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Verizon, FCC Cook Up Termination-Fee Plan

Deal would jettison states & suits and possibly sink Sprint's boat

By Martin H. Bosworth
ConsumerAffairs.com

May 22, 2008 

In exchange, Verizon wants the FCC to block lawsuits against the companies over the fees, and prevent state lawmakers from seeking greater regulation over wireless fees as well.

While Verizon has used the proposal to paint itself as pro-consumer, telecom insiders noted that Verizon and AT&T would both be likely to sign new customers from struggling Sprint, which lost 1.2 million subscribers last year, if termination fees were eliminated or reduced.

"You have to watch both hands when you're dealing with the big telcos," said a longtime Washington hand. "While they're stroking you, they're stabbing someone else."

"As the clock runs out on the Bush Administration, business interests are grabbing all they can before a new crew takes over the cookie jar," this person said. "This is your basic get-it-while-we-can maneuver."

The Associated Press first reported yesterday that the FCC was considering the proposal, which if adopted would enable wireless customers to cancel their contracts for up to 30 days after they sign a cellphone contract or 10 days after they receive their first bill without penalty.

Termination fees would be lowered each month of a customer's contract, but some reports say the fees would not go below $60.

Nullify lawsuits

In exchange, Verizon wants the government to block numerous class-action lawsuits filed in various states over the termination fees. The proposal would also preempt state regulators' authority to regulate wireless fees, making federal authorities the primary source of redress for consumer complaints.

Other details of the Verizon plan remain scarce and the FCC itself has yet to publicly comment, but consumer advocates are already criticizing the proposal as too favorable to industry. Ed Mierzwinski, head of U.S. PIRG, called the proposal an "October Surprise in May."

"If Verizon wins, Martin would slip a bad excuse of a federal early termination fee regulation into FCC rules, so that Verizon can avoid existing lawsuits under state law arguing that early termination fees are unfair and deceptive efforts to prevent cell phone customers from shopping around," Mierzwinski said. "The companies would be required to slightly lower and pro-rate the fees, but not enough to matter."

Termination fees have become a touchpoint for criticism of the wireless industry, with customers, consumer advocates, state regulators, and members of Congress criticizing them as a method to keep consumers locked into wireless contracts.

The wireless industry has claimed that the fees are a necessity in order to sell handsets at lower prices and recoup costs, and that consumers would not buy the phones at their higher, non-subsidized prices.

In addition to the multiple class-action lawsuits over the fees, Senators Jay Rockefeller (D-WV) and Amy Klobuchar (D-MI) introduced the "Cell Phone Consumer Empowerment Act" in 2007, which would mandate that termination fees be prorated by 50 percent after the first year of a two-year contract, and would limit the circumstances where other fees could be imposed.

The combination of class-action lawsuits and the threat of new laws prompted the four major telecom companies in America -- Verizon, AT&T, Sprint, & T-Mobile -- to voluntarily begin prorating their termination fees. Kevin Martin, the FCC chairman, also said his agency would investigate the fees, possibly leading to the discussions surrounding the new proposal.

The usage of federal regulation to block state laws, a tactic called "preemption," is often favored by large industries with strong presences in Washington, and has been added to proposed legislation dealing with everything from identity theft to federal gas mileage standards. Critics of preemption say the tactic enables powerful interest groups with easy access to Congress to get weaker federal laws passed that override stronger state laws.

"The big telecom companies have always preferred 'one-stop lobbying.' It's a lot cheaper and they don't have to deal with all those bothersome states and their pesky citizens," said a Washington strategist who formerly worked with major telecommunications carriers.

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