Verizon and BellSouth DSL Users Won't See Lower Bills as Fee Ends

By AMY SCHATZ

August 22, 2006; Page A2

For some Internet customers, monthly bills won't be decreasing after all.

Last year, the government changed telecommunications rules so digital-subscriber-line, or DSL, subscribers would no longer have to pay into a federal fund that subsidizes phone services in rural areas and for low-income consumers. That promised to shave a dollar or two off a typical DSL Internet bill -- $1.25 a month for Verizon's slower DSL service and $2.83 a month for its faster service.

Two companies, Verizon Communications Inc. and BellSouth Corp., won't be passing that savings on to consumers. Verizon recently emailed subscribers announcing that it dropped the universal-service fee as of Aug. 14 and will impose a new "supplier surcharge" beginning Aug. 26. The new fee -- $1.20 a month for slower-service customers and $2.70 a month for faster ones -- is almost exactly what consumers would have saved with the government's change. BellSouth yesterday said it also intends to continue charging Internet subscribers its $2.97 a month "regulatory cost recovery fee."

It appears that the two companies are pocketing the money that consumers would have saved, although both dispute that notion. Verizon says it must eventually impose the supplier surcharge on all of its roughly six million DSL customers because of increased costs for providing stand-alone Internet service, which is purchased at a premium by consumers who don't subscribe to the company's phone service.

"We have a cost that we have been absorbing for a long time. We're not going to absorb it anymore," said Bobbi Henson, a Verizon spokeswoman. The new charge won't apply to subscribers with annual Internet contracts until those agreements expire, she said.

The $2.97-a-month fee assessed on BellSouth's 3.2 million Internet subscribers "offsets costs incurred in complying with obligations and charges imposed by regulatory agencies," along with universal-service obligations, according to the company's Web site. A BellSouth spokesman said the company no longer pays Universal Service Fund, or USF, costs on Internet lines but will continue charging the same fee so it may recover "more of those [regulatory] costs than we did before."

Representatives of Qwest Communications International Inc. and AT&T Inc. said their companies discontinued USF charges earlier this month and have no plans to levy other surcharges.

Consumer advocates said the companies' move is another indication of a lack of competition in the high-speed Internet market. Government statistics show more Americans now have access to broadband Internet service than ever before, and in many areas, they have a choice of two providers: local cable and local phone companies. But the price of broadband Internet service doesn't seem to be falling, except in instances where companies are running short-term promotions to attract customers.

"We know what people with market power will do. There's not a lot of competition," says Mark Cooper, director of research for the Consumer Federation of America, a consumer-interest nonprofit group in Washington.

Gene Kimmelman of Consumers Union, publisher of Consumer Reports magazine, agreed: "You can only get away with this when it's a tight market and not many providers. It's a back-door way of nickel-and-diming their customers."

Last year, the Federal Communications Commission changed rules that govern DSL Internet lines and dropped the obligation to pay into the $7.3 billion Universal Service Fund, which subsidizes phone services in rural areas and for low-income consumers. That change takes effect this month for all DSL Internet providers. Under FCC rules, cable Internet subscribers never paid into the fund.