How AT&T, Verizon and the Telecom Giants Have Captured the Regulator Supposed to Control Them

In a recent AlterNet article, we detailed how the Federal Communications Commission (FCC) helped increase the “FCC Line Charge” (SLC), now capped at $6.50 per line, that is imposed on every residential and business phone line. It is a charge that is usually hidden among the “taxes and surcharges” section of the phone bill. It does not go to fund the FCC, but is a direct subsidy to phone companies.

However, the full story of the role AT&T, Verizon and others played in the FCC’s deliberations establishing the SLC has yet to be told. It is a model of what is known as “regulatory capture,” the process by which a federal or state regulatory or other government agency becomes too cozy with those it is charged to oversee.

In 2000, the phone companies created a campaign known as CALLS (Coalition for Affordable Local and Long Distance Service) to raise fees. It is the model of how these companies, their astroturf shills, co-opted consumer groups, corporate-funded research firms, federal bureaucrats and politicians worked together to effectively take control of the FCC’s agenda and create a massive marketing campaign to fool the public.

A report on the program was issued on September 19, 2000, and mysteriously disappeared from the FCC Web site. It has surfaced and details how the campaign was implemented. It also offers insight into the mystery of regulatory capture that shadows the FCC. A copy of the suppressed report can be found at

Efforts at regulatory capture pioneered by the CALLS program live on. The FCC’s December 21 order on Internet access illustrates how its policies bend to corporate interests. Tim Wu, a Columbia University law professor and the person who coined the term “net neutrality,” reported on how, in a conversation with FCC chairman Julius Genachowski, the chairman insisted the order could only be accepted if AT&T’s interests were met. (And the only commissioners who voted for it were the Democrats.)

Capture is not limited to the FCC. The Department of Interior’s former agency, Minerals Management Service (MMS), served oil and gas industry interests. Exposed in a series of financial and sex scandals, MMS also resisted Congressional officials efforts to investigate safety concerns relating to a second BP platform and other installations setting the stage for the great Gulf oil spill of 2010.

And capture influences American foreign policy as well. A recent WikiLeaks revelation documents how former United States ambassador to France, Craig Stapleton, proposed to “retaliate” against France and the European Union (EU) because of their opposition to Monsanto’s genetically modified seeds.

Today, regulatory capture is business as usual.

* * *

The CALLS initiative was created by the phone companies to raise rates, increase the universal service fund and, thus, ostensibly benefit customers. Its purported purpose was to “educate” telephone consumers about changes in local and long-distance billing. Such education would supposedly empower consumers to make better purchasing decisions about which telephone company to subscribe to, thus doing away with the need for regulatory oversight.

The goal of this educational campaign was to save consumers money in their long-distance phone bills. The FCC argued that the campaign would cut long-distance rates by $5.6 billion over five years. Unfortunately, it played down the real purpose of the campaign: to shift long-distance access charges to the local phone bill.

To accomplish the CALLS program, the phone companies retained Issue Dynamics, Inc. (IDI), a Washington, DC, PR firm. The coalition brought together those who had the most to gain, including Bell Atlantic and GTE (now Verizon) and SBC and BellSouth (now AT&T), among others, with those it was suppose to benefit represented by non-profit groups.

IDI built the “coalition” by drawing upon some of its front or astroturf groups, including the Alliance for Public Technology (APT) and Telecommunications and Research Action Center (TRAC). It also recruited some non-profits that have been effectively co-opted by receiving money from the phone companies through their foundations. These groups included the American Association of Persons with Disabilities (AAPD), Consumer Action (CA), National Association for the Advancement of Colored People (NAACP), National Grange (NG), United Homeowners Association (UHA), United Seniors Health Cooperative (USHC), the U.S. Hispanic Chamber of Commerce (USHCC) and the National Consumer League (NCL).

The phone companies took a strong hand in the program. They created the education brochure, “Smart Consumer’s Guide to Telephone Service,” that was distributed through the U.S. government’s Federal Consumer Information Center. They also directed the program’s extensive marketing campaign, with company representatives giving speeches, presentations and discussions at meetings of civic and neighborhood associations, local United Way chapters, Chambers of Commerce, Rotary and Kiwanis clubs, Telephone Pioneers, employee gatherings, senior centers and high school associations, among others.

As part of the CALLS program, NCL, America’s oldest consumer advocacy organization, received a grant from Verizon and SBC, to develop a Web site, “Understanding your Phone Bill.” Gone unnoticed, the phone companies’ point man on CALLS, ICI’s director, Sam Simon, became NCL chairman and continues to serve on the board

Corporate shills also lined up to endorse the plan. The Economic Strategy Institute, a Washington think-tank run by former Reagan salesman Clyde Prestowitz, came out uncritically in support of the CALLS plan. It insisted “that it will serve the national interest by promoting greater economic efficiency while stimulating competition in the marketplace and encouraging investment and innovation.”

A few raised questions about the CALLS effort. “The only one who comes out behind in this is the consumer,” warned Gene Kimmelman, of Consumers Union. “You only get a savings when you make a high volume of calls.” A similar warning was raised by the National Association of State Utility Consumer Advocates (NASUCA), which insisted that the CALLS plan undercut competition and the universal service goals of the 1996 Telecommunications Act.

Most alarming, the public never knew what was happening. The extensive behind-the-scenes planning is documented in the letters of endorsement from the various consumer groups. (These are available at

* * *

According to Open Secrets, the “telephone utilities” spent $43.2 million on lobbying in 2009. Of this, AT&T and Verizon accounted for two-thirds of the total; AT&T spent $14.7 and Verizon spent $13.1 million.

Equally illuminating, these “utilities” reported 362 lobbyists and 268 “revolvers,” who Open Secrets identify as participating in the “revolving door that shuffles former federal employees into jobs as lobbyists, consultants and strategists just as the door pulls former hired guns into government careers.” Open Secrets identifies 148 former FCC staff personnel among the revolvers, including former chairman, William Kennard, now with the Carlyle Group.

The consequences of the CALLS efforts are still with us. It is most evidently in what is known as the FCC Subscriber Line Charge or SLC which has never been investigated. More important, this charge is likely to be continued and expanded under the proposed National Broadband Plan now being developed by the FCC. This charge will likely be increased to $10 a month. In addition, four additional charges are likely to be added, including a “mobility tax,” increased local rates and even the creation of a broadband tax.

Speaking before Congress before the Dec. 21 FCC order on net neutrality, Senator Al Franken offered a invaluable warning:

“I rise today to talk about the growing threat of corporate control on the flow of information in this country,” he stated. And added the following caution: “… while we debate these issues [of jobs] in front of the public, behind the scenes — away from public scrutiny — the Federal Communications Commission is about to decide two distinct, but closely related issues, that have the potential to change dramatically the way we get our entertainment; the way we communicate with one another; and most importantly, the way we use the Internet.”

Regulatory capture is clearly playing a role in the FCC’s deliberations and approval of the proposed Comcast-NBCU merger. The head of NCL, which played a key role in the original CALLS program, services as chair of the FCC Consumer Advisory Committee. And Sam Simon, of ICI and himself a former NCL chair, now serves as NCL’s Treasurer.

Time passes, but nothing changes.

David Rosen is author of Off-Hollywood: The Making & Marketing of Independent Films and a regular contributor to CounterPunch, Z-magazine and other publications. He can be reached at [email protected] Bruce Kushnick is a telecommunications industry analyst who serves as the broadband and telecommunications expert for the Nieman Watchdog. He can be reached at [email protected]