Office of the Ohio Consumers' Counsel

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Telecommunications Industry

At a time of technological advances within the telecommunications industry, consumers are facing rate increases and fewer protections. The year 2006 brought more mergers, acquisitions and spin-offs, as well as the potential for annual rate increases for basic local telephone service and basic Caller ID. Additionally, a proposal by the staff of the Public Utilities Commission of Ohio (PUCO) would jeopardize some of the service quality protections consumers have had for at least two decades. The Office of the Ohio Consumers’ Counsel (OCC) was involved in a plethora of telecommunications cases throughout the past year. The OCC’s involvement was focused on protecting consumers from rate increases when consumers have few or no alternative providers from which to choose, and advocating to maintain and strengthen rules already in place to protect consumers.

The OCC also advocated on behalf of Ohio’s residential utility customers at the federal level. The OCC, as part of the National Association of State Utility Consumer Advocates (NASUCA), participated in proceedings at the Federal Communications Commission (FCC) and later in the federal courts of appeal. NASUCA is an organization of state agencies that collectively represents the interests of consumers at the federal level. NASUCA participated in cases to recommend stronger telephone billing rules, more consumer protections and to advocate for changes to the Universal Service Fund (a federally funded program designed to reduce costs in rural areas and provide assistance to low-income consumers).

Rate increases

The OCC participated in a grassroots campaign to oppose the ability for telephone companies to raise basic local telephone service rates unless there were competitive options available for that service alone. Basic telephone service is simple dial tone service that enables customers to make and receive calls. It does not include any additional features such as Call Forwarding or Call Waiting. Since there were few, if any, alternative providers that would sell a customer basic local service without any other features, the OCC advocated that rates not be increased and that PUCO oversight remain. Residential consumers filed letters in the case and testified at public hearings to voice their concern to the PUCO that basic telephone service and Caller ID needed to remain reasonably priced. Much to the disappointment of the OCC and residential consumers, by the end of 2006, the PUCO had granted both Cincinnati Bell Telephone and AT&T the ability to raise many customers’ rates for basic local telephone service and Caller ID.

As a result of a PUCO decision in 2001 that created new rules, telephone companies that met certain criteria could also raise the rates for commonly used features in addition to basic telephone service. All of the major telephone companies – AT&T, Verizon, Cincinnati Bell Telephone, Sprint (now Embarq), Alltel/Western Reserve (now Windstream) – are operating under these alternative telephone rules. Verizon received PUCO approval in 2006 despite objections by the OCC that there were insufficient alternatives for Verizon’s services available to consumers, which is a prerequisite for operating under these rules. A few companies took advantage of these rules in the past year. Rates went up for many services such as Call Waiting, Three-Way Calling and a variety of bundled service packages.

Investigation into sales practices

The OCC’s investigation of consumers’ problems with long-distance provider, Buzz Telecom, revealed a pattern of misleading marketing tactics against consumers. The OCC requested that the PUCO suspend Buzz Telecom’s ability to solicit new customers in the state and order the company to compensate customers for any inappropriate charges. Additionally, the OCC requested that the PUCO revoke Buzz Telecom’s ability to do business in Ohio and launch an investigation of the company’s practices, which could lead to penalties if violations of state laws or rules are found.

The OCC’s initial review found that Buzz Telecom’s representatives appeared to have misled many older adults into switching to its long-distance service. Consumers were led to believe that Buzz Telecom’s telemarketing call was from their local telephone company which would provide them with a special discounted long-distance rate. In reality, they were being switched to a new long-distance provider at rates that were far from discounted. When customers questioned their bill to Buzz Telecom’s representatives, customers were told that a $19.95 early termination fee would apply if they canceled their service.

The PUCO did order Buzz Telecom to stop marketing to consumers and told the company to “show cause” as to why its operations should not be permanently revoked. If the investigation requested by the OCC finds violations of Ohio’s Minimum Telephone Service Standards, Buzz Telecom could face penalties of up to $10,000 for each violation.

Mergers, acquisitions and spin-offs

The OCC participated in cases that involved the spin-offs of Sprint’s local operations into Embarq and Alltel’s local operations into Windstream. These spin-offs were on the heels of the mega-mergers in 2005 that combined SBC with AT&T, Verizon with MCI, and Sprint and Nextel. As in all of these cases, the OCC advocated for consumer benefits and tried to ensure that there were no financial hardships placed on consumers as a result of the mergers.

On the federal front

The OCC, as part of NASUCA, worked to maintain state regulatory control of telephone billing rules for long-distance customers. The organization also sought stronger rules to protect consumers from unfair and misleading billing practices. In 2005, NASUCA filed comments at the FCC in what has become known as the “Truth in Billing” case. The FCC concluded that states should be prohibited from issuing and enforcing laws that regulate cellular companies’ billing practices, a conclusion that NASUCA strongly opposed in favor of states retaining their rights to regulate billing practices.

NASUCA appealed the FCC’s decision to the U.S. Court of Appeals for the 11th Circuit in Atlanta. NASUCA argued that the FCC’s ruling allows deceptive and misleading cellular charges to continue; denies states the ability to protect consumers from deceptive cell phone charges; and fails to strengthen its billing rules, which have not served to protect long-distance customers.

In 2006, the federal court issued a decision that agreed, in part, with NASUCA’s position. The court determined that since the Communications Act allows states to regulate “terms and conditions” of wireless services, the FCC order regarding this issue should be vacated. States will be allowed to regulate these types of billing practices.

Additionally, the OCC supported NASUCA in its recommendations to reform the Universal Service Fund (USF) to increase benefits to residential consumers. Universal Service includes federal programs that have helped make telephone service affordable for low-income consumers and those consumers who live in rural areas where the cost of providing service is high. All telecommunications carriers that provide service between states pay fees to support the federal Universal Service fund.

NASUCA provided testimony at the federal level to voice its support for broadening the funding base for Universal Service programs to include companies that provide Voice over Internet Protocol (VoIP) and broadband services. NASUCA also suggested additional modifications that included continuing to allow state USF programs to assess intrastate (calls made within the state) revenues, and clarifying that carriers should offer broadband to all customers.

Another USF issue at the federal level involves proposals to change the amount customers are charged. NASUCA believes that a major overhaul of the USF funding mechanism would not be in the public interest. This change would shift the USF charge from those customers who use interstate services to those who simply have access to the local network regardless of their usage. This would shift the burden to low-income customers and could greatly increase the USF fees paid by residential customers.

In 2006, the FCC ordered those companies offering VoIP services to customers to contribute to the USF programs. Some VoIP carriers appealed the case to the U.S. Court of Appeals for the D.C. Circuit. NASUCA filed in support of the FCC decision.

In 2007, the OCC will continue its advocacy efforts at both the state and federal levels to ensure that residential utility customers in Ohio receive the benefits and protections they deserve.

Full Lifeline discount will apply

In separate cases, involving Champaign Telephone Company, Telephone Service Company and Verizon, the Office of the Ohio Consumers’ Counsel (OCC) helped to ensure that low-income customers participating in the Lifeline assistance program would receive the full discount to which they are entitled.

During 2006 each company had requested approval from the Public Utilities Commission of Ohio (PUCO) to operate under an alternative form of pricing regulation. This type of regulation caps the price of basic local service while giving companies the ability to raise the rates of features like Call Waiting and any bundled service package. The PUCO adopted these rules for all local telephone companies in 2001.

The OCC raised concerns that these companies would need to increase the Lifeline discount for their customers, which all telephone companies operating under these rules must provide. However, the companies’ applications did not specify that they would provide customers with the maximum discount necessary. The OCC pointed out that the companies needed to provide an increased discount but had not disclosed the actual amount that they planned to give eligible low-income customers.

The OCC also opposed the requests by these companies to operate under the alternative telephone rules. The OCC argued that the companies had not demonstrated that there were other telephone companies offering competitive alternatives in their respective service territories, as required by Ohio law.

Although the PUCO granted the companies’ requests and gave them the ability to raise rates for bundled packages and commonly used features, the PUCO made it clear that the companies must provide all of the Lifeline commitments including the full discount amount.

— Cases 06-651-TP-ALT, 06-794-TP-ALT, 06-700-TP-ALT

Pricing rules relaxed for small telephone companies

Following the passage of a new law by the Ohio General Assembly, rules were developed by state regulators involving the ability for small telephone companies to increase the prices of commonly used features like Call Waiting as well as bundled packages. In return, the companies must make some broadband-related commitments and provide enhancements to the Lifeline discount program for low-income customers.

The Office of the Ohio Consumers’ Counsel (OCC) advocated that the small companies be required to have an effective Lifeline outreach and marketing program in place for low-income customers, including a board of stakeholders to oversee the effort. Based on the final rules adopted by the Public Utilities Commission of Ohio (PUCO), the PUCO staff must consult with OCC as it coordinates efforts on Lifeline program activities. The PUCO did not require the companies to establish a board or dedicate specific funds to market the program to potential participants.

A separate rulemaking involved relaxed pricing regulations for mutual telephone companies, which are small, not-for-profit telephone companies that are owned by their customers. Based on rules proposed by the PUCO staff, mutual companies would have been able to increase basic local telephone rates with only 15 days notice to customers. At the time, 45 to 60 days notice to the PUCO was required depending on the service.

The OCC advocated that customers have at least 30 days notice of rate increases, that companies be required to offer a larger Lifeline discount and that rules remain in place regarding complaint handling, service quality and disconnection of service.

The final rules adopted the OCC’s recommendation for more advanced customer notice of rate increases and maintained the complaint handling, service quality and disconnection of service requirements. The rules did not include requiring the companies to establish a board or allocate funds to market the Lifeline program to eligible customers as OCC had recommended.

— Cases 05-1303-TP-COI, 05-1304-TP-ORD

Potential telephone rate increases are limited

New telephone rules adopted by state regulators took into account comments by the Office of the Ohio Consumers’ Counsel (OCC) and other consumer organizations as well as individual residential customers who filed letters and testified at public hearings that basic local telephone service and basic Caller ID need to remain reasonably priced.

The rules scaled back a proposal by the Public Utilities Commission of Ohio (PUCO) staff that could have resulted in a 20 percent increase per year for basic telephone services.

Based on the final rules, telephone companies could apply for the ability to increase the monthly price of basic local service by a maximum of $1.25 per year. For most customers, this maximum would be less than half of what was originally proposed. The monthly rate for basic Caller ID could increase by 50 cents per year.

The OCC sought public hearings throughout Ohio on rules that were proposed by the PUCO staff in November 2005. In response, the PUCO held seven public hearings and listened to testimony from consumers.

The OCC advocated for a phase-in, over five to seven years, of any rate increases permitted under the rules, with a total increase limited to 20 percent over current rates. The final rules were closer to the OCC’s position than the proposed rules and provide protection to residential consumers.

As part of the PUCO’s evaluation of the applications, the companies will need to meet one of several tests designed to show there are competitive telephone choices. However, not all of the tests require that competitive options exist for customers who only want to purchase basic local service, without features like Call Waiting.

The OCC believes that before telephone companies receive the freedom to raise their rates for basic local service, residential consumers need to have a choice among different providers for that service.

The OCC did support a key element that was contained in the final rules – that low-income customers who receive a discount through the Lifeline programs be protected from any basic service price increases. Lifeline programs provide financial assistance and help ensure that low-income customers can afford basic local telephone service. The PUCO staff proposed, and the OCC supported, protecting those customers.

Before the end of 2006, the PUCO approved applications from both AT&T and Cincinnati Bell Telephone and provided the companies with the opportunity to raise their rates for basic local telephone service and basic Caller ID in some of their service territory. AT&T received approval to raise local service rates for 136 Ohio local service areas, which is 70 percent of its total territory in the state. Cincinnati Bell’s request was approved for its two largest exchanges, Cincinnati and Hamilton. The OCC opposed giving pricing flexibility to either company because they failed the eligibility tests and the law’s requirements since residential consumers have few, if any, choices for basic dial tone service.

— Cases 05-1305-TP-ORD, 06-1013-TP-BLS, 06-1002-TP-BLS

Budget Phone rate increase proposal is dismissed

The OCC led a coalition of consumer groups to combat a proposed rate increase by Budget Phone, a prepaid local telephone provider. Prepaid providers require customers to pay in advance for monthly service, charge rates that are generally much higher than a traditional telephone company and often target those who have no credit, bad credit or have been disconnected by a local telephone company for nonpayment.

The OCC advocated that the rate increase request be suspended and told the Public Utilities Commission of Ohio (PUCO) that Budget Phone failed to provide the required proof that the increase was necessary. The OCC argued that the rate increase would largely affect low-income consumers and that it would violate an Ohio law prohibiting unreasonable rates.

Budget Phone also requested to be able to receive federal support to offer Lifeline and Link-Up programs. These programs provide assistance to low-income consumers to establish local telephone service and to receive monthly discounts on telephone bills. Based on the OCC’s analysis, Budget Phone’s discounted rate charged to customers would be 300 to 700 percent higher than the Lifeline rate of a traditional local telephone company.

In legal documents, the OCC told the PUCO that Budget Phone should be required to demonstrate how the company qualifies to be eligible for Lifeline funding, which is set according to a Federal Communications Commission order.

According to the OCC, the proposed rate increase would offset any potential benefit of a Lifeline program for its customers.

A PUCO decision on November 8 dismissed Budget Phone’s application, noting that the company had not filed the information necessary for the PUCO staff to complete a review.

— Case 05-1235-TP-SLF

Chillicothe customers could see competition

Comments filed by the Office of the Ohio Consumers’ Counsel (OCC) made an impact that could help open up the local telephone market for customers of Chillicothe Telephone.

In a case involving an attempt by Chillicothe to block another telephone provider from entering its market, a decision by the Public Utilities Commission of Ohio (PUCO) declared that Chillicothe could not use its status as a rural provider to deny Cinergy Communications access to its local system. The decision was consistent with the OCC’s position, which urged the PUCO to allow the other telephone service provider to offer an alternative service to Chillicothe’s customers.

Rural telephone companies like Chillicothe can ask to be exempted from a federal law that requires local markets to be open to competitive providers; however, the PUCO must first determine that allowing competition would harm the rural companies’ ability to provide service to customers at reasonable rates or would cause an undue burden to that company’s finances.

Chillicothe argued that Cinergy would take the most profitable customers (for example, residential customers with a bundle of Chillicothe’s features and services), causing a financial burden to the local telephone company and rate increases for its remaining customers. The OCC’s comments pointed out that Chillicothe had failed to indicate when it believed revenue would be lost and argued that the local company could reduce any potential losses by providing services that meet or beat a competitor’s offers.

In addition, the OCC argued – and the PUCO agreed – that Chillicothe received, through “elective alternative regulation,” pricing flexibility from the PUCO for its features and bundled packages. At the time, Chillicothe said the flexibility was needed in order to compete with alternative providers.

The PUCO also agreed with the OCC’s position that Cinergy would provide a choice for Chillicothe customers. By denying Chillicothe’s request to block Cinergy from offering local telephone service, residential customers may begin to see some competitive options.

Mergers and spin-off businesses should provide tangible benefits

The Office of the Ohio Consumers’ Counsel (OCC) participated in two cases that involved separating, or spinning off, a wireless business from the traditional landline telephone company’s corporate umbrella. The OCC’s involvement in these cases at the Public Utilities Commission of Ohio (PUCO) served to represent the interest of residential customers and advocate for tangible benefits.

In the case of Sprint, the company wanted to separate its local wireline operations from the parent company to a new company, Embarq. Alltel likewise sought to separate its landline from its wireless business and subsequently merge its landline business with Valor Communications.

In both cases, the OCC advocated similar positions.

• Ensure benefits for consumers such as establishing broadband service in rural areas of the companies’ Ohio service territories and provide grants to establish community technology centers that would help advance broadband.

• Ensure that residential consumers are protected from any adverse impacts.

• Ensure that rates are reasonable and service is adequate for customers.

• Hold public hearings to enable consumers to voice their opinions.

Despite the OCC’s opposition to the mergers and business spinoffs, the PUCO approved both Sprint and Alltel applications. The OCC does not believe that the mergers were in the public interest, nor was there an opportunity for public input. Additionally, the PUCO failed to order any reporting requirements for the companies to document progress toward achieving benefits for customers.

— Cases 06-809-TP-ACN, 06-810-TP-ACN, 05-1040-TP-ACO

OCC helps bring Verizon customers out-of-service credits

Advocacy by the Office of the Ohio Consumers’ Counsel (OCC) contributed to preserving the opportunity to obtain rate credits for potentially thousands of Verizon customers whose service was out for more than 24 hours between June 22 and July 1, 2006.

In late June, Verizon requested a waiver of rules that require credits to customers out of telephone service for more than 24 hours. Verizon attempted to demonstrate that an “act of God” in the form of wind, rain and lightning storms affected local exchanges in 25 counties. In July, Verizon provided additional documentation, including data on 16 additional counties. In all, 138 of Verizon’s 244 exchanges were involved in Verizon’s request.

A telephone company may reduce or eliminate required out-of-service credits to customers if it can document that the outage was due to an “act of God” that prevented it from making timely repairs.

The OCC opposed Verizon’s request, arguing that it was too broad in scope and was not adequately supported. For example, only five of the 41 counties included in Verizon’s request had been declared federal or state disaster areas. The OCC pointed out that Verizon failed to file sufficient documentation, especially regarding the cause of many outages and the facilities affected. The OCC told the Public Utilities Commission of Ohio (PUCO) that the company’s request should be carefully scrutinized since no other telephone company in the affected areas requested a waiver for the same period of time.

On October 25, the PUCO issued an order that significantly scaled back Verizon’s waiver request. The PUCO granted the waiver for only 27 of the 138 requested exchanges, agreeing with the OCC that Verizon failed to provide sufficient documentation for the other exchanges. The PUCO also granted the waiver for only one or two days in most of the 27 exchanges, rather than the 10 days Verizon had requested.

Based on the PUCO’s order, Verizon was denied the waiver for the 7,823 trouble reports that occurred in 111 exchanges. As a result, these customers should be able to receive any credits due them as a result of Verizon’s service outages.

— Case 05-1265-TP-ORD

MCI billing procedures are revised

Proposed changes to MCI’s long-distance billing procedures for some of its customers were revised as a result of efforts by the Office of the Ohio Consumers’ Counsel (OCC).

MCI filed an application with the Public Utilities Commission of Ohio (PUCO) requesting to begin direct billing (instead of billing through the local telephone company) family and friends of inmates if collect calls they received from state correctional facilities exceed $100 per month or if they were considered “bad risk” customers. MCI wanted these customers to pre-pay for their long-distance service.
Additionally, MCI proposed a way for customers to sign up for the new billing service, which OCC also opposed. The OCC believed MCI should provide customers more than the proposed two-day deadline after receiving a recorded telephone message to sign up for the new billing method. The plan should allow at least two business days, preferably more, for customers to sign up. Furthermore, the company should mail a written notice to affected customers to inform them that they must sign up for the new billing method to continue receiving collect calls from inmates at state correctional facilities.

The OCC also advocated for the removal of language from MCI’s application that segregated “bad risk” customers and required them to pay for services upfront. The OCC argued that the language defining “bad risk” customers was vague and the prepayment system should be more flexible to allow customers to pay in a variety of dollar amounts. In response to OCC’s concerns, MCI eliminated the “bad risk” language and revised the prepayment options to be more flexible for those customers.

The PUCO approved MCI’s proposal, which included notifying customers of the billing changes through a recorded phone message, which OCC had opposed. However, based on the arguments contained within OCC’s application for rehearing, the PUCO adjusted its original order to allow customers two business days to sign up for the new billing method.

— Cases 05-888-TP-ZTA and 05-889-TP-ZTA

Consumer protections need to be maintained and strengthened

OCC made recommendations for revisions to the state’s Minimum Telephone Service Standards. The standards were put in place to protect consumers. They require telephone companies to adhere to rules regarding service quality and telephone repairs. The standards also provide for credits on customers’ monthly bills if standards are not met. A review of the standards was undertaken by the PUCO in 2006 as part of a legislative mandate that requires rules to be reviewed every five years.

The OCC advocated that the PUCO Commissioners make significant changes to the proposed standards recommended by PUCO staff since some of the proposed rules would have reduced consumer protections already in place. The OCC wanted protections expanded or retained, and that included:

• Maintaining the current standard for giving credits to customers for service outages;

• Continuing to allow consumers with medical conditions to have the opportunity to be placed on a priority repair list;

• Maintaining the limit on the current 78 cent fee to make payments at an authorized agent (PUCO staff recommended a $5 fee), and;

• Keeping rules that prohibit telephone companies from marketing services to customers until an adequate response has been given relating to the concern that the customer called about.

Additionally, among other recommendations, the OCC believed the PUCO should have a rule that pertains to cramming, the unauthorized practice of charging customers for features or services they did not order.

The PUCO issued its ruling in early 2007 that maintained important telephone service safeguards but scaled back others. Important protections that remain in effect include maintaining the ability for consumers with medical conditions to be placed on a priority repair list. Also remaining in effect is the fee charged to consumers making payments at an authorized agent. The new rules also continue to prohibit most telephone companies from disconnecting customers’ basic local service if they have paid that portion of the bill. However, in terms of some of the scaled back protections, the PUCO reduced the required notice time to customers facing disconnection to seven days from 14 days. Additionally, based on the PUCO’s decision, customers will have to be without service for 72 hours or more before receiving credits on their bill. The previous rule provided customers with credits if they were out of service for at least 24 hours.

The OCC believes that the continuation of important consumer protections is critical as residents continue to rely on basic telephone service for their every day needs. However, scaling back some of the rules moves Ohio’s consumer protection standards in the wrong direction.

— Case 05-1102-TP-ORD

 

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