State PUC Has Let Down Its Guard Since Phone Deregulation, Report Finds

A state Senate panel says the agency has largely turned its back on the telecom market since 2006. AT&T and Verizon control about 85% of the market, with prices for some services up as much as 600%.

State regulators said they’d look out for consumers after California’s phone market was deregulated in 2006.

They didn’t.

That’s the conclusion of a blistering report to be released Friday by California’s Senate Office of Oversight and Outcomes, a watchdog agency that monitors legislative and regulatory changes. State senators got their first look at the report Thursday. I also got my hands on a copy.

In a nutshell, the report says the California Public Utilities Commission has largely turned its back on the telecom market after declaring four years ago that sweeping deregulation would usher in a new era of market competition and lower prices for consumers.

The report says two companies, AT&T Inc. and Verizon Communications Inc., control 85% of all land lines statewide and 65% of telecom services in general—about the same market share they held before deregulation. Meanwhile, prices for some services, such as having an unlisted phone number, have soared by as much as 600%.

Dorothy Korber, who wrote the Senate report, told me that months of investigation by her office clearly showed that consumers have gotten short shrift by regulators since deregulation.

“Consumer protections have eroded as the PUC has dismantled its supervision of the state’s biggest phone carriers,” she said.

Among the report’s findings:

  • Regulators are not paying attention to rate increases “and virtually any increase is automatically considered just and reasonable.”
  • Officials are not doing enough to prepare for a lifting of rate caps on Jan. 1 for basic residential phone service and subsidized Lifeline service for low-income people. “No one knows what will happen to prices after that,” the report warns.
  • The PUC’s Consumer Affairs Branch is intended to provide for “equitable resolution” of complaints, “but the focus has been on closing cases rather than on resolving them.”
  • Regulators collect reams of data about phone companies’ performance that could help consumers make informed decisions about which service to pick. “Currently, however, none of it is made public by the PUC, defeating the purpose.”

The report also faults the commission for failing to adequately protect consumers from mysterious third-party charges appearing on people’s wireless bills, “despite years studying the matter.”

PUC President Michael Peevey couldn’t be reached for comment on the report, which is titled “Gaps Emerge in Telephone Consumer Protections.” However, Peevey’s office submitted a memo to Senate investigators in March responding to the report’s initial findings.

The memo says that despite AT&T and Verizon dominating the market for telecom services in California, “there is insufficient evidence—to show that market concentration is leading to wide-scale market abuse.”

According to the Senate report, AT&T’s charge for directory assistance jumped 226% in the three years since deregulation, while Verizon’s climbed 106%. AT&T raised its fee for an unlisted number 614%, while Verizon increased its fee 25%.

AT&T’s prices for call forwarding and call waiting rose by about 86%. Verizon’s call forwarding charge went up 20%; it’s call waiting fee grew nearly 36%.

The memo from Peevey’s office says AT&T’s and Verizon’s dominance of the market “in and of itself does not justify increased regulatory intervention.”

Representatives of AT&T and Verizon declined to comment on the report.

Bill Nusbaum, managing attorney for the Utility Reform Network, a San Francisco-based advocacy group, said it’s obvious that deregulation has not worked in consumers’ favor.

“The commission basically says that competition will keep rates just and reasonable,” he said. “But there is no real competition. If you have competition, prices should go down, not up.”

Nusbaum said the Senate report represents the first time since deregulation that lawmakers have taken an interest in telecom market conditions and consumer protection.

“I’m cautiously optimistic that this report will lead to a relook at some of these regulations,” he said.

California has had a dodgy record when it comes to deregulation. We deregulated the energy market and Enron took control. We deregulated the phone market, and the two leading phone companies promptly jacked up most rates.

The Public Utilities Commission declares on its website that it “serves the public interest by protecting consumers and ensuring the provision of safe, reliable utility service and infrastructure at reasonable rates.”

If that’s true, then it’s time for regulators to get back in the game and do what the law says they’re supposed to do—make sure the businesses they oversee charge “just and reasonable” prices for their services.

The Senate report shows that the only ones benefiting from a deregulated phone market are phone companies, and the biggest beneficiaries by far are AT&T and Verizon.

If state regulators can’t figure out for themselves how to remedy that, I’m sure lawmakers can do it for them.

Gaps Emerge in Telephone Consumer Protections after Phone Deregulation