Opinion

David Cay Johnston

Phone service for all, no matter what kind

By David Cay Johnston
March 28, 2012

The guarantee of landline telephone service at almost any address, a legal right many Americans may not even know they have, is quietly being legislated away in our U.S. state capitals.

AT&T and Verizon, the dominant telephone companies, want to end their 99-year-old universal service obligation known as “provider of last resort.” They say universal landline service is a costly and unfair anachronism that is no longer justified because of a competitive market for voice services.

The new rules AT&T and Verizon drafted would enhance profits by letting them serve only the customers they want. Their focus, and that of smaller phone companies that have the same universal service obligation, is on well-populated areas where people can afford profitable packages that combine telephone, Internet and cable television.

Sprint, T-Mobile and the cell phone divisions of AT&T and Verizon are not subject to universal service and can serve only those areas they find profitable.

Unless the new rules are written very carefully, millions of people, urban and rural, will lose basic telephone service or be forced to pay much more for calls.

Florida, North Carolina, Texas and Wisconsin already have repealed universal service obligations. No one has been cut off yet, but once almost every state has ended universal service I am sure we will see parts of the landline system shut down.

Years of subtle incremental legal changes have brought the telephone companies within sight of ending universal service, which began in 1913 when AT&T President Thomas Theodore Vail promised “one system, one policy, universal service” in return for keeping Ma Bell’s monopoly.

AT&T wants universal service obligations to end wherever two or more voice services are available, said Joel Lubin, AT&T’s public policy vice president. Verizon promotes a similar approach.

INTENSE LOBBYING

State capitals are seeing intense lobbying to end universal service obligations but with little public awareness due to the dwindling ranks of statehouse reporters.

The Utility Rate Network, a consumer advocate group, identified 120 AT&T lobbyists in Sacramento, one per California lawmaker. Mary Pat Regan, president of AT&T Kentucky, told me she has 36 lobbyists in that state working on the company’s bill to end universal landline service.

People whose landline service ends would have three options.

First would be a cell phone, a reasonable substitute in many areas. But cell phones do not work in Appalachian valleys and many rural expanses. Cell phones cost at least $25 for limited minutes, while lifeline services – which the companies offer to low-income people – start at $2 and, with unlimited local calls, at about $10.

Second would be Internet calling. That requires broadband Internet service. Verizon charges $49.99, plus additional charges by unregulated calling companies like Vonage, whose rates start at $25.99. On top of this $75 expense would be taxes and the cost of buying and maintaining a computer, a device alien to many older and poor Americans.

Third would be satellite service. Thomas Hazlett, a George Mason University economist who studies rural phone costs, tells me satellite service is “the way to go for service in outlying areas.” Maybe, but it requires a computer, costs at least $29.95 and tens of thousands of users have complained about unauthorized charges and connection problems.

MARKET FORCES?

AT&T and Verizon also want to end state authority to resolve customer complaints, saying the market will punish bad behavior. Tell that to Stefanie Brand.

Brand is New Jersey’s ratepayer advocate whose experience trying to get another kind of service – FiOS – demonstrates what happens when market forces are left to punish behavior, she said. Residents of her apartment building wanted to get wired for the fiber optic service (FiOS) in 2008. Residents said, “We want to see your plans before you start drilling holes, and Verizon said, ‘We will drill where we want or else, so we’re walking,’ and they did,” Brand told me.

Verizon confirmed that because of the disagreement Brand’s building is not wired. And there’s nothing Brand can do about it. Verizon reminded me the state Board of Public Utilities no longer has authority to resolve complaints over FiOS.

Market forces cannot discipline this kind of one-sided power.

Verizon says that New Jersey requires it to wire only 70 cities. What will happen to the elderly and disadvantaged with no place to appeal for help when telephone service is degraded, denied or cut off?

Without universal landline service, many poor and rural people will lose connectedness to family and work, while businesses serving them will lose sales and their servicing costs will rise.

Taxpayers will take a hit when the sick, disabled and elderly cannot summon help immediately because they lack phone service. Hours of delay after, say, a stroke can turn a modest hospital bill into a huge expense for Medicare, Medicaid or the Veterans Administration. Some people without phones will die unnecessarily.

New technology means telephone services will change, just as internal combustion engines replaced the horse-and-cart with automobiles. We don’t want regulations requiring the equivalent of a buggy whip in every car trunk.

However, we also should not lose sight of the benefits of guaranteed access to affordable basic telephone service. The law should not force people to buy costly services they do not need.

Nor should we forget that customers paid for the landline telephone system, including many billions of dollars in rate increases over the past two decades that helped AT&T and Verizon develop their cellular systems.

If we lose universal service, I doubt we will ever get it back. Let’s get a balanced policy rather than quietly rewriting laws to benefit one industry.

Comments
33 comments so far | RSS Comments RSS

This is very sad when combined with the news regarding the closing of many rural post offices. Are we closing in on 3rd world status?

Posted by mycents2 | Report as abusive
 

Thank you for bringing attention to this issue. Telephones remain important – indeed, a lifeline for many. The option of a satellite is inappropriate. Satellite has very high latency that makes it all but impossible to carry on a conversation. This excellent white paper – http://www.rumbausa.net/whitepapers/ – explains why.

For decades, federal and state governments have persisted in expecting reduced regulation to lead to better outcomes in telecommunications. FAIL. Every year, we see higher prices and less real competition while customer service gets worse. Perhaps its time the industry stops writing its own regulations.

Posted by CommunityNets | Report as abusive
 

As with banking, the downfall of American communications happened when public utilities were permitted to be purchased and run by large for-profit unregulated companies.

Permitting public utilities to be owned by any entity which is for profit and makes or strongly influences decisions is bad public policy. Without exception. It is only a matter of time before any for profit entity in the USA will come under the control of a band of thieves bent on plundering followed by running. Witness finance. Capitalism, especially without strong shareholder control and weakened management (“hired help”), leads to pure and simple theft.

Posted by txgadfly | Report as abusive
 

“Cell phones cost at least $25 for limited minutes, while lifeline services – which the companies offer to low-income people – start at $2 and, with unlimited local calls, at about $10.”

That’s pretty disingenuous. You’re comparing subsidized landline service to unsubsidized cell service. You then talk about VOIP, but make it sound like that costs $25 a month… how about something like Magic Jack for under $2 a month?

Remote areas are already a drain on the finances of any company who has to operate them. We all pay that cost, either through government subsidy or higher prices. Instead of wasting our resources on ancient copper networks, we should be rolling out more modern services to those remote areas. In the not too distant future broadband internet access will be considered a right just like landline service used to be; lets focus on delivering phone service via these technologies and let the copper rust in peace.

Posted by spall78 | Report as abusive
 

It isn’t “disingenuous” at all. The point is that people are losing an affordable option and will be stuck with higher cost options. Magic Jack is great if you already have a broadband connection, which many of the people who depend on the phone do not.

We should invest in rural areas and there are cost effective ways to do so – but these laws are attempts to just boost private profits of a few firms at the expense of the public.

Posted by CommunityNets | Report as abusive
 

Brace yourself for REAL sticker shock if we, as a nation, are required to go 100% satellite. I live in a remote, mountainous region of California and provide banking information for the major corporation that I work for. I need encryption for my computer as well as reverse encryption for the bank’s computer. The ISDN line that can do this cost’s $75/ month. A satellite that can do this, with no loss of data, $1500/ month. Mutiply this by the 10′s of thousands of us who do this kind of work. Do you think for even one second that my company with suck up an absorb this cost? And mutiply this many times over on a global scale.

Posted by bixbysbigsur | Report as abusive
 

…as usual the best option is neither a completely regulated nor a completely unregulated market (see “unregulated” electricity markets). And as usual, everyone seems to think its all one way or the other. Because compromise is such a dirty word these days…

Posted by CapitalismSays | Report as abusive
 

These landlines are only an affordable option because taxpayers/other customers subsudize it. If very rural consumers were actually paying what it cost to provide them service their bill would be much higher.

I don’t mind helping the rural poor pay for their phone lines and think it’s a worthwhile use of public funds, but if we could figure out how much we actually pay for this we might discover that it’s cheaper to provide a more modern, useful service in its place.

Posted by spall78 | Report as abusive
 

Why isn’t anyone subsidizing the telgraph for rural areas. I feel cut off from society. Rural areas need this. By the way, why isn’t the pony express coming to my town anymore!

Posted by WIBroker | Report as abusive
 

I do not think you can blame them. I know around where I live Verizon has sold off a lot of communities to regional carriers. I think its a sign of the times. I had to give it up because in my town of 3000 a landline service costs you $70. That’s way more then a cell phone. 911 service is now available for cellular so it makes no sense to pay for landline.

Posted by jscott418 | Report as abusive
 

Ummm Jscott… how do you think those cell calls make it to their destination? Tip… starts with a “Land” and ends with a “Line”…

Posted by WD7179 | Report as abusive
 

In Kentucky, alert news media informed people around the state of the “AT&T bill” that would completely deregulate AT&T etc and cut basic service, and a coalition of consumer advocates, rural organizations and grassroots citizen groups but enough pressure on the state senate to kill the bill — at least for this session. We want high speed and affordable broadband in our rural communities, but eliminating the telecommunications companies’ responsibility to provide basic service in no way ensures they will invest in broadband in our area. In fact it probably means they won’t because they won’t find us profitable enough, even when they are subsidized.

Posted by mimipick | Report as abusive
 

What about DSL service? It’s true that many rural areas don’t even have DSL, but as long as providers can sell DSL service, they’ll leave the landline option available.

I also had satellite internet service for three years. It was extremely expensive, not very fast, and suffers from latency that makes VoIP calls, streaming video, and other online services virtually unusable.

Once again, other nations are taking the lead. We need fiber optics to replace copper wire, then we would be having a different conversation. It’s true that few other nations have to deal with the sheer size and topography of America. It’s much easier for Romania or South Korea, for example, to be completely wired. But we really need the political will behind a national broadband grid, or we’re just going to keep falling behind.

Posted by Nullcorp | Report as abusive
 

I am one of those people who rely on the discounted landline, even with the discount it takes up 2% of my monthly disability and cell phones are not an option unless you can get unlimited and those start at $50. Biggest problem with cell phone is in a time of emergency the lines are overloaded, talk with anyone who was in an area when a event that made headlines happened. The idea that any industry can govern itself, think of Enron, banking industry in the 80′s and today, oil safety in deep sea drilling and the list goes on. Business will always take the path that gets them the highest profits with the least regard to safety and environmental impact.

Posted by Deeohge | Report as abusive
 

Nice piece David, thanks for the brain food. Culling thoughts from the melange I agree with compromise and melding new technology with old.

Pushing copper down every lonely dirt road with taxpayer dollars makes little to no sense when innovation is literally breathing down our necks.

Posted by CaptnCrunch | Report as abusive
 

I understand what you mean by “we also should not lose sight of the benefits of guaranteed access to affordable basic telephone service. If we lose universal service, I doubt we will ever get it back. Let’s get a balanced policy rather than quietly rewriting laws to benefit one industry.”

Unfortunately, “guaranteed access to affordable basic telephone service”, which not quite as dead as the need for a buggy whip, is on its death bed.

I have news for you also that, when we went digital it was to benefit one industry, all because the available band-widths for cell phones were nearly used up and that physical limitation threatened to limit their growth.

That reason, and that reason alone, is why we went digital. The lesson you need to learn is you can’t stop “progress” simply because of “collateral damage” to one group of people.

You’re tilting at windmills (also another anachronism that should have stayed dead because it used up its cost/benefit potential, but that is another story for another time).

Posted by PseudoTurtle | Report as abusive
 

It’s a racket and it’s about money –

http://fastnetnews.com/dslprime/42-d/476 3-rus-writeoffs-easily-300m-possibly-3b

TDS a $billion dollar corporation use to provide me phone service. They also provide Internet service when it’s convenient otherwise you are just SOL. They do cell service in Wisconsin but not here. They do fiber in Wisconsin but not here. Other companies here provide point to multipoint radio Internet including phone service. These companies are eating TDS’s lunch big time. I’m glad to see the subsidies going away from these crooks.

Posted by delta-dude | Report as abusive
 

You must be a Communist to suggest that people should have free or affordable phone service if they can not afford to pay for it. Community? In America? Hey, baby, if you cannot come up with the dough, then you are just a despicable piece of you know what. But, don’t despair, you can indeed contribute to your country by becoming a “criminal” locked up in a private or public prison in order to provide either stock holder revenue in the stock market listed Corrections Corporations or state run prisons providing “communities” with jobs. God bless America, the chosen people.

Posted by Greenspan2 | Report as abusive
 

In NYC after the 9/11 attack, no cell phones worked…only landlines…need I say more?

Posted by May302012 | Report as abusive
 

@ Pseudo Trutle, there is no rational reason we cannot have universal service and low prices for all, as the major modern countries that compete with us have achieved.

That does not mean continuing the POLR rules as they exist, as my column clearly pointed out, but adjusting policy to reflect new technologies and recognizing the commercial — as well as social and civic — benefits of universal service.

This is not a black and white issue at all, but one of grays. Unfortunately unless the public knows their rights are being legislated away (as they did not in Florida, North Carolina Texas and Wisconsin) policies will not be rounded, but will reflect one particular set of interests that are damaging to the economy, to individual lives and to the social cohesion that is central to our propserity and liberties.

Posted by DavidCayJ | Report as abusive
 

@ Pseudo Turtle, there is no rational reason we cannot have universal service and low prices for all, as the major modern countries that compete with us have achieved.

That does not mean continuing the provider of last resort rules as they exist, as my column clearly pointed out, but adjusting policy to reflect new technologies and recognizing the commercial — as well as social and civic — benefits of universal service.

This is not a black and white issue at all, but one of grays. A much lighter gray would be good for all, including the telecommunications companies.

Unfortunately unless the public knows their rights are being legislated away (as they did not in Florida, North Carolina Texas and Wisconsin) the new laws governing business will not be rounded, but instead will reflect one particular set of interests. That is damaging to the economy, to individual lives and to the social cohesion that is central to our prosperity and liberties.

Posted by DavidCayJ | Report as abusive
 

If you enjoy air travel today, you’ll truly appreciate the future of non-universal telephone service, and for similar reasons. The Washington Monthly had a good writeup recently on that industry. Intriguing similarities.

Posted by TheCageNovel | Report as abusive
 

Amazing, amazing, amazing…
Who are our tax dollars going to? They were to provide us with essential public s
ervices. Who ever thpught that we would have to pay for drinking water ? Soon we’ll be paying for breathing air too. How stupid we Americans have become. We, that is you & me, have made these telecom companies what they are & what they have turned into.
More criminals running whatever is left of our crony government. STUPID AMERICANS, INDEED.

Posted by GMavros | Report as abusive
 

Universal service was an important way to build out the network and bring all Americans together in their way. Today, however, fewer and fewer people live remotely, and they do so in large part to avoid being too close to others. There’s no reason to pay more and more to a shrinking pool of people who are just NOT that interested in having phone service.

But with a large fraction of Americans cutting the cord — going wireless-only — the extra expense of maintaining lines in remote locations is falling increasingly on a shrinking base of landline customers. This can only accelerate people abandoning landlines, creating a bit of a race to the bottom, in which only remote users will find the costs acceptable.

Not ALL remote users want to be less connected, but it has to be recognized that many choose to live in rural Arkansas or Colorado for the purpose of avoiding big-city costs, commotion and complexity. This is a perfectly legitimate lifestyle choice, but I can’t figure out why Americans who pay the higher cost of being close to friends, coffee shops and the like, should also subsidize people who don’t want anything of the sort.

Phone service is regulated in every one of the 50 states, right? Why is it not reasonable for a state PUC to create a “low density surcharge” based on the extra costs in rural areas, and have people who want to be away from it all, pay a fair share of the costs of staying in touch?

Posted by WaltFrench | Report as abusive
 

@ Spall78 & WIBroker, the laws that are remaking telephone service identify as their goal access for all at reasonable prices. 78Spall, we have a system to subsidize rural callers, but much of the money goes to other purposes, a subject for another column, and as I point out existing alternate technologies are flawed and in some areas useless.

@CapitalismSays, as my column states what we need is a balanced policy to address this.

@jscott418, no one is “blaming” the phone companies, but rather pointing out that they are quietly getting laws rewritten without their customers or the public generally knowing about. The result is new laws that do not balance various interests, but rather do what the companies want.

Posted by DavidCayJ | Report as abusive
 

When did having a landline become an American Right? Did I miss that in the constitution or something?

Posted by newadvocate | Report as abusive
 

@newadvocate,

My column explains this. It began in 1913 and was later written into the state laws that AT&T and Verizon, and some smaller phone companies, have gotten quietly repealed in four states and are seeking to repeal — also quietly — in others.

Posted by DavidCayJ | Report as abusive
 

While Mr. Johnston is a recognized expert on taxes and tax policy, he has more to learn about communications law and policy. Universal service is a federal mandate, not a state matter.
While there are rumblings that the FCC is considering lowering the telecom payments into that fund — thereby putting low income people in rural areas at risk of losing their land lines — that’s the story. The states have little involvement in this issue. And if state PUCs have acted in the manner alleged in this story, you can be sure the FCC will respond.

Posted by royu | Report as abusive
 

Columnist here:

An April 7 letter to a Pittsburgh newspaper http://www.pittsburghlive.com/x/pittsbur ghtrib/opinion/letters/s_790239.html by Verizon executive Carl E. Erhart opens with two false assertions about my Reuters column http://blogs.reuters.com/david-cay-johns ton/2012/03/28/phone-service-for-all-no- matter-what-kind/
while ignoring the issues I raised.

Erhart begins by inventing my “misplaced nostalgia” for landline phones. Compare this to what I wrote:

**New technology means telephone services will change, just as
internal combustion engines replaced the horse-and-cart with
automobiles. We don’t want regulations requiring the equivalent
of a buggy whip in every car trunk.**

Erhart cites “my suggestions” that consumers lack choice in telephone technology, yet alternatives permeate my column.

Significantly, the Verizon executive ignores the issues my column raised including

– lack of access where cell phones do not work and VoIP is unavailable;
– the higher prices for these alternatives;
– health and safety issues, especially for the elderly on Lifeline service;
– lack of power by customers in disputes with Verizon under new laws it sought; Verizon leaving vast populated areas in New Jersey (and elsewhere) without FiOS;
– and the need for “a balanced policy rather than quietly rewriting laws to benefit one industry.”

I invite Erhard to forthrightly address the issues he ignored by posting here so Reuters readers can judge these issues on the merits.

Posted by DavidCayJ | Report as abusive
 

AT&T is jettisoning its legacy ratepayers by contracting with offshore “telemarketers” to harass them.

Lifeline ratepayers have been getting multiple calls daily from Online Yellow Pages, Heather from Account Services, cruise lines, you name it–whether they are on the Do-Not-Call list or not–until they give up their landline in frustration.

True facts here.

Posted by hightechlowlife | Report as abusive
 

I wrote the Reuters column with two charts that have drawn so many critical comments.

Too bad that posters like RoadbedGuy did not read the actual column, which addresses the concerns raised, nor took a moment to look at the body of my work rather than just the brief excerpt at DailyKos.

My column details how a single worker making $61,500 pays an income and payroll tax rate of 30.3%, exactly half again the income and payroll tax rate of the top 400.

I encourage people here to read my other columns on such matters as

1. 2,700 companies that pocket their workers’ state income taxes without the workers knowing http://blogs.reuters.com/david-cay-johns ton/2012/04/12/taxed-by-the-boss/

2. the real median wage falling back to the level of 1999 http://blogs.reuters.com/david-cay-johns ton/2011/10/19/first-look-at-us-pay-data -its-awful/

3. 37% of all income gains in America went to just 15,600 households in 2010 http://blogs.reuters.com/david-cay-johns ton/2012/03/15/the-richest-get-richer/

4. Norquist’s drive, supported by some leading Democrats, to spread gambling to avopid tax increases http://blogs.reuters.com/david-cay-johns ton/2012/03/30/politicians-keep-placing- bets/

5. How you pay taxes that utilities permanently pocket http://blogs.reuters.com/david-cay-johns ton/2012/03/30/politicians-keep-placing- bets/ or, thanks to GWBush administration machinations, collect taxes from you that they are exempt from paying over to government http://blogs.reuters.com/david-cay-johns ton/2011/10/17/pipeline-profiteering/

6. How women in the same job (president, top executive) as men get paid less http://blogs.reuters.com/david-cay-johns ton/2011/10/26/underpaid-women-and-their -men/

7. How AT&T and Verizon are working to take away your legal rights in telecommunications and what it means http://blogs.reuters.com/david-cay-johns ton/2012/03/28/phone-service-for-all-no- matter-what-kind/

A column is not a book. If you want a detailed explanation of how our tax system subtly redistributes up, not down as widely believed, read my books PERFECTLY LEGAL (taxes) and FREE LUNCH (subsidies) and THE FINE PRINT, my forthcoming book on how corporations work with government to thwart competition, raise prices and put you in danger from rules few know about.

Posted by DavidCayJ | Report as abusive
 

Speaking as one of those who chose to live in “rural” America, my AT&T landline was recently disabled by lightening. Calling AT&T repair service was like talking to a brick wall, but someone finally made it out here after 5 days of calls.

I was calling for AT&T repair service on my Verizon cell phone, but I had to take the phone outside and hold it in a certain way in order to hear them. One of the suggestions made by the AT&T recorded message was to report my problem online using their website. However, our computers depend on our DSL connection which, of course, was cut off when the landline was damaged. I could have driven to a “computer cafe” or some other wifi hotspot to do an online report, but the nearest town is 14 miles away and gas is now quite expensive. So I checked my satellite TV every day to get the weather forecast, hoping we wouldn’t have more storms, that is…….until the rain interfered with the satellite transmission making the TV a “weather permitting” appliance.

The last time our phone line was in need of repair a BellSouth repair man was here in one day. Since AT&T has taken over BellSouth, they’ve cut the repair crew by 40% and raised the overall rate. Do they want to cut our service completely, you bet!

I could become resigned to paying more for a reliable connection to the rest of the world, but tell me what that would be. Satellite, where all our connections would be weather permitting?

Posted by gracefoster | Report as abusive
 

There are no landlines to be purchased in my area of Federal Way, WA.98023. What if there is a National Emergency and all of the cell phones are knocked out? A landline was always working in the past. I’m very disappointed that my phone jacks are now worthless.

Posted by landline | Report as abusive
 

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