By LARRY MARGASAK
ASSOCIATED PRESS WRITER

WASHINGTON -- First there were misused Pentagon credit cards. Now come misused phones. Investigators say the Navy routinely paid exorbitant telephone bills, wasted calling plan minutes and couldn’t identify who made credit card calls that in some cases lasted for days.

The Navy’s management of phone cards and long-distance plans «creates a fertile environment for fraud, waste and abuse,» the General Accounting Office said in an investigative report obtained by The Associated Press,

The phone problems are the latest revelations to concern members of Congress, who already have heard horror stories about Pentagon employees using government credit cards to make personal purchases at hardware, electronic and lingerie stores, even strip clubs.

The Navy is wasting valuable telephone money while «families are forced to send their sons and daughters deployed around the world calling cards to phone home,» said Rep. Jan Schakowsky, D-Ill., who requested the investigation of Navy phone expenses.

That investigation painted a portrait of shoddy management in which Navy superiors didn’t even know they were paying for telephone calling cards, and employees on expensive cell phone calling plans weren’t using 98 percent of their allowable minutes.

Congressional investigators could not determine whether calling cards were used for personal long-distance conversations, because Navy officials who approved the charges often were unable to identify the callers.

A Navy spokeswoman, Lt. Amy Gilliland, said only, «The Navy will review the final report once it is officially released.»

The investigation was limited to a half-dozen facilities, but the GAO said that was enough to determine the Navy wasn’t watching its telephone spending with a critical eye. For instance:

-One location paid $36,000 over three years for long distance services that were no longer needed.

-In addition to wasting unused minutes, other cellular users cost the Navy $34,000 by exceeding their allotted monthly minutes.

-Units paid $25,700 for late fees and other erroneous charges.

The bill with calls exceeding 24 hours was found at a computer and telecommunications facility in Norfolk, Va.

«These calls included 4-day, 10-day and 12-day phone calls, which all originated from different phone numbers at different times,» the report said. «The length of these calls alone should have prompted further investigation but, because the invoice was never properly reviewed, the billing errors went unnoticed» until found by investigators.

Looking closely at 10 of the calls, inspectors found, «In 7 of the 10 cases … officials who approved the invoices could neither provide us with an explanation for the length of the calls nor could they provide us with valid points of contact for the activities responsible for the calls.»

Investigators learned two calls apparently resulted from circuit malfunctions and the Navy has sought refunds from the vendor, the report found.

Shared calling cards were especially vulnerable to potential fraud, the report said. An official on the destroyer USS Mitscher said he gave the same card and personal identification numbers to several officers as needed, but lost track of how many had the information.

«For this one card alone, between April and June of 2003, the Navy paid over $17,000 in long-distance charges,» the report said. On July 6, 2003, users of the card made 189 calls that originated from 12 cities in five states and Canada. The calls went to 12 countries, totaled 55 hours and cost more than $5,000.

«Some of the Navy sites we audited were unaware they owned calling cards,» the investigators reported.

Navy units also paid the full retail rates for cell phones, ignoring a 12 percent discount for government users negotiated by the federal General Services Administration.

Some cellular users were paying $95 per month for service plans but using less than an average of 2 percent of their allotted minutes. In one unit, excess usage charges ranged from 20 to 35 cents per minute, investigators found.

RARITAN, N.J.(BUSINESS WIRE)July 12, 2004--According to a new report from The PELORUS Group entitled «North American Prepaid Cards: Wireline Markets In Transition,» the prepaid phone card market exploded between 1995 and 2000, increasing from $750 million in 1995 to over $3.3 billion in 2000. During this period both the domestic and international components surged. But 2001 and 2002 saw the market contract. In 2003 total phone card revenues enjoyed a turnaround, managing to reach back up to about $3.2 billion.

The direction was not uniform, however, as growth declined for domestic phone card revenues, while international revenues jumped. Tom Miezejeski, Vice President Of Research for The PELORUS Group explains, «Lower rates in the international sector have made international calling affordable for a larger segment of the population. Indeed, rates for international calls have come down sharply in recent years. Besides the impact of competition among phone card vendors, rates for all international calls have dropped as foreign carriers have struggled with heightened competition from other carriers and IP telephony. But this in turn has generated more acceptance among consumers. Thus, minutes of use have grown to more than offset the revenue erosion stemming from lower rates. The result is higher revenues even as some sectors of the market have contracted.»

The report projects a gradual decline in domestic phone card revenues between 2003 and 2008. On the other hand, international phone card revenues will jump by almost 33 percent, climbing to $2.75 billion in 2008. By 2008 the international market will be more than twice the size of the domestic market.

Phone card revenues in Canada are projected to follow a similar path over the next five years. Total phone cards revenues are projected to grow to over $470 million CD in 2008. The report notes that the Canadian phone card market is subject to many of the same price pressures facing service providers in the U. S. Thus, use will grow significantly, but growth in volume will only slightly more than offset price declines.

For more information regarding «North American Prepaid Cards: Wireline Markets In Transition», please visit www.pelorus-group.com

Consumer-goods makers are realizing they have only one direction to go for growth: down-market

By Mac Margolis

Newsweek InternationalJuly 19 issue — It wasn’t exactly banner news, but May marked a watershed for the Brazilian economy. In the run-up to Mother’s Day, consumers flooded stores, snapping up 1.5 million cell phones. The vast majority of these were prepagos—basic, cut-rate handsets that operate on prepaid phone cards and can be had on installment plans for as little as $3 a month. More than a shopping binge, the Mother’s Day mob represented a new consumer vanguard: a battalion of buyers with shallow pockets but a keen eye for a deal. The result: Brazilians now own 53 million cellular phones, nearly 20 million more than two years ago—and 78 percent of them are prepagos. «The cellular phone is no longer an item for the elite,» says Roberto Iunes, executive vice president for marketing and innovation for Vivo, Brazil’s biggest mobile operator. «Companies that turn up their noses at low-income consumers are snubbing their own potential for growth.»

Not so long ago, «poor consumers» sounded like an oxymoron. According to conventional wisdom, the societies of the developing world were built like great pyramids: the few phenomenally rich at the top, a thin wafer of middle class just below and, sitting on the bottom, a colossal plinth of poor folks who had nothing but their dreams. In Brazil there was even a name for it: Belinda, a tiny and prosperous Belgium surrounded by a teeming and destitute India. Companies instinctively poured their efforts into pursuing the wealthy consumers; for «India,» there were only economic scraps and the dole. Even academics and policymakers tended to see the poor not as consumers but as victims. Now the wizards and the wonks are taking a second look. «The great white spot in the world economy is the lower-income market,» says Laercio Cardoso, who oversees low-income markets in Brazil for the Anglo-Dutch laundry-soap manufacturer Unilever. «Reaching them isn’t charity—it’s business.»

Lately, business is booming. Makers of everything from bicycles to bouillon cubes are scrambling to serve the most modest of patrons. Factories are retooling to turn out no-frills goods such as floor fans, single-door refrigerators and basic air conditioners. The most popular footwear in Brazil, the Havaiana, is a flip-flop. And cheap doesn’t have to mean chintzy: late last year, Consul, a Brazilian affiliate of Whirlpool, designed a fully automatic three-cycle centrifuge washing machine that costs no more than a clunky tank washer, about $220. The big seller in rural India is the Boxer AT, a sturdy, low-maintenance motorbike, priced at about $600. And single-serve packets of everything from shampoo to Nescafe are flying off the shelves. «Just look at our customers,» says Hugo Bethlem, executive director of CompreBem, a Brazilian discount supermarket. «All over the world, the low-income market is the market.»

The view from the boardroom has shifted south for the simplest reason of all: economic necessity. Not long ago, the rule in the underdeveloped world was to protect local markets from carpetbagging multinationals and their flood of cheap and durable goods. What emerged was a bell-jar economy in which inefficient industry flourished in artificial splendor, selling overpriced wares to the wealthy few. The clubby days are over now, thanks to globalization and the wave of free-market reforms that swept the world in the 1990s. Given half the chance, savvy consumers betrayed their familiar homemade goods for quality foreign brands, from Heineken to Honda. But there’s just so much foie gras the market can bear. In short order the top-tier consumers were spoken for. Suddenly the sales magicians had to reinvent their businesses.

The solution: go downmarket. According to a recent article in Foreign Policy by University of Michigan Business School professor C. K. Prahalad, and Allen Hammond of the World Resources Institute, the 18 largest developing nations are home to some 680 million families earning $6,000 a year or less. These low-wage earners take in $1.7 billion a year—about the size of Germany’s gross domestic product. «In reality,» Hammond and Prahalad write, «low-income households collectively possess most of the buying power in many developing countries.»

The experts are beginning to pay attention. When South Africa opened its doors to world enterprise in the early 1990s, mobile-phone companies fairly salivated. But in time, operators like MTN and Vodacom found themselves stuck serving a small, moneyed class of urban sophisticates. Soon they realized the gold was elsewhere and introduced prepaid phone cards. Not the $10 and $20 cards that U.S. and European teens burn up at recess, but ones that cost $5 or less. Never mind that phone-card users pay steeper per-minute charges than postpaid mobile subscribers. Phone traffic exploded, making Africa, with 51.8 million handsets, the fastest-growing cell-phone market in the world. «The issue is not how much something costs,» says Jonas Lindblad, Africa and Middle East telecom analyst for Pyramid Research in London. «It’s lowering the entry barrier and giving people control over cash flow.»

Marketing to the abandoned masses is not for everyone. Manufacturers moan about having to redesign products, retool factories or vastly boost production to make up for falling profit margins. Distribution in the slums can be a logistical nightmare. Yet serving the poor also forces businesses to innovate. One of the most popular cell phones in rural India is the sturdy Nokia 1100, which is advertised as dust-resistant and doubles as a flashlight. Electrolux Kelvinator, also of India, recently launched a refrigerator that keeps ice frozen for up to six hours after a power failure—an attractive feature in the blackout-prone latitudes. Bradesco, Brazil’s biggest private bank, defied skeptics and invested $100 million to set up bare-bones teller services in underused post offices. Most depositors earn $65 a month or less. Yet, by June, Banco Postal had already captured 1.6 million new accounts, and is expected to break even this August, two years ahead of schedule.

Many companies are hiring anthropologists and demographers to learn more about their clientele. One of the most valuable lessons has been that small can still be beautiful. Ask Urmi Sen. The 18-year-old college student from Asansol, India, likes to wear her black hair thick and long, even though it’s hard to care for. So it was a minor blessing when Hindustan Lever Ltd. recently started selling individual packets of Sunsilk, her favorite shampoo. «I can afford the sachets out of my own pocket money,» she says. «I don’t have dip into the household budget to buy a whole bottle.»

None of this is news to Samuel Klein. A Polish Jew and former vodka salesman, Klein fled Nazi Europe for the ragged blue-collar fringes of So Paulo, and started peddling bedsheets and blankets door-to-door. His pushcart business turned into Casas Bahia, Brazil’s best-known department store, with more than 350 branches. Klein, now 80, had a secret: a hassle-free installment plan that lets low-income buyers pay off their TV sets, refrigerators and stereos for a few dollars a month. He required little more than an address and a signed promise to make timely payments. «The bigger the problem,» Klein once said, «the bigger the opportunity.» Half a century later, the message finally seems to be getting through.

With Stefan Theil in Berlin and Sudip Mazumdar and Sumeet Chatterjee in New Delhi

© 2004 Newsweek, Inc.

By DOUG HOWARD

When looking at long distance telephone bills, it pays to read the fine print.

„People need to pay as close attention to their phone bill as they do their credit card statements,“ advises Mike Earley, long sales manager at Indiana Telephone Network/Sugardog in Monticello.

With the increase in the past few years of telemarketing, consumers can add the watch words „slamming“ and „cramming“ to a growing list of everyday technical jargon.

„With ‘Slamming’, your long distance has been changed without your permission,“ Earley explained. „It’s actually a deliberate attempt to steal service from a competitor.“

„Cramming,“ he said, “is where services you’ve never agreed to purchase have been added to your bill.“

Examples of unauthorized „cramming“ changes include voice mail, paging and web page hosting charges.

„We’ve seen this here, with the business owner who doesn’t even have a web site,“ said Earley.

„Most of this is appearing on their local phone bill,“ he said.

In comparing complaints, Earley said, a number of his clients noticed that between Dec. 5 and 8, they received telemarketing calls.

„It tends to run in cycles, from what we see,“ said Earley.

„Most of these companies are hitting the business clients,“ said Earley. „They’re targeting businesses, knowing that they’re going to pay,“ said Earley. „On the residential side, they’ll keep the charges small,“ he said. „They just hope that people don’t notice them.“

For those who believe they may have been slammed or crammed, „The first thing to do is to call and ask for an explanation of the charges,“ advised Earley. „By law, there has to been an 800 number for billing questions.“

„The second thing is to call you local (service) phone company and let them know that these charges were for unauthorized services. If they arranged credit with the company, they need to know that.“

In cases where the consumer has not yet paid the ‘slammed’ bill, the consumer does not have to pay for service for up to 30 days.

„If you’ve been slammed and you’ve paid your bill, you may be eligible for reimbursement,“ Earley said.

Consumers can also file a complaint with any of several state and federal regulatory agencies [see sidebar].

Under state law, while the complaint is being investigated, the local phone provider may not disrupt service due to nonpayment of disputed charges.

In response to widespread service change complaints, the Federal Communications Commission put into place an option known as a „PIC (Presubscribed Interexchange Carrier) freeze“ on long distance service. The option is free from the consumer’s local telephone company and is designed to prevent switching long distance service without the consumer’s expressed consent.

Teresa Shaver, marketing director for Pulaski-White Rural Telephone Cooperative, said the number of complaints generally decreased since the PIC freeze option has gone into effect.

„We try to stress to the customer to check with their long distance telephone companies,“ said Shaver. „We encourage all our customers to contact their local phone company and tell them not to change (service) unless they have it in writing.“

„When long distance is changed, by law, (telephone companies) have to obtain written or electronic permission or go through a third-party verifier,“ said Earley.

Some new telemarketing schemes seem to go around the PIC freeze, Earley said, by apparently recording and reusing an affirmative response out of context.

„In some cases,“ he said, „(telemarketers) take that (affirmative response) and use that as confirmation to agreeing to change your service.“

Shaver offers a few other bits of advice to avoid be slammed or crammed.

„When (consumers) receive a call from a long distance carrier, be careful — if the offer sounds too good to be true, it probably is.“

„If you don’t know who it is, sometimes you’re better off not speaking.“

For information on slamming and cramming, or to report a complaint, consumers can contact the following agencies:

· Federal Communications Commission at 1–888–225–5322

· The Indiana Office of the Utility Consumer Counselor consumer services at 1–888–441–2494

· The Indiana Utility Regulatory Commission at 1–800–851–4268

Consumers can also request a telemarketer to be put on the telemarketer’s „do not call“ list. To register for the Indiana Telephone Privacy List,

TALLAHASSEE — The state’s big phone companies won an initial skirmish Wednesday before the Florida Public Service Commission.

The regulatory panel unanimously rejected a request by Attorney General Charlie Crist that it throw out applications by Verizon, BellSouth and Sprint for increases in local basic rates.

But the commissioners also sent clear signals that they will consider the impact on residential customers when they vote on the applications.

One commissioner, Terry Deason, even suggested that the phone companies consider rewriting their applications, implying they should make them more consumer-friendly.

Critics of the phone rate increases chalked up the day as a partial victory. «You’re supposed to make lemonade out of lemons,» said public counsel Harold McLean, whose office had supported Crist’s motion. «They gave us lemons, but they gave us some sugar, too.»

The PSC opened hearings that are supposed to culminate in a vote on the applications for rate increases of 30 percent to 90 percent in basic local phone rates throughout the state. Although the hearings had been scheduled to run no longer than Friday, PSC Chairman Lila Jaber said Wednesday that they might extend into Saturday.

Under a law signed by Gov. Jeb Bush this year, the phone companies are permitted to raise rates over two to four years provided they make equal cuts in the access fees they charge long-distance companies. And that’s supposed to lead to savings for consumers on their instate long-distance calls.

Once these rate hikes have been completed, the law permits the phone companies to increase their local basic rates by as much as 20 percent a year without further tradeoffs or PSC approval. Before the new legislation, annual increases in local phone rates were restricted to one percentage point less than the rate of inflation.

The stated aim of the new regulations, crafted by the phone companies, was to encourage greater competition in the market for local phone services. But consumer advocates have expressed concern that the rate increases by Verizon, BellSouth and Sprint will outstrip any savings to residential customers on instate long distance calls.

Crist’s office had filed a motion with the PSC last month requesting a «summary final order,» which would have thrown out the rate hike applications. Crist argued that the companies weren’t meeting the new law’s requirement that residential customers, not just businesses, benefit from rate changes.

«The public that you and I work for, they are in fact the residential consumer,» he told the commission Wednesday. «You’re the Public Service Commission … not the Phone Company Service Commission.»

Former state Supreme Court Chief Justice Major Harding, now an attorney representing Sprint, countered that the companies’ applications met the law’s goal of encouraging new competitors in the local phone business.

«The attorney general, bottom line, disagrees with the statute and would like for you to rewrite it,» Harding told commissioners. «I would respectfully submit that you do not have that privilege.»

Even as the commission voted 5–0 to reject Crist’s motion, it also signaled that residential customer interests will loom large in its deliberations.

Jaber and Deason emphasized that their votes were based strictly on their view that Crist’s motion failed to meet the tough legal standards that have to be satisfied to grant a summary final order. They also said they want to consider all the evidence.

Deason described as troubling data that long-distance carriers presented about what proportion of the savings from lowered access fees would be passed on to residential customers. But he was forced to be circumspect about the data because the companies had classified it as confidential for competitive reasons.

Saying that «there needs to be some soul searching» by the local phone companies, Deason said they may want to withdraw their applications and submit amended versions with more to offer residential customers.

«I’m just laying it out there for everyone,» Deason said.

Alan Ciamporcero, Verizon’s southeast regional president for public policy and external affairs, said he was pleased that the commission rejected Crist’s motion and decided to proceed with the technical hearings.

«There’s been so much prologue here,» he said. «We want to get to the merits of the case.»

All eight people who addressed the commission in Wednesday’s final public hearing said they opposed the rate increases.

«If a rate increase like this went through,» said Arthur Maruna, a 72-year-old retiree from Chiefland in Levy County, «it’d be money out of my pocket.»