Lousy service is only one of many reasons Ma Bell is sinking fast. High prices and an upcoming merger might be just the prodding you need to bail out.

By Liz Pulliam Weston

All Jana Fleming did was move from one apartment to another within her Dallas complex earlier this year. That simple change of address led to a months-long battle with AT&T that endangered her credit rating -- not to mention her sanity.

AT&T erroneously charged a $216 disconnection fee for her high-speed DSL service, which she actually took with her to the new address. After numerous calls, hours on hold and six certified letters, AT&T issued a $342 credit -- to Fleming’s telephone account. Her DSL account was turned over to a collections agency.

„It’s almost comical,“ Fleming said. „It’s just been so absurd.“

Fleming believes her problem may be resolved; AT&T finally credited the right account and called off the collection agency.

A billing dispute kiboshes a car loan
The consequences for Laura Miller of Overland Park, Kan., were more serious. AT&T reassured her that a $36 charge she disputed would be corrected in her next billing cycle, Miller said; instead, the company turned the account over to a collection agency. As a result, Miller said she was denied a car loan and her credit card interest rates were hiked.

Miller said she needed the intervention of the Federal Communications Commission before AT&T acknowledged its mistake and cleared her credit report.

Dori Patrick hasn’t been so lucky. The Hackensack, N.J., woman received a $700 phone bill that she says was caused by AT&T Wireless switching her from a $35-a-month cell plan to one that charged her $3.95 a minute. As she fought the bill, the company added fees and charges that drove the total over $1,900. She says she hasn’t been able to find anyone at AT&T Wireless who can help her resolve the problem.

‘We don’t care; we’re the phone company’
It’s not as if AT&T horror stories are anything new. Those old enough to remember Lily Tomlin’s Ernestine the Operator can recite her mantra: „We don’t care. We don’t have to. We’re the phone company!“

But consumers may be bearing more abuse than usual as the former Ma Bell sheds her consumer businesses and as the company’s spin-off, AT&T Wireless, prepares to merge with Cingular Wireless.

The problems are acute enough that some industry experts are recommending AT&T customers consider dumping the companies. Consider:
Of the six largest cell-phone carriers, AT&T Wireless generated the most complaints overall and the most complaints per subscriber last year, according to FCC records obtained by Consumers Union. AT&T Wireless had 3.39 complaints per 10,000 subscribers, compared to best-ranked Verizon’s 0.76. (Cingular, which is expected to complete its purchase of AT&T Wireless by the end of the year, ranked fourth with 1.33 complaints per 10,000.)

AT&T Wireless’s „customer care“ ratings, as measured by J. D. Power, plunged from above average in 2003 (four of a possible 5 stars) to below average this year (two out of 5 stars).

AT&T Corp.’s deteriorating financial condition recently led major rating agencies to downgrade its debt to junk bond status. Currently the nation’s largest long-distance carrier, AT&T announced July 22 it would stop marketing its residential local, long-distance and Internet services altogether -- an exit strategy that analysts say will lead to higher charges on its remaining consumers.
„They’ve decided they are not going to market to any new long-distance customers, but they still have all the same costs and overhead,“ noted Bill Hardekopf, CEO of phone shopping site SaveOnPhone.com. „If you (remain) an AT&T customer, your bill is not going to go down.“

AT&T’s pool of residential customers, already shrinking by 10% a quarter, is expected to be all but empty within two years.

Also shrinking are the companies’ payrolls. Ferociously competitive markets have caused both AT&T and AT&T Wireless to lay off employees, which means the remaining workers have more to do -- and your problem has a greater chance of falling through the cracks.

Merger with Cingular may bring more confusion
The companies, of course, insist that customer service hasn’t suffered. An AT&T Wireless spokesman dismissed the FCC complaints as „an extraordinarily small number“ and said the company quickly resolves any problems.

Even if that’s true, AT&T Wireless’ takeover by Cingular is bound to generate more hassles with billing and customer service, said telecom expert Patrick McDugan, as the two huge companies merge their systems.

„I would be very surprised,“ said McDugan, vice president of operations for telecommunications shopping service TeleBright, „if things got smoother before they got even uglier.“

Any large-scale merger tends to generate customer confusion and technical glitches, he said. In this case, however, neither company is compensating with any great deals for consumers.

„I haven’t seen anything on the market that would make me choose either one of them right now,“ McDugan said. „The upside is not such that it’s worth the risk.“

Will cell phone rates come down?
It’s a tossup whether the merger will improve consumers’ prospects down the road. McDugan predicts the merged wireless company will be a worthy competitor to Verizon’s superior nationwide network, and the competition could lead to price cuts. Consumer groups are arguing the opposite, saying the merger is anti-competitive. The Consumer Federation of America and Consumers Union recently sent a letter to 10 state attorneys general urging them to oppose the combination.

In any case, I wouldn’t suggest bailing out of your AT&T Wireless contract, if you have one -- the hefty early termination fees usually make that a bad idea. But if you’re shopping for a service, McDugan suggests going with a competitor until the dust clears six to 12 months from now.

As for long-distance: You probably should have switched long ago. AT&T was never the cheapest solution for long-distance calls, and it’s now much pricier than most of its competitors, Hardekopf said.

If you remain an AT&T loyalist, you should take the same steps as any smart telecom customer to handle problems that may crop up, such as:
Watch your statements. You’ll want to jump right on any billing errors and question any charges you don’t understand.

Take notes. When you call to complain, use the bill itself as a notepad to write down when you called, with whom you talked and what was said. (You can use a notebook, of course, but the bill is usually handier and perhaps less likely to be lost.)

Follow up in writing. Don’t assume your problem with be taken care of on the first, third or even 10th try. Send a letter (certified, return receipt requested) to customer service outlining your complaint and summarizing your telephone conversations, including any resolution that was promised. If the problem isn’t taken care of by the next billing cycle, send another letter.

Monitor your credit reports. Several readers have told me their disputed telecom bills were turned over to collections after only a few months had passed -- and sometimes while the company was still reassuring them that the problem would be resolved. If a collection action shows up on your credit reports, you’ll want to begin the credit bureaus’ dispute process immediately.
You should also:
Contact the FCC. Unlike some other regulators that only act when they receive a pattern of complaints, FCC actually has an informal mediation process that can help an individual solve a telecom problem. Many readers have told me the agency was able to quickly settle longstanding fights.
„We’ll get involved,“ said FCC spokeswoman Rosemary Kimball. „We do have good luck getting folks satisfaction for their complaints.“

By Dan Wilchins
NEW YORK, July 21 (Reuters) — Corporate bond analysts and investors are bracing for AT&T Corp.’s debt ratings to be cut to junk as soon as this week, as the company scrambles to reinvent itself in a world of plummeting long-distance prices.

Moody’s Investors Service rates AT&T’s (T.N: Quote, Profile, Research) senior unsecured notes at «Baa2,» and Standard & Poor’s rates them at «BBB,» both two steps above junk, and the bonds are already trading like junk in the market.

Both ratings agencies said last month they may cut the company’s ratings to junk, but declined to comment further when contacted on Wednesday.

A ratings cut would be another blow to an ailing company, and would likely raise its borrowing costs materially.

The company’s earnings have been clobbered for the last two quarters. Long-distance prices have sunk under pressure from cell phones and local phone companies, while a federal rule change made it more expensive for AT&T to provide local calling service.

«The company still has good cash flow, but its business is not getting better, so its cash flow won’t likely stay at these levels,» said Kurt Kreienbrink, investment-grade telecom credit analyst at Thrivent Financial for Lutherans.

A spokesman for AT&T declined to comment on Wednesday. The company last month said it had one of the strongest balance sheets in the business and was confident it would be able to continue generating significant cash flow.

AT&T has about $12 billion of outstanding bonds. Although the company doesn’t have significant volumes of debt maturing until 2006, roughly $6.5 billion of its existing bonds would automatically begin offering investors higher coupons if the company were cut to junk, because of «step up» provisions in the bonds.

If both Moody’s and S&P each cut the company’s ratings by two notches, AT&T would have to pay about another 1 percent a year in interest on its step up notes, or another $65 million a year.

A ratings downgrade to junk may also lift the company’s borrowing costs on a $2 billion bank facility maturing in October.

With falling margins in local- and long-distance calls, the company has posted two consecutive quarters of earnings declines, and AT&T’s board is considering phasing out its consumer business, according to a report in The Wall Street Journal on Wednesday.

The company last month warned that its full year operating income would likely be between $1 billion and $1.4 billion, excluding restructuring charges, down from its previous range of $1.8 billion to $2.6 billion.

Working in AT&T’s favor is its $2.6 billion of cash as of March 31. The company generated about $1.35 billion of cash flow from operations last quarter, and $8.5 billion the quarter before. Until 2006, AT&T has little in the way of maturing debt.

But that might not be good enough to save the company’s investment-grade credit ratings, analysts said.

«The stand-alone long distance business is not sustainable as an investment-grade business,» said Scott Shiffman, a telecom credit analyst at Lehman Brothers in New York.

AT&T Wireless customers in Charlotte and most other major N.C. cities will have their accounts switched to SunCom Wireless early next year in a deal announced Thursday.

SunCom’s owner, Triton PCS, struck the deal with Cingular Wireless and AT&T Wireless. Those two companies are merging at year’s end to create the nation’s largest wireless carrier.

The SunCom deal involves swapping wireless phone markets that Cingular and SunCom long desired, as well as cash.

Glen Mella, SunCom’s senior vice president of marketing and sales, would not disclose how many AT&T Wireless subscribers are affected. SunCom will have about one million subscribers after the deal in a network that serves the Carolinas, Georgia, Kentucky and Tennessee.

Though SunCom is a regional wireless company, the carrier will continue offering national plans that don’t charge roaming or long-distance fees. Cingular customers accounts will not be changed by the deal or the merger with AT&T Wireless.

N. C. AT&T Wireless customers should not have to get new phones because SunCom is taking over AT&T’s network, including its towers, SunCom spokeswoman Karen Roundtree said.

Mella said he did not know whether customers would have the chance to opt out of their contracts without paying a termination fee.

AT&T Wireless customers should not expect to escape their contracts easily, said Jeff Kagan, an Atlanta telecommunications analyst. «These are assets (SunCom) paid for; they’re not going to just let them go,» he said.

Charlotte-area AT&T Wireless customers expecting to get Cingular’s rollover plan that saves unused minutes for future months instead could get SunCom’s Unplan. That plan offers all local and long-distance calls anytime on SunCom’s network for a monthly flat rate.

Some AT&T Wireless customers might be disappointed by being forced to go with a regional carrier instead of a national player, Kagan said.

«They were expecting the cream of the crop of wireless networks,» he said.

A roaming agreement between SunCom and Cingular could help ease some of that disappointment because subscribers to some SunCom plans won’t pay extra fees, he said.

The swap covers customers in a swath of North Carolina ranging from the edges of Rocky Mount to Hickory. SunCom’s biggest prizes are the Charlotte, Raleigh and Winston-Salem/Greensboro metro areas.

In addition to the N.C. network, SunCom gets AT&T Wireless’ Puerto Rico network and $175 million in cash.

In exchange, Cingular gets SunCom’s subscribers in Virginia, which completes Cingular’s effort to offer service in all of the nation’s largest 100 metro areas. «We already had a strong network in North Carolina,» Cingular spokeswoman Dawn Benton said.

The swap is an aftershock of the $41 billion merger between Cingular and AT&T Wireless. The combined company, to be called Cingular, will have about 46 million subscribers.

The deal also includes AT&T surrendering its ownership stake in SunCom and SunCom ending its affiliate status with AT&T.

AT&T Wireless employs about 150 workers in North Carolina. No layoffs are planned, a SunCom spokeswoman said. AT&T Wireless was spun off from AT&T in 2001.The phone giant, now best-known for long-distance service, is planning to re-enter the wireless business later this year.

ANDREW SHAIN
Consumer Writer