Monopoly: Communications ‘Harvesting’ as an Antitrust Case

The Case to Break Up Big Telecom & Cable Starts Now.

The IRREGULATORS will be presenting a series of reports and documentation to lay out a case to separate AT&T, Verizon and Centurylink from the state wired telecommunications public utilities they control and halt all cross-subsidies of the hundreds of subsidiaries that have turned the state wired networks into a cash machine, which was used especially for the build out of their wireless infrastructure. There should be enough funds to lower prices, solve the Digital Divide and upgrade the states and cities to fiber optic broadband.

FULL REPORT 1: Harvesting and Monopoly

Stranded & Harvested & the Creation of the Digital Divide.

We start with how AT&T et al. have been able to not only continually raise rates for decades but have been able to gouge the captured wireline customers as well as manipulate the financial accounting and even manipulate the number of lines in service.

Moreover, this is not only about the copper wires for phone service but starts us on the path to examine the impacts of what happened to those customers that AT&T et al. left stranded, and how the failure to upgrade the networks caused the Digital Divide.

We will focus mostly on AT&T California, the primary telecommunications public utility in California, and the rest of Big Telecom.

AT&T California’s Service Guides were published on March 1, 2021. They list prices for wired phone service, known as “POTS”, “Plain Old Telephone Service”, as well as the other services that are carried on the state-based public telecommunications utilities networks.

This first chart shows that the basic Calling Features, such as Call Waiting, are now $11.99 per service, per month, if the customer doesn’t have a ‘bundled’ plan. In 2004, AT&T CA’s Call Waiting was $3.23, but thanks to faulty deregulation and a corporate policy of ‘harvesting’, the price went up 271%. (Note: AT&T CA was previously SBC CA and before that Pacific Bell.)

Less than a penny to offer: However, in 1999, AT&T (then BellSouth)’s “Calling Features” were examined by the Florida Public Service Commission and they found Call Waiting only cost a fraction of a cent to offer and pennies to offer most of these other features. And that was 22 years ago.

This is Happening in Every State Controlled by AT&T or Verizon (and not as extreme in the CenturyLink states.) This is from the Verizon New Jersey Product Guide showing price gouging for Call Waiting at $14.25 for business and $12.99 for residential service.

No One Is Using the Copper Wires? Wrong.

The FCC Marketplace report in 2020 showed 38 million POTS lines, but 108 million of total wired phone connections.

“December 2019 FCC Form 477 shows that there are 38 million end-user switched access lines… In addition, there are close to 70 million interconnected VoIP subscriptions.”

Weren’t we told that no one is using the copper lines or that no one has wired phone service anymore? While the number of basic lines are in decline, in large part due to the continuous rate increases, America has been deceived.

Over 100+ Million Basic Lines Harvested and Hidden Lines: Insider telecom wonk terms like ‘switched access’ (which are basic copper-based phone lines, “POTS”) and ‘VoIP’ (sometimes called “Digital Voice” and based on “Internet Protocol”, “IP”) reveal that there are different classifications to hide the actual number of lines in America.

Example: AT&T’s U-verse, for Internet/broadband and VoIP voice calling is actually a copper-to-the-home service that uses legacy copper wires and is attached to a fiber optic ‘node’ somewhere in the neighborhood. This copper wire is reclassified; it is no longer a “POTS” line but a ‘VoIP’ line. Even though it is the exact same identical copper wire, it is now NOT counted as a line.

This is a shell game of massive proportions nationwide as well as AT&T specifically. As we uncovered, there are an estimated 50–75 million copper wired lines in use but not counted as an access line. This means that there could be approximately 100 million POTS lines, plus an additional 70 million VoIP lines — -(with a percentage, like U-verse, still using the copper based POTS line.)

Competition? No, Just Continuous Rate Increases: The California Public Utility Commission released a series of reports which detailed that prices have continued to rise since 2004, and it matches the tracking we’ve done pertaining to AT&T CA’s prices.

This next chart shows that Basic ‘Local Service’ went up 153%, and each optional service went up 94% to 525%. How can prices continually increase over a 17-year period if there was serious competition? Worse, how can AT&T charge $11.99 when it only cost a fraction of a cent for Call Waiting?

How Much is too Much?

Some of the charges are just so outrageous that they take your breath away. In CA, if you do not have a plan for “Toll” calls, which are calls within your region beyond 16 miles, AT&T California will charge your business line $5.11 a minute, which is up from the still ridiculous $1.90 charged five years ago.

We just diagrammed ‘harvesting’ and “Plunder Pricing”, where a monopoly can control the customers’ service and prices and can raise rates continuously.

• “Plunder Pricing” is the antonym of predatory pricing; A corporation takes every financial and regulatory advantage from a captured customer or client, using multiple means, including harvesting, but continues to deny their actions, or that they are causing specific harms.
• “Predatory prices” are setting the price of a service or product below the price of a competitor, which can be good for the customer but harmful to competition.
• ‘Harvesting’ is a business practice where the company has decided to close or change the service and uses the customers’ inertia, loyalty, or lack of knowledge about basic details to squeeze profits through continuous rate increases, making the customers drop their service or get gouged.

Stranded and Harvested

Who would pay these rates? No one can read their bills. Based on multiple surveys we fielded since the 1990’s, as well as those with the California Consumer Protection Fund and UCAN in 2004 and 2008, people do not read or understand the charges on their bills, So, instead of being put into ‘collections’, customers just pay the total and grimace.

Big Telecom believes that ‘ignorance’ is the path to unfettered revenues and more deregulation.

Overcharging from Harvesting: How Much are We Talking About?

The decision to break up “Ma Bell”, the original AT&T, known as the “Modified Final Judgment”, “MFJ”, was signed in 1982. It states:

“Substantial increases in the rates for local telephone service, thus eroding the statutory goal of universal telephone service for all Americans. See 47 U.S.C. § 151.”

Monopoly means that the prices can always go up because there is no competition to lower them. Moreover, it means that Big Telecom can make up outrageous pricing with impunity because, we see, no regulator we know of has questioned the prices — and this is a nationwide problem impacting every state.

We used a conservative approach — leaving out the outrageous pricing from the CA Price Guide and focusing on just the increases to the basic phone rate and at least 1 add on service (with an estimated 40% having 1 or more additions, a percentage taken from previous California phone bill surveys).

Since 2006, We Estimate the Customer Harms from AT&T CA’s Harvesting. (Read the report for details.)

• Overcharging of basic service was about $16–22 a month, $195 to $270 a year.
• Counting taxes and add-ons, overcharging can be $30 a month- $360 a year.
• $1,700-$3,200 per line since 2006, depending on the service. We are using $2,500 for the average from 2006–2020.
• Note: This is only a small part of customer overcharging we uncovered.
• Nationwide we estimate a conservative $10.8- $14.5 billion annually.

The sanity check we used was another report, but of Verizon New York, using actual phone bills and the Verizon NY Annual Report, where we identified the exact same pattern of faulty deregulation with no oversight, and harvesting.

NOTE: The reports supply more details.

These lines are all part of a state telecom public utility — and yet, as far as we can find, the state utility commissions and the FCC did not investigate, did no audits and provided no serious oversight over the continuous rate increases over 15 years.

But, this is also about the flows of money and the use of the FCC’s accounting formulas, which we explore in the next report, that is really at the core of all of this.

The California Public Utility Commission’s unredacted reports, published January 2021, starts to open this door and it sums up the harms:

“Persistent disinvestment, extensive affiliate transactions at self-serving transfer prices, extraordinarily large rate increases, and deteriorating service quality all point to ‘harvesting’ as AT&T California’s overarching strategy for its legacy services and customers. These extensive affiliate transactions, the directly measurable indicators of disinvestment — depreciation accruals that exceed gross additions, payments of dividends to the parent company that exceed the nominally reported net income, and the persistent erosion of AT&T CA’s Net Plant — and the deteriorating service quality overall, together compel certain conclusions as to AT&T California’s overall financial condition and investment policies”

Big Telecom vs a Failed Fiber Optic Future

Why we need to separate AT&T et al. from the wires is simple — They have let the entire US state-based utility infrastructure to deteriorate, continuously raised rates, and manipulated the accounting to make the entire wired networks act as a cash machine for the rest of their subsidiaries through vertical integration. The claim is that America should go wireless but, at the core, this is a bait-and-switch to make the companies more money by cross-subsidizing the wireless construction, and other perks.

In fact, prices should have been in steep decline; the construction budgets were slashed, as were the staff and technicians to maintain and upgrade the networks. Moreover, the copper wires were largely put in before the 1980’s, so the networks were also written off.

But the real issue isn’t just about the copper wires or price, but that many of these California customers or the larger 100 million lines are ‘stranded’ and there are few or no serious alternatives. In the end, this is about a failure to properly upgrade the networks to fiber optics. And, as we will outline, it is about the ability of the monopoly’s market power to do this in every state with impunity.

Antitrust: Big Tech Actions Needs Connectivity & Challenging Big Telecom

Over the last few years there has been a call to go after “Big Tech” companies, including Google, Amazon, Facebook and Twitter. The “FTC” (“Federal Trade Commission”, as opposed to the “FCC”, the “Federal Communications Commission”) and Attorney General offices around the US are actively going after Facebook, and there are other cases against Amazon and Google, claiming ‘Big Tech’ is harming America due to monopolistic practices.

While there appears to be legitimate issues about market power in the ‘search’ and ‘online advertising’ markets, all of these services not only requires that the user chooses to visit these companies’ web presence, but a user must first have an Internet Service Provider, ISP, that connects them to the internet, hopefully using a high-speed broadband connection. And these services are either using a wired connection or going over airwaves with wireless, almost always ending up on the wired networks.

Ironically, Aaron Epstein, a senior citizen living in North Hollywood, California, who has been a customer of AT&T and Pacific Bell since the 1960’s was so frustrated that AT&T hadn’t brought fiber to his neighborhood that he spent $10,000 and took out advertisements in the Wall Street Journal. After receiving national attention, AT&T was embarrassed into replacing his current copper-based DSL with a fiber optic service. (Click for Mr. Epstein’s advertisement. See Ars Technica stories for some of the details.)

We dedicate our report to Aaron Epstein whose actions led us to find the AT&T California pricing guides and then to write the report.