FCC Questions DSL Customer Fees

Wall Street Journal

By AMY SCHATZ

August 25, 2006 12:34 p.m.

WASHINGTON -- Federal regulators have prepared formal inquiries asking Verizon Communications Inc. and BellSouth Corp., for more information about their decision to keep money high-speed Internet customers would have otherwise gotten back following a government decision that broadband subscribers no longer have to pay into a federal subsidy program.

The letters, which sources said could be sent as early as today, are the first step toward a formal Federal Communications Commission investigation. The inquiry is particularly unwelcome for BellSouth, whose $67 billion acquisition by AT&T Inc. is still pending before the agency. It's somewhat unlikely the issue would have any significant impact on the merger, which is still being reviewed by staff. But FCC Chairman Kevin Martin was "very upset" by Verizon and BellSouth's decision to keep the money, an FCC official said.

"The commission takes its obligation to protect consumers very seriously," said FCC spokesman David Fiske. "Consumers must be provided with clear and non-misleading information so they make accurately access the services for which they are being charged and the costs associated with those services."

Last year, the FCC decided that digital subscriber line, or DSL, subscribers no longer have to pay into the federal Universal Service Fund, which subsidizes phone service in rural areas and for low-income residents. Theoretically, that meant that DSL subscribers would have seen their monthly Internet bills drop a dollar or two in September.

Last weekend, Verizon began emailing its roughly six million high-speed Internet subscribers, informing them that they would no longer be charged a USF fee -- which was $1.25 or $2.83 a month, depending on speed of service. However, their bills would not drop more than a few pennies because the company said a new "supplier surcharge" of $1.20 or $2.70 a month would be tacked onto bills beginning Aug. 26.

When contacted by a reporter, BellSouth said it would continue to charge all of its 3.2 million Internet subscribers the same $2.97 "regulatory cost recovery fee," even though it no longer has to use some of that money to pay into the federal USF fund.

Verizon strongly disputed the idea that it had not been upfront with consumers about the new charge and said its timing was designed to minimize the impact on consumers, who won't see their bills change significantly. "We increased prices but the impact was less because the government was removing this [charge]," said Eric Rabe, a Verizon spokesman. "We're not keeping that money. We're charging more for things we need to cover."

Representatives for AT&T and Qwest Communications International Inc. said the companies had discontinued USF charges earlier in the month and had no plans to impose new surcharges. Another Qwest spokesman said Wednesday, however, that the company had not yet decided what to do.

Earlier this week, a Verizon spokeswoman said the company decided to impose the new fee on all Internet subscribers because of increased costs of providing service to customers who only buy high-speed Internet, instead of a bundled package of phone services. A BellSouth spokesman said the company wanted to recover more regulatory costs than it had previously been able to do. Neither company said they had received anything yet, according to spokesmen for both companies, and neither had any immediate comment.

According to people who have been briefed on the matter, the "letter of inquiry" being prepared ask for documentation about how the surcharges are consistent with federal Truth-in-Billing laws as well as how the underlying costs of providing high-speed Internet services are supported by the surcharges. Additionally, the FCC wants information on why the companies are imposing the surcharges on all Internet customers, both those who buy bundled packages and those who subscribe only to high-speed Internet.

Write to Amy Schatz at Amy.Schatz@wsj.com