Feb. 5, 2002 -- In Dallas, Texas, Sara Deats studied her long-distance bill from MCI with confusion and consternation. The recreation director at a senior center looked at almost a dozen extra fees and charges on her bill and wondered if she was being overcharged.
"What I used to pay $40-something for on a telephone bill seems like I'm paying $90-something. And it's just absurd! I just don't make that many calls," she said.
Consumers Union said today that Deats and millions of other long-distance customers were right to be confused. From its Washington office, the non-profit group issued a study reporting that six years after the deregulation of the telephone business, long-distance bills are loaded with extra charges, many in fine print. And at the same time, long-distance prices are rising.
"The basic long-distance fee has gone up from 50 to 85 percent," said Gene Kimmelman, co-director of Consumers Union's Washington office. That contradicts the Federal Communications Commission, which says the average consumer paid $21 per month for long-distance service in 1995, before deregulation, and paid $18 a month in 2000.
Consumers Union says that's misleading. When monthly fees, minimums and other charges are added, offers of 5 cents to 7 cents a minute actually turn out to cost 20 cents to 30 cents a minute.
"They've dropped the price per minute to try to draw customers," said Kimmelman, "but then the dirty little secret is they've added new fees, monthly charges, new taxes on the bill." Sprint even passes along a charge for its property tax bill.
Feeding Off Hidden Fees?
Consumers Union focuses on the Universal Service Fee. The law requires phone companies to give 7 percent of their income to subsidize things like rural phone service, phone service for the poor and Internet access for schools and hospitals.
But MCI and Sprint bill their customers more than the 7 percent — they both bill 9.9 percent. And AT&T, the biggest long-distance carrier, recently raised its charge to 11.5 percent.
Where does the extra money go? Kimmelman says it goes into the pockets of the long-distance companies.
AT&T says the Consumers Union is wrong. All of the money, it says, goes to the government fund. AT&T also disputes that long-distance charges are rising as much as Consumers Union calculates.
All three of the big long-distance carriers have seen their revenue decline over the past two years. And for that reason, Meredith Rosenberg, an analyst with The Yankee Group in Boston said, "I think we'll continue to see those monthly charges — or hidden charges — continue to grow."
Not Enough Competition
Rosenberg also says that as prices rise and cell phone use grows, more and more consumers are turning to wireless long-distance service, up 18 percent last year.
But Consumers Union's report underscores that the increased competition anticipated when then-President Clinton signed the deregulation bill on Feb. 8, 1996, has not materialized. The so-called "Baby Bells," local phone companies created when the Bell System was broken up in 1984, were expected to enter the long-distance market.
But so far, they offer competing long-distance service in only nine states (New York, Texas, Oklahoma, Kansas, Missouri, Massachusetts, Pennsylvania, Connecticut and Arkansas) and seem more interested in bundling long-distance service with the local service they already offer than in touching off a price war.
"There's no place for most consumers to go to get a better deal," said Kimmelman.