Verizon, Consumer Advocates Clash over Cellphone Legislation

Verizon Wireless CEO Lowell McAdam said Congress should hew to the light-handed regulation of wireless approved in 1993 under a Democratic Congress. “By any measure we have the most vibrant company and industry around wireless of anywhere in the world,” McAdam said. “How did we get here? We got here through the vision and the wisdom of the Clinton Administration in 1993 by establishing the light touch on this industry… The administration recognized that the best way to take care of customers was to let multiple carriers compete for their business and earn it every day.”

McAdam said enacting the Democrats’ bill would create a “patchwork of regulation” forcing carriers to juggle rules varying by state. He said 60 percent of his customers are enrolled in family share plans, with participants often living in different states. “We need to be able to service on a national basis with a consistent set of rules,” he said.

But Patrick Pearlman, deputy consumer advocate at the Public Service Commission of West Virginia, urged passage of legislation to protect consumers. The committee Democrats’ bill would require carriers to pro-rate early termination fees and provide prospects with accurate coverage maps. It would bar many charges on cellphone bills unless approved by regulators and curb the practice of extending contract lengths when contract terms change. “Consumers would say it’s about time,” Pearlman said. “For years, consumers have been subject to a number of practices, all of which are identified in the proposed legislation that have left consumers feeling like they're on the losing side of an unequal battle against the cellphone companies.”

Pearlman said the U.S. wireless industry has more than 233 million customers providing more than $100 billion revenue a year. “Wireless is indeed holding itself out as a substitute for landline service,” he said. “The market alone historically has not been a sufficient constraint on unreasonable wireless practices. That is the same experience that we have seen on the landline side as well.” On number portability, cramming and slamming, truth in billing and E-911, regulators have had to step in, he said. “These issues were not addressed by the market alone,” he said. “Regulation was necessary… Federal law has not been adequate in acting as a restraint on carrier abusive practices.”

Chris Murray of the Consumers Union said the hearing was occurring a day after AT&T joined Verizon Wireless to become the second major carrier to announce lower early termination fees for consumers ending contracts before they expire. Like Verizon Wireless, AT&T will prorate termination fees, no longer charging a flat $175. Early termination fees have been a major source of complaints on Capitol Hill against carriers.

“The good news is that the pressure that policymakers are exerting in this marketplace actually appears to be working,” Murray said. “There is some bad news in this marketplace as well. Consumers just are not as happy as they ought to be.” A recent survey by his organization’s Consumer Reports found the wireless industry near the bottom of consumer-satisfaction rankings, he said. Murray said U.S. subscribers pay more than $500 a year for wireless service. Subscribers in Germany and Sweden pay less than $300. “Consumers may be getting a lot of value for what they're paying, but they're still paying more than consumers around the world,” he said.

“The burden should not be on the consumer to figure out the rules of the cellphone shell game,” said Lori Swanson, attorney general of Minnesota. “There needs to be more transparency and more fundamental fairness in consumer cellphone transactions. The Congress should pass meaningful consumer protection legislation, so that consumers are treated fairly and not subjected to a game of hide the ball when navigating the cellphone maze.”

“We will hear that consumers love their cellphones and that the minuscule percentage of people who file a formal complaint to the FCC proves that no further regulation is needed,” said Rockefeller, who chaired the hearing as the senior member present. “We know that most people don’t file formal complaints because they just think it’s a waste of time. They don’t know where to send it and they know they're not going to get an answer.” Rockefeller said the FCC has been vigilant in protecting consumers only by imposing tough new regulations for finding wireless subscribers making 911 calls. “I am deeply dismayed that rather than embrace the new FCC rules, the industry is looking for ways to weaken these rules,” he said. “That is shameful.”

Klobuchar said explosive wireless industry growth proves the need for the bill she sponsored with Rockefeller. Too many consumers feel carriers “have the upper hand” in setting the terms of cellphone contracts, and are locked into long contracts with substantial early termination fees, she said. Even when they find that signal strength is weak or costs run higher than expected, consumers can’t exit their contracts.

“The wireless industry continues to operate under the same rules they had 20 years ago, when cellphones were this niche market,” Klobuchar said. “Now it has gone from Wall Street to Main Street… The users have changed but the rules are outdated.” Klobuchar said the pro-rated termination fees announced by Verizon and AT&T are a good step. “But together AT&T and Verizon comprise 55 percent of the market, meaning that over 100 million Americans may still be subject to these fees,” she said. “Our legislation would require all wireless providers to pro-rate their fees, so that at a minimum a consumer who exits a two year contract at the end of the first year would have to pay only half of the termination fees.”

Sen. Jim DeMint, R-S.C., said the wireless industry has succeeded because carriers have been subject to light-handed regulation. “If this government had set about trying to get 200 million cellphones in the hands of Americans it would have cost us hundreds of billions of dollars and taken many years,” he said. “For us to suggest that somehow we are going to be able to design a system that more effectively protects consumers than the competitive market is well intended but very naive.” DeMint can’t recall a single call to his office complaining about the wireless industry, he said. “But I receive hundreds that are complaining about government service,” he said.

Sen. John Sununu, R-N.H., said legislation approved in 1993 defining wireless regulation treated wireless as a new national industry. “As an effectively new national telecommunications system, it made sense to have a clear, more standardized regulatory structure in order to encourage investment and buildout and competition,” he said. “What was the result? To go back to 1992, there were nine million wireless subscribers. Today, there are over 200 million… By the measurement of usage, growth, consumer demand, you'd have to say it’s a pretty successful regulatory structure.”

“The FCC’s annual report tells us that mobile service is the most competitive sector of communications,” said Sen. Ted Stevens of Alaska, the committee’s ranking Republican member. “I certainly understand and experience the frustration that all consumers feel sometimes when dealing with mass products. But I also worry that if Congress acts too rashly the end result could be that consumer prices would go up, or that some consumers would be forced into less attractive wireless plans.”