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What's at stake is your phone bill.  The average price of telephone service for residential customers in urban areas increased to $24.75 per month in 2003, a jump of more than $4 in just three years. We're not getting more service for our money, just more add-on fees and surcharges. Consumers can expect to see continued price increases, due to the failure of public policy to promote robust competition, and proposed changes at the state and federal levels that will result in new price increases of several more dollars per month.

Higher Fees on Phone Bills

The nation's largest telephone and wireless phone companies are pushing to change the ways that phone companies compensate each other when they transfer calls to each other's networks.  This proposal will increase your local phone bill by further increasing the "federal subscriber line charge," which covers network costs.

After the 1984 break-up of AT&T, the Federal Communications Commission (FCC) authorized this subscriber line charge to pay for local phone network costs when long distance calls are made. You pay the flat fee whether you make a few long distance calls or many.  The monthly charge for residential service is now capped at $6.50 for a single line, and $7.00 for additional lines.

However, the plan pushed by phone companies will increase this fee steadily over the next few years. Some companies, for example, are pressuring the FCC to accept a plan allowing them to shift more operating costs to the subscriber line charge — or in other words, directly onto consumer bills.  One scenario would allow the charge to increase to $10.00 per month.

As Competitive Choices Fall, Prices Rise

Consolidation and deregulation are knocking competitors out of the local phone market. Without significant local competition, consumers are not seeing the kinds of price decreases promised by deregulation. Instead, consumers have experienced a steady stream of new add-on fees and surcharges that are an end run around state-imposed price caps for local phone service.

Phone Price Battles in the States

Despite the collapse of competition in the local phone market, the dominant local phone giants are pushing for more price deregulation at the state level – and that would mean higher phone rates for consumers.  Price caps, intended to protect consumers from monopoly price abuse as competitive markets developed, are under threat.

Regulations favoring new services drive up prices on the old

Emerging services could inject new competition into phone markets, however, at this point that remains to be seen. The competitive potential of emerging Internet phone service ("VoIP" or "voice over Internet protocol") is unclear at best, especially because it requires consumers to also pay for a broadband connection.

Consumers Union believes that exempting VoIP from virtually all of the public interest obligations and consumer protections that apply to telecommunications services will diminish the quality and drive up the cost of basic telephone service for those who simply cannot afford to switch to broadband and take advantage of VoIP and other new services. Flaws in this policy became clear after news of several tragic incidents involving families who were unable to reach 911 over their VoIP line.  

 

Nickeled and Dimed to Death

Consumers are aware of and frustrated by the ever-growing number of add-on fees and surcharges that show up on their wireline and wireless phone bills.  Consumers complain of being victims of a "bait and switch", where the real price of service is significantly higher than the advertised price once all of the add-ons are added up. 

The National Association of State Utility Consumer Advocates, with other consumer advocacy organizations, including Consumers Union, petitioned the FCC seeking an end to consumer dissatisfaction with the myriad of new charges and the frustration of comparing prices when shopping for telecommunications service. The petition asks that phone companies be required to issue phone bills that are truthful, as well as clear and understandable.  Bills today are often too cluttered, effectively hiding the true cost of service, as measured by the amount of the check the customer writes each month to pay for service. However, the FCC did not fully support the petition and took the additional step of preventing states from taking their own action to clean up the clutter and help consumers make informed choices about their service.

Who is working to keep phone rates down?

The National Association of Regulatory Utility Commissioners (NARUC) is a non-profit organization dedicated to serving the public interest by improving the quality and effectiveness of public utility regulation.

Consumer Federation of America, a non profit advocacy group working as consumer allies on communication and media issues.

As debate over these proposals heats up, it will be critical that consumers voice their opposition to higher phone bills.

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