Deregulation Has Not Left Consumers Smiling About Prices, Service, And Choice

DEREGULATION HAS NOT LEFT CONSUMERS SMILING
ABOUT PRICES, SERVICE, AND CHOICE

Consumer Reports July 2002 suggests how to protect yourself in a deregulated market

YONKERS, NY - Broken promises, deceptive marketing, and dreadful service have become accepted business practices in an increasingly Wild West marketplace, where incessant telemarketers interrupt your dinner but customer service won't answer the phone. Such shabby treatment stems in part from an economic experiment begun in the 1970s: deregulation. It was supposed to cut prices, expand choice, enhance service-improve your life. So how come you're not smiling? Consumer Reports'® (CR) July 2002 issue details how deregulation has affected consumers and what they can do to better protect themselves in the article "Deregulated."

The report takes a closer look at five industries where deregulation has had a direct impact on consumers: airlines, telephone, cable TV, banking, and electricity. For each we assessed six key measures-savings, service, consumer rights, safety, choice, and innovation-and dug for data in over a hundred public and private studies.

"Our research concluded that while consumers have made some gains under deregulation, on balance they've lost ground. Service has typically deteriorated. Consumer rights have sometimes suffered. Claimed price cuts are often not all they seem. And when free markets have gone bad, deregulated industries have seen no contradiction in getting multibillion-dollar government bailouts," reports Jeff Blyskal, Associate Editor at CR.

WHAT YOU CAN DO

· Watch the ratings. CR is a good source for service ratings.

· Airlines. If you've had a bad experience, write to the Department of Transportation (www.dot.gov) and the airline. Where there's a costly breach of contract, demand compensation and consider suing in small claims court. Dreadful service? Vote with your feet.

· Telephone. Visit the National Association of Regulatory Utility Commissioners at www.naruc.org for information on how to complain. For long distance rate comparisons visit the Telecommunications Research and Action center at www.trac.org.

· Cable TV. According to CR's rating, satellite TV beat digital cable in overall satisfaction; analog cable was bottom rated.

· Banking. For loan and savings rates and checking information visit www.bankrate.com; for credit-card rates and fees www.cardweb.com. To file a complain go to www.federalreserve.gov and www.ftc.gov.

· Electricity. Visit the Energy Information Administration web site www.eia.doe.gov to see if your state is deregulated. The site also provides links to information and to your state public-utility-commission web site. Consumers Union web site also provides information.

"The Consumer Reports mailbag is overflowing with complaints about these deregulated service industries," said Consumers Union President Jim Guest. "Twenty percent of the letters from our readers focus on everyday frustrations such as price-gouging, confusing phone bills, skyrocketing cable rates, paying more money for using less electricity, and ever-expanding bank fees."

"There's only so much that you and I can do as individual consumers," added Mr. Guest. "We need strong and effective government oversight."

Consumer Reports recommends that elected officials reassert their authority:

"Deregulation should never be no regulation. Free markets are always changing, and government must play a firm and steady role in protecting consumers from unfair practices," said Mr. Guest.

FIVE INDUSTRIES, DEREGULATED

· Airlines. Airfares, schedules, and routes were deregulated in 1978. A 20-year decline in fares has continued under deregulation. However, there are more connections, delays, cramped seats, and uncomfortable small planes. Airlines have been exempted from state consumer protection laws. Security has deteriorated, even though it remained regulated. There are some new low-fare carriers, but only five major airlines control 73 percent of the market.

· Telephone. Phone equipment was fully deregulated in 1984; long distance was partially deregulated in 1984, local service in 1996. Per-minute rates have plummeted, in large part because of regulated cuts. Satisfaction is now declining, although it's still higher than before deregulation. Some new consumer protections were added, while others were reduced. There's more choice in phone equipment and long distance carriers but next to none in local service. While deregulation sped up the use of fiber-optic lines and digital subscriber lines, regulation of some aspects of the industry helped foster the Internet.

· Cable TV. Rates and service were deregulated in 1984; reregulated in 1992; deregulated again in 1996. Prices have risen much faster than overall inflation. Consumer satisfaction is bottom-of-the-barrel. Consumer rights improved but only during temporary reregulation. Satellite TV is emerging as an alternative but not all of the close to 95% of households that have access to only one cable company have the necessary direct line of sight to satellite TV. The most recent innovation in this industry is cable broadband high-speed Internet connectivity.

· Banking. States liberalized usury laws and allowed intrastate branching in the 1980's; Congress deregulated savings rates and lending standards in 1980 and 1982, and allowed interstate banking in 1994. Currently loans cost more; fees are higher, but more consumers are avoiding them. Confidence in banks is lower. Important protections were added since 1980, including those covering truth in savings; other long-established rights improved but usury limits were relaxed. There have been 1,600 bank failures and a $160 billion bailout. The nation's top 25 banks controlled 51% of U.S. deposits in 1998, compared with just 29% in 1980. There has been innovation as reflected in the worldwide ATM networks; Internet banking and automated loan approval.

· Electricity. Wholesale electricity prices were deregulated in 1992. Rates have fallen in some states due to regulated cuts, not free markets. Customer satisfaction ranges widely. There are new rights on billing and slamming. The safety infrastructure has remained regulated. Residential choice is abundant in some states, limited in others. Innovations include some "green" energy choices.

To subscribe to Consumer Reports, call 1-800-234-1645. The July 2002 report "Deregulated" is available free of charge at www.ConsumerReports.org.

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JULY 2002

The material above is intended for legitimate news entities only; it may not be used for commercial or promotional purposes. Consumer Reports® is published by Consumers Union, an independent, nonprofit testing and information-gathering organization, serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.

OPI:MTA:05/20/02