Handset-locking lawsuit expected

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RCR Wireless News

WASHINGTON DC — A consumer group today plans to bring a lawsuit against AT&T Wireless Services Inc., T-Mobile USA Inc. and Cingular Wireless L.L.C. in California state court, alleging the firms illegally prevent customers from keeping their handsets when they switch carriers and force them to purchase new models.

The Foundation for Taxpayer and Consumer Rights, based in Santa Monica, Calif., is scheduled to hold a press conference this morning announcing the filing of the suit in Los Angeles Superior Court.

”This is just another scheme cell-phone companies are using to block competition and prevent consumers from having a choice of phones,” said Harvey Rosenfield, a lawyer for the Foundation for Taxpayer and Consumer Rights.

The suit, which claims the three wireless carriers violated the California Unfair Business Practices Act, seeks to halt a practice known as handset locking and to compensate consumers. The litigation comes at a time when Cingular Wireless is seeking government approval to purchase AT&T Wireless for $41 billion.

”While customers can keep their old phone numbers, they cannot use their old cell phones when they switch carriers because the handsets are locked by the carriers specifically to prevent handset portability between compatible networks that use the same wireless standard,” the suit states.

The plaintiffs claim consumers should not have to buy new mobile phones when moving from one GSM carrier to another. The foundation said subscribers could hold onto their phones if wireless carriers allowed them to replace thumb-nail sized computer chips-known as a subscriber identity module cards-when migrating from one GSM mobile-phone operator to another.

”Indeed, the SIM card originally was specifically designed so that a handset could work with different SIM cards to access different GSM networks,” the suit states. ”Moreover, since GSM is the standard throughout much of the world, frequent international travelers, for example, could buy SIM cards with prepaid service for overseas calls to avoid the steep roaming charges charged by their GSM carriers.”

Handset locking, according to the suit, constitutes an illegal tying arrangement, restricts competition in violation of California’s antitrust law and represents false advertising because wireless carriers do not notify prospective customers that their handsets are not portable and cannot be used on other GSM networks.

In addition to today’s suit, the Foundation for Taxpayer and Consumer Rights is pursuing suits against Cingular for alleged false advertising and Nextel Communications Inc. for alleged billing improprieties.

Cingular is fighting a record $12 million fine levied by the California Public Utilities Commission. However, there is an effort afoot by two CPUC members to either reduce or repeal the penalty. A Missouri federal judge recently approved a nationwide settlement of numerous class-action billing lawsuits against Nextel.

Verizon Wireless recently put a major class-action suit behind it, following court approval of a consumer class-action settlement that could cost the nation’s No. 1 mobile-phone carrier more than $1 billion in credits and vouchers.

While industry has taken a big hit in the courts in recent years, plaintiffs could find it far more difficult to file class-action suits against industry in the future if Congress passes pending legislation.

The Senate could begin debate this week on a bill that would steer class-action suits into federal courts, which tend to award smaller monetary damages than state courts. Moreover, federal judges are viewed as more conservative than state judges and might very well order class-action grievances to be settled by arbitration. Many cell-phone contracts have arbitration clauses.

Supporters of the legislation say it is necessary because businesses are being hurt by runaway class-action litigation in friendly state courts.

The Senate bill has a legitimate shot to pass now that Republicans have secured support of Sens. Christopher Dodd (D-Conn.) and Charles Schumer (D-N.Y.). Schumer is one of Congress’ loudest critics of the mobile-phone industry.

Lobbying has been intense.

”Corporations are fed up with having to answer to consumers,” said Jeff Blum, executive director of US Action, in a 2003 press release. ”This legislation would help them roll back the clock to a time when consumers had limited ways of forcing them to answer for their wrongdoing. This administration and the Republican congressional leadership appear intent on providing immunity to their corporate contributors.”

Others say the legislation is long overdue.

”The compromise reached prior to the new year should serve as a reminder to the Senate that this legislation has bipartisan support, and it deserves prompt consideration,” said Sherman Joyce, president of the American Tort Reform Association.

ATRA said many national class-action lawsuits are filed in what it calls ‘ ‘judicial hellholes,” a term the group uses to describe state trial courts where it maintains ”equal justice under law” does not exist.

”Often times if defendants do not settle cases, they face the prospect of verdicts that can lead to bankruptcy, which ultimately leads to loss of jobs,” Joyce said.

Consumer Watchdog
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