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Attack of the Tack-On Fees: Tiny, but Annoying

When consumers pay a monthly fee for Internet service, why would they also have to pay a 99-cent "Internet Cost Recovery Fee?"
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When consumers pay a monthly fee for Internet service, why would they also have to pay a 99-cent "Internet Cost Recovery Fee?"

It's not like getting Net access is an optional feature when paying for ... Net access. The fee is not unlike a coffee shop charging a "coffee bean acquisition fee" or a grocery store charging a "fresh fruit delivery fee." But that's what Penny Williams found when she opened her bill last month.

The Washington resident watches her bills very closely, so she noticed right away when her CenturyLink high-speed Internet bill rose mysteriously by $1.88. A glance at the paperwork revealed two new fees accounted for the difference, but the listed explanation didn't make much sense.

One line of the bill included the phrase "Internet Cost Recovery Fee—0.99." Given that Williams already pays about $30 monthly for Internet service, the $1 fee, seemingly for Internet service, made little sense to her. But the next line item was even more confusing.

"Internet Cost Recovery Credit—0.89," it said. Despite that friendly sounding name, the "credit" offered by CenturyLink actually increased her bill by 89 cents. Was it possible CenturyLink had changed the definition of the word credit?

A note to customer service shed a little light on the issue, but no light on the 89-cent credit.

"As of May 10, 2013 CenturyLink, began charging a Cost Recovery fee to our High Speed Internet users. The Internet Cost Recovery Fee is a monthly charge of $.99 that helps cover the costs associated with the building and maintaining of the Internet network," said a response from the company sent to Williams and provided to CNBC. A follow-up query about the 89-cent charge produced no response.

Louisiana-based CenturyLink, which has 5 million broadband customers around the U.S., already faced a round of criticism last year when it first began to impose the 99-cent Internet Cost Recovery Fee. And the chorus of boos is getting louder.

"I was highly annoyed. I watch my bills very carefully for any changes. ... I'm not getting any additional or better service," said Williams, who lives near Seattle, where CenturyLink Field is home of the Super Bowl champion Seahawks.

When CNBC contacted CenturyLink for an explanation, we got a similar response as Williams.

"The Broadband or Internet Cost Recovery Fee has been in place in much of CenturyLink's service areas for several years," wrote spokesman Mark Molzen in an email. "This fee helps defray the costs associated with building and maintaining the CenturyLink High-Speed Internet broadband network, as well as the costs of expanding network capacity to support the continued increase in average customer broadband consumption."

Fair game

In many industries, such fees might sound farcical, but they have been fair game in the telecommunications industry for years. Some other industries—the hotel business, for example—have also seized on the base-price-plus-fee structure, as summer travelers will soon be reminded.

Tack-on fees help companies make their monthly charges appear lower than they actually are. Critics say they are just a sneaky way of simply raising prices, particularly when line items are broken out that seem to be an inherent, nonoptional part of a service.

Consumers today are often confused by the real price they pay for monthly services, and why it differs from advertised prices. Such confusion—these tack-on gotchas—often serve as pure profit for companies.

Williams' situation is further confused because she enjoyed a low-price guarantee. In 2010, when CenturyLink completed its acquisition of Quest, the company entered an agreement with the Washington state attorney general that it would honor "price for life" agreements and other discount offerings.

That meant CenturyLink couldn't add tack-on fees to those customers. Or rather, in an apparent ode to longer telecommunications bills, it meant the company would add the fee, and then list a discount for that same fee, on customers' bills.

"Customers on the 'Price for Life' or 'Price Lock' plans are billed the Internet Cost Recovery Fee, and if they qualify for the 'Price for Life' or 'Price Lock' discounts, they receive a credit on the same invoice," wrote Molzen.

One possible sensible explanation for what happened to Williams is that her discount term ran out, so she is just now being hit by the fee 99 cent fee. And if that term ran out in midmonth, a partial fee appeared on her bill for that previous month. So the "credit" is really a "credit" to Century Link.

Bad form

It seems bad form to call a fee a credit, however.

"The credit verbiage is crazy. I was really confused," Williams said. "I kept looking at it to confirm it added to my bill rather than reducing it. When I asked Century Link about it, they answered my question about the 99-cent increase, but didn't respond to the credit question. Then I began to be upset."

Molzen did not answer CNBC's additional questions about the "credit" either, even after he was provided with a copy of the bill.

Williams still has a pretty good deal, so she doesn't plan to cancel service. But the tack-on fees are frustrating.

"It felt like corporate America was adding fees for the sake of revenue," she said. "Just be upfront about the charges."

When was the last time you looked at a bill and saw surprising, frustrating tack-on fees? Send an email and Bob Sullivan will investigate as part of our new Gotcha Capitalism feature.