Hold the Phone!

It looks like Verizon and Embarq want you to pay a lot more for your local telephone service. These firms want to get there by completely deregulating local telephone service in New Jersey.

Baloney! There is no solid business case for deregulating basic local service in this state. Verizon is getting a sound return on investment for that service. Take a look at your local telephone bill. The charge for flat rate unlimited service is $8.95 monthly – that’s the fee which Verizon wants to raise on you. Sounds cheap, doesn’t it?

Let’s take a closer look. The next line item on that very same bill is $6.29 for something called “Federal Subscriber Line Charge.” That levy represents a now-obsolete charge which should have been eliminated years ago. It is a monthly gift to Verizon which no longer has any economic validity for being imposed upon customers.

In 1984, when the Bell System was broken up, the local telephone companies convinced a federal court which administered the breakup that it would be losing money. This would happen, the Baby Bells lobbied, because the subsidy formerly being provided to the local Bell companies by the Bell System’s Long Distance Division would go away. Before the breakup, the Bell System guaranteed universal telephone service and low rates for retail consumers. The cost for this guarantee was borne on the backs of long distance customers and businesses in the form of higher telephone rates on those services.

The federal court which, under the strong hand of Judge Greene, administered the consent decree, decided to impose a “Subscriber Line Charge” on your telephone bill. A similar and equal charge was also imposed on AT&T, which built it into its rates and transferred the money to each of the local Baby Bells. Those two charges were to compensate the Baby Bells for any losses they would incur as a result of the breakup.

Only one problem with this: the “Federal Subscriber Line Charge” no longer has any reason for its existence because now, Verizon owns the whole kit and caboodle. It has a seamless network from beginning to end, and therefore, there is no logical business reason for this now-undeserved subsidy to continue. Verizon owns not only the local network, but also the long distance network, having purchased and integrated MCI into its operations.

The local telephone network is paid for. It is now a legacy cost which demands only maintenance, not huge investment. New Jersey is what is known in the business as a “dense” telephone state: This means that the cost of delivering local telephone service is one of the cheapest if not, indeed, the very cheapest in all of the U.S., because households are not widely spread out as, for example, they are in large, sparsely populated states such as Montana and Wyoming.

Verizon’s strategy of raising local rates is clear to anyone who understands the telecommunications business. By raising basic local rates through deregulation, Verizon hopes to push residential customers onto its new fiber-optic network and its widely advertized three-tier, one-bill package of local/long distance phone, internet, and TV service. Increasing basic rates is also intended to subsidize the rollout of these new services.

A state and consumer coalition claims that deregulation would raise local rates from $9 to $30 monthly. There is no reason to doubt that statement. I hope that those who sit on New Jersey’s Board of Public Utilities understand this stuff and have the best welfare of New Jersey consumers in mind. What the BPU should be concentrating on is putting pressure on the Feds to eliminate the no longer justified “Federal Subscriber Line Charge,” not deregulating local phone service.

Note: For an excellent Gannett State Bureau news report on this matter, see www.mycentraljersey.com under “state” athttp://www.mycentraljersey.com/apps/pbcs.dll/article?AID=/B3/20080502/NEWS0301/805020498/1067/STATE, or on page 3 of Friday’s May 2, 2008, print edition.