Explore Harvard's Nieman network Nieman Fellowships Nieman Lab Nieman Reports Nieman Storyboard
California State Capitol Building.

AT&T should be begging California for forgiveness, not regulatory relief

COMMENTARY | July 20, 2012

AT&T wants another gift from the California legislature. Telecom activist Bruce Kushnick raises questions Californians should be asking about decades of being ripped off, instead.

By Bruce Kushnick

Sixth in a series

AT&T is asking the California legislature for a big favor. A new bill -- based on model legislation from the American Legislative Exchange Council (ALEC) would remove all regulations on voice-over-Internet services (VOIP) -- meaning that, as one progressive group put it, "just as most Americans are moving to new technologies, the state might pull out the rug on any rules to protect consumers who use it."

Indeed, if the phone companies get their way and eventually replace regular phone service with VOIP, they would effectively remove the entire regulatory fabric that protects customers, or the requirement to maintain the networks. If a customer calls and asks for their wireline phone service to be fixed, or if they want such service --- too bad.

What the California legislature should be doing, instead of even discussing this bill, is asking some tough questions about why the state's customers have been ripped off so badly by AT&T over the last two decades:

  • What did AT&T do with the proceeds of massive price increases over the last 10 years?
  • How did AT&T get away with charging customers billions for fiber optic services, then doing a bait and switch with slow broadband and Internet services?
  • Why has less than 50 percent of the state been upgraded?

Outrageous Increases to Phone Charges and Dubious Surcharges

Just how well has AT&T treated its California customers? Since 2004, the basic flat rate has gone up 101 percent, Call Waiting charges are up 163 percent, and unlisted numbers are up 346 percent. On these three items alone, customers are paying an additional $205 annually. (See the Chart)

Probably the most outrageous increase has been to “inside wire maintenance”, which is a favorite of seniors, who remember that this was once part of local service, not an extra. That's now at $8 a month.

AT&T claims that there is competition -- but doesn't actual competition lower rates, rather than raise them?

AT&T is also "harvesting" the wireline customers who just want basic phone service. Harvesting is the practice of using price increases to encourage customers to discontinue service, or to buy a bundle or some other additional service to lower their rates. Those most impacted by all of this are low volume users, and especially seniors, low income families and Lifeline customers.

Dubious Surcharges, Which Mean More Money to AT&T.

Hidden in plain sight are a slew of taxes, fees and surcharges applied to California phone bills, including, for example, the High-Cost Fund B whose proceeds go back to AT&T and Verizon and amounted to an additional $434 million collected in 2007. These taxes are on both wireline and wireless bills. See Bill

The CPUC Mandated Telecommunications All-End-User Surcharges (see chart) produce more revenue, mostly to AT&T and Verizon, for services like Lifeline, which is a financial support to low income households; the phone companies get their retail rates reimbursed.

Then there's the California Advanced Services Fund (CASF), which provides grants to bridge the “digital divide” in unserved and underserved areas in the state. Its initial funding of $100 million, was supposed to support projects that "will a) provide broadband services to areas currently without broadband access and b) build out facilities in underserved areas, if funds are still available.”

All that is on top of federal taxes, old and new, many of which redound to the benefit of the same suspects.

The California Failed Fiber Optic Future.

Pacific Bell, now AT&T, California was supposed to spend $16 billion dollars to replace the old copper lines with fiber optic wires to service at least 5.5 million homes by the year 2000, with very fast broadband, with the plan to complete the entire state.

From the 1993 Pacific Telesis Annual Report:

"In November 1993, Pacific Bell announced a capital investment plan totaling $16 billion over the next seven years to upgrade core network infrastructure and to begin building California's 'Communications Superhighway. This will be an integrated telecommunications, information and entertainment network providing advanced voice, data and video services. Using a combination of fiber optics and coaxial cable, Pacific Bell expects to provide broadband services to more than 1.5 million homes by the end of 1996, 5 million homes by the end of the decade." (Emphasis added.)


In 1995, Pacific Bell even claimed that it had laid 1 million feet of cable for this broadband network in 1994 alone:


“Network upgrades. Construction of Pacific Bell's consumer broadband network is underway and will ultimately be able to deliver a wide range of telephone and video services to all its California customers over a fiber-coaxial cable system. Technicians placed more than one million feet of cable for the broadband network in 1994.”


Pacific Bell got billions of dollars from customers to pay for these upgrades, (and took billions in tax write-offs) and after it was purchased by SBC in 1997 (now called AT&T) kept collecting the money.

In 1995 alone, the company took a $3.4 billion tax deduction, claiming that it was because the company was replacing the old copper wiring with fiber optics -- yet a lot of those wires are still in use today.

Pacific Bell also pulled a bait and switch and rolled out DSL over the old copper wiring instead of upgrading to fiber.

In 2004-5 AT&T announced U-verse, its first "fiber optic network" to consumers’ homes or businesses. But U-Verse is a second bait-and-switch. U-Verse goes over the old copper wiring to complete the service, is only fast in one direction and can never, ever compete with other countries' services.

To add insult to injury, when AT&T purchased the former regional Bell company, BellSouth, the 2006 merger agreement required AT&T to be able to supply a customer with at least 200Kbps in one direction in all of its territories. That was a low standard but it was never met and the FCC never bothered to check.

In the same merger agreement, AT&T also committed to offering DSL for $10 to new subscribers, but judging from our phone bill surveys of California, AT&T didn't market this service, as many new customers paid full rates.

California officials should also be looking into the possible movement of assets out of the state-based utilities, and into their wireless divisons. See our report on Verizon’s state based annual reports for New York, New Jersey, Pennsylvania, Massachusetts and Rhode Island. Such movement results in a major increase in reported losses. We also pointed out that the wireless company may be getting a free ride in all of this, which can even include wireline construction budgets being used for wireless networks.

Where's the outrage? Just imagine if AT&T had actually properly upgraded the networks to fiber, instead of pulling the bait and switch and use the old copper wiring.

And now what? Will California officials let AT&T fool them again?


The NiemanWatchdog.org website is no longer being updated. Watchdog stories have a new home in Nieman Reports.