Tens of thousands of low-income residents in the state could lose their phone service because their prepaid phone providers are mired in a contract dispute with AT&T.
AT&T, the state's biggest phone company, claims it is owed millions of dollars from three companies that it sells phone services to and wants to quit doing business with them. It is also trying to recover unpaid bills from four other phone companies but hasn't yet tried to disconnect their service.
All the businesses resell AT&T's service to low-income customers, sometimes charging twice as much as the $19.95-a-month AT&T charges for its basic service.
AT&T has to get permission from the N.C. Utilities Commission before it can cut off services to the prepaid companies. The resellers have more than 30,000 customers in this state and many more throughout the South.
The utilities commission ruled this month that AT&T couldn't cut off service to two of the prepaid companies, Life Connex and Everycall, as the contract dispute is being considered by regulators. On Tuesday, the Public Staff, the state's consumer advocacy arm, urged the commission to deny AT&T's request to cut off service to the third provider, Freedom Communications, as well.
"These are generally people who are unable to obtain phone service through regular means," said John Garrison, director of the Public Staff's Communications Division, which handles telecommunications matters. "They've got credit problems and can't make a deposit upfront."
Prepaid phone service typically requires no credit checks and no commitment. As LifeConnex explained in one recent filing: "LifeConnex's customers are generally poor and pay for service when they need it. They prepay for a month of service. If they fail to pay for the following month, service is cut off. Service is restored when they make payment. Consequently, these customers are constantly being turned off and on."
AT&T claims LifeConnex owes it nearly $1.4 million in this state. LifeConnex has 8,790 customers in North Carolina , Garrison said.
Not all seven companies have disclosed in their filings how much AT&T claims they owe. AT&T spokesman Clifton Metcalf was unable to provide a total amount owed.
The financial dispute is happening throughout the South but has its origins in North Carolina. In 2004 and 2005, the N.C. Utilities Commission said that resellers qualify for rebates and other promotions that AT&T offers to attract new customers.
AT&T sued the utilities commission, but a federal appellate court upheld the commission's decision, effectively turning this state's regulatory ruling into a de facto federal telecommunications policy.
Starting in 2007, the resellers, as customers of AT&T, began filing for rebates for every phone account they opened for a prepaid customers. The small companies generated a mountain of filings as they churned through a torrent of applications to replace prepaid customers who continually dropped out for nonpayment.
AT&T was so overwhelmed by the avalanche of applications that instead of mailing the rebates, it let the resellers deduct the value of the rebates from their bill payments to AT&T, said Henry Walker, a lawyer in Tennessee who represents resellers.
One of the more common rebates was $50, but AT&T thought the resellers should get $40, the wholesale value. The resellers disagreed and kept deducting $50. Over three years the difference grew into a multimillion-dollar dust-up. In January, AT&T began demanding back payment and asking state regulators for the right cut off service.
"These companies are effectively asking all our other customers to shoulder the burden of their refusal to honor their contracts," Metcalf said. "That is neither right nor fair, and we are taking the appropriate steps to discontinue service, as is our right under the contracts."
The N.C. Utilities Commission has set an October hearing to resolve the matter.
"AT&T says, 'We can't let the numbers go on,'" Walker said. "The reseller says, 'Sure, it looks like I owe a lot of money. That's because AT&T can't get around to validating my rebates.'"
