Surprise Surcharges

By Cara Sievers

Indirect partners face the challenge of unmasking carrier fees. Whether comparing rates during the quoting process or working with a customer to decipher unexpected and vaguely described line items on customers’ bills, agents come up against what some partners have dubbed “hidden charges” and are forced to provide an explanation for the fees. However, with complicated rules, no naming standards and less-than-perfect communication from service providers, partners are scrambling to give their clients satisfactory answers.

While carriers strip surcharges and fees out of the per-minute rates to keep them competitive, oftentimes the bills reflect a different story (see Sample Bill). By the time the surcharges and fees — whether federally mandated or not — are factored back into the rate per minute, usage charges can vary dramatically from one vendor to the next.

Sarah Linares, vice president and director of product development and revenue assurance at TMC Communications, said she’s seen agents fooled by stripped down rates all too often. As a reseller, TMC usually is competing against an “unbelievably low rate” and she has to remind agents to dig deeper to see what other charges will be included on the final invoice.

Metered products like voice usually are the biggest culprits for being padded with carrier charges. Many times, when customers are evaluating proposals, they will look for the best rate per minute since that’s all they really know, and they will not look any further until it’s too late. Therefore, the agent is tasked with not only explaining the possibility of additional charges during the sale, but also what the charges are for once the bill is received.

Ralph L. Widmar, CEO of consultancy Network Intelligence Inc., said the way the Universal Service Fund (USF) charges are applied to a carrier bill, for example, can get rather confusing.

“In the case of Universal Service Fund charges, the carrier is required to charge the current percentage to the end user for interstate services, and in some states there are similar USF fees that apply on an intra-state basis,” Widmar explained. “The calculation of inter- vs. intra-[state] can be complex, and explaining this to a customer or channel partner is an art in itself.”

Widmar said carriers also are allowed to recover costs they incur for collecting these funds, a charge sometimes billed as a “regulatory recovery fee,” and “those funds are not remitted to another agency, creating the temptation to make this a small profit center for the carrier,” he said.

In fact, FCC regulations of USF charges might be a catalyst for some of the carriers’ surcharges, said Sharon Thomas, consultant with Technologies Management Inc.. “Until 2003, the FCC really didn’t have a rule of how much carriers could pass through for the Universal Service Fund, so carriers would assess a higher percentage surcharge and call it the Federal Universal Service Fund,” she said. “The rate for the actual FUSF might be, say, 9 percent, but the carrier might have been charging 10 percent and some of that was to cover administrative costs or to try to offset revenue losses from the fact that they’ve lost access revenues, or [one of several other] reasons. They’re just trying to keep their revenue streams where they need to be.” However, when the FCC took away the ability to pad the FUSF charge, carriers started assessing new fees to maintain those revenue streams, just under another surcharge name.

Bill Leutzinger, president of Chicago-based agency TelecomMedic, sees this revenue reorganization strategy quite often. For example, the cost of a PRI in his market has been driven down significantly due to competition. Instead of charging approximately $450 for a PRI, carriers now are charging around $325 to stay competitive; however, Leutzinger said some carriers heap on “mystery charges” that take the price back to that $400 to $450 range.

Even when Leutzinger tries to lessen sticker shock with his customers by breaking down the extra surcharges and fees, he is often surprised by unexpected fees popping up on carrier bills. In one case, he said he found a $10 charge called “network maintenance” on a customer bill. Because there was no notification from the carrier, he was unable to warn his client. Even such nominal charges like this can add up over time — both monetarily and in damage to the agent’s reputation, he said.

Kim Rochel, account consultant with subagent New Horizons Communications, said these surprise charges can make agents appear dishonest to some clients who might think they are engaging in deceptive practices, and they also have the potential to hurt the agent’s ability to get customer referrals. One of Rochel’s clients currently is fighting $50.25 listed as a federal access charge on his bill that is not in his contract, and he is getting pushback from the carrier. Leutzinger said he feels the carriers are really good at giving these mystery charges names that sound like taxes so that people will think they are federally or state mandated charges.

According to Widmar, there is a lengthy list of charges that can cause confusion, including “things like ‘local connect surcharge,’ which is a creative application of ‘PICC’ or ‘Carrier Line Charge,’ or ‘EUCL,’ or probably a dozen other synonyms that relate to the cost recovery of charges paid to local telephone companies for access to subscriber lines,” he explained. “This was historically charged for ‘equal access’ or ‘1+’ dialing, but some carriers have found it a profitable line item even when no such charges are actually paid to an underlying local carrier.”

But sometimes it’s just a blatant profiteering. “The one that gets me the most is the billing recovery charge, when they’re charging 8 percent on top of the bill to be able to bill you,” said Rochel.

“I don’t know if I would call them ‘hidden’ or ‘mystery’ charges, but it is true virtually all carriers do this,” said Thomas, adding that carriers’ bills are supposed to include descriptions of the charges.

While there are no federal rules prohibiting the assessment of these fees, there are rules that state the billing entity has to be clear about what the fees are. The FCC’s Truth-in-Billing Requirements state: “Charges contained on telephone bills must be accompanied by a brief, clear, non-misleading, plain language description of the service or services rendered. The description must be sufficiently clear in presentation and specific enough in content so that customers can accurately assess that the services for which they are billed correspond to those that they have requested and received, and that the costs assessed for those services conform to their understanding of the price charged.”

Additionally, the FCC asks that federal taxes be separated from surcharges on the bill, Thomas said, but whether all carriers comply with that rule is another issue. A single section of the bill possibly could lump together federal taxes with revenue-generating charges, making it even more difficult for the agent and customer to understand the fees.

For agents, knowing which fees are taxes and which are charges retained by the carrier might bring up another sore spot in the area of commissions. Of course, that’s OK for federal, state and municipal mandated charges, but many carriers that don’t pay commissions on other surcharges and fees that are strictly revenue-generating. Therefore, agents might see this as lost revenue.

“If the carrier is charging my customers these charges, but they’re only paying me commissions on the $299 [for the product], not the $500 they’re collecting from my customer, I find that very deceptive to the agent, not just to the customer,” said Rochel. “If you’re making money off my customer, you should be paying me commission on that … but most of those charges are uncommissionable.”

While Rochel believes it is the carrier’s responsibility to inform agents about these charges, she said agents should be proactive in asking questions about which specific charges the carrier plans to assess.

Widmar agreed, explaining that the FCC has required carriers to provide consumers with information about their services. “While the carriers are extremely unlikely to proactively educate end-users, I feel that they would do well to educate their agents about these fees since it all ultimately comes down to customer service and satisfaction,” said Widmar. “That being said, the agent should make an effort to understand the surcharges or fees of the various carriers that they represent, since the uneven application of these fees can turn what was presented as a cost-saving change into an unpleasant surprise for the customer and the agent.”

TelecomMedic’s Leutzinger said he tries to combat surcharge surprise from the beginning by including verbiage on his proposals suggesting how high some of the rates might possibly be. Additionally, “I’m asking carriers to put into an addendum to the contract that they won’t add any more surcharges to the bill over the life of the contract,” adding that he’ll take his business to the carriers that agree to add the clause.

“I think [the answer] is going to be lobbying the government,” Leutzinger said. “Sooner or later, it’s going to blow up out of control.”

Looking for More?

Learn how to do a quick side-by-side invoice comparison to determine which telecom providers are giving your customers the best deals at the featured general session, “Hidden Charges,” Thursday, Sept. 24, at the Fall 2009 Channel Partners Conference & Expo. For more information, visit www.channelpartnersconference.com.