Missoula Independent, November 13, 2003
How Montana is abused by the nation’s greediest telephone company –
and what you can do to protect yourself.
Patricia Kirk is a victim of what might be called Qwestern Justice.
Her troubles with Montana’s dominant phone service provider started in February when she had calls from her house in Stevensville forwarded to her cell phone. The friendly sales associate quoted her a firm rate of $4.50 a month for the service. And then he told her something appalling: Qwest associates had been previously instructed to lie to customers about the true costs of service features, but those days were over. Or so he promised.
Kirk then got her bill and saw the forwarding service cost her $12.76—nearly three times what she’d been quoted. Her choice at that point was simple: pay the bill or lose her phone. She paid.
“It is amazing to me that they can get away with this,” said Kirk. “They deliberately misrepresent their prices. If I had a choice, I would not be doing business with Qwest. But if you want a phone, you have to stick with them.”
Pay what you don’t owe or go without a phone. This is a familiar dilemma for customers of Qwest, an out-of-state behemoth with a history of fraudulent practices, abysmal customer service, craven nickel squeezing and allegations of top-level corruption.
Despite a recent CEO change and repeated promises to clean up its act, Denver-based Qwest continues to make simple phone service needlessly miserable for many of its 371,000 Montana customers. And at the same time, according to watchdog groups, it takes more than double the profits from Montana than is allowed by law.
This is the story of how Montana came to be stuck with one of the worst telecommunications corporations in America. It is also a prominent example of how a Fortune 500 company with an overwhelming market advantage can rob its own customers when core values are centered on quickie profits and short-term bursts of revenue rather than a lasting commitment to service.
But don’t expect Montana to tag Qwest with the same multi-million-dollar fines and consumer reimbursements levied by Colorado, California and Washington. A tangle of conflicting regulatory laws prevents the Montana Attorney General or the state’s Consumer Protection Counsel from touching Qwest. The only agency with real jurisdiction, the state Public Service Commission, has challenged Qwest in some areas, but has yet to make the state’s telephone giant accountable in any meaningful way for its longstanding and often flagrant customer abuse.
Well-accustomed to plunder by out-of-state economic powers, the Treasure State is exposed to telephone thievery indefinitely, as long as Qwest customers keep paying unfair bills without protest and as long as regulators and prosecutors fail to take stern measures. Because one thing is for sure: The dysfunction within Qwest runs deep.
“It’s a corporate culture problem, and it’s something Qwest has to work out from the inside,” said David Ponder, executive director of the Montana Public Interest Research Group, which studies telecommunications issues. “My experience has been that all we see are new public-relations campaigns. They don’t do a good job of providing customer service. But what are you going to do? You’re fed up with Qwest, so then you’re on hold an hour listening to chamber music.”
HOW IT CAME TO THIS
Qwest enjoys a virtual monopoly in Montana not because it has any special legal protection or because of a past reputation for excellence.
Its dominance devolves from its outright ownership of the 373,000 access lines in Montana. And these in turn come from its inheritance of a large chunk of the national Bell System, which used to be the only telephone company in America.
Qwest is one of the “Big Four” regional phone companies that provide most of the United States with a dial tone. The companies have flagged their turf like medieval armies: Verizon generally services the Northeast, Bell South has the Southern states, SBC has parts of the Midwest, Texas and California, and Qwest has the vast Rocky Mountain region.
These companies are the corporate descendants of the original “Baby Bells,” the AT&T spinoffs created in 1984 when a federal court ordered the dismantling of the Ma Bell empire on anti-trust grounds.
Three Rocky Mountain carriers were consolidated to form US West, which took control of a vast grid of telephone poles, switching stations, fiber-optic lines and maintenance shops across 14 states. If you lived anywhere in between Duluth and Yuma, US West was the only place to go for a telephone hookup.
But despite the potential for customer abuse, it managed to keep up a relatively good service reputation until the mid 1990s, when Congress deregulated the telecom industry, and a new team of executives at US West began to emphasize rapid growth, real-estate speculation and stock performance.
According to telecommunications analyst Ed Mierzwiniski of the Montana Public Interest Research Group’s Washington, D.C., office, US West adopted the most ruthless of the growth strategies among big phone companies during the early days of the dot-com boom. The capital that fueled the growth was diverted from where it was missed the most: customer service.
“The ways these companies can really make money is absolutely squeezing customer service,” said Mierzwiniski. “They’ll stop doing maintenance, they’ll fire customer service personnel and replace them with voice-mail jails. It becomes exceedingly difficult for a customer to get a problem fixed. You call them with a problem on a bill and they’ll try to sell you an upgrade.”
US West quickly became known as a difficult company. In 1996, it ranked dead last in the nation in the annual J.D. Powers and Associates customer satisfaction survey and remained at the bottom for the next four years. An astounding 51 percent of its customers said they would switch phone companies if they had a choice.
US West became the target of buyout speculators in 1999 and was purchased for $48 billion by Qwest, a fiber optic company founded by reclusive Denver billionaire Phil Anschutz, who made his money first by buying and selling ranch property on the high plains, and then through a combination of oil, railroads and movie theaters. Qwest’s CEO was an intense, broad-shouldered corporate superstar named Joe Nacchio, who Anschutz had hired away from AT&T.
“I think there is great value in taking a company the mass and size of US West and transforming it into an entrepreneurial, high-growth company, and that’s what our plan is,” said Nacchio at the time.
But according to Mierzwiniski, what was euphemistically called a “merger” between Qwest and US West was a disaster from the start.
“You take US West, this recalcitrant, recidivist company and overlay on top of it this merger which comes out of the late 1990s corporate culture, and you get a make-money merry-go-round. They were able to flex their market power at the expense of their customers.”
HOW TO LOOT A CAPTIVE AUDIENCE: A USER’S GUIDE
Qwest enhanced its bottom line through a variety of means, most of them of the nickel-and-dime variety, many of them illegal, and targeted at ordinary residential users. There is evidence that some of these practices continue in Montana, despite Qwest’s promises of reform. They are tactics one would associate more with a Las Vegas boiler-room operation than a reputable corporate giant.
• Cramming: This is when the phone company adds unauthorized charges to your bill, making you pay for services you didn’t order or hiding the true costs of services that you did order. The Washington State Attorney General’s Office received more than 7,500 complaints about this shady Qwest practice in a two-year period. Customers there who called the company to complain received familiar treatment: no resolution to the problem and a hard sell to order expensive phone features, like caller ID and custom ringing. Under a 2002 agreement in which Qwest admitted no explicit guilt, the company agreed to pay a $1.3 million fine, issue refunds to wronged customers and pledged to improve customer service procedures. But customers in Montana are still getting crammed, evidence indicates. Sharon Booth, a 63-year-old retired Missoula schoolteacher, said she asked detailed questions when she signed up for Qwest’s Measured Service Option last year. She was assured she would only be billed for the calls she placed, not those she received. But this January, when the bill arrived, she found the story had changed and she owed more than $100 for incoming calls. “They arbitrarily start hitting you with expenses,” said Booth, who now avoids Qwest. “It’s very frustrating. My God, technology gets better, but service gets worse. Yay for progress.”
• Poor Maintenance: There are few quicker ways for a phone company to trim costs and beef up profits than by cutting back on the expensive necessity of keeping wires and infrastructure up to snuff. Qwest customers, particularly in rural areas, have learned that waiting for a repair crew is an exercise in existentialism. Here’s one example of how Qwest’s sketchy network upkeep is not just an annoyance, but hits Montana straight in the pocketbook: Rocky Mountain Log Homes, one of the largest employers in the Bitterroot Valley, essentially could not talk with its customers via phone for nearly six months this year, thanks to a Qwest screw-up. National and international customers could not call in, and repeated conference calls to Qwest customer service accomplished nothing. The phone company blamed Rocky Mountain Log Homes—until a repair crew finally found the trouble in July. Administrative assistant Cathy Teeples said she finally got results by writing multiple letters, complaining to the Public Service Commission and putting everything in writing. “They dealt with it as if it were an insignificant problem,” she said. At the end, Qwest not only refused to issue a refund, but declined even to make an apology for the six months of business hardship that Rocky Mountain Log Homes suffered as a result.
• Area code splitting: Qwest has needlessly shoved millions of its customers into new area codes—forcing businesses to order new stationary, repaint billboards and print new business cards—when the old areas codes aren’t even half-full. They then broadcast condescending ad campaigns to explain that the hassle is due to the “increasing popularity of cell phones and faxes.” This is disinformation on a grand scale. The truth is that phone numbers are handed out to carriers in 10,000-number blocks and Qwest and other phone companies hate to break up sequential numbers (555-0001, 555-0002, etc.) that can be sold at a premium to big organizations who like the symmetry. So instead of handing out all available numbers, Qwest and other phone companies force a split in the area codes and make everybody pay, according to consumer advocates. The Montana Public Service Commission has been more aggressive than other states in number-conservation measures, and phone numbers in the state are now handed out in blocks of 1,000. So the 406 area code, which would have been split this year, is now not expected to be divided until 2007. We shouldn’t expect Qwest’s big cell-phone lie until then.
• “Customer service” as revenue center: Qwest is a company that treats its employees almost as badly as its customers. A sample of the unhappiness within the company can be found at the massive Internet site www.tsewq.com (Qwest spelled backward), where employees have been anonymously sounding off for years about the rapacious and dishonest practices they are instructed to employ. Associates say they are threatened with firing if they don’t sell a monthly quota of new services to customers who call in with complaints. “The many times my calls lasted more than seven minutes helping the customer, I would get ‘coached’ and told that those calls were a ‘waste of time since they didn’t generate revenue,’” wrote Mike from the Phoenix office. The webmaster of tsewq.com is a Minneapolis IT technician—not a Qwest employee—who has been scrutinizing the company’s practices for seven years. He estimates he has heard from nearly 400 current and former employees in that time. “There are so many disgruntled employees who don’t care at all about the image of the company anymore,” he said. “They have been told, ‘lie if you have to, but make the sale.’” The frenetic close-at-all-costs atmosphere within the call centers begins to resemble the movie Glengarry Glen Ross, according to some. One frustrated Qwest “customer service” employee told the Independent he was expected to sell $88,000 worth of services per month, or pay the consequences. “I would be dinged for not trying to sell a 94-year-old lady a high speed Internet connection,” he said. “I’ve had colleagues who were disciplined for not selling to people who have just lost a family member. It offends my moral principles.” He said his sales quota has gone up 230 percent since Qwest bought out US West.
Qwest spokesperson Vince Hancock denied the company engages in underhanded practices like cramming or number-hoarding, and said Qwest was committed to investing up to $1 million a week in its Rocky Mountain phone network.
“Customers come first in all situations and we are always searching for ways to improve the customer experience, whether that means expanding the hours of our customer care centers or deploying cutting-edge technologies such as DSL to new areas in response to customer interest,” he wrote in an e-mail to the Independent.
And the incessant sales pitches in response to a service problem?
Hancock wrote: “Our customer service representatives are trained to assist the customer with his/her telecommunications needs. As the representative addresses the issues the customer calls with, if he/she learns of a possible need, he/she will offer possible solutions to meet that need.”
WHERE YOUR MONEY WENT
It now appears that all the money that Qwest has siphoned from customers in Montana and other states over the last three years helped enrich top executives in Denver to an obscene degree—unseemly even by post-Enron standards.
Part of what distinguished Qwest from more prudent monopolies was the prevalence of generous stock options offered to executives. The company created almost as many shares of stock to give to its top management as it sold on Wall Street. An investigation of stock sales by Denver’s Rocky Mountain News revealed that more than two dozen Qwest executives dumped stock for profits exceeding $483 million at the same time the company was cutting corners to meet Nacchio and Anschutz’s relentless growth expectations. It was a recipe for superficial, short-term gain at the expense of long-term sustainability. In short: Why build a good customer reputation and a solid network when payday was right around the corner?
“As long as executives ‘made their numbers’ and hit or beat Wall Street estimates, they could continue to acquire options, cash them in and take the profits—whether the company stayed healthy over time or not,” the Rocky Mountain News concluded.
Nacchio himself walked big, pocketing an estimated $310 million in options, salary and severance before Qwest stock tanked from $66 a share to below $3, and he was fired.
The questionable practices fueling Qwest’s brief Wall Street parabola from 2001 to 2002 went beyond the deception of ordinary customers. Investors also were misled. Qwest is currently under investigation by the Securities and Exchange Commission for various sketchy accounting practices, including alleged inflation of revenues by recording the entire estimated proceeds of a multi-year deal in just one year to make it look like the company earned more than it really did.
This accounting technique – which serves as a metaphor for Qwest’s live-for-today mentality – is at the center of a criminal case involving four phone company executives who allegedly filed false documents to claim a $33 million payment from the Arizona School Facilities Board to wire all schools in that state for the Internet. The deal actually involved payments spread over a much longer period, and the executives allegedly logged it all at once to cover up a weak second quarter. This put Qwest in the lineup alongside Enron and Worldcom, other corporate giants who used smoke-and-mirrors to create the appearance of huge earnings in the late 1990s.
SEC investigators are also looking into allegations that Qwest made similar false bookings of profits from fiber-optic swaps with other telecom firms, as well as suspicions that Qwest executives accepted improper payments from smaller companies angling for Qwest’s business.
Deception at the top levels of Qwest set the tone for the shortchanging of customers in Montana and all over the West, and created more pressure to squeeze ordinary telephone users for every last nickel.
The stock-dumping while the company was crashing led Fortune magazine to declare in September 2002 that Qwest was “the nation’s greediest company” and Anschutz its “greediest executive.” The Denver tycoon, who rarely gives interviews, issued a public statement calling Fortune’s portrayal “astoundingly inaccurate and unfair.”
SPIRIT OF SHIFTINESS
The bill for Qwest’s misbehavior is still coming due. The books, by all accounts, are a mess. The company has said it expects to restate or erase as much as $2.5 billion in revenue that may have been improperly logged, an amount equal to the gross national product of Nicaragua. The SEC probe is not expected to wrap up until after the November 2004 presidential election.
In the wake of the corporate scandals, Qwest has tried to repair its reputation by launching a new ad campaign proclaiming its “Spirit of Service.” New CEO Dick Notebaert has promised to usher in a new era of openness. The company also hired 500 new customer service representatives to staff its call centers and instructed associates to answer the phone by asking callers, “How may I provide excellent customer service today?”
There is no evidence yet that any of this has made a difference. State records show that annual complaints against Qwest are at an even higher level than they were during the bad old days of US West. The Montana Public Service Commission last year recorded 925 complaints against the state’s phone giant, up from 836 in 1998.
Qwest’s pledge of reform isn’t convincing to State Rep. Larry Cyr, D-Butte, who is having his own personal frustrations with Montana’s telephonic Anaconda. Qwest told him he’d be charged a low rate on his cell phone “anywhere in the West,” but Cyr then found the premium only applied within big cities.
“I think they’re just about the worst company in America,” said Cyr.
“And you can quote me.”
Equally as blunt about the new ad campaign is the frustrated Qwest employee who broke ranks to speak to the Independent.
“It’s a joke,” he said. “They have placed so much emphasis on sales quotas that they don’t care about anything else.”
The “Spirit of Service” also managed to bypass Jessica Miller, a 25-year-old chambermaid for Super 8 Motels, who was told she had to pay $198 in calls somebody else had made from Livingston in 1997, or she wouldn’t get a phone. Qwest had confused her with another “Jessica Miller” in another part of the state, and refused to listen to logic. They told Miller her only alternative was to track down the other Jessica herself and make her pay the $198 — a novel Qwest policy that puts new customers into the role of freelance bill collectors.
She wasted a total of three hours on a customer service line before a higher-up was able to recognize the absurdity and approve her installation.
“They were actually pretty snotty up until that point,” said Miller. “I about thought, well shit, I’ll just pay this.”
Miller eventually didn’t have to, thanks to persistence and good luck. There’s no telling how many weren’t as tenacious. PSC records do not document the thousands of Montanans who either unknowingly swallow unjust charges, or decide to quietly pay up under threat of lost phone service or a ravaged credit rating.
This, in the end, is the psychological trump card Qwest holds in its death-grasp on Montana consumers: It often makes more sense just to eat a dubious bill than try to argue with them. Truly effective competition for local dial-tone service is still years away, and Qwest holds the power to cut off a home from the rest of the world — and mark the occasionally rebellious customer as a deadbeat on his credit report — for daring to challenge their “spirit of service.”
Other states such as Washington, Colorado and California have seen aggressive consumer action against Qwest from their Attorneys General and utility commissions, but that isn’t likely to happen here anytime soon.
Montana is one of the only states in the nation in which the attorney general is not legally empowered to conduct consumer investigations. And the small and underfunded agency that does — the Consumer Protection Counsel within the Department of Administration — is prohibited from investigating Qwest because of a 1972 law which keeps them away from “actions or transactions” overseen by the Public Service Commission.
“With a small staff, I think we provide not a perfect but a high level of protection,” said PSC Chairman Bob Rowe, pointing out that the agency made Qwest file reports for making interconnection agreements with wholesalers without reporting them to regulators.
But Minnesota regulators fined Qwest $26 million for this behavior; for similar reporting failures in Montana, the company escaped scot-free.
Incredibly, the PSC lacks the statutory authority to levy a fine against Qwest for just about anything — except switching your long distance without permission, a practice known as “slamming” for which Qwest has been punished in other states. This is largely irrelevant since Qwest only recently entered the long distance market in Montana.
A four-year-old law giving the PSC the power to penalize phone companies for improper billing has not yet been put to use against Qwest, and the agency must go through the cumbersome process of taking the company to court in order to collect damages. This doesn’t often happen.
“Part of the reason [for the lack of action] is that the jurisdiction is all screwed up,” conceded Cort Jensen, a special assistant attorney general in Montana’s Consumer Protection office. Under the 1972 law, he has legal powers to investigate almost anybody who cheats you — except Qwest and other utilities.
So despite everything — the criminal indictments, the executive looting, the wretched customer service — Qwestern Justice continues, and shows no sign of stopping.
A final indication of Qwest’s attitude toward its captive Rocky Mountain phone fiefdom can be seen in a current position they’re taking at the Montana Public Service Commission. The company stands accused of exceeding its legal profit cap and making more money from Montana than legally permitted. Under the terms of a 1990 state order, Qwest is allowed a return of 10.44 percent; it allegedly earned 22 percent — nearly double the money the company is allowed to reap from Montana pocketbooks. The PSC was finally incensed enough to sue Qwest in October in pursuit of documentation of their Montana moneymaking spree. But the company has refused to allow state regulators to look at its financial statements to settle the question.
In other words: Trust us.
Why wouldn’t you?
DISCLOSURE: The author is currently involved in a billing dispute with Qwest. His complaint is pending at the Montana Public Service Commission.