NOTE:   These columns are written for telecommunications professionals only.

IN THE PHONE ROOM – The•Mart Magazine - April 2006

By Mike Sandman

• INFLATION IS JUST BEGINNING

If you have tips that you’d like to share, give me a call at 630-980-7710, or e-mail me at mike@sandman.com. If your tip is published, it will be attributed to you, and you’ll get a FREE "Word Ad" in the classified section. To get your free "Word Ad," call The-Mart at 1-800-864-1199, and ask for Joy Brookshire. Opinions expressed in this column are strictly my own.

Last month, I mentioned that there’s a radio commercial running in Chicago that says you should buy AT&T service, which "Combines AT&T's passion to offend, with SBC's drive to deliver." After hearing it a few more times, it turns out the announcer is saying "AT&T's passion to invent," not "AT&T's passion to offend."

Like a lot of other companies running commercials on radio and TV, the end of the spot has someone talking very fast. So fast that there’s no way most humans could understand it. I’m sure they’re mentioning limitations to their service, and they mention calling 888-822-8335 for a list of the limitations. The number doesn’t work when I call it from here in Chicago. Figures.

SBC got into trouble a few years a go by running similar ads for unlimited phone service, which a lot of people signed up for. Turns out that the unlimited service was limited. When you made a data call, like to the Internet, there were some hefty additional timed charges. You’ve really got to do your homework before signing up for just about anything these days!

I did find a list of limitations for AT&T Yahoo DSL service on the AT&T web site. A giant paragraph of small text. There was no way I could read it, so I copied and pasted it into a word processor, and made reasonable paragraphs out of it. I still didn’t understand a lot of it.

Remember that if you or your customer signs up for AT&T Yahoo DSL for a business, make sure you ask the AT&T person to mark the account for US tech support – that you don’t want support from India. It’s not a bad idea to ask about that possibility when you buy anything that could require tech support.

INFLATION IS JUST BEGINNING

Speaking of India… my mother mentioned something interesting recently about credit card companies...

In the old days, there were guys who offered loans to individuals at very high rates – usually called "juice loans." Most of these guys were connected to the Mafia. If the borrower didn’t pay the money back, one or more broken bones were the result. The government thought this was very bad, and they worked hard to prosecute these individuals because they were lending money at very high interest rates.

She seems to think that today’s credit card interest rates are similar to those charged by the Mafia, but it’s all legal – thanks to lobbyists working for the credit card companies. Even though the interest rates at banks have gone down incredibly in the last five years, credit card rates have stayed high. Even worse, there are companies around Chicago that offer "payday loans," at unbelievably high rates. What you can get away with in the loan business seems to be how good your lobbyists are.

The good news is that a lot of people have paid down their credit card debt with equity in their homes. The bad news for those of us that haven’t… The credit card companies are going to make more profit one way or another, and they’ll do it all legally through lobbyists.

In the old days, Interconnects actually had a lobbyist. NATA (the North American Telecommunications Association) was a membership organization for Interconnects and phone system manufacturers, and they had a lawyer in Washington who fought with the FCC. After the breakup of the Bell System, everybody could connect pretty much anything they wanted to a phone line, so NATA went away.

Even though the government is saying that inflation is in check, I’m here to tell you that it’s not from my perspective. Got some credit cards that offer "cash back" or airline miles? While the credit card companies used to absorb those charges, they’re now simply charging the merchant where you use the credit card a higher percent for using that particular card.

Our bookkeeper looked at January ‘05’s credit card fees compared to January ’06, and she found that we paid .62% more this January in fees. Basically, the fee that we paid for every credit card transaction cost us more than an extra half a percent of the total sale. According to the statement, the highest fee we paid was 1.55% more than our regular rate (from before they started adding the fees). Since this program just started last year, I’m expecting more and more credit cards to offer the cash back deal since it doesn’t cost the credit card company anything.

While most of us think that using these cash back or airline miles cards are a good deal, they ain’t. We’re all going to pay that percent more to each of the companies we use the card at, since they’re going to have to raise their prices to cover it. Who’s really going to make more money? The credit card companies. Since credit cards are used for an incredible number of transactions in the US, figure this one "scam" alone will raise inflation by close to a percentage point – with all that money going to the credit card companies. The scam was created by the lobbyists for the credit card companies, who also made it almost impossible to get rid of credit card debt through bankruptcy last year. The credit card companies haven’t figured out how to get us to pay if we die, but they’re working on it.

Probably the easiest way to see the effect of the cash back scam is when using a credit card at a gas station. In the old days, there was a cash or credit price – you simply paid more if you used a credit card because it cost the gas station more. Now there’s one price. According to an article on consumeraffairs.com, the Washington Post reported last September that credit card fees have risen by 64% since the previous year. They say that "Credit card companies are making 8 or 9 cents a gallon off the fees."

While that might sound like a lot, where it really hurts is if you pay cash for your gas. You’re still paying all of those fees, but the gas station is pocketing them (since there’s just one cash or credit price). Again, the fees to the credit card companies stand to raise inflation in the US by a significant amount, with the windfall going to the credit card companies.

Several law suits were filed against the credit card companies last year by chain stores, where again you’re paying the credit card fees when you buy a pair of socks, a salami, or a watch, for cash.

Interconnects saw some pretty significant price increases on cable in the last couple of years, due to the cost of copper. Steel is likewise going up, both because the cost of steel is increasing and the cost of shipping is going up (due to fuel costs). Why is the cost of these raw materials increasing so fast? Because of the large demand from China for copper, steel, fuel and lots of other commodities.

Since most plastics are made with oil, the cost of making plastic items (like jacks and phones) and the cost of shipping them has gone up. The fuel surcharge for Fedex on air shipments is 12% this month, and UPS’s surcharge on air shipments is 12.5%. Ground surcharges are around 3.5%. The cost of gas has gone up significantly, making it very expensive to send trucks out for installations or service calls. As Interconnects, we’re looking at some pretty significant cost increases in the next year. We either need to raise prices, or cut costs. There really are no other choices.