Separate phone bill fees aren't all taxes
The state is examining how phone companies use surcharges on their bills, and whether some of those fees should be rolled into regular rates.
BY DION LEFLER
The Wichita Eagle
Depending on what phone company you use, you might be paying an "instate access recovery charge" every month.
Or possibly a "regulatory cost recovery fee."
Or maybe a "public switched network recovery charge."
They may sound like taxes or other government charges.
But the money doesn't go to the government. It goes to the phone company.
The Citizens' Utility Ratepayer Board, the state agency that represents residential and small-business utility customers, says the phone companies are simply making up official-sounding names so they can charge more while still advertising cheap basic rates.
Documents obtained from CURB under the Kansas Open Records Act show that in most cases, surcharges add about $1 to $1.50 to the average residential customer's bill -- though in some situations, surcharges can total more than $7.
"Our main problem is some companies -- not all of them -- are taking charges that have always been part of their basic rate and making them into their own little surcharges," said Steve Rarrick, telecommunications attorney for CURB. "They hide it when the rates go up."
The Kansas Corporation Commission, which regulates phone-billing practices, is considering restricting what can be charged as a surcharge and what has to be rolled into regular rates.
About a dozen phone companies are defending the surcharges in the commission case.
Several argued that the surcharges -- while not paid directly to the government like taxes -- are legitimate efforts to recover costs they incur to comply with government mandates such as emergency 911 service, special services for people with disabilities and allowing customers to keep their phone number when they switch companies.
Most of the companies tacking on the surcharges at issue are cell phone companies.
Others are resellers who lease access to AT&T lines at wholesale prices and sell services to their customers at retail.
CURB doesn't have a problem with bills from AT&T, the state's dominant phone company, or Cox Digital Telephone Service, which has a large presence in Wichita, Rarrick said.
Surcharge categories
The names and the explanations for surcharges vary from company to company, but generally fall into two broad categories:
• Regulatory costs -- These charges are levied by the phone companies to compensate themselves for the money they spend to comply with government regulations.
• Line-access costs -- These surcharges pass through to customers the cost of increases in rates to access local phone networks.
Rarrick said CURB doesn't oppose the companies recovering those costs. Nor does it oppose putting taxes and actual government-mandated charges -- such as state and federal taxes and fees to provide universal service -- on bills as separate items.
But Rarrick says the ability to conjure up surcharges at will allows phone companies to advertise a lower rate than what the customer will actually have to pay, giving those companies an unfair advantage in competing for customers.
"It makes it impossible for the consumer to compare rates," Rarrick said.
Special bills for Kansans
Numerous phone companies, including Verizon, have disputed that in a legal brief filed with the commission.
It said, in part:
"There is no evidence that rigid labeling and formatting requirements will advance the government interest in promoting consumer comparison shopping.... The imposition of a single set of labels for charges that operate quite differently might foster, rather than alleviate, consumer confusion."
Several wireless companies argued in their briefs that their business is regulated by the federal government and questioned whether the Kansas commission has a right to impose its own regulations on their bills.
Phone company officials also said they don't want to have to make special bills for Kansas customers. They said that would force rate increases because it would cost them more money.
One company, Sage Telecom, said it would happily drop surcharges as long as the rules apply equally to all land-line, wireless and voice-over-Internet phone providers. But for now, the company feels it has no choice but to recover some of its costs through a surcharge.
"Most, if not all, of our competitors do break these (charges) out," said Robert McCausland, vice president for regulatory affairs for Sage. "We cannot continue on in business if we price our products differently than our competitors."
Several phone company representatives said -- and CURB records show -- that salespeople are instructed to explain to potential customers the approximate cost and nature of the fees they'll have to pay in addition to the basic published rate.
Customers "would be familiar with what their bill would be at that point," said Andrew Moreau, Alltel Wireless' vice president for corporate communications.
Commission staff, CURB and phone companies serving Kansas have been negotiating over what charges should be on phone bills for about two years.
The commission staff's position has shifted during the case, said KCC telecommunications chief Janet Buchanan.
Initially, it was the same as CURB's -- that only actual government-authorized taxes and charges should be broken out as surcharges on bills.
She said that after the Federal Communications Commission issued a rule forbidding states from regulating surcharges, the KCC staff adopted a compromise position: allowing the surcharges but requiring they appear on a different part of the bill and be clearly labeled as phone company charges.
Since then, the 11th U.S. Circuit Court of Appeals has issued an opinion overturning the FCC rule, so the KCC staff is moving back toward its original position, Buchanan said.
The commission concluded two days of hearings on the case about two weeks ago.
A decision is expected after Sept. 19.
Reach Dion Lefler at 316-268-6527.
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