Subject: [NEXTEL-1] The Center For Public Integrity Exposes Wireless Carrier Scam- Prepaid Profit Plan for Wireless Companies -Top firms have banked $629 million for service not yet offered.

From: [email-masked]
Date: Mon, 03 Nov 2003 19:04:08 -0500

The Center For Public Integrity Exposes Wireless Carrier Scam- Prepaid
Profit Plan for Wireless Companies -Top firms have banked $629 million
for service not yet offered

By Morgan Jindrich
WASHINGTON, October 20, 2003 — Since January 2002, the nation's wireless
phone companies have been slipping some mysterious new fees in the bills
of their 101 million customers.

Those who bothered to ask were told that the fees, which ranged from a
nickel to $1.75 per month, were needed primarily to cover the wireless
industry's costs for implementing "number portability," a new service
that will allow phone users to keep their same number when switching
from one wireless company to another.

What the companies didn't say, however, was that they were preemptively
collecting fees for a service that would not be available for another 23
months. What's more, the companies were charging the new fees with the
full knowledge and approval of the Federal Communications Commission,
the government agency that is supposed to look out for the public on
telecommunications issues.

The cost to wireless phone customers: $629 million so far, and still
climbing.

After nearly eight years of delays and false starts, an FCC-mandated
wireless portability initiative is expected to go into effect November
24. Experts say the service could have been up and running years ago had
it not been for a steady barrage of legal challenges and other delaying
tactics by the wireless industry.

"Consumers are being bilked billions of dollars and there's nothing that
they can do about it," said Chris Murray, legal counsel for Consumers
Union in Washington, D.C. A Center for Public Integrity survey of the 10
largest wireless service providers shows that nine of them have been
collecting so-called recovery fees.

Eight are collecting fees to cover the cost of number portability. Nine
companies are collecting money for "number pooling," a closely-related
program which allows wireless companies to assign numbers more
efficiently. Six of the companies are collecting fees for the Federal
E911 program, which requires carriers to relay the telephone number of a
911 caller to the closest emergency department. And two of the providers
collect a fee to cover the costs of the Communications Assistance for
Law Enforcement Act, passed in 1994, which requires carriers to comply
with electronic surveillance rules.

Typically wireless phone companies lump each of these fees into a single
line item on subscribers' bills under something called a "federal
recovery fee." Exactly how much of that fee is going toward number
portability is difficult to say. But FCC filings and interviews with
company officials indicate number portability is being used to justify
the collection of hundreds of millions of dollars from subscribers.

The FCC is relying on the companies to come up with their own estimates
on what portability will cost and does not require the companies to make
that information public. But the Center survey found little consistency
in those estimates or in the fees charged.

Don't Ask, Don't Tell

Wireless companies have come up with a grab bag of cost estimates for
implementing number portability, as well as the recovery fees they are
charging customers. Further muddying the waters for customers, some
companies have simply refused to disclose such information.

Company Money spent before Nov. 24, 2003 Projected annual spending after
Nov. 24, 2003 Current Monthly Recovery Fee** Monthly number porting and
pooling fee per customer
ALLTEL Will not disclose Will not disclose $0.41 Will not disclose
AT&T Wireless $149.9 million $280 million $1.75*** Will not disclose
Cingular Wireless $177 million $200 million $0.32-$0.75**** $0.28
Leap Wireless $10 million $1 million $0.45 $0.45
Nextel $100 million Will not disclose $1.55 Will not disclose
Sprint PCS at least $100 million Will not disclose $1.50 $1.10
T-Mobile USA Will not disclose Will not disclose $0.00 $0.00
US Cellular $30 million $20 million $0.55 Will not disclose
Verizon Wireless $60 million Will not disclose $0.05 $0.05*
Western Wireless at least $10 million at least $2 million $0.97 Will not
disclose
* Verizon collects a number-pooling fee only

**Recovery fees include programs such as E911, Telephone Number Pooling,
Wireless Number Portability, CALEA, and Digital TTY Service

***AT&T Wireless was only charging about one third of its customers a
recovery fee, as of July 2003.

****Cingular Wireless charges regulatory fees ranging from $0.32 to
$0.75
Source: Individual company interviews and FCC filings
For example, Verizon Wireless Inc.—by far the largest wireless company
in the country, with 32.5 million subscribers—has estimated its cost for
implementing the change at $60 million.

In contrast, Cingular Wireless LLC, the country's second-largest
wireless company with nearly 22 million customers, estimates that number
portability implementation will cost them between $152 and $177 million
in 2003 alone, according to an August court filing. Cingular is a joint
venture between SBC Communications Inc. and BellSouth Corp.
To meet the FCC's November 24 deadline, companies say they have spent
millions of dollars. Surprisingly, some of the companies who say they
must spend the most money to comply with the portability rule—both as a
total cost and on a per-customer basis—are among the smallest. Nextel
Communications Inc. estimates it will spend $100 million for 10.6
million subscribers. Verizon Wireless estimates it will spend only $60
million for its 32.5 million subscribers. In other words, Nextel
estimates it will spend five times as much per customer to make number
portability possible as Verizon.

Nextel was the first to begin charging fees to meet the three federal
mandates, starting at 55 cents a month beginning in January 2002. Nine
months later the fee was raised to $1.55 following a "regular review" by
the company.
That means Nextel will have collected $283 million before it ever ports
a number, even though it estimates its implementation costs at only
about $100 million. The company denies taking advantage of its customers
with the new fees.

"This is not something that we are looking at in terms of being a
revenue generator," said Nextel spokeswoman Leigh Horner.

Pay to stay

The huge differences in the cost estimates for implementation among the
different companies defy easy explanation.
Patrick Forster, a top wireless expert at the FCC, said all the
companies are using the same type of equipment to upgrade their systems
to meet the requirement standards. In fact, it is likely that the
companies are purchasing the hardware and software from the same
suppliers, since only a handful of companies provide such equipment.

Or the differences in total estimated costs may be due to what the
company considers to be a portability expense. John Muleta, chief of the
Wireless Bureau at the FCC, said that a company might say it is spending
$200 million a year on portability, but that could include items such as
marketing to win back customers who might otherwise be inclined to take
advantage of the new rule to switch to a different wireless company.

John Muleta, Chief of the Wireless Bureau at the FCC.

"Is that really part of the local number portability mandate?" he asked.
"[The companies] are saying it is a cost."
Clay Owens, a spokesman for Cingular Wireless, said some of the costs
included in his company's $152 million to $177 million figure are for
"retention, acquisition, and other sales costs." In other words,
Cingular and some other wireless companies have folded some of their
marketing costs into their budget for implementing number portability,
and are then passing those costs on to their customers.

FCC rules don't prohibit companies from charging recovery fees for
advertising and customer incentive costs. Instead, Muleta suggests,
customers should pay closer attention to the charges.

"I think that if a carrier in a highly competitive market chooses to
make a profit for what is, in effect, for consumer benefit, that is
something that the consumers can take into account," Muleta said.

Not surprisingly, some consumers groups disagree with the FCC's caveat
emptor attitude. "Competitive markets are predicated on good information
to consumers," said Consumers Union's Murray.

Tight Lipped
Getting good information, however, isn't a simple matter.

Out of the top 10 wireless companies, two—T-Mobile USA Inc. and ALLTEL
Corp.— refused to disclose their implementation costs to the Center.
Five companies—Verizon Wireless, Sprint PCS Corp., Nextel, T-Mobile USA,
and ALLTEL—would not disclose their projected annual costs to maintain
number portability after implementation. And five companies—AT&T
Wireless Service Inc., Nextel, ALLTEL, United States Cellular Corp. and
Western Wireless Corp.—would not disclose the fees they currently charge
customers for number portability.

Nor is the FCC much help.

Muleta said that the agency has no business requiring companies to
provide accurate accounting information, despite its mandated
responsibility to protect the public.

"We don't do price regulation," Muleta said. "This is a point of
competitive differentiation for the carrier. If there is one that can do
it more efficiently than the other one, we figure that the marketplace
will take care of itself."

But the companies in that market have not been especially forthcoming
about the fees they charge or how long customers can expect to be billed
for them. Asked how consumers would know when a company's implementation
costs had been recovered, wireless companies offered no clear answers.

"There are going to be costs associated with [number portability], but
at some point you absorb that cost for introducing that into your
business," said Larry McDonnell of Sprint PCS. "Then I think that just
becomes another cost of your doing business."
And when those costs will be absorbed is something the wireless
companies can decide for themselves.

"There is zero accountability here," said Consumer Union's Murray.
"There's no way for consumers to know. Forget about trusting the
carriers to be honest in their accounting for what these line items
cost, we don't even get [an accounting]—consumers have no information
whatsoever about what the costs of these mandates are."

A surprising about face

For years after the FCC approved the number portability rules in July
1996, the wireless companies resisted offering the service. Then, four
months ago, Verizon Wireless abruptly broke away from its fellow
wireless carriers and endorsed implementation of the service.

Verizon Wireless CEO Dennis Strigl told an audience at an industry
conference that his company would put its full weight behind number
porting.

That announcement came shortly after the D.C. Court of Appeals ruled
against the wireless companies and upheld the FCC's November 24
implementation date. Other carriers and their trade group, the Cellular
Telecommunications & Internet

Association, continue to fight the rules.

By "the end of June, the final court case had been decided and we did
not win that," said Jeffrey Nelson, a Verizon spokesman. "We really gave
it the good college try to fight this mandate."

U.S. Cellular CEO John E. Rooney said that Verizon Wireless "cut their
losses and ran."
That doesn't mean that Verizon Wireless has simply stood aside, however.
Since June 24, Verizon Wireless representatives have met with senior FCC
officials 14 times to discuss number portability—at least once with each
of the five commissioners' offices.

Despite the court setback, three companies have continued to
aggressively fight the mandate. ALLTEL, AT&T Wireless and Cingular are
still trying to postpone number portability. On June 16, the three
companies filed a petition to rescind the new regulation, which
questioned the FCC's authority to impose number portability in the first
place.
Cingular's Owens said his company believes the FCC doesn't have the
authority to implement the new rule. "The FCC acted outside of their
jurisdiction," he said.

Eight years and counting

But fighting the FCC ruling or pushing for its delay hasn't stopped
wireless companies from charging consumers. AT&T Wireless, for example,
was charging a number portability fee to almost one-third of its
customers as of July—about 7 million subscribers, according to Rochelle
Cohen, a company spokeswoman.

The company would not disclose how much of its $1.75 per month recovery
fee is going directly to defray the implementation costs for number
portability. But if just $1 of that monthly fee is going toward number
portability, the company can collect about $84 million per year and pay
off its estimated implementation costs in less than two years.
It's not clear what will happen to the money if the rule is rescinded.
When asked, Muleta said it "would be reasonable" for companies to return
the money to their customers.

Verizon Wireless has not started charging for number portability, but
may add fees of 10 to 15 cents per month per customer once the rule
takes effect, said spokesman Jeffrey Nelson. That would generate $39
million to $58 million per year for the company, which estimates its
total implementation cost at $60 million. The company has not disclosed
its projected cost to maintain number portability annually after
implementation.

Although Verizon Wireless said it is not charging for number portability
before the November 24 deadline, the company has been levying a recovery
fee of 5 cents per month for number pooling.
It is unclear where that money—about $1.6 million a month—has been
going, however.
Spokesman Nelson said that the company remits all of that money to the
federal government. But several FCC officials contacted by the Center
for Public Integrity were unable to confirm Nelson’s claim.
The FCC "does not collect a fee for number pooling, " said Peter
Trachtenberg, Attorney Advisor in the Public Policy Division of the
Wireless Bureau.

The only other top 10 company not currently charging for number
portability is T-Mobile, formerly known as VoiceStream. T-Mobile is now
a subsidiary of Deutsch Telekom A.G.

Verizon Wireless and T-Mobile have been outspoken advocates for number
portability in the last few months, pressuring the FCC to stick to the
November 24 deadline.

Not surprisingly, industry analysts believe that Verizon Wireless and
T-Mobile will benefit the most from number portability.
"Customers choose wireless service based on perceived quality and
perceived value," said Roger Entner, of the Yankee Group. Based on a
combination of wireless user surveys and market analyses, he said that
customers consider T-Mobile to provide the cheapest service and Verizon
Wireless to offer the best quality.

Everyone agrees that for number portability to be available across the
country, all companies have to put the systems in place. Each company
needs to be able to both port and receive a number. For live tests to
take place companies have to set up scheduling and testing agreements
with their competitors. That means wireless companies need to work
together—not something that can be taken for granted.

"We have a difficult road ahead when it comes to making sure those
systems work well together live with our customers," said Verizon
Wireless' Nelson. "Unfortunately at this point our competitors have not
agreed to do any of those live trials."
Still, Sprint and Nextel recently made an agreement to test their
systems. Verizon Wireless has reported that it is "working with other
wireless service providers trying to convince them that we should do
this throughout the country."

Other companies appear to be taking more of a wait-and-see approach.
Andrew Moreau of ALLTEL said "I would assume you can make a deal to do
just about anything, if you can get everybody to agree to it."

http://www.openairwaves.org/telecom/report.aspx?aid=67

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