Consumer 9.0: Deregulated phone market has its 'gotcha' moments

It's easy to find examples of deregulation that has helped consumers. Unfortunately, it's also easy to find instances where it seems to have done them harm.

Rarely does one case perfectly illustrate both sides of the coin - a good deal and a "gotcha" rolled into one. But so goes the story of Bob and Angelika Egan, a Delran, N.J., couple caught between the rewards and risks of today's mind-boggling market for international phone calls - a category of calls that the United States deregulated in 2001.

Angelika was born in Germany, and her elderly mother still lives there. But because of an accident several years ago, Angelika finds it tough to travel back. So, dutiful daughter that she is, she calls her mother regularly - for about 30 to 60 minutes a day.

That's where the good news about open markets comes in. Thanks to growing competition that began with the 1980s breakup of the old Ma Bell phone monopoly, the price for international calls has dropped dramatically over the years.

Bob, a retired customer-service agent and supervisor at Northwest Airlines Corp., knows his way around a computer. By shopping around on the Internet, he was able to find a way to keep his wife's calls from breaking the bank. He found a dial-around service, www.tel3.com, that charged 2 cents a minute for the calls.

Rather than dial her mother directly, Angelika dials a domestic toll-free number first, then her mother's number in Berlin. A 60-minute call costs about $1.20.

The system works simply, with just one flaw. If Angelika forgets to dial the access code first, her domestic long-distance carrier, Verizon, charges what it calls its "Basic International Rates." Those rates are a little pricier for calls to Germany.

OK, a lot pricier: $3.20 a minute. The first time she made the mistake, on a 34-minute call on Christmas Day in 2006, her lapse brought a bill for $109.

Bob says Verizon was forgiving about the mistake - once. But he balked at the company's proposed solution: that the couple pay $5 a month for an international calling plan that would cut their rate to 10 cents per minute. Then, when Angelika made the same error a year later, the company said they had to pay up.

Verizon did offer one alternative, but it was even less attractive. He could install "Call Gate," a feature that would allow him to block the accidental calls - for $6 a month. So Bob finally agreed to pay for the $5 calling plan he hoped to never use.

And why would he? Even with the plan, Verizon's rate was five times as high as the dial-around service. If Angelika's calls averaged 45 minutes a day, she'd pay Verizon $135 a month vs. her $27 a month tab with Tel3.

Bob contacted Consumer 9.0 because he was frustrated at paying $60 a year for a service he didn't want.

Sure, the Egans could just consider it an insurance policy, since Angelika takes medication that occasionally makes her forgetful. But it also seemed more sinister - a bit like paying protection money.

And there was that nagging question: How could Verizon justify charging $3.20 a minute for a service that Tel3 sells for 2 cents a minute - a premium that tops 15,000 percent, for those keeping score.

Bob calls it "an unconscionable rate, one designed to force you into paying for their international calling plan."

Good points all, and worth asking about. So I turned to Verizon and the Federal Communications Commission, which was behind the 2001 deregulation.

The FCC, for its part, seems happy with the results, which it says has helped boost competition and reduce the costs of international calling.

Spokeswoman Rosemary Kimball says deregulation was also "seen as a more consumer-friendly approach" than the old system, under which carriers had to file rates with the agency and could change them on a day's notice.

Under deregulation, carriers such as Verizon market a variety of calling plans that many consumers find attractive. Customers can pay a monthly fee and get discounted per-minute rates, or buy a "bucket of minutes" in the style popularized by wireless plans, or even buy unlimited calling nationwide or to a particular foreign country.

But there are some serious downsides to the new telephone marketplace, according to groups that have monitored pricing over the years.

One is that consumers are often prone to overbuying when they pick calling plans.

"You may not be using enough phone time to come out even," said Linda Sherry of the California group Consumer Action. "Unused time is a gift to the industry."

Another is the marketplace's sheer complexity, which hurts uninformed consumers, occasional callers, or the errant such as Angelika Egan - all stuck paying $3.20 a minute for calls they could get for 2 cents a minute.

There was some good news from Verizon, at least - a brand-new solution to the accidental charges.

Spokesman Rich Young says that since June 15, Verizon has offered a free service that blocks most international calls outside North America.

If you contact Verizon and they deny it - as a service rep did Friday to Bob Egan - Young advises persistence.

Why the new offering?

"This is something consumers wanted," he told me, "and we looked into it and agreed."