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An American Fleecing
Rate hikes in sheep's clothing
by Karl Bode 03:14PM Tuesday Oct 05 2004
Critics have long complained that telco's have become masters of obscurity, skillfully crafting inflated fees and other bogus charges to ramp up the cost of simple copper. That tendency has slowly wormed its way into the broadband industry, where consumers are paying more than ever before in additional fees and surcharges, many of which aren't clearly included in the advertised price.

To understand the "un-fees" that have started to emerge on broadband bills, you need to first examine your traditional phone bill, arguably the breeding ground for a tactic that's been left relatively unchecked by the FCC.

Dubious Phone Line Fees

While many services in your phone bill are inflated (caller-id, only one example, costs a penny to provide), there are two charges that cement the foundation of what many perceive as a nifty combination of consumer fleecing and abysmal government mismanagement:

The FCC Subscriber Line Charge ($5+ a month depending on lines, state): Sometimes called the End User Common Line Charge. According to the FCC itself, this charge is "not a government charge or tax"; it goes right back to the bells, not the FCC, despite its name. It's estimated that over eight billion is collected annually, and most incumbents support a new effort to significantly raise this as high as $10 a month.

The Universal Service Fund (USF, price & name varies): A well intentioned fee designed to help provide services for the less affluent; many believe it has become a poorly managed slush fund for the bells. While the FCC did create the Universal Service Administrative Company ("USAC") to oversee cash flow, their effectiveness at monitoring financials has long been in serious doubt. 40 percent of USF funds go to the E-Rate program, suspended two months ago after allegations of fraud and abuse.

The New Regulatory Recovery Fees

Enter Regulatory Recovery Fees, the first effort by the bells to migrate sleaziness from your phone bill to your broadband bill. Emerging this year, the new fees range from one to six dollars a month, and are called everything from the "FUSF pass-through fee", to the "Regulatory compliance fee" on your bill. It's tacked on to whatever other USF fees you're already paying, and is added to your cost total on top of the advertised price.

Ported over from a parallel effort in the wireless sector, the incumbents blame USF hikes and FCC regulation as the reason why this new "fee" was added. "Given the dramatic way that it has increased in the last couple of years, we have found it necessary to break it out," recently noted SBC spokesman Joe Izbrand.

Strangely, SBC charges lower or higher recovery fees based on the speed of your connection, despite the fact the back-end USF cost is fixed per circuit. Consumer groups argue that the USF is simply part of the cost of doing business in the United States, and should be included in the overall price of service. They also argue there was no major law change to justify the hike.

"It's a price increase," bluntly notes Mark Cooper of the Consumer Federation of America, who has been fighting such fees for years. In the consumer's mind, the increase is inaccurately seen as a tax, resulting in users placing the blame on Uncle Sam, not their carrier.

We recently asked our users to break out their broadband bills. There's one consistent theme that will likely increase as the industry grows: customers paying more than the advertised rate. Of course if you're a DSL user locked into owning a copper-landline, you're the most heavily hammered, but DSL providers don't have a monopoly on adding charges to their advertised price.

Cable Fees and Taxes

Cable providers would likely charge "regulatory recovery fees" of their own, but they get a pass on heavily contributing to the USF because they've been defined as an "information service" by the FCC - a decision the bells use to justify their own hikes and bill tricks.

The cable industry does issue a franchise fee, which can range from pennies to more than five dollars per month in some states.

The fee is charged by local municipalities in exchange for the "privilege" of using the public right of way, and is usually 5% of the local franchise's cable revenue. The fees were added to bills in 2001 after the cable industry fought for the right to pass said fees on to consumers as an itemized charge, as opposed to including it in the cost of doing business (and advertised price).

If there's been a controversial fee among cable providers, it's the inside wire maintenance fee charged by some carriers. In 2001, two Charter customers sued the company for failing to inform them that the "wire-maintenance service" fee they paid wasn't mandatory. While admitting no wrong, the company settled with affected customers by offering them six months of free high-speed Internet service, service upgrades, or movie channel service.

What's being done about it

The National Association of State Utility Consumer Advocates (NASUCA), which represents some 43 state agencies, recently urged lawmakers to ban operating costs disguised as "fees" tacked on below the line.

"In the last few years, wireline and wireless carriers have concocted line item charges, fees, and surcharges, purporting to recover all manner of "regulatory," "administrative," or "government-mandated" costs, but which do nothing more than soak consumers for the carriers' ordinary operating costs," the group notes in a recent petition (Word document).

The Missouri state Public Service Commission is considering taking it one step further, banning all extra provider charges and fees not mandated by state or federal regulators. In the end however, the inclusion of business costs in unofficial "fees" is a tactic that works because consumers allow it to work.

More on the Way

If your head doesn't hurt yet, there's plenty of complicated changes being proposed by the Intercarrier Compensation Forum (led by AT&T, MCI, Sprint and SBC) that could drive monthly costs even higher. Alongside a push to significantly increase the already controversial USF and FCC Subscriber Line Charges, several companies are pushing for new broadband taxes, including a new tax on cable modems that could be as high as nine percent (quietly buried in a 2002 FCC proposal).

According to industry analyst Dave Burstein, Verizon and BellSouth are the only major players to back away from the proposal, afraid of a public backlash; as they'd "have to explain why they want to tax nearly every American family over $50/year, with no benefits in return." Apparently even they have their fleecing limits.

When you combine the intentionally misleading mathematics behind "bundling" with bogus fees, it's a wonder customers can compare prices at all. The FCC needs to investigate the structure and spending of the USF, force companies to include all costs of operation in the advertised price above the line (no small print), and start doing its job managing the USF, holding companies accountable, and protecting American consumers from being "serviced" in the George Carlin sense of the word.

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