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Why Phone Service is Deteriorating for Most Consumers

For Whom Bell Tolls: Why Phone Service is Deteriorating

Philippa Lawson
Senior Counsel
Public Interest Advocacy Centre

Over the last few decades Canadians have enjoyed superior telephone service. We have become accustomed to phone service that is available almost everywhere we can travel in this great country, that is largely reliable and of high quality (with exceptions for some remote communities), that is priced affordably, and that is delivered with enviable customer service. This was all made possible through a system of regulated monopoly: we had no choice of service provider, and the one we had was constrained not by market forces but by a government-appointed regulator.

During the 1980s, pressure built from the business community to reduce long distance rates, which were priced to recover most of the cost of wires to each home. In the early 1990s, the Canadian Radio-Television and Telecommunications Commission (CRTC) responded to that pressure by opening the long distance market up to competition. A few years later, the local market was also opened to competition. In both cases, the CRTC chose an “asymmetric” form of regulation, applying very few rules to new entrants, but maintaining a regulatory handle on incumbents.

However, once enough competition develops in a given market, the CRTC is required, by statute, to forbear from regulation. In 1997, long distance rates were largely de-regulated on the basis that competition was sufficient to protect the interests of users. In 1998, the Commission opened the pay phone market to competition, requiring all providers to comply with a set of consumer safeguards, and continuing to regulate the pay phone rates charged by incumbent phone companies.

Wireless phone service and Internet service also developed over this period. In both cases, the CRTC determined that competition was sufficient to protect users from poor quality or excessive rates.

Ten years after the introduction of competition in phone service, where are we? What has happened to rates? to service availability and choice? to service quality? to customer service? PIAC is currently studying changes over the past decade and expects to publish its findings by early 2003. While this research and analysis continues, some things have become clear.

Long distance rates have plummeted; local rates have soared

Heavy users of long distance service, and those making overseas calls, have clearly benefited from rate changes over the past decade. However, those who make little use of long distance (disproportionately elderly and low income) are paying more for phone service. A large proportion – possibly half – of Canadians are paying more for the same package of local and toll services now than they did in 1992.

New service options are available

Competition is about choice. Consumers definitely have choice in the long distance market, but not much in the local market, except in terms of the increasing array of service features and bundles. Wireless service and Internet have also brought important new benefits to consumers over the past decade. But all this choice comes at the price of simplicity.

Marketing is everything

With competition has come a shift of company resources from customer service to marketing. In their quest for higher profits, companies are focusing on capturing customers by offering great deals (or at least great-sounding deals). But they are not spending nearly as much effort on serving those customers. In fact, customer service seems to have become just one more avenue for marketing: try calling a telephone company customer service line with an inquiry, and see how many promotional messages you have to listen to before you can get your question answered. You may have forgotten the reason you called by that point! “Customer service representatives” seem to have been replaced by recorded messages and “sales agents” who are required to pitch high-margin services to you at every opportunity.

Even notices of rate increases seem to be written by the marketing department, such that even those few customers who happen to notice the notice (which usually comes either in the form of a small print statement on the bill, or a bill insert combined with various glossy marketing brochures) will not generally appreciate that their rates are about to increase. It’s amazing how a good marketer can turn rags into riches!

More disturbing, however, is the apparently deliberate strategy on the part of companies in competitive markets to present consumers with such an array of options, advertised and unadvertised, and so many terms and conditions, that even the most intelligent consumer cannot make out which plan is in their best interest. Whether it is because of hidden charges, lack of awareness of a cheaper alternative, or inability to compare plans, many – possibly most – customers are paying more than they should be for telephone service. As one marketing executive was overheard saying: “confusion equals margin”.

Customer service is suffering

Despite continued regulatory oversight of incumbent phone company quality of service (e.g., time taken to answer your call, to provide a hook-up, or to repair a problem), levels of service are remarkably poor across both incumbents and competitors.

It is often difficult to get hold of a customer service representative: in our national survey of phone companies, we frequently encountered long waits and busy signals. In the case of some unregulated companies, we could not even find an option for a real person! More than once, we were hung up on or told to “hang up and call back later”.

When reached, customer service representatives were often unable to provide a clear answer to our straightforward questions, whether about basic toll rates or rental set charges. In such cases, the representatives were often condescending and sometimes rude. We were frequently transferred from one agent to another, without ever having our question answered, and were refused access to the supervisor even when our inquiries went unanswered.

When answers were provided, they were all-too-frequently wrong. We were assured, for example, that all of the company’s services were regulated, that an invalid rate was valid, that the best long distance deal for a given customer was Plan X when the customer would have been better off with basic toll rates, and that the monthly $1.25 “Network Fee” voluntarily applied to unregulated plans by most companies was imposed by the CRTC. None of this is true.

When inquiring about long distance plans, one agent told us that the information you get depends on the customer service representative! Unfortunately, this advice corresponded with our own experience.

Directory assistance used to be a reliable service. Whether over the phone or online, it is now fraught with inaccuracies and incompleteness: a small survey we did a few years ago suggested an error rate of 24% with phone inquiries! This, despite the fact (or because?) we now have to pay 75¢ to $1 for each call to directory assistance, even if our inquiries go unanswered. Anecdotal information suggests that the situation has not improved.

Telephone companies are saving money by getting more listings on each page of the directory. Elderly people find that the font size in telephone directories is now so small that they have trouble reading it.

A presumably well-intentioned effort to improve the Blue Pages in the Bell Canada directories resulted in a much less comprehensive, and thus less useful, directory of government departments and agencies.

And what has pay phone competition brought us? Above all, less service. Telephone companies are removing non-compensatory pay phones at an alarming rate. And who can blame them? In a competitive market, you can’t force companies to provide service at a loss. We are now faced with a Hobson’s choice of higher pay phone rates or even fewer pay phone locations.

Mistakes go unnoticed

In the focus on high margin customers and competitive markets, phone companies pay less attention to ensuring that all is right with the mass of ordinary customers. In the effort to improve profits, customers are often steered toward rate plans that cost them more than necessary. In the effort to improve productivity, corners are cut in ways that sometimes result in errors – errors that seem usually to benefit the company.

But, when customer service reps tell you that the best rate plan for you is X (when it is instead Y), you don’t know what you are missing. When the operator tells you that the in-service number you are seeking does not exist, you assume that this is correct. When the company assures you that its $5.30/mo. charge for an old rotary dial rental phone set (which is worth less than $5 itself) is valid, you accept their word. But in all of these cases (recent examples), the information was wrong. The company benefited from providing the wrong information, and the unwitting customer paid.

If the mistake is noticed and if it involves a misrepresentation, or a contractual or regulatory breach, consumers can seek redress from the CRTC or through the courts (e.g., via class actions). But this isn’t much help if you aren’t aware of the error in the first place.

Charges are hidden

Some phone companies have decided that their customers are better off not seeing what they are paying for on each monthly bill. Instead, these companies provide an itemized local service bill only once/year, or when changes are made to the account (toll charges are always itemized). The regular monthly bill simply shows a total charge for “monthly services” or the like; it does not itemize each optional local service the customer is paying for. As a result, many people end up paying for services they neither want nor need. Guess who benefits?

Other companies seeking a way to increase their revenues simply impose additional monthly fees for phantom services such as “Network”, “Administration” or “System Upgrades”, rather than increasing the advertised rate for the services they offer. Thus, they can continue to advertise “10 cents/minute” or whatever, but only if you read the fine print do you discover that you will be paying a minimum of $XX per month in various mandatory fees.

The deal changes – without your consent

Not only are phone companies taking advantage of deregulation by imposing new monthly fees on customers of deregulated service, they are particularly fond of changing the deal in mid-stream. So, when you agreed four years ago to switch to Bell’s First Rate long distance plan, you did so on the understanding that it would cost you nothing, and that you would only benefit from lower per minute rates.

That’s the way it was, at first. Then, a couple of years ago, Bell removed 2 hours/day from the discount calling period and limited the amount of calling eligible for the $20/mo. maximum. Most affected customers didn’t notice until they got their bills. A year later, Bell imposed a $1.25/mo. “Network Charge” on all of its unregulated toll plans. This charge was small enough that few customers noticed and even fewer complained. Shortly thereafter, however, Bell applied a $4.95/mo. minimum charge on its First Rate plan. Suddenly, a whole host of subscribers who had originally agreed to a deal with no monthly charges, found that they were being forced to pay $6.20/mo. even if they made no long distance calls! Indeed, many subscribers insist that they never agreed to be put on the First Rate plan in the first case.

Bell is not alone in unilaterally changing fundamental terms of contract with its customers in mid-stream, without the customers’ consent. Telephone, cableTV and Internet companies are all taking advantage of the lack of regulation to do likewise. Usually, the company will make some minimal effort to notify its customers of the change, but the notice is almost always inadequate – as proven by the fact that most customers don’t notice it.

However, even adequate notice in such cases is not sufficient. When a company wants to make a material change to a contract regarding ongoing services, it should not be able to do so via negative option. The Ontario government has recognized this, in its recently introduced Bill 180 to reform consumer protection law. Section 13 of that Bill requires companies to obtain affirmative consent of customers before making a material change to the service. In the meantime, consumers are taking their grievances to court via class actions.

Conclusion

So, where are we with competition and deregulation in telephone service?

Clearly, consumers have benefited from lower long distance rates and an increased array of service options, including wireless. At the same time, however, local rates have increased so much that many – possibly most – Canadians are paying more now for the same telephone services than they were in 1992. Pay phones are disappearing. Customer service is unacceptably poor. Information in the market is so confusing that consumers are unable to counter manipulative conduct by service providers.

Ten years after the introduction of competition in the long distance telephone market, it’s time to take stock of where we are and where we are headed. Competition has not lived up to consumer expectations in many respects. It’s time to acknowledge the shortcomings of market forces and to put in place effective regulatory measures to ensure the continued delivery of high quality telephone service throughout the country, and to protect consumers from unfair market practices by competitive service providers.

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