In the interest of "full disclosure" on the topic of receiving airline miles in conjunction with MCI, let me whine about the surprise I discovered on my MCI bill. While the miles are free, MCI winds up passing on to its customers the Federal excise tax it pays in buying the miles from the airlines. This excise tax appears on the MCI bill as a Federal tax. They don't tell you that it's a tax on your "free" miles; they just stick it on your bill (perhaps hoping it won't be noticed). Admittedly it's not enough of a charge to stop getting the miles, but it's annoying to pay even a little for something that's supposed to be free. MCI's customer service has an example it read off to me when I questioned this; they state that they pay in the neighborhood of 1.3 cents/mile purchased. Assuming that's a correct figure, 1,000 miles would cost them $13. The tax is 7.5% (for 1,000 miles this works out to $.975 which would be rounded to $.98 and then put onto the long distance bill).

So it's a small charge. But note that switching in order to receive the nice bonus miles being offered will result in this charge on the phone bill. Query why MCI is behaving this way--a 10,000 mile bonus costs them $130 (if you accept their asserted cost per mile); the tax on this (passed on to the customer) would be $9.75. I wonder why they don't just "eat" the tax portion too and thereby avoid raising the hackles of at least some customers.