Communication is the lifeblood of business, and telecommunications are at the heart of all business communication. Companies know that they need reliable, quality service of sufficient capacity to handle their needs and they are often intrigued by the latest service or technology; but the billing structure remains a mystery to most. Telephone service is taken for granted at the same time that it is grossly misunderstood. And, while businesses have historically been at the mercy of a monopoly regarding phone service, the phone company has done a pretty good job of connecting businesses to their customers. The problem with former monopolies is that they continue to think and act like monopolies.
With quality and reliability issues fairly well resolved, businesses are focusing their attention on the cost of service. However, many companies rely on the phone company to advise them on the most cost effective services available and to insure that they are being billed properly. Others rely on their internal telecommunications personnel who were trained to think like the phone company. It is important to understand that in the course of trying to improve its bottom line, the phone company may not be looking for ways to help you reduce your phone service costs. Is it coincidence that 80% of billing errors favor the phone company?
In 1934, the Federal Communications Commission was created to regulate the interstate aspects of telecommunications. However, local phone service and in-state long distance issues were left to the states to regulate.
In 1975, in response to public outrage about soaring utility bills and a telephone company scandal, the State of Texas established the Public Utilities Commission to represent and protect the public interest in regard to public utility rates, operations, and services. The Public Utilities Commission regulates the phone company (and other utilities) through tariffs that define the operations of the utility, the services it can provide and the rates it is allowed to charge.
Until 1984, telecommunications was the exclusive domain of monopolies, though it was regulated in the State of Texas by the PUC. The monopoly was so tightly held that companies had a phone room in their own buildings that was off limits to everyone but the phone company. Many businesses did not even own their own phones.
After the breakup of AT&T in 1984, businesses had to take on some of the responsibility of managing their telecommunications internally. Businesses now had to acquire their own phone systems and integrate them with the available service from the regional Bell operating companies, who still maintained a monopoly on service. With no internal expertise available, the obvious answer was to hire former phone company employees to manage internal telecommunications issues.
As complicated as the technology was, billing for phone service was even more complicated. Though these former phone company employees were, in fact, technicians, businesses increasingly (and unfairly) relied upon these technicians to manage not only their telecommunications technology issues, but phone service billing issues as well. Ironically, it is often a company’s internal telecommunications experts that prevent a company from getting the best possible rates for the services they use.
Business phone service is subject to two distinct types of billing errors: 1) usage errors based on the volume and duration of calls, and 2) rate errors based on the costs and fees the phone company is authorized to charge for phone service. Companies can themselves detect usage errors, but because billing structures are so highly complex, companies need specialized help to detect rate errors.
Tariff regulations are particularly complicated and are subject to frequent change. The current tariff schedule for SBC alone is made up of over 8,000 pages, with some 250,000 pages of retired tariffs no longer in effect. These rules are first interpreted by the phone companies and summarized into billing, operational and service policies that are interpreted a second time by phone company employees implementing the policies. With two levels of interpretation, there is no surprise that the rates businesses pay for phone service varies greatly from the language of the tariffs.
Tariff regulations are well outside the knowledge and skill set of telecom, IT and MIS personnel; and individuals with experience in telecommunications billing (usually former phone company employees) are typically trained to think like the phone company and rely on the phone company billing policies to resolve billing issues. To summarize, telecommunications personnel are simply not qualified to handle tariff and rate issues. However, because most businesses rely on their telecommunications personnel to handle billing issues, some telecom managers may avoid bringing in outside help for fear that if long-standing large errors are found, they will get the blame.
The Telecommunications Act of 1996 introduced competition in the telecommunications marketplace. Various companies popped up to provide alternative local phone service. A few of these companies provided their own hardware and infrastructure, but the vast majority were simply resellers of Bell service.
While one would expect that competitive pressures would have caused the industry to operate more efficiently with fewer billing mistakes, a number of factors actually caused billing errors to increase. In fact, for the seven largest phone companies, excluding cell phone companies, consumer billing complaints rose 95% from 2002 to 2003. Many of the problems that existed with the Bells prior to deregulation remained in place after deregulation and may have even been exacerbated by budget cuts and high turnover. Most competitive local exchange carriers were merely resellers of Bell service, who simply passed through any billing errors on the underlying service while adding yet another layer of bureaucracy. Additionally, newer carriers were prone to internal billing errors because they were not yet familiar with their own billing systems.
Rather than improve operational efficiency in order to be more competitive, some telecom companies tried to trick consumers into giving them their business, according to an article by CBS News. Even some of the most reputable phone companies have been accused of “competing by cheating” including continuing to send bills after service is terminated, and billing for services never ordered.
In one published example from Direct Marketing News, AT&T was accused of incorrectly billing 200,000 to 300,000 non-customers as well as 800,000 of its customers purportedly in an effort to draw inbound calls so it could pitch them on phone services while getting around national and state do-not-call lists. Consumers who called to complain were allegedly told by AT&T agents that they would have to sign up for a calling plan in order to get the incorrect fees refunded.
In another published example, a phone company in New Jersey, after paying out over $25,000,000 in refunds, decided it would only pay refunds for overcharges back for three months. Their argument was that by paying the overcharge, the customer was agreeing to the overcharge. While regulators repeatedly rejected that argument, it continued to be used. The phone company further complicated the issue by prematurely and illegally destroying customer service records that could be used to document how far back overcharges extend.
It is hard to imagine that the phone company could be capable of such tactics. If you wonder what gives them the audacity to treat their customers that way, consider how they have reportedly treated the regulators according to an article by Forbes:
For the first time, the FCC auditors… traveled the country and spot-checked telephone buildings to verify the existence of equipment carried on the books. [T]hey looked at only 25% of the Bells’ gear… at central switching offices. They discovered $5 billion in assets was missing outright. At least another $5 billion was impossible to audit, although federal law explicitly requires otherwise. Assets carried at erroneously (or intentionally) inflated costs on the books naturally lead to higher regulated prices. FCC Auditors were intent on levying large fines and seeking billions in refunds. “When the audit team started getting huge numbers, the Commission started getting very, very nervous.” “The dollars were so huge that there was no way the FCC would pursue them.” [T]he FCC negotiated with the Bells and a few long-distance titans in a series of secret meetings ending in early 2000. The resulting deal was officially named Calls, for the Coalition of Affordable Local and Long-distance Service. [T]he Baby Bells… slash[ed] the access fees they charge long-distance carriers for routing calls to their local lines, [saying] it would save customers $3.2 billion a year. [T]hey also won the right to offset that reduction by boosting flat monthly fees… $5 billion a year. The little-noticed shift in fees… also was a way for the Bells to bury what could have become a multibillion-dollar accounting scandal.
Today, there are a variety of telecommunications options for businesses, but phone service has essentially become a commodity. Price of service has become a major factor in selection of service and service provider. And, while most businesses believe that they are taking steps to insure that they are receiving the best rates available for services, very little is actually being done to hold the phone companies to the regulated rates.
In a recent survey by Communications Convergence Magazine, 55% of businesses said that their phone bills are audited regularly for billing inaccuracies. Amazingly, 50% said that the phone company provided the audit, with only about 5% of respondents saying they used the services of a third party auditing firm. In no other area of a business would a company ever allow vendors to audit themselves.
In the same survey, 73% of businesses said they believe that there are few or no incorrect charges on their phone bill. However, the FCC and independent industry analysts have determined that more than 80% of all phone bills contain errors and that 30% of all telecommunications charges are incorrect .
The largest users of telecommunications service often justify the creation of a custom tariff that provides special pricing or they otherwise qualify for pricing on an individual case basis (ICB). These organizations are the most likely to believe that there are few or no inaccuracies on their bills. However, statistics show that due to the size and complexity of these accounts, they are actually more likely to have a billing error.
Businesses and consumers tend to give the phone company the benefit of the doubt, but overwhelming evidence shows that the phone company does not proactively recommend packages or services that would reduce costs.
“Connecticut AG Slams Telecom Companies”, CBS News, December 18, 2001.
“History and Regulation of the Telephone Industry”, Fundamentals of Telecommunications: History, The International Engineering Consortium.
Jill Andresky Fraser, “Cost Control: It Pays to Audit Phone Bills”, Inc.com, Gruner %2B Jahr USA Publishing, June 1995.
Jozef Hand-Boniakowski, PhD., “Business Report: Telephone Bill Auditing”, Champlain Business Journal, August 2003.
Michelle Kessler, “Telecom Billing Complaints Increase”, USA Today, September 1, 2003.
Scott Hovanyetz, “AT&T Bills, Upsell Draw Lawsuits and Suspicions”, DM News, May 14, 2004.
Scott Woolley, “Shortchanged”, Forbes.com, May 12, 2003.
“The AT&T Breakup – 20 Years of Confusion”, ConsumerAffairs.com, http://consumeraffairs.com/news04/att20.html#top.
Tim Green, “Finding Cash in Bad Bills”, Netflash!, Network World Fusion, May 20, 2000.
Tracy Anders Greenlee, “PUBLIC UTILITY COMMISSION”, The Handbook of Texas Online.
“What Subscribers Want In Telecom Services”, Communications Convergence Magazine, May 4, 2004.
Federal Communications Commission
The Public Utilities Commission of Texas.
Larry Pfeil, J.D. is Vice President of Southwestern Tariff Analyst, and has been with the company since 1997. Larry has a Bachelors Degree in Business Administration and Doctor of Jurisprudence.
Southwestern Tariff Analyst was founded in 1995 as a means of assisting companies and institutions in the reduction of local phone service costs due to the misapplication of certain tariffs by the phone companies. STA is unique in that our expertise lies in the regulatory framework that governs telecommunications policies and rates. Today, STA is well known as the leader in telecommunications cost recovery and reduction services. For more information, visit our website at http://www.STAaudit.com
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