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THE TELECOMMUNICATIONS ACT:
CONSUMERS STILL WAITING FOR BETTER PHONE & CABLE SERVICES
ON THE SIXTH ANNIVERSARY OF NATIONAL LAW
AN UPDATE BY CONSUMERS UNION AND CONSUMER FEDERATION OF AMERICA
February 8 marks the sixth anniversary of a national law that promised consumers lower prices and more choices in cable television, long-distance, and local telephone services.
The 1996 Telecommunications Act was touted as the beginning of a new era of competition and better service. Cable and telephone industry CEOs promised Congress that their companies would enter each other's markets and compete against one other if the government would relax regulations. Lawmakers agreed to deregulation based on these promises and the belief that the resulting competition would remove the need for public oversight.
Congress approved the Telecommunications Act by an overwhelming margin. President Clinton signed the law at an elaborate ceremony on February 8, 1996. The invited guests included Clinton's chief political rival at the time, then-House Speaker Newt Gingrich. Clinton and Gingrich took turns heaping praise on the law and the bipartisan group of lawmakers who voted for it. One speaker after another predicted that the law would transform the telecommunications industry in extraordinary ways to benefit consumers.(1)
Now, six years later, consumers are left wondering, "Where is all the competition?" The vast majority of Americans continue to have only one choice of cable company and phone company. Bills are more expensive and harder to understand. Advertisements for "cheap" long-distance plans hide the monthly fees that erase the supposed savings for many consumers. Complaints about service problems continue to stack up.(2)
The Telecommunications Act was based on a faulty premise. It called for the deregulation of the telecommunications industry before competition existed or competitive forces had developed. It was based on the naive assumption that firms wanted to enter each other's markets and compete. Relaxing the government oversight of cable and phone monopolies has allowed them to merge, consolidate their control of core markets, and begin to expand their monopoly power into adjacent markets.
The following is an overview of how consumers have been shortchanged by the Telecommunications Act over the past six years.
LOCAL AND LONG-DISTANCE TELEPHONE SERVICE
Local telephone charges have increased 17 percent since the Telecommunications
Act became law.(3) Local phone bills are expected
to go up another 5 percent in July 2002 as the result of ongoing deregulatory
policies at the Federal Communications Commission (FCC) to raise subscriber
line charges.(4)
In 1996 there were eight major companies providing local phone service, each to a different area of the country. Today those eight companies have shrunk to four as a result of massive consolidation. The two biggest companies, Verizon and SBC, each control 30 to 40 percent of the nation's local phone business. Local phone monopolies have skillfully used their size and influence to avoid opening their markets to competitors as the Telecommunications Act intended.
Meanwhile, the nation's largest long-distance providers - AT&T, MCI Worldcom, and Sprint - have either raised or are planning to raise their basic long-distance rates in coming weeks to as much as 35 cents a minute during the day from about 26 cents a minute in 2000. They are also raising evening rates from about 16 cents a minute to as much as 30 cents, and weekend rates are rising from about 12 cents to as much as 19 cents.(5) These price hikes come at the same time that long distance companies are saving $3 billion a year for the cost of connecting calls to their customers. Long-distance companies have largely failed to expand their business into local phone markets, except in New York where regulators have intervened to promote competition and reasonable prices.
Technically, in the six years since the Telecommunications Act became law, long-distance rates have dropped 14 percent.(6) However, that figure hides the inequitable distribution of costs and benefits to consumers. When long distance companies lowered their per-minute rates, they increased their monthly fees. Some of the most popular calling plans charge a few pennies for each minute of long distance calling. But the plans also charge a tall stack of fees, including monthly service charges, universal service fees, and in-state service fees for people in certain states. At least one company has even started charging a fee for its property tax.
The increase in fees has left many consumers paying more, not less, for long distance. FCC data show that half of the nation's telephone users make no more than 50 minutes of state-to-state long-distance calls each month.(7) The industry refers to these consumers as "low-volume users," and they are the ones most likely to be shortchanged by "pennies per minute" plans. For example, consider a person with a seven-cents-a-minute calling plan who makes 30 minutes of long-distance calls. The plan charges a $3.95 monthly service fee, an in-state fee of $1.95, and a universal service fee of 11 percent of the monthly charges. When you add up the fees, this person pays $8.92, which is 29 cents a minute. For another example, take the 20-30 percent of consumers who make no long-distance calls in a given month. They still have to pay subscriber line charges of more than $5 a month and fees for long-distance access that usually fall between $2.95 and $5.95 a month. They must pay these charges for a service that they did not use.
Plus, deregulatory efforts to reduce long-distance rates have merely shifted certain charges from the long-distance section of the phone bill to the local section, leaving consumers paying about $2 more each month for their primary lines and $3 a month for secondary lines.
A few consumers have made cell phones their primary phones, but cell phones have yet to pose a serious competitive threat to traditional wireline phone service. One reason is the difference in cost. A typical household makes about 1500 minutes of local calls each month.(8) Some cell phone companies charge more than $80 a month for that amount of time, while local phone companies offer unlimited local calls for about $22 a month(9). Cell phone users must also contend with frequent drops in service and the fact that they cannot carry their phones or phone numbers to another company if they choose to switch carriers. Although cell phone use has exploded and the Telecommunications Act had no effect on cell phone competition, it is still no match in price or quality to the wireline services of local and long-distance phone companies.
CABLE TELEVISION
From the time the Telecommunications Act was enacted until December 2001, cable
rates have increased 36 percent. That's almost three times the rate of inflation
for the same period (14 percent).(10) This past
year alone, some of the nation's leading cable companies, including AT&T
Broadband, Time Warner Cable, and Comcast, announced rate increases of 10 percent
to 15 percent for basic and expanded basic cable service.(11)
95 percent of American households still have only one choice for a cable company. Among the 5 percent that have cable competition, rates are 14 to 20 percent cheaper.(12)
In a 2001 survey by Consumer Reports (which is published by Consumers Union), cable companies received among the lowest marks of any service providers the magazine regularly evaluates. Customer satisfaction with cable was rated lower than even technical support from computer manufacturers.(13)
Cable companies often blame their rate increases on the cost of programming and upgrading equipment. However, we have found that cable companies are bringing in increased revenue from advertising and new premium services. This added revenue covers virtually all of the programming and infrastructure costs that get blamed for rate hikes. Therefore, cable price increases are not necessary to provide quality programming, upgrades, and new services.(14)
So far, satellite television has failed to compete with cable. We believe this is due to the fact that satellite tends to be more expensive than cable and it fails to offer local broadcast channels to customers in many communities.(15)
HIGH-SPEED INTERNET SERVICE
Both cable and long-distance phone companies have upgraded their infrastructure to offer high-speed Internet access to many of their customers. This service is much faster than dial-up Internet service. Together, cable and long-distance offer high-speed services to about 80 percent of consumers, but they only compete for about half of these customers.
Cable is the leading provider of high-speed Internet access, which costs $40-50 a month. Over the past year, leading cable companies, including Cox and Cablevision, have increased the cost of the service by 12 to 33 percent a month. Meanwhile, telephone providers of DSL (digital subscriber line) Internet services, including Verizon and SBC, have raised rates as much as 25 percent over the last year.(16) These increases indicate that the high-speed Internet market still has a long way to go before it can deliver truly competitive benefits to consumers.
CONCLUSION
Since the Telecommunications Act has not delivered on its promises to consumers, the federal government needs to go back to the drawing board and fix the law. So far, neither the Bush Administration nor Congress has shown much interest in addressing the consumer problems and market shortcomings that exist under the law. The President and lawmakers need to re-establish industry accountability to consumers. They must find ways to open markets to competition, and they must protect consumers from price gouging and shoddy service until competition develops.
Unless the Bush Administration and Congress are willing to clean up this mess, consumers are likely to continue to see higher bills, find scarce competition, and experience customer service problems.
***
Consumers Union, publisher of Consumer Reports magazine,
is an independent and nonprofit testing,, educational and information organization
serving only the consumers. 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.
The Consumer Federation of America is the nation's largest consumer advocacy group, composed of over two hundred and forty state and local affiliates representing consumer, senior, citizen, low-income, labor, farm, public power an cooperative organizations, with more than fifty million individual members.
FOR FURTHER INFORMATION
· The following pages offer a comparison of U.S. inflation to cable TV, local telephone, and interstate long-distance prices. Inflation is represented by the Consumer Price Index (CPI).
· Consumers Union's
web site: www.consumersunion.org
(See the "Telecommunications/Utilities"
section)
· Consumer Reports' web site: www.consumerreports.org
· "The Complete Cell Phone Guide," Consumer Reports, February 2002
· "TV: The Digital Decision," Consumer Reports, September 2001
· "How to Cut your Phone Bill," Consumer Reports, February 2000
***
Footnotes
___________
(1) FDCH Federal Department and Agency Documents, "Transcript:
President Clinton signs Telecommunications Act," February 8, 1996.
(2) "TV: The Digital Decision," Consumer Reports, September 2001;
Dyer, R.A. "AT&T leads in complaints," Fort Worth Star Telegram,
February 2, 2002.
(3) Bureau of Labor Statistics data, December 2001.
(4) Comments of the National Association of State Utility Consumer Advocates
(NASUCA) before the Federal Communications Commission in the Matter of Cost
Review Proceeding for Residential and Single-Line Business Subscriber Line Charges,
CC Docket No. 96-262, filed January 24, 2002.
(5) Solomon, Deborah. "Ignore the Ads: Calling Prices are Rising Again,"
Wall Street Journal, January 21, 2002
(6) Bureau of Labor Statistics, consumer price indexes, December 2001
(7) Federal Communications Commission, Trends in Telephone Service, Industry
Analysis Division, Common Carrier Bureau (August 2001) at Tables 15-2, 15-3.
(8) Id. at Table 11-2.
(9) Federal Communications Commission, Statistics of Communications Common Carriers,
Volume 60, August 11, 2000.
(10) Bureau of Labor
Statistics, consumer price indexes, December 2001
(11) Stern, Christopher. "Stay Tuned for Still-Higher Cable Bills,"
Washington Post, January 10, 2002.
(12) Report on Cable Industry Prices, Implementation of Section 3 of the Cable
Television Consumer Protection and Competition Act of 1992; Statistical Report
on Average Rates for Basic Service, Cable Programming and Equipment, MM Docket
92-266, FCC 01-49 (released February 14, 2001); Talev, Margaret. "Consumers
Have Little Recourse on Cable Rates," Los Angeles Times, February 4, 2001.
(13) "TV: The Digital Decision," Consumer Reports, September 2001.
(14) FCC Eighth Report, Annual Assessment of the Status of Competition in the
Market for the Delivery of Video Programming, January 2002.
(15) Comments by Consumers Union, Consumer Federation of America, Media Access
Project, and Center for Digital Democracy to the FCC regarding Implementation
of Section 11 of the Cable Television Consumer Protection and
Competition Act of 1992, released January 4, 2002.
(16) Stern, Christopher. "Cable's Long Reach," Washington Post, July
15, 2001; Berkowitz, Harry. "Cablevision Raises Internet Rates," New
York Newsday, January 24, 2002; Davies, Jennifer. "Cox to Raise its Cable,
Internet Rates," San Diego Union-Tribune, June 13, 2001.
Cable
TV Rates vs. Consumer Price Index
Local Telephone Rates vs. Consumer Price Index
Interstate Long-Distance Telephone Rates
vs. Consumer Price Index
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