennies nickels, dimes and quarters on phonebills.
For example,
- ·Directory Advertising, such as the common Yellow Page adds purchased by small business, has profit margins that are 700% over Business Week 500's top companies.
- A local directory call increased 1800% since the Bells took over.
- Call Waiting has a 48,000% profit margin.
- Some states still charge for Touchtone--- a service that cost 0 to offer.
And it goes on and on. The amount of questionable charges, such as the recent increases to the FCC Subscriber Line Charge, or the charge of "portability" even though you can't take your phone number with you when you move, and just a few other examples of how the Bell profits are accrued from customers.
In fact, according to Tom Allibone, president of LTC Consulting, a company specializing in auditing of phonebills, there's a much seedier side to phonebill charges. He states:
To put all of this another way, when comparing the Bell's profits to the other Business Week companies, we found an excess of $17 billion dollars for just the year 2000 --- That's approximately $200 dollars per household! And that's your money.
These profits violate every "fair and reasonable" statute in America. The Telecom Act of 1996 states:
"Consumer Protection: The Commission and the States should ensure that universal service is available at rates that are just, reasonable, and affordable."
A monopoly, by definition, has a captive customer base and therefore, is NOT supposed to be more profitable than the overwhelming majority of companies with competition. In fact, in many states, the Bell companies no longer have anyone examining their services for profits. Ameritech (now part of SBC) stated: (Source: Ameritech Investor Alert 1/95)
And how did it get that way? The promise of a fiber-optic broadband future was supposed to be delivered in exchange for the removal of limits on profits.
Failed Rollout of America's Digital Future--- A Deregulation Nightmare
The prices for most services have become 'unreasonable' because of a trade-off--- The Bell companies have made continuous promises to rollout broadband networks to customers in exchange for deregulation ---i.e.; more profits. And like a broken record, they have continually failed to deliver. By 2001, over half of US households were supposed to be wired with very high-speed fiber-optics, replacing the century old copper wiring. In many states, these services were supposed to also be supplied to the all schools, libraries and hospitals.
For example, Pac Bell (now part of SBC) had stated that it would spend $16 billion dollars and have 5.5 million households wired by 2000, while Verizon had stated that they would have 9 million homes by the end of the 20th century. Also, each state made its own promises. Pennsylvania was supposed to have 20% of the rewired with fiber by 1998, including all low and high-income, rural and urban areas equally. Ohio stated it was rewiring with fiber-optics all schools, libraries and hospitals. None of these services exist today.
We estimate that the Bells collected an estimated $58 billion dollars in extra fees, and it continues today, unabated.
As the New Jersey Ratepayer Advocate found in their analysis of the plan to rewire that state, the Bells have a continually failed to live up to their promises.
"Low income and residential customers have paid for the fiber-optic lines every month but they have not yet benefited.""Bell Atlantic-New Jersey (BA-NJ) has over-earned, under-spent and inequitably deployed advanced telecommunications technology to business customers, while largely neglecting schools and libraries, low-income and residential ratepayers and consumers in Urban Enterprise Zones as well as urban and rural areas."
While deregulation, the removal or regulation is considered by many to be the panacea of fixing telecom issues in theory, in reality, it is like Communism --- it sounds much better on paper than it does in the implementation. These broadband rollouts are models of deregulation harming customers, not helping them. (Note: Deregulation of long distance succeeded because it did not require a monopoly to take action. It provided competition on an equal footing to allow all players to have a chance at winning the customer. There was no competitive incentive for the Bell companies to roll out broadband and no competition to keep the system in check. They were just able to receive more money.)
On the DSL front, Verizon had stated it would have 7 million ADSL lines installed by 1999… they had about 1/2 million at the end of 2000 for all states.
There has also been a serious opportunity cost to America: To quote Verizon's spokesperson, Tom Tauke, (New York Times 9/2/01)
"Trouble is, the rate of adoption of these technologies has slowed dramatically, along with the growth of the economy itself," he said. "So what's flattened the slope of the curve in 2001? The answer is the lack of widespread deployment of broadband technology."
According to a Bell funded Brookings report, the amount of loss from failure to deliver broadband has been $500 billion annually. We believe that the Bell companies, by not rolling out what customer's paid for, are responsible for the tech sector crash and the downturn in the economy.
Harm to Competition:
It is clear that even though the Bell companies continually claim that their networks are "open to competition", the fact is that there is sufficient documentation to prove the Bell companies' have continually failed to deliver to competitors adequate-quality services. Also, the prices to competitors are predatory --- and so a competitor can offer the same service at a lower price.
In some states the prices are sometimes even set above retail rates. In Massachusetts, AT&T and Worldcom filed with the state commission claiming that the prices for the network components are higher than retail costs to customers. How are competitors supposed to offer lower prices?
Worse, today, there is a "DSL Chain of Pain". When a customer orders a DSL line from a competitive local Internet provider (ISP) who uses a Competitive Local phone company (CLEC) over 50% of all installations have seriously problems and many times don't get solved. The chain ---- the Customer --- the ISP--- the CLEC --- must all go through the local Bell company because they control the final mile of wiring to homes and offices.. In documented cases, the Bell companies miss installations, the line isn't properly working, or the Bell networks haven't been properly upgraded to handle DSL --- and is happening in everywhere, from the middle of Manhattan, NY, to every other city or town.
To read about the thousands of unsatisfied customers, go to DSLreports.com, or read co-signer comments of the "Broadband Bill of Rights", our proposed legislation to fix these problems See: http://www.newnetworks.com
There is also a seamy side to all this. The Communications Workers of America released a report in October 2000 which stated that in New York Verizon had falsified information supplied to the state commission --- which showed that the installations were not being done on time, customer services were not being delivered as promised, and that this effected not only customers, but the services supplied by competitors.
Even the actual costs of the networks is in dispute--- but always in the Bell's favor. The FCC released audits in 1999 which showed $5 billion in missing equipment and an additional $14 billion in "unverifiable" ---- and this was only 1/4 of the potential audits to be conducted.
Serious Problems As We Go Forward.
If the situation does not change, then the entire competitive industry, which is now on life support, will die. Investors will not get burned again to invest in companies that have no chance of succeeding against the incumbent monopoly Bell.
Secondly, the Bell's earnings continue to increase from captive ratepayers who have no real choices in local service.
Thirdly, the failure of the Bell's advanced networks has killed an entire generation of technology development. If the fiber-optic wiring had been deployed, then everyone would have designed new services for the very-high-speed services, thus invigorating both the telecom and hardware sectors. It can even be argued that the failed deployment and the lack of innovation, caused this current stock market recession.
What Should Happen Next.
- Enforce the Laws --Bring in Competition: Today, neither the FCC nor the state commissions have fixed the current problems. Though some of it is political, the states are underfunded and understaffed to do their jobs.
- Do Not Deregulate a Monopoly Until There is Competition: Politicians need to admit that deregulation of the monopoly didn't work to deliver broadband, and the model is flawed. . We bring this up because a proposed bill by Reps. Tauzin and Dingell will repeat history and once again give the Bells new financial incentives.
- Support The Hollings Bill -- Enforcement And Structural Separation: This bill would put some teeth into the enforcement equation and give competitors a chance to compete on an equal basis.
- Support the Broadband Bill of Rights: This proposed customer-oriented legislation would create penalties and fines for any customer-related DSL problems.
- Demand a "Total PhoneBill" Analysis: Today, no regulator examines the profits of the Bells and this should be done for the entire payment of local phone customers immediately.
- Require a "Broadband True-Up": Today, no state have examined how much money was collected in the name of broadband, including school wiring, fiber-optic deployments, etc. Our contention is that billions have been given to the Bell companies, even though customer never received what they paid for.
- Insist on Phone Bill and Broadband Refunds: Until there is competition, the Bell companies should be held accountable for their profits under state and federal statutes.
- Filings Complaints and Law Suits: Unfortunately, rhetoric and talk has not worked to supply competition or broadband to customers, and so NNI has filed, in the public interest, numerous complaints with the FCC, state commissions, and the IRS, created Class Action suits with law firms and this trend will only increase because the current laws are not working to protect customers rights.
- Join Teletruth and make a difference. These issues will not go away without the public getting involved. See; http://www.teletruth.org