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Washington Power Grab May Be Price of Lower Cell Phone Termination Fees

Telecos willing to give up a few dollars for one-stop lobbying in the town they know best

By Martin H. Bosworth
ConsumerAffairs.com

June 12, 2008 

"I am concerned that early termination fees are being used not as a means of recovering legitimate costs but as a means of locking consumers into a service provider," Martin said. "Early termination fees shouldn't function as a hindrance to consumers' ability to choose, or switch to, the service or provider they want."

Martin's plan strongly resembles the Verizon-sponsored termination fee plan proposed last month.

Under Martin's plan, termination fees would be prorated over the life of the contract, and more expensive phones would carry higher fees. Contracts would be for a "reasonable" length of time under Martin's plan, though Martin did not specify what that length of time would be.

Customers would have the ability to renew contracts without incurring fees, as long as they did not order new equipment.

In exchange, however, the many class-action lawsuits filed in several states over early termination fees would be blocked, and state regulators would lose the ability to govern wireless fees.

Martin indicated that he supported the industry position on the issue, and that he favored using central federal regulation to usurp powers traditionally reserved to the states. The telecom industry routinely presses for federal regulation, favoring one-stop lobbying in Washington over trying to satisfy regulators in 50 states.

"I do not believe a patchwork of 50 different sets of regulations with widely varying protections benefits consumers or the industry," Martin said.

"Recouping our investment"

Under pressure from consumer groups and disgruntled customers, the four major wireless carriers -- Verizon, AT&T, Sprint, and T-Mobile -- have begun either prorating their fees or have announced plans to do so.

Tom Tauke, Verizon's executive vice-president for public policy, argued that "[t]his gives consumers the flexibility they said they want, while helping Verizon Wireless recoup its investment in the consumer."

Tauke said that such changes were evidence that the market was working and that no further regulation was needed, on the federal or state level: "Faced with the prospect of multiple state policies on this issue, Verizon believes that appropriate federal action to establish a national policy is preferable."

Some of Martin's fellow commissioners argued that state regulatory oversight was needed due to the difficulties of addressing consumer complaints at the federal level.

Commissioner Michael Copps referenced a recent report from the Government Accountability Office (GAO) that found the FCC's complaint tracking and response procedures were antiquated and flawed.

"Why then should we preempt state and local enforcement authorities with a federal process that has so little credibility?" Copps said.

"Consumers won't stand for that"

Senator Amy Klobuchar (D-MN), who cosponsored legislation designed to restrict termination fees, testified that she opposed a Washington power grab that would jettison state regulatory power over termination fees.

"[C]onsumers also need the protection of state regulators, who have proven themselves good watchdogs on this industry, and strong federal legislation to level the playing field with the big cell phone companies," Klobuchar said. "The current negotiations seem designed to protect America's big cell phone companies, not to protect America's consumers. Consumers won't stand for that, and I won't either."

Chris Kenney, senior counsel for Consumers' Union, told the commission that "[we would be deeply disappointed if the FCC were to use the wireless industry's petition to eliminate state oversight of these contract provisions as the vehicle for 'reform' in this case...While we are sure that the FCC wouldn't eliminate state oversight without providing any corresponding consumer benefit, we question whether companies who have been charging potentially illegal fees should receive any relief whatsoever."

Molly White, an executive consultant from Portland, Oregon, provided the perspective of the average consumer. White testified that when she accepted a job at Nike, she canceled her Verizon service in favor of Nike's own wireless phone service, and was hit with a $175 termination fee on her last bill.

"I knew that when I signed up for cellular service with Verizon that I was obligated to agree to the early termination fee, and since every wireless carrier included the early termination clause and fee in their contract, it was clear to me that I didn't have a choice in the matter," White said. "I, like every other cellular customer I know, feel these fees are unreasonable and unjustified."

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