Residential telephone customers are being overcharged more than $3 billion a year by the Bell system, which uses at least some of that income to subsidize its business customers, a leading consumer activist in the industry charged yesterday.
In the opening speech to a conference of consumer activists here, Jerrold Oppenheim, director of consumer law for the federally funded New York City Community Action for Legal Services, said that $120 million of the overcharges come from one service along -- "Touch Tone," the push-button dialing system.
Oppenheim cited Federal Communications Commission estimates that the American Telephone & Telegraph Co. "forces residence (residential) and other customers to subsidize some of its business customers by as much as $2.25 billion a year."
In addition, he added, the Bell system wastes another billion dollars through "a combination of lax regulation (and) wasteful practices such as buying gasoline and cars at retail and buying from subsidiary Western Electric even when Western has doubled the price of a product it purchased elsewhere."
Bell has, in th past, denied that its residential service in any way subsidizes its business customers. In fact, Bell contends, residential service is underpriced. Bell's rates and profit margins are regulated by state public utility commissions which rely largely on the company's cost information as the basis for their decisions.
But Oppenheim and other consumer advocates believe differently.They contend that AT&T is keeping its business prices unfairly low in an effort to eliminate competition in business services for all kinds of commercial communications systems.
In order to make up for losses due to undercharging business customers, "(residential) consumers are overcharged for such services as installation, Touch Tone -- priced at as much as three times its cost -- telephone calls and even telephones themselves," Oppenheim said.
"In New York," he pointed out, "it is cheaper to buy a non-AT&T telephone and throw it out every year than to pay AT&T's rental fee."
Oppenheim based his overcharge figures on studies he had done in Illinois, as well as other surveys done by consumer groups and federal agenies.
As examples of the alleged waste in the Bell system, Oppenheim estimated that the company spends $9 million more than it has to by buying gasoline at retail prices instead of wholesale.
Another example of imprudent and costly business practices, according to Oppenheim, is the placement of all Bell System advertising through traditional agencies, while many large firms cut their advertising costs by setting up an in-house agency to place the ads.
Although ATT claims that basic home service costs $16.50 a month while returning only $11.01, Oppenheim cites an FCC estimate that the average overpayment-subsidy paid unknowingly by residential customers amounts to about $40 a year.
The convention-called the "Consumer Telephone Workshop: Education for Action" -- also heard from FCC Commissioner Joseph R. Fogarty.
Fogarty called for the creation of a special task force within the FCC to special task orce within the FCC to help get consumers involved in regulatory proceedings involving the telephone Industry.