Telcom Fraud: The Previous Generation

theodp writes "Remember back in the day when telcom firms were charged with simple, good old-fashioned consumer fraud? AT&T and Lucent got a history lesson Friday, agreeing to a $300 million settlement related to claims that they used confusing billing statements to mislead consumers into paying lease charges for their home telephones, including the timeless rotary Traditional, that totaled many times more than the actual value of the phones."

Comments

had one of those

[Anonymous Coward]

My parents had one of those rotary phones that they "leased" from the phone company. Must have paid for it 20 times with the number of years they were had it.

And taking another page out of MS's playbook....

[billbaggins]

The settlement also includes pre-paid calling cards, which are being donated to charities...

Wasn't/Isn't MS "donating" (or trying to donate) zillions of copies of its bloatware to schools as part of some settlement, in place of some of the monetary cost? Same idea, these probably cost a lot less than face value, but they count toward the nice fat grand total... though at least Lucent & ATT don't get quite the lock-in benefits that MS was going for, since it's rather easier to change your pre-paid calling card vendor than your OS...

It's about time this issue was resolved but...

[hillct]

It's good to see this issue finally resolved, but this isn't the limit of the sleeziness of AT&T et al. Equally as disturbing as the phone lease charges addressed in this suit, is the ongoing bilking of cutomers who don't keep up on service plans and pricing opportunities. Many elderly customers (including, my grandparents, as I duscovered a few years back) are still recieving service at AT&T's base rates, from the late '70s, without the advantage of any of the pricing plans currently available upon request from all long distance carriers. Certainly the argument that it is the customer's responsibility to investigate pricing opportunities, is not without weight, but there are AT&T customers still recieving Pro Watts service, which in my case I discovered, then I tried to dial an 888 number from my grand parents redidence. Upon review of their bill, and with one 5 minute phone call, their bill was reduced by almost 70%, but the carriers are under no oblication to move customers to any particular rate plan at any time, and because the customer demographic which includes senior-citizens does not demonstrate elasticity in their telephone calling patterns, such that regardless of pricing, they will likely make the same amount of calls; there is no incentive on the part of carriers to offer them any more modern pricing plans. This is particularly interesting because over the past 20 years, it has been common opinion within the telecom industry that as market pressures drive pricing for basic calling services down, that refenue differential will be recouped through the pricision of more advanced services such as caller-ID, 3-way calling, distinctive ring, and so on.

At some point it will no longer be cost effective to treat their customer base in these two wildly divergent ways, and telecom carriers will be forced to bring their pricing into allignment elderly customers, althoufh this will have the down side of pringing down on these customers, that deluge of telemarketing calls from competing providers - a joy to whih they have been to some degree spared thus far.

--CTH

Not the Last Time Either

[NeuroManson]

Just watch the ad spot for AT&T digital cable, where they try to dispute the second "Digital cable is much more expensive" "rumor"... Digital cable, by their own admittance, is $69.99 per month, or over twice the price of basic...

What part of "more than twice the price" doesn't translate as "much more expensive" in any sense of the term? Sounds like fraud and false advertising to me...

The rise and fall of phone company competition

[Featureless]

Four years ago I signed up with a local and long distance phone company called Econophone. One of the new breed of de-regulated, privatized competing phone service providers, they were offering rates for local and long-distance calls well below half what AT&T was, and still significantly cheaper than Verizon.

I used them successfully for two years, and paid very little for phone service. 5 cents a minute national long distance and comprable local rates.

How, you ask? De-regulation, which happened under Clinton in the mid '90's. However, once de-regulated, the baby bells immediately began testing the resolve of the federal regulators to force them to deal fairly with their "client competitors" for local & long distance service. You see, they wanted the good parts about de-regulation (being able to diversify, charge whatever they wanted, etc.) but not the bad parts (actually having to give up their monopoly status). They fought tooth and nail battles over various regulations and did their level best to kill their competitors... by bribing regulators to get call-completion charges, by systematically failing to service their new clients properly, and, now and again, by slamming their customers.

Clinton's people were going to stick it out and fight the bells into submission. The Bush people had a more, shall we say laissez faire attitude about it, and the last two years have all but brought about the end of competition among the bells, first as the feds looked the other way while they turned their embrace with their competition deadly, and now as the FCC is actually going to rubber stamp their new "pseudo-monopoly" status, enshrining the notion that bells need not lease their lines to anyone, just like they already did with cable.

Econophone is bankrupt. Many of you remeber the Northpoint fiasco; Econophone was very similar. Not content with stealing their customers and bludgeoning them to death with sabotaged service, the bells had to make a show of violently disconnecting them from the network, without warning. The message: don't deal with the independents. You just never know what might happen to your calls.

This industry makes billions of dollars a week. They are _printing money_. Their margins are _incredible_, and that's with some of the worlds most notorious bureaucracies. I've dealt with AT they just _hemorrhage_ money. Why not? They get paid most every time someone makes a call.

De-regulation was a failure. Not exactly because it was inevitable, but because it was never really intended as anything but ideological cover for more and better price fixing. $5/mo for call waiting service anyone? Or how about $3.50 for _not_ publishing your number in the phone book?

You might say the little carriers like econophone went out of busines because they didn't charge enough. But I don't think those people made a math error when they founded their company and calculated what they could charge. I think we got a brief glimps of what we _should_ have been paying all along, before the Bells furiously covered it up.

Re:The rise and fall of phone company competition

[miracle69]

Or how about $3.50 for _not_ publishing your number in the phone book?

I hate that as well. It's $3.50 a month to be unlisted in the phone and the operator. Luckily, it's still free to tell them what name to list the phone number under. I know many a minor-league athelete that use their first name and their mother's maiden name as their last name. This allows relative anonymity from overzealous fans, as well as allowing their families to locate them in their new city should they get traded...

Personally, I use a completely fictioal name that everyone in my family knows. It's also amusing because it shows up on people's caller-ID as well. Several of my friends are now doing the same thing, using Bart Simpson's imagination as a guide.

Re:The rise and fall of phone company competition

[Featureless]

You make a very good point, but I would argue that the deregulation/capitalist model is fundamentally flawed for some services; electric power, most notably, but also education, police...

In the particular case of power, it's very simple: the incentives are exactly the opposite of what you want, since distribution over long distances is so inefficient.

If you build power plants, the power supply goes up, and your product is worth less. Hence, your profits go down.

If you do not build power plants, and/or take some of your plants off line, the power supply goes down, and then your product is worth more. Supply and demand! Whopee! Time to raise the rates! This is more or less what's happened everywhere this scheme has been tried; the only difference is that in California the distributor couldn't pass on the rate hikes because its end-prices were capped. Enron et al didn't mind, they just ran their rates up astronomically, ridiculously high for a few months, then turned off the lights (a negotiating tactic which actually took lives!), and even now they're probably still going to get the proceeds of the "utility bailout," so it's all the same to them.

The only possible way the "private" power generation companies can fail to get rich is by doing what they're supposed to... which is, provide ample, cheap, environmentally sound generating capacity. If you want to make money, on the other hand, the opposite is true; it's in the private utility's best interests to use the cheapest, dirtiest power generating techniques available, to encourage as much waste as possible, to cultivate their most profitable volume buyers at the expense of their least profitable low and middle income customers, to run as close to 100% capacity as they possibly can, and, of course, to create artificial shortages. If the consumers don't like it, there's always electric blackmail.

It's interesting to me that there did seem to be some early success in the telecom deregulation regime. One thing I would really like to spend more time doing is going over the actual laws involved... I have a feeling there must have been some interesting rules in there about how the incumbents have to operate for it to have worked at all.

Re:Telco -or- Telecom

[linefeed0]

Usually, "telco" refers to TELephone COmpany and "telecom" (or "telcom") to TELECOMmunications, the industry occupied by such a company. Both could technically stand for either, but "co." is a more common abbreviation for company than "com" (at least before the internet frenzy). "Telco" is an enumerable noun (you call up _the_ local telco), while telecom is not (someone working in telecom; the telecom _industry_).

Most areas do have a ringback number (rings your phone, usual procedure is dial it and N digits of your number, get a dialtone, hit the hook or flash, get another tone, hang up) and an ANI number (automatic number identification; a voice reads out your phone number), which the service technicians use frequently.

For instance, in central (charlottesville) virginia, the ringback for sprint is/was 511 and 7 digits of your phone #; the ANI is 118. Numbers for many areas can be found in the 2600 FAQ, but it's not complete or up to date. These numbers sometimes change when switching equipment is replaced.

Funny story about telecom fraud...

[Featureless]

It's 1996, and the bells have been newly de-regulated. They're pleased as hell, because they can diversify, but more importantly, because they can now charge whatever they want - price gouging galore! Time to raise the price of call waiting!

There was only one pesky problem. The bells were now theoretically obligated to "compete" with other carriers. The nerve! Wasn't everyone informed that they don't share their playground? Wasting no time, they immediately set to work on the FCC and congress to try to roll back the regulations (or at least the enforcement regime) that allowed competitors to re-sell some of the network and compete.

They came up with a great idea. Oh, it was a real doozy, and very simple. They convinced the feds to allow them to charge a "call completion" fee.

It works like this. If a customer in one local phone company calls the customer of another, the originating carrier has to pay a fee to the receiving carrier for "completing" the call. This, reasoned the bells, was *it.* Who can start up a competing local carrier, if (since they're new) every call from their customers terminates at a bell-controlled phone, and they're saddled with 3c fees for every call! It's a classic "screwing the little guy with the power of math" scenario.

It was a perfect plan. And it only had one fatal flaw.

The metropolitan ISPs of New York City were some of the phone company's most enthusiastic enemies. And why not? Have you ever tried to get the NYC Bell to do anything more complex than a residential hookup? How about manaing hundreds of lines in a hunt chain... let me tell you. You lose a few every few months for no discernable reason, and during one of your dozen hour-long calls to the bell for support, you discover that in trying to "fix" your hunt, they've now disconnected your office phones as well. True story.

The NYC ISPs were desperate to deal with someone, _ANYONE_ other than the local bell. So what did they do? They got together with a tiny, unknown little local carrier. And they became its first, and practically only, customers.

And do you know what happened then?

ISPs need lots of lines, and they're willing, nay desperate, to pay a premium for any kind of service exceeding the Soviet-block standard of the bell. They hardly ever make any calls out. But everyone calls an ISP. In fact, they get thousands and thousands of calls a day.

Within days of getting their first 8 figure "call completion" bill from the tiny little independent local phone company (that the bells had just been gloating over murdering), the bells were back in Washington, and back in court, desperate to break the deal.

Now, exercise for the reader: where they successul in weaseling out of it? What do you think?

Re:Funny story about telecom fraud...

[alanjstr]

Yes, reciprical compensation had a fundamental flaw. But in the carrier access systems world, there's a lot of 'bill the other guy' going around. When a person makes a long distance call, everyone along the way gets their share. The local phone company where the call originates, the long distance company in the middle, and the local phone company on whom the call terminates all have capital expenditures to cover. Not to mention the wireless networks.

Recip Comp was supposed to balance out. Instead startups tried to take advantage of it. In a move of pure greed, they went for the quick buck and ignore the intent of the law. But then the bubble burst and they had no solid business plan. And now many of those little telecoms have gone bankrupt. There are a LOT of bankrupt little telecoms now.

Not all are sleazes.

[Ckid]

In Canada, Telus, Telus Mobility, and Microcell (Fido) automatically (and I do mean automatically) call thier customers every six months and let them know that, based on the customers usage, they are on the best cell plan/long distance plan/whatever. And if they are not, will recommend one that fits more into thier usage patterns.

I think it's the whole cupon strategy, if clients think thier saving $0.10, they'll spend an extra dollar. I wonder how it's worked out for them, personally, I appreicate it.

you're renting the electricity meter box

[Anonymous Coward]

It's just that the power company bundles it into the minimum billing fee, without dummying you up. Same with the water company.

If AT&T had raised the minimum bill, they could have lent you the phone for nothing, and wiped out the secondary phone market. And we'd still be renting them.

Not just US telecoms

[FTL]

Five years ago I was browsing my grandmother's telephone bill, and discovered that Bell Canada was charging her rent on her telephones. Over the past 25 years she had paid $1000 each on three telphones. They were returned that afternoon.

Next time you see an older telephone in Canada, flip it over and see if it has a "Property of Bell Canada" sticker on the bottom. If it does, warn its owner.

Re:Not just US telecoms

[SN74S181]

As a rule, I ONLY have 'Bell System Property, Not For Sale' phones at home.

Back when the divestiture happened a lot of customers opted to purchase the equipment.

There is no phone on the market for a reasonable price that is as durable and well made as a Bell System phone.

Taking one apart, you'll find different date codes on each component, sometimes with varying dates that span decades. These things were built to last, to standards at least as good as Mil-Spec. Any time a phone was returned to Bell, it was broken up and reassembled from interchangable components.

The Touch-tone phones of the early 70's aren't even digital. They have inductors and LC oscillators to generate the tuned frequencies.

They're available for $3-5 at thrift stores, and easily servicible.

Other than one spread-spectrucm cordless, I won't allow any of the post-breakup crap-phones into my house.

In 1996 I was the last person with rotary

[gelfling]

In 1996 I was the last person in my exchange with rotary service. After years of letters from NYNEX begging me to switch, for a nominal fee of about $4/month they finally cracked and just gave it to me. I refused to pay a charge for a service they had instituted in 1963 and had probably amortized by 33 years later. Apparently it cost them far more than $4/month to maintain the rotary crossbars for only one customer in the exchange.

It is my one small victory agains the MAN.