A typical family of four pays over $3300 per year in artificially inflated prices, taxes, and/or reduced services caused by corporate and government policies that favor big business. Almost half of that is your phone and cable bill. (More)

The Fine Print Part I: Jacked Up and Barely Connected

This week Morning Feature looks at David Cay Johnston’s The Fine Print: How Big Companies Use “Plain English” to Rob You Blind. Today we begin with how Americans pay premium prices for substandard telephone, internet, and cable service. Tomorrow we’ll see how railroads, pipelines, and other industries have been re-monopolized and the steep costs both in prices and public safety. Saturday we’ll conclude with Johnston’s proposed solutions to these and other corporate welfare issues.

David Cay Johnston is an investigative reporter specializing in economics and tax issues. His analysis of federal tax loopholes won the Pulitzer Price for Beat Reporting. His investigative reporting career began in 1973 at the Detroit Free Press and continued at the Los Angeles Times and the Philadelphia Inquirer, before joining the New York Times in 1995, where in 2001 his series on federal tax loopholes won the Pulitzer Prize for Beat Reporting. After retiring from the Times in 2009, Johnston became a Distinguished Visiting Lecturer at Syracuse University College of Law and, since last June, a board member of Investigative Reporters and Editors, a nonprofit organization that provides recognition and training for reporters nationwide.

“AT&T wanted to draw at least $100 a month from each client household”

That’s what Adam Leipzig heard in the 1990s during a series of meetings with AT&T marketing executives. A movie executive with a string of hits including Dead Poets Society, Good Morning, Vietnam, and Honey, I Shrunk the Kids, Leipzig met with AT&T to seek their help in starting his own film production company. He got the help he was looking for, but Leipzig also got a very different story than the promise of cheap and abundant telecommunications services that the industry was telling the media:

They said their corporate strategy was that, within a few years, AT&T wanted to draw at least $100 a month from each client household. They would do this with phone service, and also other things they were not offering at the time or had not expanded as much – mobile, internet, and cable.

If you have a bundled telecommunications package of phone, internet, and cable TV in 2013, you may wish it cost only $100 per month. In most markets, a basic bundle costs about $160 per month. Extra cable channels, faster internet, and/or unlimited overseas calls or mobile data access can push that over $200 per month. Yet in France, a basic bundle including worldwide live cable television, unlimited calls to 70 countries, and internet access with ten times faster download and twenty times faster upload speeds, costs only $40 per month.

In fact, the U.S. ranks 29th worldwide in internet and cell phone access, and more emerging countries pass us each year. Why do we pay so much for so little?

“FCC Subscriber Line Charge”

Bruce Kushnick was “a telephone industry consultant, paid to extol the virtues of the coming era of digital communications,” when he visited his elderly aunt in New York in 2003. He was stunned to learn that she had saved every phone bill she had received for the past 20 years. Recognizing great data when he saw it, Kushnick if he could take the bills for his research. His aunt agreed, and Kushnick’s research forced him to rethink what a telephone bill had once been, and what it had become.

In 1983, his aunt paid $9.51 for local phone service. By 2003 her local phone bill had risen to $38.90, and that came after the breakup of the AT&T monopoly that was supposed to deliver competition and lower prices. What had been a one- or two-page bill had grown into a multi-page listing of line item charges. His aunt was still renting an AT&T phone, for example, and over the years it had cost her twenty times more than buying a phone of her own.

She also had to pay each time she dialed 411 for a telephone number, a service that had once been free. Industry lobbyists told state utility regulators that telemarketers were placing thousands of 411 calls, and said consumers would save money if phone companies needed fewer operators to handle these “junk calls.” Rather than imposing a 411 fee on telemarketers or other businesses making lots of directory assistance calls, state regulators let the phone company charge anyone who made more than 10 calls, and by 2008 that limit was down to zero.

Lobbyists also convinced regulators to transfer ownership of telephone lines at entry point for a home or business, forcing customers to hire someone to fix broken lines inside the house or, as Kushnick’s aunt had done, pay a monthly “wire maintenance fee” for service that had once been included in the basic rate.

And then there was the “FCC Subscriber Line Charge.” That sounded like a government fee, but in fact it was simply an extra charge for having AT&T as her long distance provider. Each long distance call, of course, was billed extra.

His aunt had no idea what the charge was, and Kushnick decided to see how many other people knew what was on their telephone bills. Of the 1000 customers he surveyed, only three understood every line item on their phone bills. And that was before most phone services began offering internet and cable service.

“Asymmetry creates regulatory blindness”

Kushnick later turned his attention to the building of what telecommunications public relations spokespersons once called the “Information Superhighway.” They don’t use that term anymore, and they discourage journalists from using it. They say it creates unrealistic expectations for customers.

After poring over company reports and disclosures to regulators, Kushnick estimated that between 1992 and 2012 customers of AT&T, Verizon, and the other top telecoms paid over $360 billion in extra charges to finance the “Information Superhighway.” That works out to $3300 per household, enough to pay off almost half of Americans’ credit card debts in 2010. That money did greatly expand our national cellular and internet system, although our service is still among the slowest in the developed world and it still doesn’t reach many Americans.

The telecoms say Kushnick’s $360 billion figure is wrong, but they haven’t offered any estimate of their own. As Johnston writes, “This is a common tactic employed by public relations executives.” Even a trivial rounding error would allow industry publicists to truthfully say Kushnick’s estimate is “incorrect.” Typically, if an estimate is seriously flawed, publicists will provide the industry’s own numbers, if only to discredit the source.

Nor can state or federal regulators prove or disprove Kushnick’s estimate, because lobbyists convinced the FCC and other agencies to stop requiring much of the data, saying the reports were too burdensome and expensive. But as Johnston writes:

When companies have this data and regulators do not, it creates what economists call an asymmetry, meaning one-sided knowledge. Asymmetry creates regulatory blindness. One-sided information lets the companies game the system for their benefit because it obscures what policy makers understand. Lack of information makes regulators even more hesitant, and it emboldens companies, strengthening their confidence that conduct they want to keep private is likely to remain unobserved.

“The worst possible outcome”

Yes, regulation is costly. But in industries that are effectively monopolized – such as telephone, cable, and internet providers – regulation acts as a proxy for market competition. Johnston relates the stories of Glasgow, Kentucky and other communities whose local governments created municipal telecommunication services. Both in rates and in quality of service, the municipal telecoms are much closer to France than to the barely-regulated giants that dominate the industry.

And as Johnston notes, our slow and expensive – but hugely profitable – telecoms are also a drag on economic growth. American businesses have more incentive to move digital jobs overseas, where faster and cheaper internet access reduces production costs. Johnston summarizes our digital “life in the slow lane” thus:

In short, our internet-telephone-cable cartel has left us with the worst possible outcome. As Susan P. Crawford, a former White House special assistant for technology and innovation, concluded in in late 2011: “We now have neither a functioning competitive market for high-speed wired internet access nor government oversight.”

Our barely-regulated telecom monopolies cost an average U.S. family $1440 per year more than better quality, faster services in France. That’s $120 a month that you can’t spend on groceries, health care, clothing, or housing. And this, we’re told, is “free markets at work.”

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Happy Thursday!