It was supposed to be a small gift from the federal government to Internet users. On Aug. 14, 2006, a $2-$3 per month government tax on DSL broadband service, known as the federal Universal Service Fund fee or FUSF, was dropped. The tiny savings was meant to put DSL providers on equal footing with cable modem service providers, which weren’t obligated to collect the FUSF tax. But the consumer victory was short-lived.
Verizon saw an opportunity.
The company’s Department of Creative Fees with Obtuse Names went to work and quickly emerged with a doozy. The Universal Service Fund would be dropped from August 2006 bills, but in its place would appear a new line item: “Supplier Surcharge.”
Verizon’s fast DSL users had been paying $2.83 for the universal service tax; now they would pay $2.70 in a Supplier Surcharge. But rather than pass the surcharge on to the government, Verizon would simply pocket it. Given fast DSL’s price tag of around $30, the tax-for-fee switcheroo instantly gave Verizon about a 10 percent price hike. What business wouldn’t relish a chance to pump up revenue 10 percent cloaked in such a perfect ruse? Consumers, the firm hoped, wouldn’t notice the change as their bottom-line price wouldn’t change. In fact, they might presume the surcharge was the old tax with a new name.
In a cozy-sounding e-mail, Verizon tried to tell its customers they would hardly notice the sneaky price increase.
“On balance your total bill will remain about the same as it has been or slightly lower,” it read.
Naturally, competitors immediately copied the brilliant idea. That same month, BellSouth revealed it would continue to collect its $2.97 a month FUSF fee, and just pocket the money. Its euphemism was perhaps even more misleading: “regulatory cost recovery fee.”
A smaller Internet service provider named Speakeasy jumped on the fee plan, too. Here’s how the managing editor of online journal ISP-Planet described the August 2006 below-the-fee-line part of his bill, sans FUSF.
Federal regulatory fee: $6.00
DSL Reg. Compliance fee: $5.12
VoIP Reg. Compliance fee: $4.95
Federal regulatory fee: $0.00 ($6.00 decrease)
DSL Reg. Compliance fee: $9.52 ($4.40 increase)
VoIP Reg. Compliance fee: $6.20 ($1.25 increase)
Total: $0.35 decrease
A universal service fund fee by any other name smells just as bad. But in this case, none of them got away with it. Careful bill readers jumped all over Verizon, BellSouth and Speakeasy, and began an Internet call-to-action. Journalists jumped on the story. The FCC threatened to investigate. All the phantom FUSF fees were eliminated.
Competition keeps service providers honest, and keeps prices low. As we’ve seen in pay television and the world of contract-strapped cell phones, lack of competition hurts consumers.
By comparison, the world of Internet access is awash in competition. There are multiple platforms for high speed access (DSL, cable, wireless, etc.), and often multiple players within each. Many urbanites have the option to pit DSL against cable modem service. Satellite and wireless broadband options fill out the competitive landscape. And while it’s slow, the myriad of dial-up options remaining provide competition of some sort for virtually every Internet user. Advantage — consumers and the economy.
There’s only one way for sneaky companies to beat back honest competition: sneaky fees. By breaking out items such as “regulatory compliance,” DSL providers can hike prices without having to raise their advertised prices. Those $19.95-per-month marketing campaigns don’t have to be scrapped. Companies wishing to pump up their bottom lines can just raise the fees instead.
In the world of sneaky fee pricing, consumers never know what they are really paying for a service. It makes an apples-to-apples comparison of DSL vs. cable modem service nearly impossible. For example: For most consumers, it’s impossible to get DSL without paying for an active phone line, which costs about $20 a month. Phone-line-less DSL, called naked DSL, has been mandated by federal regulators, and will arrive some day, but for most consumers a $19.95 DSL offer really translates into a monthly bill that’s closer to $50. That makes it, sadly, essentially the same price as its chief alternative, cable modems.
Advantage: Sneaky company.
Sneakiest fee of all: Broadband that’s really dial-up in disguise
When is broadband not broadband?
Today’s Internet is a technological marvel. And yet, a few decades from now, historians will look back on our quaint time the way we see Edsels and Model Ts. They’ll laugh and say things like, “How did people put up with those slow connections? Why did people watch videos in those tiny boxes?” Despite today’s high-speed wizardry, getting fast Internet access is part science and part art. And many people still pay exorbitant amounts of money for very poor, very unreliable service.
We all know that automakers exaggerate — a little — when advertising a car’s estimated miles per gallon. That 45 mpg gas-sipper will probably get around 30-35 for normal drivers in real life. We all accept this. It’s not right, but at least it’s not that wrong. And everyone pretty much exaggerates by the same factor, so consumers can engage in something like apples-to-apples comparisons.
But imagine if that new car with the 45 mpg sticker really got 2 miles to the gallon? That’s how things sometimes work in broadband.
As I type this chapter, I’m connected to a broadband service that promises 400-700 kilobytes per second. That’s blazing fast — enough to handle full-streaming video with plenty of room to spare for sending e-mail. So why does it sometimes take several seconds for me to load Google.com, the world’s tiniest home page?
The reason: My actual download speed, according to tests freely available on the Internet, is about 29 kilobytes per second. If that sounds eerily like an old modem speed, well, that’s because it is.
My story is typical. The broadband marketplace is crazy. DSL users find their bandwidth disappearing. Cable modem users fight traffic jams on the way home only to get stuck in virtual traffic jams with their neighbors when they log in, since they are all essentially sharing the same Internet pipe. When it rains, satellite broadband users get bogged down. And anyone who’s ever said, “Can you hear me now?” can guess how reliable broadband wireless connections are.
That’s not to say consumers can’t find happiness with DSL or cable modems. Both are still faster — much faster — than dial-up. In fact, they are generally at least 5-10 times faster than dial-up, for only two or three times the cost. That’s actually a pretty fair upgrade. But how are consumers supposed to pick the best service when the information is so irregular, and the broadband “mpg” they’ll get is so unpredictable? More important, how are people to know if the $50-a-month service they purchased, and committed to with a long-term contract, has been pulled out from under them?
Anyone who pays for broadband should perform regular, independent speed tests on their connection. Numerous Web sites, like the technology news site CNET.com, list free bandwidth test sites. Speakeasy.net offers the easiest to use. I like the site TestMy.Net, which actually stores your test results for reference. A documented archive of poor speed scores might prove useful if you end up in a battle with your provider and must ask for a refund.
But even if you don’t find yourself in a fight, taking a speed test is the only way to know if you are getting what you paid for. If the speeds are regularly disappointing, and far below what you’ve been promised, you should complain.
Broadband providers will cry foul when you run such a test. They’ll tell you that you misunderstand. They’ll have an explanation. It’s not the pipe they’re supplying to your home. The fault lies with your computer, your applications, spyware, the phase of the moon, Microsoft Office, or your teen-ager, they’ll say.
Each of these explanations are plausible (well, except the one about the moon). Many, many factors can impact your upload and download speeds. Just as many, many factors can impact how fast your toilet flushes. But clogged pipes are often to blame; and for bandwidth providers, too many users and too narrow pipes often cause the problem.
Since there is no way to know the true size of the Internet pipe into your neighborhood, your safest way to select a service is to find a nearby neighbor you trust, who’s happy with their service, and try it out yourself for a few minutes. Then, when you sign up with the service, take the shortest contract commitment you can, and ask what happens if you just can’t get the download speeds the service has promised you — now, or in the future.
Excerpted from GOTCHA CAPITALISM by Bob Sullivan. Copyright (c) 2007 by Bob Sullivan. Reprinted by arrangement with The Random House Publishing Group.