Avoid sneaky fees and demand fair treatment

Avoid sneaky fees and demand fair treatment

10 Tips Beat 'Gotcha Capitalism'

New book by msnbc.com's Bob Sullivan features money-saving tips

By Laura T. Coffey

updated 3:46 p.m. PT, Mon., Jan. 14, 2008

For nearly two and a half years, msnbc.com writer Bob Sullivan has been exposing scams and sneakiness through his blog, The Red Tape Chronicles.

Based on his investigative reporting, Bob has written a book, “Gotcha Capitalism: How Hidden Fees Rip You Off Every Day – and What You Can Do About It.”

Bob’s book highlights the machinations of a system that is rigged to make most consumers throw up their hands and simply give up. After all, who has the time to wade through an avalanche of fine print and decipher all the incomprehensible fees on their cell-phone bills, credit-card bills, cable bills, hotel bills, retirement plans, gym memberships, bank statements, mortgages and student loans?

To give you an idea of just how quickly these $5 and $10 charges can add up, consider this sobering statistic: Such fees are costing the average American $946 a year.

“A thousand dollars is a lot of money,” Bob said. “It’s enough to stock a sizable retirement fund. Many of us are losing more in these fees every year than we’re saving for our futures.”

Bob’s book provides step-by-step instructions to help ordinary consumers fight back against the fly-by-night companies and the Goliaths that are nickel-and-diming us to death. So just when the book gets your pulse racing and your blood pressure skyrocketing, it shows you precisely where and how to channel your frustrations.

“Don’t feel helpless,” Bob advised. “There is help to be had, and you can find it. You can get refunds and you can get justice if you go to the right places.”

Here is a sampling of some of the smart tips found in “Gotcha Capitalism”:

1. Eyeball your retirement “expense ratios.” How would you feel if you learned that fees ultimately were eating away nearly 30 percent of your retirement savings? Well, it turns out that fees are having just that effect on many diligent investors out there – so much so that they may have to continue working years longer than they expected. To combat this, Bob recommends taking a moment to look at your 401(k) statement (or similar retirement fund statement) and locate the “expense ratio” for each mutual fund you have in your account. If any of those expense ratios are more than 1 percent, then seriously consider getting your money out of those funds and moving it into an index fund. (Note: If you can’t find the expense ratio in the fund paperwork you have at home, visit a site such as Yahoo! Finance (http://finance.yahoo.com/) and type each mutual fund’s ticker symbol into the search field. You should spot the expense ratio easily after doing such a search.) Index funds, which replicate the performance of a stock market index, typically have expense ratios of 0.5 percent or less because they don’t cost as much to manage. “They’re almost always much cheaper,” Bob said. “You have a computer picking the fund, not a brilliant MBA running the fund.”

2. Live your life without regrets. Have you gotten yourself locked into an auto loan, a gym membership or a satellite television contract that you didn’t fully comprehend? If so, be aware that more and more states are adopting “regret laws” or “free-look laws.” These laws make it possible for consumers to back out of such deals after a cooling-off period of, say, three to 10 days. “It’s a really good policy to allow people to get out of something they didn’t understand,” Bob said. With auto loans, for example, you can invoke such laws to get yourself out of high-priced tack-on fees for rustproofing or unnecessary extended warranties. To find out which regret laws are on the books where you live, contact your state’s attorney general’s office or consumer affairs department. You can start the process of finding contact information for your state by clicking here (http://www.msnbc.msn.com/id/15228784/).

3. Break free from cell-phone hell. Speaking of regrets, thousands of consumers are locked into long-term cell-phone contracts with draconian early-termination fees. That might not be the end of the world if your phone works well in your home, on your commute and at your place of business – but what if it doesn’t? “Cell phones are such a crazy product,” Bob said. “Everyone should have a chance to see if the darn thing works before they have to pay for it.” He offers the following recommendations – some extreme, some less so – for getting out of “cell phone jail”:

* Move to an area where your current cell-phone company doesn’t provide coverage;

* Swap your phone and your phone plan with someone else online through a trading site such as CellTradeUSA.com;

* Call a customer service representative – and/or his or her supervisor – and attempt to negotiate your early-termination fees in a calm, reasoned way;

* Avoid contracts altogether by using pre-paid cell phones.

Bob also cautions consumers to be on the lookout for hefty “handset updgrade” fees and to avoid “premium text messaging.” The fees associated with getting a new phone or subscribing to joke-of-the-day or special ring-tone services can be astronomical. Complain constructively about such fees or cancel such services if you’re shocked to see their impact on your bill.

4. Pause before deciding to switch – or not switch – area codes. If you’ve moved to a new part of the country, you may have kept your old cell-phone number with its old area code for the sake of convenience. But guess what? Those taxes on your cell-phone bill are based on your area code regardless of where you live – and the differences in taxes can be somewhat staggering. To avoid any surprises, visit sites such as this one to see what the taxes are like where you used to live and where you’ve relocated.

5. With mortgages, the interest rate isn’t all that matters. It’s also very important to compare the fees associated with different mortgages. Such differences in fees can cost you hundreds if not thousands of dollars. To spotlight just one example: Many people are so overwhelmed when buying a home that they fail to notice the hefty premium they pay for title insurance as part of their closing costs. Most buyers don’t ask any questions and simply go with the title company recommended by their real estate agents or banks. But it pays to shop around and ask for fee breakdowns from different title companies. You typically can haggle over a variety of discretionary fees – such as search fees, document-preparation fees, escrow fees, closing fees and courier fees – that can add hundreds of dollars to your closing costs. What’s more, it also pays to get Good Faith Estimates for mortgages from at least three lenders. Those estimates should be based on the same rate and terms – say, 30-year fixed – so that even more differences in fees and closing costs will become obvious.

6. Beware of the so-called “courtesy” of courtesy overdraft protection. Unless you say no to this innocuous-sounding service, you could end up paying as much as $39 for each overdraft from your checking account. Your bank will lie to you, in effect, by allowing you to withdraw cash from ATM machines and make purchases using your debit or check card even though you don’t have sufficient funds in your account. To avoid this downward spiral of badness, Bob advises consumers to link their checking accounts to their savings accounts, credit-card accounts or home equity lines of credit instead. “A credit card will cost you money, but it will still be pennies on the dollar compared with the (courtesy overdraft) fee,” he said. “Or if you link to a line of credit, you’d be borrowing from yourself instead of from the bank.”

7. Devise a plan of attack for withdrawing cash overseas. If you’ve used ATM machines to withdraw cash while traveling overseas in recent years, you may have been stunned by the sheer volume and enormity of the fees that appeared on your bank statement. Credit-card currency-conversion fees also may have walloped you. To prevent cardiac arrest upon your return home, “Gotcha Capitalism” recommends that you do a little bit of homework before you head to a foreign country. Call the customer service numbers on the backs of your credit cards to find out just what they charge for currency-conversion fees, or visit this Bankrate.com site for details. Those fees can vary by a full 2 percent, so this process can help you decide which card to use when you’re traveling. Also, check with your bank to see whether it partners with any banks in the countries you plan to visit. If so, you could avoid hefty fees altogether by using your ATM or check card at those participating banks. Bank of America, for example, is part of a Global ATM Alliance with other banks in the United Kingdom, France, Germany, China, Mexico, Canada, Australia and New Zealand.

8. Rebates aren’t always worth the hassle. Rebate offers can be enticing, but be careful: Plenty of businesses are counting on you to be forgetful, unmotivated or not detail-oriented enough when it comes to following up on such offers. According to an estimate in “Gotcha Capitalism,” about 40 percent of rebates never get redeemed. To make matters worse, the retail sector generally has been making it harder for consumers to cash in on rebates. Bearing all of this in mind, never make a purchase solely because of a rebate offer, and always check out the retailer and the offer before you buy. Do a quick online search of companies offering fabulous rebates on purchases of cell phones, electronic equipment – or anything else, for that matter. Your search may lead you to dozens, if not hundreds, of complaints about bogus rebate offers. Also recognize that most rebates must be mailed in after you’ve paid full price for the item, and the instructions associated with qualifying for the rebate tend to be cumbersome, time-consuming and confusing.

9. Follow this overriding principle: Just ask. It really is OK to ask for deals that aren’t widely promoted or that initially may not seem to apply to you. Here are just a few examples of “secret” low-cost plans Bob identified:

* Limited cable TV service for less than $20 a month;

* Very low-minute, low-cost cell-phone plans;

* Bank accounts that, believe it or not, have minimum deposit obligations;

* A whole slew of other deals that are made available to occasional users or frequent users who pipe up and ask for them. For instance, many businesses offer deals “for new customers only,” but you may be able to score those same deals even if you aren’t a new customer by requesting them in a persistent, yet polite, way.

10. Know where else you can turn. If you’re feeling run over by fees and you’re not getting any satisfaction after speaking up about the matter constructively with customer service representatives and their supervisors, then you have other options. You can send a firm letter of complaint to the offending business with carbon copies to your state’s attorney general’s office, the Better Business Bureau and the Federal Trade Commission. (“Gotcha Capitalism” includes a variety of sample complaint letters.) And, if need be, you also can file formal complaints with all of these agencies, and you can complain to your legislator.

Why hidden fees are a big deal

Consumers oblivious to the small print pay the price

By Bob Sullivan

Technology correspondent

updated 3:59 p.m. PT, Mon., Jan. 14, 2008

Let me make a confession. I hate getting cheated. I mean, really, really, really hate getting cheated. I mean veins-pop-out-of-my-forehead, glad-I’m-not-getting-my-blood-pressure-checked-today hate getting cheated.

And yet, I feel like I’m getting cheated all the time.

I often open the mail with dread. It makes the hairs on the back of my neck stand up, as if I were some primal creature readying for a fight.  I walk into a cell phone store, check my online statements, or just turn on my television, and I feel like everyone is out to get me.  I suffer from what a therapist might call low-level, background anxiety. I think someone is always trying to steal something from me. 

Am I crazy? 

When I was a child growing up just outside New York City during the 1970s, I learned to be afraid of getting mugged.  But this is not that.  The criminals I’m talking about don’t bop anyone over the head and steal hundreds of dollars.  These criminals slowly take $5, $10, and $20 from me, often with a smile. They pop a surcharge onto my monthly phone bill. They pad my TV bill with services I didn’t ask for.  They drain my bank account — drip, drip, drip — when I’m not watching.  These hidden fees keep me up late at night like the sound of a leaky faucet. I feel like I have to watch everything all the time, because it’s so easy to miss some statement on some form with some asterisk that means the company can take even more money from me. And when that happens, I suffer from what I call small print rage.        

Am I crazy? Or am I just paying attention? One thing I know for sure: I’m not alone.

I’m not a therapist, or a sociologist, but I feel on firm ground saying that small print rage is a close second only to road rage as a source of angst in America today. As author of the Red Tape Chronicles on msnbc.com, a twice-weekly column that exposes small print, corporate sneakiness, and other 21st Century headaches, I invite readers to share their woes with me.  Tens of thousands have e-mailed and left comments on my blog as a desperate last attempt to get justice. I can see the exasperation in the amount of CAPITAL LETTERS that show up in their notes.

So I know: You suffer from small print rage, too.

Sneaky fees peck away at us like a swarm of mosquitoes that ruin an otherwise beautiful summer evening. And like mosquitoes, an individual bite might seem trivial, barely more than a nuisance, but repeated bites can actually change the way you live. They chase you inside, make you build a screened porch, and in extreme cases make you sick. 

As a too-sticky summer night breeds mosquitoes, today’s business environment breeds sneakiness. Companies under pressure to keep advertised prices low have seized on trickery to pump profits up. The most successful firms are now the ones that hide their prices best:  Under asterisks, deep inside terms and conditions, in fees they call taxes, bills that come months after the fact, or around a dark corners in auto dealerships where the manager’s office is. Then, right when you think you just got a good deal, an unexpected bill comes, or a car salesman jumps out from behind the corner and yells: GOTCHA!

One Gotcha might be irritating. A few might make you angry. But Gotchas are everywhere you turn, now. They are a way of life for consumers. They are our economic system, one that has replaced our former system, the free market economy.  Gotcha Capitalism — your personal finances, under siege.  Mosquitoes might threaten your life with death by 1,000 bites; Gotcha Capitalism threatens your finances with death by a thousand fees.

“C’mon, Bob,” you might be thinking.  “We’re talking about nickel and diming. It’s not that bad.”

Yes, it is. I’ve got research to prove it.

During November 2006, I asked independent researcher Larry Ponemon of The Ponemon Institute to conduct a nationwide survey of fees and surcharges. Together, we asked consumers around the country how much they believed they’ve lost to sneaky in the past 12 months.  To be fair, we didn’t allow much speculation; instead we asked consumers to identify the amount of hidden fees they’d later discovered in 10 important product lines one at a time, such as cell phones, groceries, and travel. 

The result?  Those $5 and $10 charges really add up. Even with these limitations, Americans told us they lose $946 to sneaky fees every year, enough to stock a sizable retirement fund.  And when you add up all sneaky fee revenue, the total is simply massive.  According to the survey, corporate America’s take in the 10 industries surveyed was $45 billion.  To put that number in context, $45 billion is about equal to the amount of money stolen through the fastest-growing crime in the country, identity theft.  ID theft is such as epidemic that Presidential task forces have been formed to fight it. There are entire divisions of law enforcement officials being trained to stop it. There is an entire industry of companies that has grown up to prevent it.  I know of no single agency or company devoted to stopping the explosion of hidden fees, which cost our society just as much as identity theft.

Of course, the crime of hidden fees is not so dramatic.  There are no spectacular million-dollar diamond heists accomplished in the name of deceased CEOs.  Instead, hidden fees are a slow drip-drip-dripping out of Americans’ hard earned salaries.  Cell phone users, for example, reported to us that they pay about $5-$10 more a month — on average — than they expect to, thanks to sneaky fees.  That doesn’t sound like much, until you consider there are more than 200 million cell phones users in the U.S. alone.

Now perhaps you’ll think like I do, that that the proliferation of hidden fees — and not identity theft — is the fastest-growing white-collar crime in America.

For consumers making $45,000 or less a year, that $946 in hidden fees can mean one fewer vacation per year; or no evening classes for additional job training.  They can take a huge bite out of a family’s retirement savings.

And that number is conservative. For starters, to make the study manageable, we limited the survey to 10 likely culprits: cellular phones, credit cards, banks, airline travel, hotels, cable TV/satellite, home Internet access, retirement services, insurance, and groceries.

Remember, this $946 total is an average. So for every consumer who manages to exert Herculean effort and minimizes hidden fee expenses to a tidy $200 or $300, there’s another who pays nearly $2,000 a year. It also only represents the sneaky fee take among those 10 industries — obviously, other kinds of companies stick their customers with fees, too.

Finally, this $45 billion total — that’s just the sneaky fees consumers know about.  Others are surely lurking out there underneath mountainous monthly bills that busy consumers miss, and couldn’t reveal to us when asked. 

It’s easy to calculate sneaky fee estimates that are much higher.  Simply adding up analysts’ estimates of total fee income from credit card late fees, homeowners’ title insurance, wacky hotel resort fees, and the like, consumers lose well more than $100 billion a year to hidden surcharges. 

But the real total is probably even more than that — in 2004, Consumer Reports guessed it was around $216 billion annually.  Your family’s portion of that would average closer to $4,000 each year. 

GOTCHA!  Perhaps those mosquito bites are starting to itch. But I have yet to describe the biggest bite of all.

That $4,000 annual drain is nothing compared to what Gotcha Capitalism is doing to your retirement. In the biggest fee swindle ever invented, hidden fees — siphoned off in total silence by Wall Street — will force you to work four, five, even six year longer than you should.  They’re stealing roughly one-third of the money the average American has set aside for old-age.  And get this: The better the investor, the greater the penalty. Later in this book, I’ll show you how Wall Street fees can suck up fully 80 percent of the money a 20-year-old invests for retirement. Eighty percent!

Hidden fees are so drastic now that they may even be screwing with the national inflation rate.  Companies often don’t supply surcharges and fee data to the Bureau of Labor Statistics, so when it computes inflation rates, fees aren’t reflected. As a result, our national inflation rate is held artificially low.

Yes, hidden fees are a big deal.

Cable TV:  King of misleading come-ons

Companies focus on bottom line, not customer satisfaction

By Bob Sullivan

Technology correspondent

updated 9:50 a.m. PT, Wed., Dec. 26, 2007

Television, from the start, has always been addictive. And there’s nothing easier than stealing from an addict.  To the cable industry, you are not a customer. You are an ARPU.  Understand that, and you will understand why this group of companies does everything it can to sign you up for the most basic service and get that coaxial cable churning. Then, it’s all about squeezing more and more out of your wallet, enrolling you in more services, and about making you a bigger and better ARPU — average revenue per user. 

To that end, cable is king … of misleading come-ons. For example, I challenge any reader who picks up an ad for a cable service bundle to find the real price.  Take Comcast’s Triple Play, an attractive bundling of TV, Net access, and telephone service rolled up with a tidy $99 price tag.  But how big were buyers’ monthly checks to pay their bills?  And how much was the price 6 or 12 months later? Here’s a typical consumer experience:

“I have a Comcast service plan for cable/internet/phone package that totals $120.93/month. I received a call from a Comcast representative indicating that my promotional period has ended for the bundled package and my rate will go up to nearly $148.00/month.  First, when I decided to go with the bundle package of service Comcast did not tell me this was a promotional rate. I specifically asked the sales representative if the prices would go up on the bundle as it had with cable and the representative said it would not. But here now a year later it is going up 23% and there's no alternative broadband cable available in Attleboro to contact for a competitive service.”

That $99 come-on didn’t last long. In fact, it doesn’t make it to the first bill, which turned out to be 20 percent higher than the ad, thanks to taxes and fees.  Worse yet, the base $99 price was a teaser rate.  It was advertised even lower in some areas, such as Seattle, where the customers could sign up for was as low as $85 each month.  But on mailers sent to Seattle-area residents, the introductory period was not defined. When did it end? Whenever Comcast called.  And despite the abundant small print on post cards sent to Seattle-area TV watchers — which numbered 300 words or more — the real price of the service (ultimately about $150 a month) never appeared once.

There’s only one term for this: Legal false advertising.  And if you think small print on cable advertisements is bad, advertisements targeting Hispanics can be even worse.  There are full-page cable advertisements in Hispanic publications where the large print is in Spanish, but small print is in English. Of course, I can read English and the Comcast small print didn’t make much sense to me, so maybe the language barrier is the least of our worries.

The bottom line: Their bottom line.  If you’re wondering how your average cable bill (their ARPU) soared from around $22 a decade ago to $60 in 2006, look no further than legal false advertising and small print. 

Don’t just take my word for it.  Here’s how the Massachusetts state attorney general described Comcast’s advertisements in a 2006 out-of-court settlement between the company and the agency.

“Comcast, and its predecessor, AT&T Broadband, engaged in a series of unfair practices in the advertising and sale of its cable television services, including advertising limited time offers of free or reduced rate digital cable packages without adequately disclosing to consumers what the actual price of those services would be during and after the promotional period.”

The attorney general also accused Comcast of “hiding material terms and conditions from consumers in difficult to read fine print, in violation of the Attorney General's advertising regulations.”

The hits don’t stop there. Here’s a few other Comcast ARPU-enhancing tactics, pulled from the attorney general’s memo.

Promoting Comcast's higher priced digital packages, like its "Digital Gold" video programming, without disclosing to consumers that they could purchase less expensive digital cable packages; Overstating the number of channels available on digital cable packages by failing to distinguish among video, music, and pay-per-view channels, and overstating the capabilities or benefits of Comcast’s "On-Demand" and "Digital Video Recorder" services; Charging a $5 monthly rental fee for a converter box and remote control, even for consumers who did not need the converter box and remote to get their programming; Advertising "free" installation, but then charging consumers for installation, and requiring them to redeem coupons or vouchers to receive an installation credit.  In some cases consumers were unable to receive the "free" installation as advertised.

There’s no need to pick on Comcast, however.  Time Warner cable had a similar run-in with then-New York Attorney General Eliot Spitzer just a year earlier.  Spitzer’s office found that Time Warner offered three-month teaser rates to consumers without disclosing that they had to keep the service for 12 months to get that price.

In another instance, the company offered “free Digital Cable TV and free HBO for one year.”  But there was a Gotcha.  Consumers received free HBO, and free digital equipment, but still had to pay extra for monthly digital access. And in another case that might sound familiar to many subscribers, Spitzer’s office found consumers who signed up for a “$24.95 for four months” special who were actually charged higher prices during those four months.  Finally, Road Runner Internet broadband customers who signed up for a promotional discounted Internet service later found out they had to also order cable TV from Time Warner — or else the Internet discount was forfeited.  Such bundling is great for ARPU, but bad when a state attorney general notices.

Cable’s humble beginnings
The first cable television subscriptions cost about $3.  Cable’s unceremonious invention is often credited to engineer Ed Parsons, who in 1948 rigged up a crafty community antenna and married it with long cables to bring television to his home in remote Astoria, Wash. Parsons simply wanted to let his wife watch the new Seattle TV station, which had gone on the air a few months earlier. At the time, no one could have imagined he was inventing a multi-billion industry that would become a king of sneaky fees. In fact, cable came simply because Parson’s wife, and millions of other Americans, didn’t live close enough to broadcast stations to receive a signal.  CATV, the most familiar abbreviation for cable, actually stands for community antenna television, and literally means sharing access to a super-powered antenna.  Parsons discovered areas where signal strength was particularly strong, atop a nearby downtown hotel, erected an antenna, and then strung wire — coaxial cable — to his apartment across the street.

The addictive power of cable was clear from the start. As Parsons tells the story, from the moment he flicked the switch on cable TV in his apartment on Thanksgiving Day 1948, he said the couple “literally lost our home.”

“People would drive for hundreds of miles to see television. We had gotten considerable publicity. … And when people drove down from Portland or came from The Dalles or from Klamath Falls to see television, you couldn’t tell them no.”

To get the crowds out of the way, Parsons strung a similar cable into a nearby hotel lobby and turned on a TV there.  Soon, he had to shut the service off because the lobby was so full of visitors that guests couldn’t check in to the hotel.

Parsons turned his hobby into a business, stringing wire to area homes for $125 and charging $3 a month.  The price seems quaint now, but even in the early 1990s, when cable prices were controlled by regulatory agencies, decent plans could be had for $20. An activist Federal Communications Commission regularly kept cable companies in line, resolving 18,000 complaints involving 5,700 communities, ordering $100 million in consumer refunds to 40 million cable subscribers from 1993 to 1998.

Then, quite suddenly, cable prices exploded — rising at three times the rate of inflation in the next five years.  What happened? The sweeping Telecommunications Act of 1996 deregulated cable rates, effectively killing the FCC’s ability to act as a price watchdog.  The deregulation took effect in 1998.  The ARPU race was on.  You lost.

And what are you getting for this pricey service? Cable television consistently ranks near the bottom of most customer satisfaction surveys. In 2002, the American Customer Satisfaction Index found that cable companies "now rank among the worst rated businesses in ... history."  The Ponemon Gotcha sneaky fee survey is no exception. Cable firms were essentially tied for the bottom with credit card companies as purveyors of hidden fees. 

And yet, despite skyrocketing prices and wide dissatisfaction, two-thirds of Americans subscribe to cable, clear evidence that real market forces are not at work in the world of cable television. There is occasional discomfort of competition from satellite television or new fiber-optic TV delivery services, but cable firms still enjoy sizable monopoly power in many places.  And that’s how they get away with so much.  They know most of us would still crowd into Ed Parson’s living room to watch if we had to.

Teaser rates
The single biggest problem facing cable consumers is the fact that cable companies have learned far too much from credit card companies.  Introductory price “teaser” offers, with their fleeting discounts and unpredictable bottom lines, are the bane of cable TV watchers.  Consumers who are enticed by $50 or $100 teaser prices can easily end up writing checks for twice that amount by the time the real rate kicks in and the digital video recorder starts piling up episodes of "Lost."

The only way to avoid bottom-line shock is to ask the right question — repeatedly — when you sign up.  What will my bill be six months from now? One year from now? Never sign on the dotted line until you get a solid answer to that question, preferably in writing.

Some consumers endeavor to play the teaser rate game with cable firms.  If you are the type of person who stays up on your bills, you can try this, too. Some people call this the “Just Ask” strategy, and it’s amazing how few customers actually try it.

Sign up for a low rate, and then call and cancel just as the teaser rate is about to expire. Or if the higher price has already kicked in, call and ask for the low advertised price offered in a newspaper ad or flier.  Ignore the line that says, “for new customers only.” 

Key to the success of this conversation: You’ve got to be willing to drop your cable service.  You must convince the cable firm operator that you are a customer who deserves special “retention” treatment. Obviously, this strategy works best when you are in an area where there is genuine competition for your business.  If you can call and say, “I’m thinking of going with another cable firm because they are offering this price,” and you are telling the truth, the odds are good you’ll get a better deal. Ditto if you have done your homework and you drop into conversation the possibility that you are going to have a little dish installed on your roof if the cable doesn’t cough up a better price.

Bluffing might work; but it might not.  And remember, you might have a term commitment and face early termination penalties if you do switch. Never sign up without fully understanding the cancellation terms. And of course, if you play this game, you’ve got to keep playing it, because every six months or so, the lower rate will expire, and you’ll have to start over again.

ISPs create tangled Web of sneaky fees

Companies use hidden charges to generate revenue in competitive industry

By Bob Sullivan

Technology correspondent

updated 9:55 a.m. PT, Tues., Jan. 22, 2008

It was supposed to be a small gift from the federal government to Internet users. On August 14, 2006, a $2-$3 per month government tax on DSL broadband service, known as the Universal Service Fund fee or FUSF, was dropped. The tiny savings was meant to put DSL providers on equal footing with cable modem service providers, which weren’t obligated to collect the FUSF tax.  But the consumer victory was short-lived. 

Verizon saw an opportunity. 

The company’s Department of Creative Fees with Obtuse Names went to work and quickly emerged with a doozy.  The Universal Service Fund would be dropped from August 2006 bills, but in its place would appear a new line item: “Supplier Surcharge.”  Verizon’s fast DSL users had been paying $2.83 for the universal service tax; now they would pay $2.70 in a Supplier Surcharge.  But rather than pass the surcharge on to the government, Verizon would simply pocket it.  Given fast DSL’s price tag of around $30, the tax-for-fee switcheroo instantly gave Verizon about a 10 percent price hike. What business wouldn’t relish a chance to pump up revenue 10 percent cloaked in such a perfect ruse? Consumers, the firm hoped, wouldn’t notice the change as their bottom-line price wouldn’t change. In fact, they might presume the surcharge was the old tax with a new name.

In a cozy-sounding e-mail, Verizon tried to tell its customers they would hardly notice the sneaky price increase.

“On balance your total bill will remain about the same as it has been or slightly lower,” it read.

Naturally, competitors immediately copied the brilliant idea. That same month, BellSouth revealed it would continue to collect its $2.97 a month FUSF fee, and just pocket the money.  Its euphemism was perhaps even more misleading: “regulatory cost recovery fee.”

A smaller Internet service provider named Speakeasy jumped on the fee plan, too. Here’s how the managing editor of online journal ISP-Planet described the August 2006 below-the-fee-line part of his bill, sans FUSF.

Old:

Federal regulatory fee: $6.00

DSL Reg. Compliance fee: $5.12

VoIP Reg. Compliance fee: $4.95

New:

Federal regulatory fee: $0.00 ($6.00 decrease)

DSL Reg. Compliance fee: $9.52 ($4.40 increase)

VoIP Reg. Compliance fee: $6.20 ($1.25 increase)

Total: $0.35 decrease

A universal service fund fee by any other name smells just as bad. But in this case, none of them got away with it.  Careful bill readers jumped all over Verizon, BellSouth, and Speakeasy, and began an Internet call-to-action.  Journalists jumped on the story. The FCC threatened to investigate.  All the phantom FUSF fees were eliminated.

Competition keeps service providers honest, and keeps prices low.  As we’ve seen in pay television and the world of contract-strapped cell phones, lack of competition hurts consumers.  By comparison, the world of Internet access is awash in competition. There are multiple platforms for high speed access (DSL, cable, wireless, etc.), and often multiple players within each. Many urbanites have the option to pit DSL against cable modem service.  Satellite and wireless broadband options fill out the competitive landscape.  And while it’s slow, the myriad of dial-up options remaining provide competition of some sort for virtually every Internet user. Advantage — consumers and the economy.

There’s only one way for sneaky companies to beat back honest competition: sneaky fees.  By breaking out items such as “regulatory compliance,” DSL providers can hike prices without having to raise their advertised prices.  Those $19.95-per-month marketing campaigns don’t have to be scrapped.  Companies wishing to pump up their bottom lines can just raise the fees instead.

In the world of sneaky fee pricing, consumers never know what they are really paying for a service.  It makes an apples-to-apples comparison of DSL vs. cable modem service nearly impossible.  For example: For most consumers, it’s impossible to get DSL without paying for an active phone line, which costs about $20 a month.  Phone-line-less DSL, called naked DSL, has been mandated by federal regulators, and will arrive some day, but for most consumers a $19.95 DSL offer really translates into a monthly bill that’s closer to $50. That makes it, sadly, essentially the same price as its chief alternative, cable modems. 

Advantage: Sneaky company.

Sneakiest fee of all:  Broadband that’s really dial-up in disguise

When is broadband not broadband? 

Today’s Internet is a technological marvel. And yet, a few decades from now, historians will look back on our quaint time the way we see Edsels and Model T’s.  They’ll laugh and say things like, “How did people put up with those slow connections? Why did people watch videos in those tiny boxes?”  Despite today’s high-speed wizardry, getting fast Internet access is part science and part art.  And many people still pay exorbitant amounts of money for very poor, very unreliable service. 

We all know that automakers exaggerate — a little — when advertising a car’s estimated miles per gallon. That 45 mpg gas-sipper will probably get around 30-35 for normal drivers in real life. We all accept this. It’s not right, but at least it’s not that wrong.  And everyone pretty much exaggerates by the same factor, so consumers can engage in something like apples-to-apples comparisons.

But imagine if that new car with the 45 mpg sticker really got 2 miles to the gallon?  That’s how things sometimes work in broadband.

As I type this chapter, I’m connected to a broadband service that promises 400-700 kilobytes per second.  That’s blazing fast — enough to handle full-streaming video with plenty of room to spare for sending e-mail.  So why does it sometimes take several seconds for me to load Google.com, the world’s tiniest home page?

The reason: My actual download speed, according to tests freely available on the Internet, is about 29 kilobytes per second. If that sounds eerily like an old modem speed, well, that’s because it is. 

My story is typical.  The broadband marketplace is crazy.  DSL users find their bandwidth disappearing. Cable modem users fight traffic jams on the way home only to get stuck in virtual traffic jams with their neighbors when they log in, since they are all essentially sharing the same Internet pipe.  When it rains, satellite broadband users get bogged down.  And anyone who’s ever said, “Can you hear me now,” can guess how reliable broadband wireless connections are.

That’s not to say consumers can’t find happiness with DSL or cable modems. Both are still faster — much faster — than dial-up.  In fact, they are generally at least 5-10 times faster than dial-up, for only two or three times the cost. That’s actually a pretty fair upgrade.  But how are consumers supposed to pick the best service when the information is so irregular, and the broadband “mpg” they’ll get is so unpredictable?  More important, how are people to know if the $50-a-month service they purchased, and committed to with a long-term contract, has been pulled out from under them?

Anyone who pays for broadband should perform regular, independent speed tests on their connection. Numerous Web sites, like the technology news site CNET.com, lists free bandwidth test sites. Speakeasy.net offers the easiest to use.  I like the site TestMyNet.net, which actually stores your test results for reference. A documented archive of poor speed scores might prove useful if you end up in a battle with your provider and must ask for a refund.

But even if you don’t find yourself in a fight, taking a speed test is the only way to know if you are getting what you paid for. If the speeds are regularly disappointing, and far below what you’ve been promised, you should complain.

Broadband providers will cry foul when you run such a test.  They’ll tell you that you misunderstand. They’ll have an explanation. It’s not the pipe they’re supplying to your home. The fault lies with your computer, your applications, spyware, the phase of the moon, Microsoft Office, or your teen-ager, they’ll say.  Each of these explanations are plausible (well, except the one about the moon). Many, many factors can impact your upload and download speeds.  Just as many, many factors can impact how fast your toilet flushes.  But clogged pipes are often to blame; and for bandwidth providers, too many users and too narrow pipes often cause the problem. 

Since there is no way to know the true size of the Internet pipe into your neighborhood, your safest way to select a service is to find a nearby neighbor you trust, who’s happy with their service, and try it out yourself for a few minutes.  Then, when you sign up with the service, take the shortest contract commitment you can, and ask what happens if you just can’t get the download speeds the service has promised you — now, or in the future.

Most Americans are in cell phone jail

Providers have worked hard to lock customers into losing situations

By Bob Sullivan

Technology correspondent

updated 9:53 a.m. PT, Tues., Jan. 22, 2008

At any given time, most Americans are in cell phone jail.  

You know the feeling.  You talk to a friend with a snazzy new handset that does amazing things. Or you see an advertisement for a great deal on a monthly plan. Then what do you do?

You sigh, wistfully wishing you could shop for a new phone.  If you are really on top of things, you call your provider and ask when your current cell phone contract expires. And then you wait.

One thing you don’t do: You don’t act like a rational consumer in a normal, functioning market economy.  You don’t go buy the new phone, or get the cheap new plan.  You don’t reward the more efficient company with your business. You can’t. You’re in jail.

Imagine if you couldn’t switch coffee shops or grocery stores without paying hundreds of dollars in penalties.  Preposterous? No — not in the world of cell phones.

From the start, wireless providers have worked hard to lock you up into losing situations, constructing walls with cancellation fees, service-specific phones, and the loss of your phone number.

Worse yet — cell phone companies can, and do, change their side of the contract unilaterally.  Consumers seemingly have no options to decline the higher prices. In other words, they can raise prices, and you can’t quit.  Consider this note of complaint, filed with the Pennsylvania Public Interest Research Group by a consumer named Kerry:

I’m currently in the middle of a two-year contract with Verizon Wireless. They just notified me that they are dramatically increasing the charges I pay for receiving each text message from 2 cents to 10 cents.

When I called to complain, they left me with a few choices, and I was unhappy with all of them. I could simply accept the increase in charges. Alternatively, I could sign up for an unlimited text messaging plan for another $5/month, but only if I renew with Verizon for another two years. Or, I could end my contract and pay an early termination fee of $175.

If I don’t pay the fee and change my plan to get the best rate for text messaging, then I'm locked in with Verizon for even longer than I originally would have been had they just kept the rates the same. And since the new plan also has an early termination fee, I’ll face the same problem if they decide, without my agreement, to change the plan again to suit their needs.

Make no mistake about it — like Kerry, most cell phone users are captives.  In 2005, IPSOS North America surveyed 1,000 U.S. adults and found that 47 percent would consider switching services if termination fees were eliminated.  Fully 36 percent said fees already had forced them to stay in a higher-priced plan against their will.

This, it should be obvious, is economic lunacy.  And it certainly explains why U.S. residents suffer from what is remarkably among the world’s least reliable cell phone services.  After all, what’s the incentive to fix the U.S. network?  NBC Nightly News anchor Brian Williams, on his personal blog, mentioned wistfully once that he often enjoys “crystal clear, uninterrupted” cell phone conference calls to New York while on the road in faraway, “middle of nowhere” places like the highway from Amman, Jordan to the Dead Sea.  But on his daily commute into New York City?  That’s another matter.  In fact, cross-country drivers on the main east-west highway in the northern U.S., Interstate 90, will find this sorry fact:  they can’t make a reliable phone call all the way from Chicago to Seattle. 

It’s an embarrassment, but it’s completely predictable.  Captive consumers are bad for everyone, consumers and businesses alike.  Why would anyone start a new cell phone company in this environment? Why would anyone invest in customer satisfaction?

Consumers have managed to tear down one wall in this jail. In 1996, the FCC ruled that consumers who switched providers didn’t have to surrender their phone numbers, mandating what’s called number portability.  Of course, it took nearly 8 years of legal battles to force wireless carriers to play along, but finally, in November 2003, consumers were allowed to switch carriers without switching numbers.

There was an immediate impact.  About 367,000 consumers abandoned AT&T Wireless in the first quarter of 2004, an incredible number given that cell phone carriers were enjoying unprecedented subscriber growth at the time.  Like dogs suddenly let off their leash, consumers began a mass exodus from the notoriously unreliable provider as soon as they could.  The exodus eventually brought the company to its knees, and it was forced to sell out to Cingular. Competition works.  That’s capitalism. Bad companies don’t deserve to be propped up by bad regulations or supportive government agencies.

The wireless providers who watched the demise of AT&T learned quickly; and the wall that was knocked down — number portability — was rebuilt even taller.  In 2004, most carriers extended typical contracts from one year to two years. Nothing portable about that!  By 2006, cell phone jail was more fortified than ever.

And in the ultimate irony, cell phone firms found a way to profit handsomely off number portability.  Beginning about a year before portability kicked in, cell phone firms began charging roughly $1 per month per customer for number portability — at one point collecting nearly $100 million per month, according to the Center for Public Integrity! The fees were hard to spot, often lumped into a line item called “federal recovery fee,” or something similar.  Collectively, the industry took in more than $1 billion before the practice was curbed.

Terminating early termination fees
Bottom line: Firing your cell phone company will cost you $150-$200, at least.  A family of four that wants to cancel service can pay $800 to do so. 

The argument you will hear incessantly from mobile phone providers is this: Consumers pay far below cost to buy their cell phones because the price is subsidized by carriers and the termination fees are merely a means to recover some of that subsidy for consumers who bail early.  Callers should be happy they can buy a cheap phone, and accept the consequences if they quit early. 

Of course, if that were true, the cancellation fee wouldn’t be the same for consumers who quit after three months as it is for consumers who quit after 19 months.  Verizon Wireless conceded this point in 2006 when it announced it would begin pro-rating early termination fees. Unfortunately, other carriers didn’t follow suit.

Consumers who don’t want to pay early termination fees do have options.  They can use pre-paid, disposable cell phones, a small but growing part of the industry that doesn’t require contracts with termination fees.  Or they can pay full retail price for the phone upfront.  They can try to pawn their phone and plan off on someone else (cell phone contracts allow transfers at places like CellTradeUSA.com).  Or they can throw themselves on the mercy of a customer service representative.   Having a good story to tell apparently helps.  Internet Web sites are abuzz with hints on how to get a firm to waive the fee.  The most common recommendation is to use a firm’s coverage map to find a zip code that isn’t covered, then call and claim to have moved there.  Results to that one seem to be mixed; many providers require proof of address.

Another popular tip is to become an expensive customer.  Start making calls outside of your cell phone firm’s coverage area, which will force your provider to pay for time on another provider’s network (we’re assuming here that you don’t pay roaming charges). After a few months, you’ll likely receive a polite letter strongly inviting you to find another cell phone company.

Once in a while, cell phone companies themselves open up a window of opportunity for early cancellation.  In 2006, when most carriers upped their text message prices, they had to send new agreements to users. Some consumers used these as an opportunity to decline the agreement and attempt to void their current contract. Because a change in terms could be interpreted as a change in the contract, the change constitutes a termination of the original pact, the argument suggests.  Cell phone firms fought back, but often relented, when consumers used this tactic. 

A popular myth holds that lack of adequate service — a poor signal at home, for example — is enough to void your cell phone contract.  This might seem crazed (doesn’t the contract imply that the cell phone provider is bound to provide you with cell phone service for two years?), but that’s not true.  Service quality is not part of the contract.  Poor service gives consumers no right to cancel. 

Dying, however, seems to work.  Carriers will release you from your contract when you reach the great beyond. Only a few carriers require copies of death certificates to prove you’re dead. Others will take your word for it.

Picking your phone’s locks
Termination fees are not the providers’ only trick to win forced loyalty, however. In fact, they have become a bit of a red herring in the cell phone jail debate.  With monthly bills creeping up towards $100, a $175 cancellation fee doesn’t sound so bad. Increasingly, cell phone jail is much more a function of hardware than contracts.  Paying a $175 fee is one thing; throwing out fairly new $500 handset is quite another.

Isn’t it amazing what phones can do today?  They can pull up Web pages in a moving car.  Take pictures and videos. Schedule appointments.  Even give directions.  It’s a wonder these smart phones can’t be used to make dinner or launch rockets.  And yet, there is one thing these technological marvels can’t do. They can’t work with anyone else’s network. 

A T-Mobile phone usually won’t work on Cingular’s network.  Verizon phones won’t work on either of those networks.  The lack of interoperability might remind old-time techies of the days before the Internet, when you’d never imagine trying to make an Apple computer talk to a Microsoft-powered PC.  That language barrier is a relic now.  How can these incredibly sophisticated cell phones be so unsophisticated in this one way?

Well, it’s intentional.  Cell phones are locked down by cellular providers with special software that prevents them from being used on other networks.  In this realm, there isn’t even a pretense by cell phone providers about their intentions.  The software is called “locking” software.  With consumers now paying $500 or more for these not-so-smart-after-all smart phones, locking software is the best tool yet cell phone companies have invented to lock up consumers.  Even after a consumer’s contract has run out, even after a consumer finds a competitor with a much cheaper per-minute plan, or much more reliable coverage, phone locks are still a major deterrent.  You have to swallow hard to throw a fully functional $500 phone into the trash.

With that kind of money at stake, clever engineers (hackers! But good hackers!) have jumped in and worked up a work-around.  There are ways to trick phones into ignoring the unlocking software.  Internet sites sell such services for as little as $5.      

Naturally, cell phone providers have spent a lot of time and killed a lot of trees trying to argue that use of unlocking tricks is illegal. Specifically, their lawyers have argued that unlocking software violates of the Digital Millennium Copyright Act, which was designed to keep thieves from circumventing software used to prevent pirating of movie DVDs, music CDs, and software. 

Let’s look at this argument more closely.  According to the industry, you paid $500 for a phone, but you’re not allowed to type in a small string of characters into the handset which allows you to use the phone as you wish. 

Jennifer Granick, a high-profile lawyer based at Stanford University who often defends computer hackers, took on this argument in 2006.  She suggested that courts had already rejected a similar argument from computer printer maker Lexmark, which fought to stop generic ink cartridges from working in its printers. Courts had also ruled in favor of generic garage door opener makers.

In late 2006, the federal government sided with Granick, deciding that unlocking a phone was not a violation of the Digital Millennium Copyright Act. By then, some companies were already starting to give in and give unlock codes to consumers who were clever enough to ask for them. Others firms were still stingy about it, but couldn’t prevent would-be unlockers from buying the software. Consumer advocates claimed victory. So did environmentalists, who saw new hope that fully-functioning phones wouldn’t end up in landfills quite so often, as they could now be re-sold and re-used.  Many hoped that cell phones had been set free.

Not quite.  The phones, as sold, are still hamstrung with locking software by default.  Only those who know enough to ask ever consider using their phones on a competitor’s network. Despite the fanfare surrounding Granick’s case in techie circles, the vast majority of Americans still think cell hardware is limited to use with a single carrier. But now you know better. From Gotcha to Got Them!

What is Gotcha Capitalism?

The hidden world of sneaky fees, and the end of the price tag

updated 5:48 p.m. PT, Wed., Dec. 19, 2007

Coughing up $4 fees for ATM transactions. Iron-clad cell phone contracts you can’t get out of with a crowbar. Paying big bucks for insurance you don’t need on a rental car or forking over $20 a day for supposedly “free” wireless internet. Every day we use banks, cell phones, and credit cards. Every day we book hotels and airline tickets. And every day we get ripped off.
How? Here are just a few examples of how big business can get you:

• You didn’t fill up the rental car with gas?
Gotcha! Gas costs $7 a gallon here.
• Your bank balance fell to $999.99 for one day?
Gotcha! That’ll be $12.
• You miss one payment on that 18-month same-as-cash loan?
Gotcha! That’ll be $512 extra.
• You’re one day late on that electric bill?
Gotcha! All your credit cards now have a 29.99% interest rate.

But not for much longer. In Gotcha Capitalism, MSNBC.com’s “Red Tape Chronicles” columnist Bob Sullivan exposes the ways we’re all cheated by big business, and teaches us how to get our money back–proven strategies that can help you save more than $1,000 a year.