Wireless phone service providers may avoid paying millions of dollars in
lawsuits if the Federal Communications Commission develops rules for
early termination fees. But they won’t escape the wrath of consumer
watchdog groups that contend the carriers are getting off easy.
The FCC plans to hold a public hearing on early termination fees after
its next open agenda meeting on June 12, at which many expect the
commission will take up the task of creating a nationwide policy for
cell-phone contract termination fees.
Such a move would thwart the efforts of arbitrators hoping to hit the
wireless giants like Verizon Wireless (the joint venture of Verizon and
Vodafone) and AT&T with class-action lawsuits representing millions
of subscribers. Those lawsuits would undoubtedly cost carriers millions
In return, wireless providers would prorate termination fees for
customers canceling their contracts, which seems to be a favorite
subject for the FCC. However, many consumer groups view this as a
That’s because in November Sprint Nextel and Deutsche Telekom’s
T-Mobile unit described plans to prorate early termination fees.
AT&T, recently implemented a plan under which the company’s new and
renewing wireless customers in one- or two-year service agreements
incur a termination fee starting at $175. The fee would be lowered by
$5 during each month the contract was honored.
"Moving to making a more friendly consumer ETF (early termination fee)
is the right business decision, obviously, but competition will force
them to all move there anyways," says a Wall Street analyst. "By moving
to a gradual ETF, customers might actually pay for a lessened ETF
instead of letting it all fall into debt. The most important point,
though, is that the industry is looking to the FCC for help."
If the FCC were to step in and begin regulation of ETFs, watchdog
groups say that it would essentially be saving the wireless carriers
from consumer lawsuits without extracting any meaningful relief for
aggrieved consumers. Additionally, the rumored plan would directly
contradict statements FCC Commissioner Deborah Taylor Tate made in
November after Sprint and T-Mobile began outlining prorated plans.
"I am encouraged that industry has stepped up to address an issue that
consumers and state commissioners have been concerned about for some
time," said Tate in a release on the FCC’s Web site. "In such a
competitive market, we should look first to industry, rather than
government regulation, to offer consumers the price and service options
that best meet their needs."
Instead of allowing the industry to sort out its problems, Consumer
Watchdog founder Harvey Rosenfield says the FCC is knowingly going to
preclude access to the courts, depriving consumers of the one weapon
they have to fight back against wireless carriers.
"This would be the FCC bailing out the telecom industry for all their
abuses across the country," says Rosenfield. "There’s a system of
abuse, charges, and shoddy service, all that makes up a war on
consumers. The only way consumers can fight for themselves is to go to
court. This is the FCC’s attempt to derail litigation."
Chris Murray, the legislative counsel for Consumers Union, a nonprofit
publisher of consumer reports, says that FCC intervention would be
welcome if regulators were to introduce a federal standard that was
better than what exists in individual states.
"The question is will we substitute a federal law for a state law that
eliminates consumers’ right to sue," says Murray. "It’s not impossible
the federal government could come up with something that is fair to
consumer[s]. However, it’s not yet what we see on the table."
Until consumers are given something more substantial, Rosenfield says
watchdog groups will rally against the FCC through the court system.
"It will certainly be litigated by any consumer group as being beyond
the FCC’s authority," he says.
"If the FCC even attempts to take over responsibility for the fees, it
would be used by the cell companies to dismiss any pending court
cases," Rosenfield adds. "It’ll be another weapon in the highly limited
arsenal of these companies."
Murray agrees with FCC Chairman Kevin Martin’s assessment that there
shouldn’t be a patchwork of 50 different laws in individual states, and
he asserts that the only reason a change is coming is because wireless
carriers want to be washed clean of any legal liability.
"The carriers want the FCC to assert their authority and then stand
around while doing nothing," Murray adds. "I’m confident the FCC is
smart enough to do right by consumers, but it will take a lot of
political will to resist the call of the carriers to get rid of the
state law while advocating federal authority."
Rosenfield’s solution is simpler: Keep the FCC out of the mess and
force telecom companies to pay consumers for deceptive billing charges.
"They engage in misleading advertising and it needs to be addressed,"
he said. "This is all about money and who gets to keep what belongs to
the consumer. The FCC is jumping into the fray to save companies. It’s
not about what the FCC can get; it’s about what the companies get.
Ideology trumps any common sense."