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Are you paying 'made-up fees'?

By Kathryn Balint

Copley News Service


Anyone with a cell phone knows that a $39.95 monthly plan really costs more like $45.

That's partly because of taxes. But cell phone companies pile on fees of their own that, for all intents and purposes, amount to a rate increase. The fees appear with official-sounding names: "regulatory charge," "federal programs cost recovery" or "regulatory assessment fee."

Wireless companies say they impose the fees to recover hundreds of millions of dollars they are forced to spend to meet federal mandates. The names and amounts vary from company to company.

Carriers say they list the fees as separate items because they want customers to know that it's the government, not them, to blame for rising prices.

But consumer groups say the extra charges are nothing more than profit centers for the cell phone companies. They're asking federal regulators to ban the charges.

"These are made-up fees," said Lee Biddle, an attorney with San Diego's Utility Consumers' Action Network. "The government has loaded up the phone bill with legitimate taxes, but the phone companies take advantage of that by adding official-sounding fees of their own."

Consumers are beginning to notice their inflating cell phone bills.

"I don't know what they're doing with all this money, but they're not providing better service," said Lorna Dillon, a Sprint customer from Rainbow, Calif.

The extra charges are typically small - ranging from 45 cents to $1.75 a month - but can add up to big bucks.

The Center for Public Integrity calculates that cell phone customers nationwide paid $629 million in such fees between January 2002 and October 2003.

In San Diego, UCAN is collecting cell phone bills for a study on what it calls "fake fees."

Among the monthly fees:

- A $1.75 "regulatory programs fee" charged by AT&T Wireless.

- A $1.25 "regulatory cost recovery fee" charged by Cingular Wireless.

- A $1.55 "federal programs cost recovery" fee charged by Nextel.

- A 40-cent "federal E911" fee and a 40-cent "federal wireless number pooling portability" fee charged by Sprint, which recently lowered its fees.

- A 45-cent "regulatory charge" imposed by Verizon Wireless.

Cell phone companies say the money goes toward costs associated with the federal law allowing customers to keep their phone numbers when they switch companies. In other cases, the money might be used to purchase equipment needed to pinpoint customers' locations when they dial 911 or other federal mandates.

Consumers, of course, are used to fees.

Some hotels tack energy surcharges of $2 or more onto their bills. Airlines heap on fees of as much as $20 to make up for high fuel costs. Package delivery companies slap on extra charges for service in rural areas.

"A lot of companies, in fact, are using stealth inflation to generate revenue," said Peter Walsh, chief marketing officer for the Strategic Pricing Group near Boston. "Just going willy-nilly, adding fees and hidden costs is not the right way to price products."

Laurie Itkin, director of government affairs for San Diego-based Leap Wireless, likens the fees charged by cell phone companies to fuel fees charged by airlines and even to California's recycling fees that are tacked on to the purchase of a soda bottle or an automobile oil change.

One by one, telecom companies began adding fees over the past couple of years. The practice has proliferated to the point where UCAN calls it "a fake-fee epidemic."

UCAN's Biddle said the fees make it even more difficult to compare prices in an industry whose calling plans are already confusing.

Cell phone companies point out that the Federal Communications Commission allows them to pass on the costs of federal mandates to their customers. But rather than raising rates, they elect to list them as fees.

"Don't blame one carrier or the other," Itkin said. "Blame the federal government."

And at Nextel, spokeswoman Mary Beth Lowell said, "We believe customers should know that government mandates are driving prices up."

Carriers say they carefully point out the fees to new customers.

"We even print out a draft of the customer's first bill at the retail store so they have full information and aren't caught off guard down the line," said Ken Muche, spokesman for Verizon Wireless.

Consumer advocates argue that cell phone companies should simply raise rates instead of imposing new fees. The National Association of State Utility Consumer Advocates asked the FCC in March to ban the fees, which it calls "misleading."

"We think carriers have come up with some of these charges to hide the true cost of their service," said David Bergmann, a member of the association and an attorney with the Ohio Consumers' Council.

UCAN is particularly outraged when cell phone companies impose new fees but then won't let customers out of their contracts without imposing early-termination penalties that can run as high as $200.

The organization sued Sprint in Superior Court in San Diego last year on behalf of subscribers who wanted out of their contracts after fees were imposed midterm. UCAN argued that Sprint violated the contract by raising its prices.

In settling the case, Sprint agreed to allow customers to cancel their contracts without penalty if fees were imposed midterm, according to UCAN. More than 1,800 Sprint customers filed claims for the right to do so, UCAN said.

San Diego attorney Timothy Blood, a partner with Milberg Weiss Bershad Hynes & Lerach law firm, is representing cell phone users from four states in a class-action case pending in Missouri against Nextel and Sprint. As in UCAN's case against Sprint, the cell phone users are seeking to get out of their long-term contracts because new fees were imposed.

"The companies have not only imposed the fees, but they have raised them in some instances a number of times," Blood said. "It's a very deceiving way of increasing prices."

Cell phone companies complain that not only does the government thrust unfunded mandates upon them but it also has turned them into de facto tax collectors.

According to Verizon Wireless, in California, consumers pay 19 percent more on their wireless bills every month for taxes, direct fees and the fees charged by companies for government mandates.

UCAN disputes that. It says taxes and fees add about 12 percent to 14 percent to a cell phone bill here.

One of the biggest taxes is the 3 percent federal excise tax, which was imposed as a temporary measure in 1898 to fund the Spanish-American War. At the time, it was considered a luxury tax because few people had phones.

"Why are we still paying it?" asks Itkin of Leap Wireless.

She also wonders why Utah requires cell phone users to pay 7 cents a month for the state's poison-control program. "You know what? There isn't any connection between cell phones and poison control," Itkin said.

UCAN executive director Michael Shames advises consumers to ask about fees before signing a contract. He also suggests customers negotiate because the fees are at the discretion of the phone company.

And then watch the bills carefully, Shames tells consumers.

"If you have a contract and the company starts imposing a higher fee or a new fee, that's where you have the option of saying, 'I'm canceling,'" he said.

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