The Fine Print: How Big Companies Use "Plain English" to Rob You Blind (2 page)

Across the country from our friend Adam Leipzig, Bruce Kushnick in Brooklyn, New York, had his own epiphany. Visiting an aging aunt, Kushnick discovered twenty years’ worth of monthly telephone bills. Kushnick worked as a telephone industry consultant, paid to extol the virtues of the coming new era of digital communications.

Kushnick knew a research gold mine when he saw one, and he set to work. When he cross-checked his aunt’s telephone bills over the years, he could hardly believe the numbers. His aunt paid $9.51 for her local phone service in 1984. By 2003 her bill had swollen fourfold to $38.90. In the two decades since the breakup of the AT&T monopoly, even after adjusting for inflation, his aunt’s telephone cost $2.30 for each dollar paid in 1984. And that was without any charges for long-distance calls.

His little history lesson prompted Kushnick to think about the telephone bill itself. Old telephone bills—from the era of the Great Depression of the 1930s, for example—often consisted of three lines. One was the monthly charge. The second was the cost of long-distance calls. The third was the total.

With the passing years, Kushnick noted, the bills had gotten more and more complicated. When AT&T started offering phones in colors, colored phones came with an extra charge. So did the immensely popular Princess telephone for the bedroom in 1959. In 1963 the first push-button phones were introduced (called Touch-Tone), and people paid extra to
escape rotary dialing. Two years later came sleek Trimline phones with lighted dials—along with another extra charge.

The publicly switched telephone network, as it was known in the industry, was upgraded for emergency calls to 911. Then it was upgraded again with ANI (automatic number indicator) so that emergency dispatch centers would know the numbers of callers, and later with ALI, or automatic location indicator. The cost of ALI was justified, as it saved the lives of many people in the midst of medical emergencies or assaults, even if they were unable to say where they were. But the public paid both for its installation and for some other things, too, as some of the money collected was diverted to other uses, including new equipment the phone companies said was necessary to make ALI work.

Soon after the railroad rights-of-way microwave towers made possible the first sliver of long-distance calling competition, telephone bills became even more complicated. In the late 1970s, while the breakup of Ma Bell was under negotiation with the Justice Department, AT&T began seeking limits on free directory-assistance calls. It seemed a curious move—Ma Bell executives and spokesmen at the time told anyone who would listen that free directory-assistance calls encouraged more calling—but the AT&T shift away from free directory assistance was brilliant in the way that it quietly raised prices.

State utility regulators were told that telemarketing companies were taking advantage of free directory assistance, placing many thousands of calls to 411. That, in turn, was described as a hidden cost borne by residential and small-business customers. Thus, AT&T was able to argue that the consumer would pay a little bit less if fewer operators were employed looking up numbers for “junk calls.”

The state utility regulators might have just slapped a charge on any business that made large numbers of directory assistance calls. Or a rule could have been adopted that applied only to telemarketing firms and commercial customers. Instead, as the telephone company had requested, the state regulators limited how many free calls to directory assistance
any
customer could make.

At first, the limit was ten calls. Over time, the limit was trimmed in stages to zero; by 2008, “free” had become a fee, with many customers paying $1.99 each time they called directory assistance, adding more lines of fine print to telephone bills. Verizon Wireless and some other companies did not list charges for calling directory assistance separately, but hid them in plain sight among the monthly list of calls made, a portion of the bill many people typically find tiresome to examine line by line.

Today it’s typical to be charged for
not
being listed in the telephone directory, and, by the way, it’s not a one-time fee to defray the cost of flipping an internal computer signal, but a monthly fee. Think of it as a charge for no service. Over the years the white pages, which used to be dropped free on every doorstep, became less common and less thorough; they no longer appear in some communities. That translates to an increased number of calls to directory assistance—for which a fee is collected. While various white-pages listings appeared on the Internet, the telephone companies spent little to keep them up to date, which of course drove more business to paid 411 services. When new services such as call waiting and three-party calling were introduced, they bore stiff additional charges, too.

With AT&T’s breakup into Ma and the seven Baby Bells, new charges were introduced for regional calls, those that were neither local nor long distance. Known as Local Access and Transport Area or LATA, the implementation of this system also meant that, in some metropolitan markets, the circle shrank within which unlimited calls could be made at no extra charge. In some cases a call to a neighbor went from free to dear because of illogical LATA boundaries.

New costs came at the consumer from all angles. Until the 1984 breakup, regulations required customers to use the telephone set installed by Ma Bell. After the breakup, customers were told they could either buy or rent their phone. At first, the rental seemed cheap, but gradually people learned how little a telephone costs to make and also realized how much an open-ended rental could cost.

And then there was the expense associated with making sure the phone line in your house actually worked. Ma Bell got state public utility commissions to transfer ownership of the telephone line at the point where it entered your home or office. Once that happened, customers had to pay to fix any wires inside their homes or businesses that, say, got wet or gnawed by a rodent. But there was an option, namely a monthly “wire maintenance” fee, which added yet another extra charge for what once had been included in the basic price.

Bit by bit, the line items grew, and others were added. It was easy to miss the escalating prices because they came separately over time—a nickel on one line of the bill, a quarter or two on another. With many small line items, people tended not to notice how the total was creeping upward much faster than the rate of inflation or the size of their income.

Kushnick found his aunt’s bills printed on multiple slips of paper, making it hard to spot everything at once. He noticed some charges were
for services his aunt did not use; a few were for services she couldn’t possibly use because her telephone was too antiquated. And the monthly rental for the phone itself? Kushnick calculated that his aunt had paid more than twenty times the price of the instrument with that small monthly rental fee.

One of the fastest-growing items Kushnick found on his aunt’s bill was labeled “FCC Subscriber Line Charge.” Other phone companies call this “FCC Charge for Network Access” or “Federal Line Cost Charge” or “Interstate Access Charge.” Variations include “Federal Access Charge,” “Interstate Single Line Charge,” “Customer Line Charge,” “FCC-Approved Customer Line Charge” and even “End User Fee.”

These may sound like government fees, or perhaps a disguised tax on telephone users that goes into federal coffers. Not so. Each of those labels identifies the charge for connection to the long-distance network. The government does not collect a penny from that charge. All the money goes to the phone companies.

According to Federal Communications Commission rules, phone bills are supposed to be easy to understand. The FCC truth-in-billing policy supposedly “improve[s] consumers’ understanding of their telephone bills.” According to the FCC:

Despite the misleading labeling of the network “line charge,” the FCC has approved it for years, officially helping confuse consumers. Among the honest descriptions the FCC might have required would be “long-distance system access” and “telephone company network charge.”

Inspired by his study of the evolution of the phone bill, Bruce Kushnick decided to find out how many people were misled by terms like “FCC Subscriber Line Charge.” In a survey of one thousand Americans, he found three people who understood their phone bill, which means 99.7 percent did not. Round to the nearest whole number, and Kushnick’s finding was that 100 percent of those surveyed did not understand their phone bill. In effect,
no one
understands his or her telephone bill, which
amounts to a powerful rebuke to FCC policies that clearly harm consumers and benefit the telephone companies. In the years since that survey, however, the FCC has made no meaningful changes to rules that allow phone companies to confuse people. Don’t blame the FCC staff for that. As with all government agencies, the bureaucrats do what the politicians tell them to do.

PROMISES, PROMISES

What Leipzig and Kushnick encountered were early signs that the lower prices made possible by competition and digital technology were just empty promises. This involved more than money, since the telephone industry, together with the cable television industry, quietly saw to it that written into the fine print were laws and regulations that made it easier for them to minimize their investments in new technology and to serve only the customers the companies wanted.

Since 1913 Americans had enjoyed a legal right to a landline telephone at any address, but by 2012 that right had been legislated away so quietly that my Reuters columns were the first to report this trend. The right to a landline was taken away without any news coverage in Alabama, Florida, North Carolina, Texas and Wisconsin. In Kentucky and New Jersey enough attention was aroused that consumer groups fought the changes, but they faced powerful obstacles. AT&T hired thirty-six lobbyists to work the Kentucky state legislature. In California the consumer group The Utility Rate Network (TURN) counted 120 AT&T lobbyists, one for each member of the Golden State legislature.

The telecommunications companies wanted to build the most profitable electronic toll road possible. Their aim was, first, to spend as little as possible on technology, which ultimately meant slow Internet service for many customers. Second, they wanted to serve areas where lots of customers could and would buy a monthly pass to get on this electronic highway; potential customers in sparsely populated areas were at best incidental to such plans. Third, they wanted to set prices as high as the market would bear, even if it meant many people could never afford to access this electronic roadway.

Lost in the rush to profitability was the crucial fact that the federal government had established an underlying policy to make telecommunications services available to all at reasonable prices. Compared to the rest
of the modern world, American phone companies, along with cable television companies, have done a spectacular job of building only what and where they wanted while shoving the cost on to their captive customers.

Instead of increased competition between the telephone and cable companies, a new cartel emerged in the first decade of the twenty-first century. While telephone and cable companies posed in public as rivals, Verizon made a deal to sell its branded services over cable company Comcast’s lines, and vice versa. The only risk of real competition arose when some local governments favored the idea of building a municipal telephone, cable television and Internet access system that would be faster and cheaper. The industry responded like sharks, determined to do in the opposition and protect their predatory position. Later in the book, we’ll see how those and other efforts to kill competition fared (see
chapter 5
, “In Twenty-ninth Place and Fading Fast,” page 50).

READING BETWEEN THE LINES

How the promise of cheap, competitive and unlimited telecommunications service has been turned into a reality of expensive, monopolistic and limited service is just one part of the larger transformation in the American economy since the late 1970s. A host of large industries, including banks, credit card lenders, electric utilities, health care, oil pipelines, Hollywood studios, property insurance, railroads and water companies, all have worked quietly to rewrite America’s economic playbook in their favor.

In the chapters that follow, we’ll look at how legislatures have rewritten basic business laws, some whose principles date back thousands of years. Too often the goal has been to thwart competition, artificially inflate prices, hold down wages by decimating unions, reduce worker benefits and then restrict or bar access to the courts by those aggrieved. Businesses have gotten policies adopted that have allowed some managers to run corporations as, effectively, criminal enterprises, something modern management and economic theory regard as outside their fields of expertise (and at best implausible) but that criminologists have a name for: control fraud. That means, in short, that those in control run the fraud, as we shall see.

While schoolchildren are taught about heroic figures who raised the capital to build new factories and fill offices, these days large companies
rely on taxpayers for that money. Almost every brand-name company is in on these deals; state and local governments alone spend at least $70 billion a year of taxpayers’ money to subsidize factories, office buildings and the like, according to Professor Kenneth Thomas, a University of Missouri–St. Louis political scientist. That burden comes to $900 per year for a family of four. My only criticism of Thomas’s work is that I believe he understates the cost by an unknown but considerable sum.