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No price cuts for Verizon, BellSouth DSL customers

No break for DSL subscribers on their bills as a fee used to fund the Universal Service Fund is eliminated.

Verizon Communications' and BellSouth's DSL customers won't see a reduction in their broadband bills, even though a special fee that had been tacked on to bills to pay for a federal program has been eliminated.

Last year, the Federal Communications Commission changed how it classifies DSL (digital subscriber line) services, thus eliminating a fee that had been charged to all DSL subscribers to help pay into the Universal Service Fund. USF is a federal program that helps subsidize rural telephone service and provide Internet access to schools and libraries.

Verizon DSL customers subscribing to its 768Kbps (kilobits per second) service paid about $1.25 into USF every month, and customers of its 3Mbps (megabits per second) service paid about $2.83 per month, the company said. BellSouth customers were charged $2.97 per month for USF, according to the BellSouth Web site.

But now that the fee has been eliminated, as of Aug. 14, neither Verizon nor BellSouth plan to pass the savings on to consumers. Instead, Verizon has added a new "supplier surcharge" starting Aug. 26 that's $1.20 per month for the slower service and $2.70 for the faster service. BellSouth said it will keep its $2.97 fee, which it continues to call a "regulatory cost recovery fee."

Verizon said it is charging its new supplier surcharge to offset the cost of offering its standalone, or "naked," DSL service, which allows customers to subscribe to DSL without subscribing to Verizon's local phone service.

The company said that because it's losing revenue from those voice subscriptions, it must make up the difference in other ways. But instead of simply recovering those costs in the price of the actual service, Verizon has chosen to spread the cost of naked DSL across its entire DSL customer base.

Customers subscribing to standalone DSL pay $5 more per month for their broadband service than customers who buy DSL bundled with a voice service.

"We didn't think the standalone DSL service would be competitively priced if we put all of the cost on the service," said Bobbi Henson, a Verizon spokeswoman. "So we spread the cost across the entire base of our DSL customers. Doing this as another fee was coming off the bill seemed like good timing, since it will have little impact on what customers are actually paying per month."

Meanwhile, AT&T and Qwest Communications International, which also offer standalone DSL, are not adding new fees in lieu of the USF fee. AT&T charges about $10 more per month for the standalone DSL service than it does for its bundled DSL services.

BellSouth had a different explanation for keeping its $2.97 fee. It explained in a statement sent to CNET via e-mail that the charge is "to offset costs incurred in complying with regulatory obligations and other expenses. The fee also recovers costs associated with additional systems necessitated by federal regulation, as well as costs associated with monitoring, participating in and complying with regulatory proceedings, and other network and servicing requirements."

But consumer groups don't buy either explanation.

"Verizon and BellSouth are using the situation to pocket more revenue from every customer by labeling this fee, which customers are already used to paying, something else," said Jeannine Kenney, senior policy analyst for Consumers Union. "BellSouth is clearly misrepresenting what the fee will pay for. I mean how can this be a 'regulatory cost recovery' when DSL is no longer regulated?"

Mark Cooper, director of research at the Consumer Federation of America, believes that Congress should take the phone companies' recent actions as a warning of what could happen if lawmakers do not impose Net Neutrality regulation, a hot topic being debated in Washington. Without Net Neutrality legislation, network owners, such as the phone companies, could charge third parties, like Vonage or Google, extra fees for offering services over the phone companies' broadband networks. Phone companies have argued that if they could provide Internet companies premium services for a fee, broadband customers could ultimately benefit through lower-priced and more innovative services.

"They made similar arguments when they lobbied to be excused from USF regulatory obligations that doing so would benefit consumers," Cooper said. "And here they are, free from those regulations, and they still stick it to the consumer."