Verizon backs down on made-up fees and then adds them anyway


I ranted a few years ago about rate hikes disguised as fees or taxes, but Verizon's unabashed deceptive practices still gets me all worked up.

Last year, the FCC decided that Verizon didn't have to pay the Universal Service Fund fee any more, but that didn't stop them from charging for it anyway. What galls me is their explanation of the fee the invented to replace the USF: "... new costs that we've developed over the past year as we've been developing and delivering this standalone DSL service." Now, maybe I'm not hip to this whole "new economy" thing, but I always thought that the way to reflect increased costs in providing a product is by a complicated technique called "raising the price". They aren't even pretending that it's a pass-along of some government fee or tax. They're saying that it's a fee to do their own job.

Imagine if you go to the grocery store and check out, and there's a line item at the bottom: Building cost recovery fee. You'd think these people were nuts. The way you recover building costs is by charging more for your products and services.

Some time afterwards, Verizon reversed its position and announced that it would stop collecting this bogus fee.

And then they quietly announced that they would keep collecting it anyway in selected areas.

Comments (31)
  1. James Schend says:

    I think, on balance, Verizon is still marginally better than ComCast.

    But, criminy, why can’t we get a single, competent telecom company? The best telecom service I had was in Ellensburg, WA where it was run by a local company called EllTel. (Or probably Ellensburg Telephone, but everybody said EllTel.) Verizon takes 20 days to activate a DSL line; EllTel had it activated before I got back home from visiting their office.

    Next time I consider relocating, I’m going to specifically look for a place that has a local telecom company and not a huge multinational corporation.

  2. Marc K says:

    SBC/AT&T stopped charging customers the FUS when the FCC declared that it no longer needed to be collected.  Not all phone companies are as bad as Verizon.

  3. The way you recover building costs is by charging more for your products and services.

    Allow me to disagree.  I think adding a flat per-visit fee to recover building costs is an excellent idea.  That way people who make weekly trips only have to pay the fee once a week, but people who go shopping every day will pay several times.

    I should note, economically speaking, that some costs that businesses incur are per-customer or per-transaction rather than per-customer-dollar, so fees are a viable negotiation point between producer and consumer.

  4. > And then they quietly announced that they would keep collecting it anyway in selected areas.

    I noticed that on my bill, and I read the statement you link to.

    At the time, I thought that it meant that the states of Washington and Illinois (only) are continuing to tax Verizon for services provided in those states; the tax recovery fee is Verizon’s way of paying Washington and Illinois off by charging WA and IL consumers a fee.

    Not so?

    [So raise the rates. Don’t tack on some hidden fee and blame it on the other guy. -Raymond]
  5. ... says:

    Don’t like it then stop using Verizon.  Just cancel their service and walk away.  There are a host of other options availiable from celluar to CATV to satillites.

    [Verizon is the only wireline provider in the area. I’m fine with paying the money, I just want them to be honest about it. -Raymond]
  6. richard says:

    My experience is that most people object less to an additional fee than to a higher price.

    When I worked in a retail environment, we discovered that if we unbundled the shipping fee from the price, people were less likely to complain than if we included it in the price.

    So, instead of saying "That will be $18.95", we could say "It’ll be $14.95 with $5.00 shipping" (never mind that multiple items were shipped in at the same time and we could increase profit).

    Itemized things go down better than a single lump sum for "services rendered".

    On the other hand, people can also be easily duped with "free" offers – like free shipping (which is not really free, since it is built into the price), But wait! There’s more …

  7. C Gomez says:

    Raymond is right, imho, that, in his example, it isn’t made clear what the various fees are for.  And it should be considered false marketing not to distinguish made up fees from real add-ons like taxes.

    In other words, I have no problem with saying "24.99 for service (plus taxes as appropriate)" because that implies to me that the money grubbers in government are adding onto the cost of the bill.  But don’t say "24.99 plus taxes and fees", because I now have no idea what the bill is going to be, and it is false advertising.  (It is not really 24.99, it is actually perhaps 60.00 plus taxes).

    Really, this seems like an FTC no brainer, but hey… I’m not involved.

    I have no problem with the ‘don’t like it, don’t use Verizon’ attitude except for the fact false advertising is being employed.

  8. James says:

    The problem that Verizon’s latest bogus fee is trying to address is that Verizon, like so many national companies, wants to have a fixed national price, although their costs vary by region.

    Instead of a "Prices may be higher in Washington and Illinois" disclaimer ("… Alaska and Hawaii" is a common one), they keep the "same" price in all states.

    And then charge an additional bogus fee.

  9. SM says:

    I think the major issue is that when a tax like that is imposed, Verizon will simply add another line to the bill directly to cover it.  In this case, the FCC decided to do away with the fee, and instead of just reducing the rate, Verizon decided to call it something else, continue charging it, and pocketed the extra cash.

    Shady.

  10. JenK says:

    C Gomez’s commented that "I have no problem with saying "24.99 for service (plus taxes as appropriate)" because that implies to me that the money grubbers in government are adding onto the cost of the bill."

    I would also not that I know our local sales tax rate, and so I can do the math if I wish.  "and fees" makes me wonder what are the fees, and why I am I paying them?

    Disclaimer: I too use Verizon for local and DSL service, but I don’t even try to read the fine print. The former Verizon customer-service phone jockey of the house is the designated Handler of Phone Service in our house.  ;)

  11. Mikkin says:

    Free!  (with price of admission)

    No annual fees!  (monthly service charges apply)

    Two for the price of one!  (at double the price)

    As P. T. Barnum said….

  12. Jon says:

    The problem is partially the politicians:

    Politician 1: Let’s charge a tax on phone lines, since it’s the only utility with excise taxes in excess of 20%.

    P2: But that would be unpopular since it’s a new tax on the consumer.

    P1: I know, let’s tax the phone company and make it their problem.

    One could argue that Verizon doesn’t have a Federal Corporate Income Tax Recovery Fee (yet), but this is a specific excise tax AND they change on a monthly basis.

    Finally, check out airline tickets: they have a whole slew of excise taxes and airport taxes, but the price you see includes all taxes period.

  13. Steveo says:

    I do think that any quoted/advertised price should be all-inclusive; i.e. what you actually have to pay.  After that, the seller is welcome to document how the government, or other extortionists have caused the price to be higher than they wanted.  

    In fact, my limited experience in Europe is they do it exactly that way.  You can bitch about the VAT when you look at your receipt, but you know what you’re going to pay first.  I’m surprised Europeans don’t get hostile when dealing with sales tax in America.  We probably would if the situation was reversed.

    btw, here is the bill I got for a "$640" airfare to Japan:

    Air fare………………. 640.00

    Taxes………………….  85.12

    Weekend fee ……………  85.00

    Oil/security surcharges … 180.00


    Total…………………. 990.12

    Grrrrr, particularly the last one.

  14. Mike Dunn says:

    When I bought my car, the invoice contained this line, with this exact wording:

    MA $440

    When I asked what that meant, the sales guy said "manufacturer’s advertising". Needless to say, I refused to pay that.

  15. Jon says:

    Mike: Advertising is a fairly standard new car charge these days, for some reason. The traditional one was destination, which varies because due to your distance from the factory/dock.

    Steveo brings up a point that is relevant to telecom. Fuel surcharges on airlines and shipping are there because their rates are tariffed, that is filed and approved by a regulatory commission. (The US is deregulated in transportation, meaning those tariffs are rubber stamped, but not telecom) It is easier to impose a surcharge and vary it according to some metric (average fuel price) versus having to refile a tariff every month.

  16. Kyralessa says:

    "SBC/AT&T stopped charging customers the FUS when the FCC declared that it no longer needed to be collected.  Not all phone companies are as bad as Verizon."

    Bologna.  I have wireless through Cingular (now AT&T), and my bill went up by $5/month a few months ago–right after the court decision that said phone companies didn’t have to collect that "luxury tax" on telephones anymore.  Apparently they took the opportunity to up all their other fees and crap.  Some 22% of my mobile phone bill is taxes and fees; I might as well be paying VAT in Europe.

  17. C Gomez says:

    I can understand the desire to want to advertise without displaying the price after taxes.  As a retailer, its not my fault some jurisdictions charge no taxes… some charge some… and some charge a lot.  I want my price to be $29.99 but I sure as heck am not going to subsidize someone in a high tax area.

    But a tax is very different from a line item fee.  $24.99, only to find out there are extra line items not disclosed is false advertising.

    Still, since it is allowed… a wise consumer has to call up and ask what the real price is.  I guess the moral is to ignore advertising.

  18. I agree with you Raymond. Recently I saw an ad here in Sweden for mobile phones, where the phone would be like 1 SEK (~$0.15) if you signed up for their services, but then when you read the small print, it said you had to pay an additional 150 SEK (~$21.6) in a one-time fee…wtf?

    I’m not talking about the typical fee for starting the service, this was strictly if you bought the phone. If you signed up and used your old phone, no fee!

    So the $0.15 phone was more like $21.75 which obviously sounds far less appealing.

  19. Richard Mulder says:

    "I’m surprised Europeans don’t get hostile when dealing with sales tax in America."

    Nah, we just get really confused. What do you mean, the price on the tag isn’t what I need to pay at the register? How much then? Oh, it depends on where I am? That’s… not very helpful.

    And then there’s this magical 15% fee that you’re supposed to pay, but only sometimes. But it’s not listed or mentioned anywhere, you just need to know when to add it. Or you’ll hear them grumble loudly about ‘lousy-tipping foreigners’ again.

    Which has left me holding my last $8 in loose change looking at the price chart in some airport restaurant and having absolutely no idea whether I can afford the Daily Special on several occasions.

  20. Nawak says:

    > What do you mean, the price on the tag isn’t what I need to pay at the register? How much then? Oh, it depends on where I am?

    There are a number of reason that make this scheme a really practical, well-thought and customer oriented one:

    1) Since tax varies from one location to another, they don’t have to change all the labels when the shop changes location! Brilliant!!

    2) Forget a moment that for a given customer, tax don’t vary at all since s/he will always buy in her/his area. Think about the retail chain: Tax varies! Stores from the same chain can’t possibly have different prices because they are in different states! Unthinkable! How would the customers react to this?

    3) Customers don’t care how much an item will cost them, they want to know which shop makes the less margin! If it cost them more to buy from this *best* shop because of taxes, they will still do it!

    4) You have to think about the vast majority of customers who don’t pay the tax!

    5) And for the 3 or 4 that do pay this tax, the computation is always very easy to do mentally.

    What? What do you mean, "shops don’t change location"… And what do you say? Customers would rather compare shops based on how much an item would cost them than on how much the shop makes from the sell? Bloody customers! And I guess you are going to tell me that the price with tax is what the vast majority pay!!

    I guess you are right then, Richard, it is a confusing way of doing commerce that the US have…

  21. Ryan says:

    Actually, in some US states it’s illegal to include the sales tax on any item except motor fuel. It must be called out separately. That was done to make the cost of government a bit more transparent. Before 2001 gas taxes were between 40% and 50% of that cost, so it was hidden. Funny that. Now they range 20%.

    As for Verizon, whom I also love to beat up on, they’re playing in the regulated box we’ve decided to build for them. Want to raise prices? Submit a petition to the local utility commission, go through rounds of public hearings and hope it gets approved. Want to add a “fee”? Just do it. Guess which happens.

  22. Peter says:

    To add in an extra factoid about sales tax: not everybody pays it.  In particular, my brother and I, in the same local shop, will pay different amounts.

    I am a Washington resident, I pay local sales tax.

    He is an Oregonian; he does not pay local sales tax.

    No, I’m not talking about each of us going into a shop near where we each live — I’m talking about the two of us, arm in arm, buying the same thing at the same time.  There’s a provision in the Washington tax code to not tax Oregonians.

  23. GregM says:

    Other reasons that two people buying things from the same store at the same time will pay different amounts (at least in some states):

    Purchases for non-profit organizations don’t include sales tax.

    Purchases for companies that are buying things to resell directly don’t include sales tax, becuase the sales tax will be charged to the person buying the item from the reseller.

    Vehicle purchases don’t include sales tax.  The sales tax is charged at the time that the vehicle is registered with the state.

    Another reason that it isn’t included in the per-item price is that the sales tax amount has to be computed on the entire total, rather than item-by-item.  Because of rounding, including the sales tax in the price of the individual item can change the amount of sales tax paid.  Since this can be at most $0.005 per item, there must be a lot of items before this has an appreciable effect.

  24. Nawak says:

    Ok but don’t you think these cases should be edge cases handled by a tax refund instead of making it the default case? And with what has been said I think it would even be simpler for the cashier: no check for some_other_state ID etc. Maybe even less tax fraud/evasion since it is the state that will control the refund instead of the cashier.

    I’m biased toward including everything in the price tag because I live in Europe and have been used to this way, but I welcome arguments in favor of the US system if they show an "optimization for the general case" and not the edge case.

    (Or do "people from outer state"+"non profit org."+"other cases" really amount to more than 50%???)

    About the tax for vehicles: can’t see a good reason to include the tax later… interstate purchases? Still an edge case for me…

    About the business purchases: yes we have that in Europe too, businesses buy without tax but they either buy from specialised shops/businesses (specialised because of the sale’s volume, product-type, etc. doesn’t fit the general public) or they ask a refund (I think it works that way if they buy things from a simple walmart for instance, since the walmart doesn’t handle these edge cases).

  25. GregM says:

    "Ok but don’t you think these cases should be edge cases handled by a tax refund instead of making it the default case? And with what has been said I think it would even be simpler for the cashier: no check for some_other_state ID etc. Maybe even less tax fraud/evasion since it is the state that will control the refund instead of the cashier."

    The idea for the non-profit is to make things as easy as possible for them.  They just need to fill out paperwork at the time of the sale, and no tax is charged.  Otherwise, they have to pay the sales tax up front, and then get it refunded to them.  We already have too much governmental paperwork to deal with without having to deal with refunds on taxes of everything.

    "About the tax for vehicles: can’t see a good reason to include the tax later… interstate purchases? Still an edge case for me…"

    It’s really not an edge case.  When you’re looking at a $1000+ price difference for the exact same item between two neighboring dealers because they’re in different states, you can guess which one people are going to go to.  There are plenty of people that live close enough to state borders that it doesn’t take much to get them to drive to the state where they don’t have to pay the sales tax.  The business in the tax-free state actually push this in their advertising… "just over the border in tax-free…"

    Including the sales tax in the price tag also makes it more difficult for retailers that do business in multiple states.  They would have to price the items differently depending on which state is getting the item, or price the items in the stores instead of in the warehouse, driving up their costs, and ultimately raising the costs to the consumer.  When there are 50 different states with different tax laws/rates, plus local taxes, this can be quite a pain.

    It also allows things like "tax holidays" where the state tries to encourage consumers to purchase things by suspending the sales tax for a weekend (up to a certain limit).

    The non-profits and business can also ask for refunds, but it’s cheaper for everyone to just not pay it in the first place.

    Of course, this system does have problems, such as returning taxable items bought in one state to a store in another state, with different tax laws.  I always hated having to do tax overrides for customers.

  26. Ryan says:

    "About the tax for vehicles: can’t see a good reason to include the tax later… interstate purchases? Still an edge case for me…"

    No, a way to ensure the state gets paid. Cars are an oddity in that sales tax is charged EVERY time the car is sold. Not just the first time. In some states you can show up at the registration dept. with paperwork from an car dealer showing you’ve paid him the tax and get your plates (Allows you to fiance the tax). Since the state would have no great way to get the money from "Fred" whom you bought the car from (and who knows if he’s the last registered owner) they just hit you up for it on private sales. Some states even base your sales tax on their value of the car, not what you paid for it.

  27. Jivlain says:

    In Australia the price of a plane ticket does not include fuel for the plane.

  28. OzoneBlue says:

    I actually have a hunch that Verizon may not be able to "raise the price"; at least, not the base price of the service itself. It would be better if someone with a law background could chime in, but I was under the impression that once you had an agreement on a price for a service, the provider of the service couldn’t raise the price on you without your consent. In that case, Verizon wouldn’t be able to raise the price of the base internet service itself without you agreeing to it – and who in their right mind would agree to a price increase? But they CAN increase the associated taxes and fees, as those were never part of the negotiated fees when you signed up. It was understood that those could be changed as a part of your agreement with the telecom.

    Thoughts… ?

  29. Cooney says:

    Mike: Advertising is a fairly standard new car charge these days, for some reason. The traditional one was destination, which varies because due to your distance from the factory/dock.

    It’s also optional. You negotiate the price, then add registration and tags. Any additional fees are crossed out.

  30. WalthamMA says:

    Comcast charges about $8 in hidden, and mostly bogus fees atop their $99 plan.  When I called, I was told that they were to cover costs of regulatory compliance, as if Macy’s gets to charge $2 per item because regulations require snow removal.  Also I was told repeatedly that the advertisements explicitly note "taxes and fees extra."

    Cleverly, the fees are mostly $1 or less, making me feel petty about asking about any of them.  Reminds me of when you couldn’t cancel Prodigy; they would reduce you to a few-dollars monthly plan instead, figuring that you would give up eventually.

    But, yes, this is dishonest advertising, and enough to make me long for the time when, in the U.S., it was considered a good thing for governments to enforce standards of fair trade. But now that would be Big Government and anti-free (big) business, and thus bad, if not downright liberal.

  31. Igor says:

    Raymond, can’t you ask the IRS something like this: "Verizon is billing me an additional tax which has been canceled. Can you investigate what they are doing with that extra money please?"

    On a side note, we have a joke here in Serbia for such additional fees. It goes like this:

    Guests were eating and drinking in the restaurant and they had a good time. When they finished waiter brought the bill and one of them asked him: "What is this IIGAWI item here? I don’t remember we ate or drank that?!?" The waiter answered rather unwillingly: "If I Get Away With It"

    I hope you got it, it is kind of hard to translate it to English.

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