Regulatory News - SBC Subsidiary Charged with Consumer Fraud

Posted: 03/2001

SBC Subsidiary Charged with Consumer Fraud
Illinois Regulators Scrutinize
Ameritech’s QoS Problems
By Kim Sunderland

The Illinois Commerce Commission (ICC, www.icc.state.il
.us) recently found Ameritech Corp., a subsidiary of SBC Communications Inc. (www.sbc.com),
guilty of fraudulent marketing of a controversial rate plan.

The ICC subsequently banned Ameritech from marketing the plan, which the
incumbent characterizes as a money-saving option for consumers. The ICC’s
decision effectively sets a precedent for the marketing practices of phone
companies across the state, according to a local consumer group.

The ruling came in response to a complaint the Citizens Utility Board (CUB, www.cuboard.org)
filed in January 2000. The Chicago-based CUB is the only statewide organization
that represents the interests of residential ratepayers before regulatory
agencies, the courts and the legislature.

It was founded in 1983 by the General Assembly and is funded solely by the
contributions of its 150,000 members statewide. With a staff of 10 and a budget
of $1.5 million, CUB plays a crucial role as an advocate on behalf of consumers
of electric, gas and telecommunications services.

In its filing last year, the CUB asked the ICC to stop Ameritech’s fraudulent
marketing and advertising of its SimpliFive rate plan, and to order refunds for
consumers who overpaid by subscribing to the plan.

The ICC ruled that Ameritech’s marketing of SimpliFive gave consumers the
false impression that they would save money.

Under SimpliFive, consumers pay 5 cents per call for calls within roughly
eight miles of their home, and 5 cents per minute for all other local calls.
These rates are higher than what most customers pay for most of their local
calls under standard rates, according to the CUB.

In fact, the CUB reports that nearly half of all customers who signed up for
the plan are paying more. A CUB analysis shows that a typical phone consumer
would pay 37 percent to 46 percent more if they opt for SimpliFive.

CUB executive director Martin Cohen says that internal Ameritech documents
the organization obtained, showed that Ameritech targeted SimpliFive to some
customers who were expected to pay more on the plan. Company training manuals
also instructed service representatives to sell the Ameritech plan, even when
they knew it would raise a customer’s bills, according to the CUB.

Cohen believes the ICC’s ruling will set a precedent for Ameritech’s
marketing of other services and for the practices of other companies.

"It puts the phone companies on notice that, from now on, they have to
play it straight with consumers," Cohen said.

The ICC ruling requires Ameritech to offer an oral or written bill comparison
for customers before they can subscribe to SimpliFive. The comparison, which CUB
requested, will show how much money customers would pay using the new rates
versus what they pay on standard rates.

CUB’s complaint also challenged the marketing of Ameritech’s CallPack plan,
which charges customers 10 cents per call for all local calls.

Because Ameritech has promised to change its marketing of this plan, the ICC
didn’t rule against the company on the issue.

Regarding customer refunds, the ICC said that it doesn’t have the authority
to order them in a consumer fraud case. The CUB will ask the commission to
reconsider that portion of its ruling, according to Cohen.

Meanwhile, Ameritech continues to struggle with QoS issues throughout the
five states it serves for SBC.

ICC chairman Richard L. Mathias sent a letter in January to state regulators
in Indiana, Michigan, Ohio and Wisconsin asking if it would be appropriate to
ask SBC chairman and CEO Edward E. Whitacre Jr. to meet again with the five
SBC-Ameritech state commissions.

Specifically, Mathias wants clarification on statements Whitacre has made
about Ameritech’s QoS problems, among other issues.

Whitacre has acknowledged some of Ameritech’s problems. He’s even said he’s
"embarrassed" by them. But the chairman also says that progress is
being made on correcting any of the problems.

The chairman’s comments were made as its QoS problems led to an effort last
November by the five state commissions to hold Ameritech’s feet to the fire
because of its serious service quality problems.

While Ameritech executives say the company’s service problems are being
fixed, regulators in Illinois, Indiana, Michigan, Ohio, and Wisconsin say the
corrections aren’t happening quickly enough. And in a unique strategy to force
the company, and its parent company SBC, to address the ongoing operational
deficiencies, the states’ regulatory commissions are conducting a regional joint
forum to address Ameritech’s QoS deficiencies.

"This region wide forum is unprecedented in scope and cooperation and
will represent a first of its kind effort to monitor SBC/Ameritech’s service
quality performance," according to a joint statement from the commissions’
chairpersons.

SBC spokesman David Pacholczyk confirms that Ameritech is experiencing the
same kinds of problems in the five states. He says Ameritech is working as fast
as it can to correct the problems, but with nearly 20 million businesses and
residential customers, and more than 22 million access lines, it’s not an easy
task.