Facing Public Outrage, Verizon Caves On New $2 Fee

(Image courtesy The Gothamist -- from (d727272's flickr)

We reported in yesterday’s headlines on Verizon’s plans to levy a brand new $2 fee on customers that pay their bill with a credit card online or over the phone. This charge would have affected nearly all of the customers served by America’s largest wireless company.

Once the news went public, Verizon customers and consumer rights’ groups expressed anger and outrage with the decision, which was released with hardly any justification from the company.

Predictions were that a fee imposed by a corporation with revenues of $15 billion  on customers that want to pay that corporation money wouldn’t last long. Those predictions were right.

On Friday, Verizon announced the end of the fee almost as suddenly as they debuted it earlier in the week. Facing an avalanche of criticism and outrage, including instantaneous harsh reactions from social media and the web, the company said it is scrapping the $2 bill fee.

Verizon Wireless bowed to a torrent of criticism on Friday and reversed a day-old plan to impose a $2 bill-paying fee that would have applied to only some customers.

The consumer vitriol, which cascaded across Twitter and onto blogs and petitions all around the Web, struck a chord with a company that was clearly not expecting it.

“The company made the decision in response to customer feedback about the plan, which was designed to improve the efficiency of those transactions,” Verizon Wireless said in a statement referring to the reversal.

That a company with revenue of $15 billion in the most recent quarter would have to quickly change course over such a small fee suggests something particular about its business and others like it.

Similar to fee-bedeviled airline passengers with little choice on many nonstop flights, or bank customers who do not want to spend hours untangling automated payments so they can switch institutions, Verizon Wireless customers have limited options because they are locked into multiyear contracts. And they apparently did not like being told that it would cost money to pay money to the company.

The consumer outcry may also reflect the national mood — and some companies’ misreading of it, according to some analysts.

“I just think people are sick of being nickeled and dimed by big companies,” said Edgar Dworsky, founder of ConsumerWorld.org. “And it’s just baffling to me why a company like Verizon Wireless or Bank of America doesn’t do market testing on something like this first. It doesn’t take a genius to figure out that there is going to be a backlash.”

With the company patting itself on the back for its “response to customer feedback” in killing the charge, cynical minds could wonder if Verizon didn’t concoct the curious fee simply to prove it is a “good” corporation by listening to widespread public outrage.

Whether acting in good faith or not, another factor in Verizon’s ultimate choice to back away from new customer charges is the experience of Bank of America. Partly inspiring the “Occupy Wall Street” movement, public rage against the nation’s largest bank for proposing a fee for customers to access their money via debit cards eventually led BofA to scrap the plan one month later after untold PR damage had been inflicted.

But Verizon may not be able to extricate itself from “fee-gate” just yet. The Federal Communications Commission, responding to what was already a cascade of public complaints, announced it is “looking into” the actions of Verizon and the veracity of its reasoning for imposing the $2 fee on certain bill payments.

Verizon Communications has extensive connections in Washington and spends millions of dolars lobbying lawmakers on Capitol Hill. According to data from the Center for Responsive Politics, Verizon has spent nearly $30 million on lobbying in just the last two years alone.

The company directly contributed well over $3 million to candidates and campaigns in the 2010 elections, and has already given over $1 million during the 2012 election cycle. President Obama’s reelection campaign is the leading individual recipient of Verizon campaign cash, taking in nearly $34,000 in contributions in 2011.

Adding to public frustration with Verizon over its fee controversy is the fact that the company is among dozens of American corporations that pay zero federal taxes. While Verizon attempts to charge customers for paying their bill in order to recoup “transaction” expenses on payments, the largest wireless carrier in the country enjoys a negative corporate tax rate.

Verizon paid an effective corporate tax rate of -2.9 percent in 2010, receiving $12.3 billion in total federal tax subsidies that includes nearly $1 billion in direct tax rebates. Verizon pays single-digit rates in state taxes, too.

And during the past three years, when the company has seen its tax burden disappear and revenue increase, Verizon has shed more than 40,000 jobs and threatened step pay and benefit cuts for its remaining employees represented by organized labor.

Citizens for Tax Justice has joined with Good Jobs First to follow up the recent report that found 30 Fortune 500 companies had paid a negative federal income tax rate over three years, looking at one of those companies in depth. From 2008 to 2010, Verizon paid an effective federal income tax rate of -2.9 percent; that meant that instead of the $11.4 billion the corporation would have paid at the statutory rate of 35 percent, “it got $951 million in rebates, putting its federal tax subsidies at $12.3 billion.”

It wasn’t just federal income taxes that Verizon dodged:

At the state level, Verizon should have paid about $2.3 billion in corporate income taxes during the period but it handed over only $866 million. Its aggregate state rate was only 2.6 percent, far below the weighted state average rate of 6.8 percent. This gave it state tax subsidies of about $1.4 billion.

………….

None of that, from the -2.9 percent federal income tax rate, the 2.6 percent state income tax rate, the $180.8 million in state and local subsidies, and several other large tax breaks Verizon has gotten, has been going reinvested in workers or the communities they live in:

Verizon has been eliminating jobs and investing less. During the past three years, the total number of employees at Verizon has fallen by more than 40,000 and the company’s capital expenditures have declined by $1 billion. Nor did these subsidies lead to higher compensation for Verizon’s employees—the company is demanding more than $1 billion in wage and benefit concessions from its 45,000 union-represented workers.