ISPs create tangled Web of sneaky fees

Bob Sullivan Technology correspondent • Profile • E-mail

It was supposed to be a small gift from the federal government to Internet users. On Aug. 14, 2006, a $2-$3 per month government tax on DSL broadband service, known as the federal Universal Service Fund fee or FUSF, was dropped. The tiny savings was meant to put DSL providers on equal footing with cable modem service providers, which weren’t obligated to collect the FUSF tax.  But the consumer victory was short-lived. 

Verizon saw an opportunity. 

The company’s Department of Creative Fees with Obtuse Names went to work and quickly emerged with a doozy.  The Universal Service Fund would be dropped from August 2006 bills, but in its place would appear a new line item: “Supplier Surcharge.”

Verizon’s fast DSL users had been paying $2.83 for the universal service tax; now they would pay $2.70 in a Supplier Surcharge.  But rather than pass the surcharge on to the government, Verizon would simply pocket it.  Given fast DSL’s price tag of around $30, the tax-for-fee switcheroo instantly gave Verizon about a 10 percent price hike. What business wouldn’t relish a chance to pump up revenue 10 percent cloaked in such a perfect ruse? Consumers, the firm hoped, wouldn’t notice the change as their bottom-line price wouldn’t change. In fact, they might presume the surcharge was the old tax with a new name.

In a cozy-sounding e-mail, Verizon tried to tell its customers they would hardly notice the sneaky price increase.

“On balance your total bill will remain about the same as it has been or slightly lower,” it read.

Naturally, competitors immediately copied the brilliant idea. That same month, BellSouth revealed it would continue to collect its $2.97 a month FUSF fee, and just pocket the money.  Its euphemism was perhaps even more misleading: “regulatory cost recovery fee.”

A smaller Internet service provider named Speakeasy jumped on the fee plan, too. Here’s how the managing editor of online journal ISP-Planet described the August 2006 below-the-fee-line part of his bill, sans FUSF.

Old:
Federal regulatory fee: $6.00
DSL Reg. Compliance fee: $5.12
VoIP Reg. Compliance fee: $4.95

New:
Federal regulatory fee: $0.00 ($6.00 decrease)
DSL Reg. Compliance fee: $9.52 ($4.40 increase)
VoIP Reg. Compliance fee: $6.20 ($1.25 increase)

Total: $0.35 decrease

A universal service fund fee by any other name smells just as bad. But in this case, none of them got away with it.  Careful bill readers jumped all over Verizon, BellSouth and Speakeasy, and began an Internet call-to-action.  Journalists jumped on the story. The FCC threatened to investigate.  All the phantom FUSF fees were eliminated.

Competition keeps service providers honest, and keeps prices low.  As we’ve seen in pay television and the world of contract-strapped cell phones, lack of competition hurts consumers.

By comparison, the world of Internet access is awash in competition. There are multiple platforms for high speed access (DSL, cable, wireless, etc.), and often multiple players within each. Many urbanites have the option to pit DSL against cable modem service.  Satellite and wireless broadband options fill out the competitive landscape.  And while it’s slow, the myriad of dial-up options remaining provide competition of some sort for virtually every Internet user. Advantage — consumers and the economy.

There’s only one way for sneaky companies to beat back honest competition: sneaky fees.  By breaking out items such as “regulatory compliance,” DSL providers can hike prices without having to raise their advertised prices.  Those $19.95-per-month marketing campaigns don’t have to be scrapped.  Companies wishing to pump up their bottom lines can just raise the fees instead.

In the world of sneaky fee pricing, consumers never know what they are really paying for a service.  It makes an apples-to-apples comparison of DSL vs. cable modem service nearly impossible.  For example: For most consumers, it’s impossible to get DSL without paying for an active phone line, which costs about $20 a month.  Phone-line-less DSL, called naked DSL, has been mandated by federal regulators, and will arrive some day, but for most consumers a $19.95 DSL offer really translates into a monthly bill that’s closer to $50. That makes it, sadly, essentially the same price as its chief alternative, cable modems. 

Advantage: Sneaky company.

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