Thursday, August 24, 2006

BellSouth Shafts Consumers (Cross-subsidization!)

It will come as no surprise to readers of this blog that I think BellSouth should be embarassed
at the way it treats its customers--and the communities in which those customers live. CNET covers the story and the core of the tale is cleanly put in the first paragraphs:

Last year, the Federal Communications Commission changed how it classifies DSL (digital subscriber line) services, thus eliminating a fee that had been charged to all DSL subscribers to help pay into the Universal Service Fund. USF is a federal program that helps subsidize rural telephone service and provide Internet access to schools and libraries.
Verizon DSL customers subscribing to its 768Kbps (kilobits per second) service paid about $1.25 into USF every month, and customers of its 3Mbps (megabits per second) service paid about $2.83 per month, the company said. BellSouth customers were charged $2.97 per month for USF, according to the BellSouth Web site.

But now that the fee has been eliminated, as of Aug. 14, neither Verizon nor BellSouth plan to pass the savings on to consumers. Instead, Verizon has added a new "supplier surcharge" starting Aug. 26 that's $1.20 per month for the slower service and $2.70 for the faster service. BellSouth said it will keep its $2.97 fee, which it continues to call a "regulatory cost recovery fee."

"BellSouth is clearly misrepresenting what the fee will pay for. I mean how can this be a 'regulatory cost recovery' when DSL is no longer regulated?"
Some behavior is just plain flat beyond shameless.

Understand that these bogus "fees" are added on after the advertised price--and they are not and never were fees charged to customers and collected by the phone companies--though the phone companies would like you to think so. Mainly they are regulatory fees that go into a big pot and are redistributed to companies themselves based on how much subsidized service (rural areas, schools, etc.) they provide.

So BellSouth is getting much of the money the collect back...possibly, given the higher rate of poverty in, and the rural nature of much of, its footprint...more than it puts in.

If they had simply stopped charging the fee they would have actually lost the income that will no longer come from that common pot...and that is why they renamed the fee instead of returning it. Gourmandise.

The "unfees" always should of been simply part of the price of doing business; tacking them on top of the bill we pay is a way of hiding the true price to consumers--and when it implies that the money doesn't go to the phone companies, a way of outright lying.

"Shameless"--as the reader who alerted me to the story called it--is putting it mildly.

This story has a couple of specifically Louisiana angle that readers might be interested in. It demonstrates just how tied together and important seemingly obscure background definitions can be for a wide range of issues that matter to us all.

The embarrassing unraveling of this particular "unfee" is due to a larger change that reclassified DSL as a "telecommunications product" rather than a phone product. That, change in definition "accomplished" several things for which consumer/users can't be expected to care.

Where's EATel and Sprint?
The reclassification of DSL as "telecommunications" was basically a deregulatory move. It's most immediate effect was to free DSL from line-sharing requirements that were the basis of businesses like EATEL or Sprint (who once had a sizeable business in Lafayette providing phone and DSL service). No longer. BellSouth has effectively driven them out of the market and those good prices and service reps with local accents are a thing of the past. "Deregulation" has lead to a consolidation of the market and a loss of competition.

BellSouth's vetoed video bill
That same deregulatory effect of reclassification of DSL was what was at the base of the opposition to and the eventual veto of BellSouth's state-wide video franchise bill. Before a late amendment attempted to clarify the issue BellSouth had insisted on a clause in the bill exempted "telecommunications services" from being part of the basis that the phone company would use in calculating franchise fees paid to cities and parishes for the use of their rights-of-way. All the while AT&T, which is in the midst of buy BellSouth, was insisting in multiple locales and in Congress that its IPTV service was a DSL-based service (it is) and as such a telecommunications service NOT subject to local regulation or federal regulation. Had the law gone through as BellSouth/AT&T originally desired AT&T would have had no visible legal reason to pay the fees that BellSouth had told localities would be paid. (As bill stood when vetoed that phrase remained in the exemptions section with the addition of another phrase that obligates the company to pay for IPTV services. It was contradictory compromise. And we in Lafayette know how contradictory compromises are used in court by telecos against local governments and the will of the people they represent. Blanco did good with her veto.)

Lafayette residents will be painfully aware of "cross-subsidization." Contradictory definitions of that in BellSouth's (un)Fair Competition Act is the legal tool that BellSouth, Cox, and its allies have used to keep Lafayette's fiber project tied up in court. Those types have piously argued (when they trouble themselves to excuse their actions at all) that there is something wrong with cross-subsidization and that people who buy one service should never be faced with even the most distant possibility that their costs in one are will rise to support a project which might not directly benefit them (regardless of how the community voted). This has a certain surface plausibility--if you ignore that the same companies that put forward this argument against their competitors "on the behalf of consumers" regularly use the profits from its more profitable areas to (cross) subsidize its customers in less profitable areas. --If you are a user of the highly profitable Cingular division your bills already effectively subsidize the declining landline operation.

Cross-subsidization comes up as a topic here because Verizon is being a bit more forthcoming about its reasoning for renaming the fees it charges customers. That segment is worth quoting in full:

Verizon said it is charging its new supplier surcharge to offset the cost of offering its standalone, or "naked," DSL service, which allows customers to subscribe to DSL without subscribing to Verizon's local phone service.

The company said that because it's losing revenue from those voice subscriptions, it must make up the difference in other ways. But instead of simply recovering those costs in the price of the actual service, Verizon has chosen to spread the cost of naked DSL across its entire DSL customer base.

Customers subscribing to standalone DSL pay $5 more per month for their broadband service than customers who buy DSL bundled with a voice service.

"We didn't think the standalone DSL service would be competitively priced if we put all of the cost on the service," said Bobbi Henson, a Verizon spokeswoman. "So we spread the cost across the entire base of our DSL customers. Doing this as another fee was coming off the bill seemed like good timing, since it will have little impact on what customers are actually paying per month."

Verizon is coming very close to acknowledging that it is simply raising its prices and doesn't want its customers to notice. (As opposed to BellSouth, whose gobbledy-gook explanation is completely irrational.) Even more revealing is that the company feels its DSL service wouldn't look competitive against cable if it had to advertise its higher real price. Verizon is admitting what both companies are doing: raising prices on DSL in order to subsidize its competition with cable companies and it is using the resulting pricing policy to "encourage" customers to buy services they otherwise would pass on.

The disturbing hypocrisy of using the spector of "cross-subsidization" to tar its prospective competitors is but the final upsetting element in this story.

1 comment:

Nick Istre said...

Looks like BellSouth has decided on backing out of this path: