AT&T, Verizon ETF Announcements Change National Debate

The Verizon and AT&T moves, AT&T’s this week (CD Oct 17 p15), could put pressure on other carriers to pro-rate fees, a major topic of discussion at a Wednesday hearing on wireless regulation (CD Oct 18 p1). Sprint Nextel and T-Mobile have not said they will pro-rate. The Senate is eyeing legislation by Sens. Amy Klobuchar, D-Minn., and Jay Rockefeller, D-W.Va., that would mandate pro-rating. FCC Chairman Kevin Martin has said he favors an agency hearing on ETFs in the wireless and other industries regulated by the agency.

The Verizon and AT&T gestures “will go a long way to quieting the call for legislation on early termination fees,” said Rebecca Arbogast, analyst at Stifel Nicolaus. But Walter Piecyk, analyst at Pali Research, said the net effect on ETFs is elusive. “While it’s tempting to say that pro-rating ETFs helps the overall view of the brand and should improve churn, I find it hard to believe that someone would elect to choose one carrier over another based on whether termination fees are pro-rated or not,” Piecyk said. “These moves appear to me to be in response to the industry getting beaten up on Capitol Hill about locked phones and termination fees. Since I can’t sympathize with some of the concerns voiced on Capitol Hill about these issues earlier this year, it’s hard for me to gauge whether the cuts in ETFs will have any impact.”

Verizon’s ETF shift fits its track record of leadership on consumer issues and AT&T was smart to follow suit, said Jessica Zufolo, analyst with Medley Global Advisors. “Whether or not that legislation will move this year is a huge open question and pretty unlikely regardless,” she said. “The wireless industry has lobbied really aggressively everywhere to prevent a regulatory response to this issue… It’s one of their top legislative priorities.” Zufolo said Martin has discussed an banc hearing on ETFs, but no date has been set, and whether one will occur remains unclear.

Carrier sources said Thursday that the AT&T and Verizon actions likely turn up the heat on others to do likewise. “We suspect other carriers will follow suit, mainly to match their competitors in some way,” said a carrier source. “The professional advocates for more regulation of wireless will continue their advocacy. The key question is whether or not it will have any credibility or resonance with policymakers, especially as they see marketplace solutions and consumer demand being met, as evidenced in the recent ETF announcements.”

A small carrier source expects more pressure on other carriers to soften ETF provisions. “Regardless of what -- if anything -- policymakers do regarding ETFs, the decision by these two carriers will cause others in the industry to re-evaluate how they use ETFs,” the source said. “That is the beauty of the competitive marketplace. Thus, if Congress and the FCC are patient, they should see additional industry action.”

“It is surprising that more carriers did not follow Verizon’s lead some time ago and prorate their ETFs,” said an attorney who represents carriers. “With recent consumer pressure on the Hill for legislation and an election just ahead we would expect more carriers to respond as AT&T has and offer up reforms that address the least defensible carrier billing policies.”

Wireless carriers hammered this week in a Senate Commerce Committee hearing got good news in the form of the Pryor bill, which would set federal rules for wireless customer service and consumer protection. Pryor said the wireless industry succeeded thanks to the Omnibus Budget Reconciliation Act of 1993, in which Congress limited state and local regulatory authority on wireless carriers.

“While we have accomplished the goal of growing the wireless industry, we have yet to establish a uniform set of customer service and consumer protection requirements,” Pryor said in a statement. “Now is the time to finish the job we started in 1993 by enacting a national framework that will drive a new era of consumer-friendly wireless services.”

Pryor, formerly his states’s attorney general, said he did not want to limit state and local authority to oversee and enforce consumer protections. But a balance must be struck, given wireless service’s national nature, he said. “This bill begins an important debate on building uniform, comprehensive rules that provide a fair, transparent and quality wireless service to consumers across the Nation,” he said. “While there is much work to be done in achieving a balance of rules that truly work for consumers, there is a clear need for a federal wireless regulatory framework. I am confident that we can reach this goal.”