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Before the Federal Communications Commissi
NNI RECOMMENDS DROPPING THE ENTIRE SUBSCRIBER LINE CHARGE FROM PHONE BILLS BECAUSE THE LOCAL BELL COMPANIES' PROFITS ARE EXCESSIVE.
Submitted by New Networks Institute Bruce Kushnick 826 Broadway, Suite 900 New York, NY 10003 212-777-5418
June 29th, 2001
COMPLAINT SUMMARY Discussion: 1 What Are The "Fair And
Reasonable" Statutes And Why Do They Apply To The
Bells' Profits? II What is the FCC Subscriber
Line Charge? III The Costs to Customers of the
Subscriber Line Charge IV What Do Customers Know About
The FCC Subscriber Line Charge? It Pays For The FCC
Agency Right? V Why Is This Charge Unfair And
Unreasonable And How Can The FCC Actually Raise The
Rates? VI Bell Profits from Local Phone
Customers Are Excessive. VII How Much Money are we Talking
About? Conclusion:
On July 1st, 2001, the Federal Communications Commission (FCC) will raise a charge on all residential local phonebills. Known commonly as the "FCC Subscriber Line Charge", this obscure fee will rise to $5.00 a month, a 43% increase from the long standing $3.50 per month. This charge was previously increased on second lines, from $3.50 to $7.00 per month. For multi-line business customers, the total amount has gone from $6.00 to as high as $9.20 a line.
What's wrong with this increase? Just follow the money. These added revenues are being given to the Bell phone monopolies: BellSouth, SBC, Qwest and Verizon, who have become some of the richest, most profitable companies in America. According to the Business Week Corporate Scoreboard, (2/26/01) Bell profits in 2000 were 256% above the Business Week 500, 212% above other utilities and 170% above America's top 9 companies --- including GM, Ford, GE, EXXON, Wal-Mart, IBM, AT&T, Enron and Citicorp. (For a detailed discussion of the Bells profits see our new report "Bell Profits Are Outrageous". http://www,newnetworks.com/Bellprofits2001.htm In our Report we contend that the current Bell monopolies' profits are excessive and violate state and federal 'fair and reasonable' regulations ---laws that are in place to make sure that the customer is protected from rate gouging, in lieu of competition offering better or cheaper alternatives. For example, 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" The counter-argument for increasing this charge has been that as the Subscriber Line Charge goes up, charges to Long distance carriers go down. Local becomes more expensive and long distance becomes cheaper. However, since this charge is a total monopoly --- there are virtually no competitors to lower this charge and it must be paid as part of local service ---- then it is still supposed to be regulated and therefore, it must also be considered under the 'fair and reasonable" statutes of the Telecom Act. The Money goes to the Bells: The Subscriber Line Charge (SLC) has various names and definitions used on phonebills. It is usually called the "FCC Subscriber Line Charge" but other names referring to the FCC are also common. Based on the overall profits of the Bell companies from local service, NNI is calling on the FCC to not only drop the planned increase to the Subscriber Line Charge on July 1st, 2001, but to remove the entire fee from all phonebills. To read the FCC's information see: http://www.fcc.gov/cib/consumerfacts/SLC061500.html Please note that the figures presented are only for residential customers and are an approximation based on available data. The total amount of SLC charges would have been $4.4 billion for 2001, but with the increases, the total collected for a full year will be $6.8 billion---- a $2.4 billion dollars increase. The total "End User" charge, both for residential and businesses, collected by the Bells and GTE for 1999 was $9.7 billion, based on the FCC's annual report "Statistics for Common Carriers". A companion New Networks Institute report "The Real Truth in Billing: Phonebills Held Hostage", will be released July, 2001. It compares Bell profits to the charges on phonebills. For more information contact Bruce Kushnick at: 212-777-5418, or to read the full Complaint, visit New Networks Institute at http://www.newnetworks.com
Discussion: I What Are The "Fair And Reasonable" Statutes And Why Do They Apply To The Bell's Profits? The Bells are still monopolies, and there is no proof, court case, or any other research that shows that there is local phone competition of residential customers widely being used, or even available. Therefore, regardless of whatever current law the Bell companies would like to use, there is ample proof that the Bell companies' profits are out of line with a monopoly. The Bells profits are supposed to be regulated and this is because monopolies have an undue control over the captive customers. They have guaranteed customers--- meaning guaranteed income and profits. Conversely, companies with competition do not have the luxury of a guaranteed return. Competition drives prices lower, profits lower, and can, if you do not react, put you out of business. That is the reason that there are public "utility" commissions --- to be the public's watchdog over the affairs of the monopoly-utility providers. It is also the reason why every state and federal law has specific safeguards pertaining to the profits of the utilities, commonly known as "Fair and Reasonable" statutes. For example, the primary law in telecommunications is the Telecom Act of 1934 (as amended in 1996). It states that the purpose of the Act is: "...to make available, so far as possible, to all the people of the United States, without discrimination on the basis of race, color, religion, national origin, or sex, a rapid, efficient, nation-wide, and world-wide wire and radio-communications service with adequate facilities at reasonable charges." (emphasis added) The Act also specifically assigned to the FCC responsibility to investigate and report any overcharges or unreasonable price increases: "The Commission ... shall report to the Congress whether any such transactions... may result in any undue or unreasonable increase in charges or in the maintenance of undue or unreasonable charges for such service..." And the more recently enacted Telecommunications Act of 1996 clearly states: "...Consumer Protection: The Commission and the States should ensure that universal service is available at rates that are just, reasonable, and affordable." We argue that it can not be 'fair nor reasonable" for companies who are still monopolies, and who are supposed to be regulated for profits to protect customers, to have profits that are 200+% above virtually all other companies in America with competition. But what's even more absurd is that
the FCC has and will continue to raise charges on phonebills
that give the Bell companies even more money. II What is the FCC Subscriber Line Charge? According to the FCC the "Subscriber Line charge" is an added charge to allow phone companies to recover some of their costs connecting customers to the phone networks. To see the FCC's own description of this charge see: http://www.fcc.gov/cib/consumerfacts/SLC061500.html "Incumbent local telephone companies recover some of the costs of telephone lines connected to your home or business through a monthly charge on your local telephone bill. This charge is usually called the subscriber line charge. It is sometimes called the federal subscriber line charge because it is regulated and capped by the FCC, not by state public utility commissions. The subscriber line charge is not a charge by the government. It is not a tax. The government receives no money from this charge. The money is paid to local telephone companies." The FCC also states that this charge is not related to long distance charges: "How are long distance calls affected? The federal subscriber line charge has nothing to do with the number or type of calls a customer places or receives. It is not a charge for making or receiving long distance calls. All local telephone networks can be used for making and receiving local and long distance calls." We would like to point out that these new revised definitions are rewriting history. For example, according to the FCC, the 1993 definition claimed this charge was part of long distance service costs. "The Federal Subscriber Line Charge (SLC) defrays a portion of local exchange costs that have been allocated to interstate toll [long distance] services." Verizon's Web site also ties in the definition of the charge being related to the long distance services. They write http://www.bellatlantic.com/foryourhome/NY/faq_local.html#fcc "The FCC Line Charge* is a nationwide charge that is designed to recover a portion of local telephone companies' costs associated with providing long distance carriers with access to the local phone network. Long distance carriers pay the remainder of the cost. This charge is regulated by the FCC." Also, the most common definitions have included the word FCC in them, which the FCC has neglected to point out. Take, for example this next exhibit from the NNI report "Telephone Charges in America", (published in 1994 by Probe Research)
Please note that the current Verizon, NY phonebill (6/15/01) calls it the "FCC Line Charge".
III the Costs to Customers of the Subscriber Line Charge For most of the 1990's, the Subscriber Line Charge was $3.50 for all residential phonelines and $6 per business line, though it could vary by state. From the perspective of anyone paying a phonebill, this is just another weird obscure added fee to local service. And this charge increased for every residential customer from $3.50 to $4.35 over the last year--- and It again goes up July 1, 2001 to $5.00. Second lines also went from $3.50 to now $7.00, while Business lines also increased from $6.00 to as high as $9.20.
1999 2000 2001 July 2001 Subscriber Line Charge
$3.50 $3.50 $4.35 $5.00 Second lines $3.50 $6.07 $7.00 Multi-line Business
$6.00 up to $9.20 In past filings, NNI has argued that the increases to the second lines has been nothing more than a "Small Business and Internet Tax", because second lines are the mainstay of small business and people who use online services. Verizon's explanation of why the charge on the second line is higher than on the first line is that the first line charge is kept artificially low. http://www.bellatlantic.com/foryourhome/NY/faq_local.html#fcc "Why is the FCC Line Charge on my second line more than it is for my main line? Effective January 1, 1998, the FCC required Verizon and other local phone companies to lower the per-minute costs of providing long distance carriers access to local networks, and the FCC Line Charge was restructured to offset a part of that decrease. To preserve the universal service affordability of the customer's primary or main line, the FCC made the decision to shelter that line from the rate increase, and the increase was applied only to a customer's additional line or lines."
IV What Do Customers Know About The FCC's Subscriber Line Charge? It Pays For The FCC Agency Right? From the customer perspective, this is a totally unknown, bogus charge. While the FCC refuses to even notice that the charge almost always has the name "FCC" as part of its title or included in most of these definitions, most people believe that the charge is most likely used to fund the FCC. In 1993 and 1995 NNI conducted surveys of 2000 customers and found that 67% of consumers polled thought revenue from this charge was going to the FCC directly, while the reminder didn't think it was even a charge on their bill. But there is even a more sinister reality to this charge, besides all the variety of names and definitions. The money doesn't go to fund the FCC. It is direct revenues to the Bell companies --- something which is never clearly mentioned on any phone bill. A typical phone bill includes references to the FCC Line Charge and FCC Second Line Charge, but it doesn't bother to explain that this is reimbursing the local phone company. Just take out a phonebill and check. Therefore, we can never expect the public at large to do anything or question this charges' raison d'être, because it is just some very mislabeled, obscure charge on the phonebill.
V Why Is This Charge Unfair And Unreasonable And How Can The FCC Actually Raise The Rates? The logic behind charging this fee is that the FCC believes the Bell's hype that they "lose money on local phone service" and rates are "subsidized". "To ensure that all Americans can afford at least a minimal level of basic telephone service, the FCC capped the subscriber line charge for primary residential lines at $3.50 per month. This cap was set during the 1980's when the vast majority of homes had only one telephone line. This maximum subscriber line charge consumers pay for residential telephone lines is a subsidized rate because it does not cover the local telephone company's average costs for those lines." This is of course not true in any way, shape or form when the Bell's revenues are calculated from customers, though it is a common belief… The Bell profits are a total shell game, and the FCC has not examined the total profits from customer phonebills. This is a fact. The FCC's determination to raise the Subscriber Line Charge never went through a "fair and reasonable" determination. There was no test to determine what the total profits from the customer were, nor was there any examination into the total Bell profits. And after looking at the Bells' profits from local service, it is clear that local phone service is one of the most profitable businesses in America if you are the monopolist. We've done extensive work on the profitability of the Bell companies. We have filed with the FCC. For a bibliography of our previous reports see: http://www.newnetworks.com/biblio.html
VI Bell Profits from Local Phone Customers Are Excessive More recently, in June 2001, NNI released a report on Bell profits, based entirely on the Business Week Corporate Scoreboard, and other reliable sources, including Bell Annual Reports. http://www,newnetworks.com/Bellprofits2001.htm The finding shows that the Bell companies (Qwest was not included in the Business Week roundup) had profit margins 170% above the Top 9 companies, 256% compared to the "All Industry", and 212% compared to the "Utilities". How is this possible if the Bell companies are supposed to still be regulated monopolies, whose profits are supposed to be constrained because they have captive customers? And where are the loses from Local Service? Source: Business Week,
2/26/01
(in the millions)
% of
Profits Compared to
Bell Total Top 9 6% 170% All Industry 4% 256% Utilities 5% 212% Bell 16% The Top 9: GM, GE, Ford, EXXON, Wal-Mart, Citicorp, IBM, AT&T, and Enron. Overcharging Customers? In the report we adjust the Bell profits to match these other corporations and found that approximately $17.1 billion was being overcharged in 2000. For more details see the report.
VII How Much Money are we Talking About? The Exhibit below shows that the increases to the Subscriber Line Charge for households come to almost $2.4 billion dollars in extra fees for 2002. We estimate that the total for households with one line will account for $1.5 billion dollars, while the increase for second line homes will be up approximately $840 million. Also, if there were no increases the 2000 revenues would be $4.4 billion for residential customers as compared to the increased amount, which is approximately $6.8 billion Please note that these figures are only for residential customers and are an approximation based on available data. According to this exhibit, the total "End User" charge for Bells and GTE for 1999 was $9.7 billion, based on the FCC's annual report "Statistics for Common Carriers". Primary Line What it has been Monthly $ 297,500,000 Yearly $3,570,000,000 Increase Monthly $ 127,500,000 Yearly $1,530,000,000 Total New, 7/1/01 Total Monthly $ 425,000,000 Total 2002 Total Yearly $5,100,000,000 Second line What it has been Monthly $ 70,000,000 Annual $ 840,000,000 Increase Monthly $ 70,000,000 Annual $ 840,000,000 Total New, Total Monthly $ 140,000,000 Total 2002 Total Yearly $1,680,000,000 Increase Total starting Monthly $ 197,500,000 Total start Annual $2,370,000,000 Before Increases Annual $4,410,000,000 Total With
Increase Monthly $ 565,000,000 Annual $6,780,000,000 Households 85,000,000 Second Lines 20,000,000 Conclusion With Bell profits being 200%+ above most American companies, increasing the Subscriber Line Charge violates the Telecom Act's "fair and reasonable" statutes. This charge should be analyzed based on the total Bell's profits from subscribers, and not some other method that allows the Bells to harm monopoly subscribers from excessive rates. |