Photograph Source: Tony Webster – CC BY-SA 2.0
In September 2020, the State of California won a $116 million suit against Verizon ($68 million) and AT&T ($48 million). The suit was brought by a “whistleblower,” OnTheGo Wireless, LLC, and thirty government entities claiming under the California False Claims Act that the telecoms overcharged the state and government customers for wireless services.[1] Some 300 state and local entities will recover money for the excessive payments, including the State of California, state universities as well as city and county governments.
Over the last few decades, the leading telecom companies have engaged in a host of schemes to swindle their customers and the American taxpayer. One involves overcharging customers for which they have been repeatedly sued. Others involve deceptive pricing practices, questionable accounting schemes, substitution of inferior wireless (e.g., 5G) for fiber-optic system upgrades, capture of federal and state regulatory agencies and the “deregulation” of the telecom industry. These schemes fueled the telecom swindle.
In 2007, “whistleblower” Stephen Shea filed suit against the former MCI for falsely billing the General Administration (GSA) for local and long-distance voice and data services.[2] The claim was that the false billing began in 1999 and involved a host of “surcharges,” including property tax surcharges, carrier cost recovery charges, state telecommunications relay service surcharges and public utility commission fee surcharges. In 2005, Verizon acquired MCI for $6.6 billion in cash and stock, and continued MCI’s billing practice with the GSA. In 2011, the Justice Department reached a $93 million agreement with Verizon over the lawsuit.
In 2014, one of the fallouts from the Snowden spying revelations was that the U.S. government sued Sprint for overcharging the NSA, FBI, DEA, ICE and various other agencies for “knowingly submitting false claims … by including unallowable costs in their charges for carrying out court orders authorizing wiretaps, pen registers and trap devices.”[3] The suit alleged Sprint overcharged the government agencies $21 million, and the U.S. sought triple damages totaling $63 million.
And in 2021, AT&T agreed to pay a $1.5 million fine to settle a lawsuit brought by the Washington, D.C.’s Office of the Attorney General (OAG) related to overcharging the District and government entities for wireless voice and data services.[4] The OAG argued that over a six-year period from 2012 to 2018 AT&T knowingly charged for features, add-ons and other services that D.C. subscribers didn’t need and failed to comply with contract requirements to provide the most cost-effective and lowest price plans available. While the telecom denied the accusations, it paid the fine.
These isolated examples of telecoms being successfully sued for overcharging customers reveal the larger swindle. Various non-profit groups have offered alarming estimates as to the size of the swindle.
In 2016, Public Knowledge published “Overcharged and Underserved,” written by Dr. Mark Cooper, Director of Research, Consumer Federation of America. The study analyzed the Big Telecom and Big Cable companies. including AT&T, Verizon, Comcast and Charter Communications, naming them a “tight oligopoly on steroids.” Cooper claimed that over $60 billion was being overcharged annually and $250 billion in just the years of 2012-2016. He found:
Combining the consumer pocket overcharges, we conclude that the total is almost $60 billion per year. While the overcharges have mounted, the total for the past five years is in the range of $250 billion or more …. For a typical household with two wireless subscriptions, a landing, broadband Internet access service, and multi-channel video, the total overcharge is about $45 per month ($540 per year). The aggregate overcharges are almost $60 billion per year.[5]
This comes to over a half-trillion dollars over the decade of 2012-2022.
New Networks Institute (NNI) estimates that over the three decades between 1992 and 2021, “Americans were overcharged an estimated $1.3 trillion.” NNI notes that it “occurred into two phases: (i) during the period of 1992-2018, $500 billion was overcharged for a fiber optic future that never showed up; and (ii) from 2000-2020, the former Bell companies overcharged Americans about $70-$90 billion annually.”[6]
NNI’s Bruce Kushnik identifies a series of schemes telecoms use to execute overcharges, including:
Services Fees – Charges for services customers did not order that NNI estimates totals $17 billion annually. They include:
“Ramming” — The phone company adds a service, that is provided by one of the companies’ subsidiaries or different line of business, that was not ordered.
“Cramming” — A service is added by another company that was not ordered.
“Slamming” — A company switches you to their service without permission.
Made Up Fees – They are commonplace and can include “Cost Recovery Fees” and “Administrative Fees” on wireless or even Digital Voice service on a FiOS bundle of voice and broadband as well as “Broadcast TV & Sports Fee” on cable services. NNI estimates these at $22.7 billion.[7]
Made Up Taxes on Made up Fees — America’s communications services are taxed made up fees, which are then also taxed, fees and surcharged. NNI estimates they generate $25 billion per year. For example, “Verizon Surcharges and Fees” are not mandated but are a pass-through. They include taxes applied to Verizon, but which it is allowed to pass onto the subscriber’s bill as an administrative fee. The Verizon web site states that “these are Verizon charges, not taxes.” It reads:
Administrative Charge, which helps defray certain expenses we incur, including charges we, or our agents, pay local telephone companies for delivering calls from our customers to their customers; fees and assessments on our network facilities and services; property taxes; and the costs we incur responding to regulatory obligations. Please note that these are Verizon charges, not taxes.[8]
***
How did this long-term swindle take place? NYU economist Thomas Philippon pointed out, in 2021 “the average monthly cost of fixed broadband in 2018 was about twice more expensive in the US ($68) than in Europe (between $30 and $40 in France, Germany, the UK, etc.).”[9] He then notes:
By most metrics the United States broadband industry has become rather uncompetitive. Monopolies or duopolies serve most markets, and a recent report using FCC data finds that approximately 80 million customers can only access broadband through a single provider.
Overall, the data show that monopoly and duopolies in the United States set higher prices and earn larger profit margins than firms operating in countries where competition is more intense. Moreover, these higher profit margins flow into higher dividends, not into faster capital accumulation.
Philippon concludes pointedly: “The fraction of internet users is somewhat lower in the US than in Northern/Western Europe; the speeds are roughly the same; but American users pay about twice as much as EU users for mobile services, and two to three times more for fixed broadband services.”
In 2020, the Organization for Economic Co-operation and Development (OECD) ranked the U.S. 18th of the 38 OECD countries in terms of broadband usage.[10] It estimated that the U.S. ranked 11th in terms of fixed broadband service at 191.97 Mbps [Megabits per second] — Singapore ranked first at 245.5 Mbps; in terms of mobile service, it ranked 18th at 82.04 Mbps – compared to South Korea at 186.06 Mbps.[11] In addition, in 2021, only 32 percent of American homes had access to fiber broadband services compared to Norway and South Korea with over 80 percent access, and Spain, Portugal and Japan that are above 90 percent.[12]
Telecom overcharging is playout in still other ways. A remarkably 2022 researched study by The Markup Organization, “Dollars to Megabits: You May Be Paying 400 Times As Much As Your Neighbor for Internet Service,” analyzed more than 850,000 internet service offered from AT&T, Verizon, Earthlink and CenturyLink in 38 cities across U.S.[13] In a pessimistic assessment, it found:
In cities where the providers offered different speeds in different areas, the residents living in areas that disproportionately received the worst deals were lower income (92 percent of cities) and people of color (66 percent of cities), and their neighborhoods had been historically redlined (100 percent of the 22 cities in our data where digital maps were available).
It adds: “Wealthier, Whiter, and non-redlined [i.e., digitally divided] areas were offered faster speeds for the same price more often.” Going further, it found that telecoms routinely offered fast base speeds (at or above 200 Mbps) in more upscale neighborhoods for the same price as connections below 25 Mbps (the FCC’s minimum) in others. The Markup warned, “To put it plainly, we found these providers offered the worst deals to people who are the most in need of affordable prices for high-quality, high-speed internet.”
Another scheme employed by telecoms is the use of questionable accounting procedures. NNI’s Kushnick reports that investigating “the billing practices of the telecom companies, we came to understand that they were involved in the largest accounting scandal in American history.” More troubling, he adds: “The Bells secured FCC assistance in manipulating the accounting formulas so that the state utilities turned into a cash machine to fund the companies’ other lines of business.”[14] He goes on to argue:
… they successfully transformed the state utilities into funding mechanisms for their wireless and other non-utility enterprises, while leaving local telephone customers with antiquated service at higher prices. They also had a grossly inflated portion of their corporate operations expenses – e.g., executive pay, lobbyists, lawyers and corporate jets — charged to local telephone customers.[15]
How did the telecom rip-off come about? In an October 2019 article for The Atlantic, the economist Philippon noted, “In 1999, the United States had free and competitive markets in many industries that, in Europe, were dominated by oligopolies. Today the opposite is true.”[16] He added:
… in industry after industry in the United States—the country that invented antitrust laws—incumbent companies have increased their market power by acquiring nascent competitors, heavily lobbying regulators, and lavishly spending on campaign contributions. Free markets are supposed to punish private companies that take their customers for granted, but today many American companies have grown so dominant that they can get away with offering bad service, charging high prices, and collecting, exploiting, and inadequately guarding their customers’ private data.
Today’s dominant telecom conglomerates may be best understood as 21st century “cartels.” Perdue University economist John Connor defines cartels as “voluntary associations of legally independent companies that manipulate market prices or industry output in order to increase their collective profits.”[17] He distinguishes between “private” cartels (i.e., “not protected by national sovereignty or by treaties”) and “international” cartels (i.e., those that have participants from two or more nations”). He adds, “private cartels operate secretly to avoid detection.”
In 2012, the journalist David Cay Johnston, in a New York Times op-ed, linked the issue of cartels to the telecom crisis. He argued, “what we’ve witnessed instead is low-quality service and prices that are higher than a truly competitive market would bring.”[18] He went on, noting, “after a brief fling with competition, ownership has reconcentrated into a stodgy duopoly of Bell Twins — AT&T and Verizon. Now, thanks to new government rules, each in effect has become the leader of its own cartel.” He added, “because AT&T’s and Verizon’s own land-based services operate mostly in discrete geographic markets, each cartel rules its domain as a near monopoly.”
Susan Crawford, a Harvard Law School professor, reiterated this perception in her 2019 study, Fiber, The Coming Tech Revolution. She observed: “A handful of private companies dominate last-mile data delivery in American cities. They choose the richest, densest areas to serve with expensive second-class services – not with malign intention, but with a detrimental effect on the country.”[19]
As the U.S. telecom industry was reorganized through deregulation, it shifted from a world leader to a second-tier telecom nation – and Americans are paying for it through poor services and ever-increasing fees.
Endnotes
[1] “Verizon, AT&T Agree to Pay $116 Million to Settle California Whistleblower Case,” September 24, 2020;
https://www.prnewswire.com/news-releases/verizon-att-agree-to-pay-116-million-to-settle-california-whistleblower-case-301137930.html
[2] Sean Buckley, “Verizon reaches $93.5 million settlement with government over service overcharges,” FierceCable, April 5, 2011;
https://www.fiercetelecom.com/telecom/verizon-reaches-93-5-million-settlement-government-over-service-overcharges
[3] Jon Brodkin, “Lawsuit: Sprint charged US gov’t $21 million too much for spying expenses,” ArsTechnica, March 3, 2014;
https://arstechnica.com/tech-policy/2014/03/lawsuit-sprint-charged-us-govt-21-million-too-much-for-spying-expenses/
[4] “AG Racine Sues AT&T for Overcharging the District Government Millions of Dollars for Cell Phone and Internet Service,” February 21, 2021;
https://oag.dc.gov/release/ag-racine-sues-att-overcharging-district
[5] “Overcharged and Underserved: How a Tight Oligopoly on Steroids Undermines Competition,” Consumer Federation of America, December 7, 2016;
Overcharged and Underserved: How a Tight Oligopoly on Steroids Undermines Competition
[6] Bruce Kushnick, “Break Up Big Telecom: $1+ Trillion in Overcharging … And Counting,” Medium, May 10, 2021;
https://kushnickbruce.medium.com/break-up-big-telecom-1-trillion-in-overcharging-and-counting-2d74ba317711.
[7] Bruce Kushnick, “Made-up, Broadcast-Sports Fees Up 820%; Overcharging $250+ a Year— then Quintuple-Taxed, Fee’d and Surcharged,” Medium, December 23, 2021;
https://kushnickbruce.medium.com/made-up-broadcast-sports-fees-up-820-overcharging-250-a-year-then-quintuple-taxed-feed-and-52138fb07bbf
[8] Verizon, “Government taxes and fees and Verizon wireless surcharges”;
https://www.verizon.com/support/surcharges/
[9] Thomas Philippon, “How Expensive Are U.S. Broadband and Wireless Services?,” April 2021;
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3836281
[10] OCED, “OECD broadband statistics update,” July 22, 2020;
https://www.oecd.org/sti/broadband/broadband-statistics-update.htm
[11] Speedtest, “Speedtest Global Index”;
https://www.speedtest.net/global-index
[12] Tyler Cooper, “Fiber-Optic Internet in the USA,” BroadbandNow, March 23, 2021;
[13] The Markup Organization, “Dollars to Megits,” October 19, 2022;
https://themarkup.org/still-loading/2022/10/19/dollars-to-megabits-you-may-be-paying-400-times-as-much-as-your-neighbor-for-internet-service
[14] Bruce Kushnick, with David Rosen, Book of Violations & Egregious Acts: Trillion Dollar Broadband Scandal (New Networks Institute, 2002), p. 38.
[15] Ibid, pp. 229-30.
[16] Thomas Philippon, “The U.S. Only Pretends to Have Free Markets,” The Atlantic, October 2019;
https://www.theatlantic.com/ideas/archive/2019/10/europe-not-america-home-free-market/600859/
[17] John M. Connor, “Cartels Costly for Customers,” SSRN, June 18, 2017;
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2988489
[18] David Cay Johnston, “Bad Connections,” The New York Times, November 28, 2012;
https://www.nytimes.com/2012/11/28/opinion/break-up-the-telecom-cartels.html
[19] Susan Crawford, Fiber, The Coming Tech Revolution (Yale University Press, 2019), p.16;
This content originally appeared on CounterPunch.org and was authored by David Rosen.
David Rosen | Radio Free (2023-03-23T05:55:49+00:00) The Great Telecom Rip-Off. Retrieved from https://www.radiofree.org/2023/03/23/the-great-telecom-rip-off/
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