Termination Fees Lead NARUC’s List of Complaints about Cellular

Citing a NARUC resolution urging the FCC to review a 1992 order allowing the fees, Boyle said the commission should review whether market conditions still justify the charges. Boyle called the fees unfair and unjustified and said getting rid of policy debates and complaints about them would benefit carriers.

Termination fees ranked high among cellular complaints in a NARUC survey of members, mobile companies, consumer advocates and others. The survey covered advertising disclosures, disclosure of terms and conditions at point of sale, contract terms and conditions, billing practices and quality of service. Termination fees came out worst regarding ad and point of sale disclosures and contract terms and conditions.

Boyle said carriers’ average net cost of subsidizing a handset sold with a service contract is $14.33. “Even when the carriers prorate fees, as some of them are doing now, they are recouping those funds,” she said. “It’s the number one issue I hear about as an elected official.”

“We would like to be your best friends, but this issue is the elephant in the room,” Boyle said. “It’s not complicated. The question is, are early termination fees needed? They are a distraction that keeps all of us here. It would be a service to carriers to take this controversial issue off the table.”

When moderator Carlito Caliboso, a member of the Hawaii Public Utility Commission, asked panelists whether early termination fees should be banned, comments followed predictable fault lines. Massachusetts Assistant Attorney General Jed Nosal said he hesitates to support a ban for cellphone providers but not other industries. “Industry does need to do a better job of disclosing and explaining the fees,” Nosal said.

“I want to sound reasonable but it’s difficult to do that on this subject,” said Patrick Pearlman, West Virginia’s deputy consumer advocate. “However, economically, I just don’t see the case for them.” Lisa Zaina, CTIA assistant vice president for state regulatory affairs, reminded listeners that hundreds of kinds of contracts are comparable to those for cellphones. General Counsel Heal Osten of the National Conference of State Legislatures took a position of buyer, beware. His group’s members like that consumers have options such as prepaid phones and other low-cost services, he said.

Washington, D.C., Public Utility Commissioner Betty Ann Kane stood with Boyle. “You should be able to buy a phone without a service contract and buy a service contract without a phone,” Kane urged. “If there is going to be a subsidized sale of a handset, it should be by installments and the price should not exceed the maximum value of the device.”

NARUC’s survey data on consumer protection standards will be studied further and reflected in a white paper within a month, association officials said. -- Michael Dolan

NARUC Notebook…

The federal economic stimulus bill, signed Tuesday by President Barack Obama, cast a long shadow over this week’s NARUC winter meeting. Few telecom-related sessions at the Washington, D.C., event made no reference the law’s $7.2 billion for broadband. Another theme was revamping intercarrier compensation and the Universal Service Fund -- once seen, a speaker noted, as separate overhaul projects but now most often mentioned together.

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Keynoting Monday’s Telecom Committee session, Frontier Communications CEO Maggie Wilderotter urged utilities commissioners and industry to do their best to guide federal officials on using the stimulus package’s broadband money and remaking carrier compensation and the USF. Frontier sees itself as a model rural carrier, Wilderotter said. The company’s USF funding has shrunk from 30 percent of revenue in 2004 to 5 percent in 2008, she said. She urged that rural America not be left behind in the overhaul of intercarrier compensation and the USF. Business owners using Frontier average 45 to 55 in age, Wilderotter said. “These people are replanting and repotting in their home towns,” she said, quoting University of Maryland scholar James Gimpel on how broadband helps overcome “the friction of distribution” and enables self-employment. Frontier is testing all kinds of delivery technologies, including satellite, wireless, fiber to the home and Wi-Fi, she said. The company is the biggest Wi-Fi operator in 18 markets, she said. Frontier works to instill in customers a sense that the Internet isn’t free, Wilderotter said, endorsing the concept of tiered service charges. When analysis shows chronically heavy bandwidth use, the company contacts the customers and offers to fine- tune their systems, which sometimes have viruses or spam causing the anomaly. “We don’t monitor account activities but we do review macro use. … Bandwidth is a resource that you should pay to use.”

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Utility commissioners nationwide should focus on 911, NARUC officials told the Telecom Committee. The FCC is collecting data on yearly fees and charges associated with emergency calling services in all states and U.S. territories. The agency has until March 23 to get the information, to be the basis of a report to be delivered in July, they said.

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FCC Wireline Bureau official Victoria Goldberg expressed hope that administrative changes under way will lead to more transparency and cooperation in intercarrier compensation and USF, making reforms possible. But she later said the stimulus package’s inclusion of broadband diminishes the need for reform of USF and carrier compensation. Intercarrier compensation most come to grips with a broadband world, said Joel Lubin, AT&T vice president for regulatory planning and policy. The system for funding universal service may be broken, but the reasons for mandating that funding still exist, and connectivity still matters, said Jeffrey Lanning, Embarq director of federal external affairs. No matter what happens, there’s always going to be a carrier of last resort, and if that carrier doesn’t have access to USF funding, service costs will fall on the customer, he said. Even as the stimulus bill directs funds to encourage broadband adoption, broadband is enabling VoIP and other technologies that are eroding revenue streams that are supposed to pay for broadband, said TDS Telecom Federal Affairs Director Robert DeBroux. Much work has been done, but with so crowded a political agenda, “it’s hard to see intercarrier compensation and USF reform breaking through,” said Time Warner Cable Senior Vice President Steven Teplitz. FCC action could prove equally elusive, he said, predicting no action before midyear. DeBroux noted that the three-member FCC has heard warnings from Congress not to act precipitously. Panelists agreed on the value of moving on “low-hanging fruit,” such as repairing the USF collection mechanism by moving to a number- based system.

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Stalled adoption of broadband among those with low incomes results from a mix of factors -- cost, unfamiliarity, failure to recognize value -- that could be ameliorated through policy changes, said Free Press Research Director Derek Turner. Cost-cutting and training would help, he said. Since the stimulus package’s broadband elements scarcely address low-income user access, Lifeline and LinkUp offer an avenue to broader adoption, with funding through the USF, he said. Free Press advocates a variation on a $300 million-a- year USF Lifeline/LinkUp pilot floated in the fall by FCC Chairman Kevin Martin. He said his plan would boost broadband use by low-income individuals to 50 percent, nearly the same as in the general population. “Pure fantasy,” Turner said, estimating the actual annual cost of attaining Martin’s figure at just under $1 billion. But the idea has merit and could produce a real gain of 15 percent -- from 24 percent adoption to 27 percent -- by pitching to families with school-age children, by designing programs that play to low-income consumers’ preference for prepaid plans and by subsidizing devices with lump-sum payments or deferred interest, he said. The Computer & Communications Industry Association endorses the Lifeline/LinkUp route to expanded broadband use, said Government Relations Vice President Cathy Sloan. “We don’t want to wall off new business models from unserved neighborhoods,” she said. To increase adoption, the FCC and states could contribute to the cost of devices and avoid controls restricting distribution of devices to carriers, she said. The DTV coupon program may have had its hiccups, but coupons can work well, Sloan said. A pilot shouldn’t wait until buildout has occurred, she added. Any provider should be able to participate in the pilot, but no provider should have to participate, said TracFone counsel Rick Brecher. Strictures proposed in the thwarted FCC pilot helped bring its demise, Brecher said. The agency stipulated that the maximum value of devices qualifying for subsidy would be $100, which would discourage device maker participation, he said. The FCC’s proposed $10 monthly pricing for broadband was “wholly inadequate,” he said. Instead of a nationally set mechanism, individual states should be able to structure pilot programs, Brecher said. Beth Fujimoto, AT&T executive director of public policy, said it’s essential to bridge the digital divide by clearly defining key elements in USF handling of broadband, such as caps on Lifeline/LinkUp coverage of the service, consumer eligibility and minimum speed. There should be minimal technical standards for devices, Fujimoto said. Title 1 authorizes the FCC to do these things, she said. “And what happens if a subscriber loses eligibility?” she asked. The FCC should establish a Lifeline/LinkUp-only designation -- “LSP,” for “Lifeline Services Provider” -- open to qualifying providers, she said. “The existing Lifeline program is very narrowly-banded and POTS-centric,” Fujimoto said. “We need to take a fresh look at the services it supports.”

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Challenges to carrying out the broadband stimulus package include a lack of definition for the programs to do so, the high cost of delivering the service to the areas still not served, the threat of those costs rising even higher thanks to the arrival of federal money and broadband’s murky future, said Tom Tauke, Verizon executive vice president, in a keynote to the day’s final telecom panel. With the stimulus poised for action, Tauke encouraged NARUC and utilities commissioners to help wrestle the package from concept to reality. “It’s very hard from the federal level to come up with a program that works in every state,” he said. The package has no bar to state engagement, Tauke added. “You know the territory, the problems, the programs that are in place,” he said. “Why not build on that knowledge?” The key is to promote demand in the form of health IT, smart grids, school computers and other uses, the executive said. “We make $100 laptops that we send to kids overseas, but we don’t do that here,” he said. Tauke endorsed “focused philanthropy” as a means of stimulating demand. “Companies have to be open to different business plans,” he said. Members of the panel that followed Tauke’s remarks, who were led by New York Public Service Commissioner Maureen Harris, amplified subtler themes. Broadband speed gets too much emphasis, said Dave Conn, T-Mobile national director, state regulatory & policy. “Obviously more is better but if we're spending public money we should be looking out for the public good,” Conn said. “Streaming video is not necessarily what furthers the public interest.” Conn said mobile devices could be a gateway for non-broadband users to embrace the technology. The stimulus package should focus on unserved areas, said Rick Cimerman, NCTA vice president for government affairs. He agreed with Conn on the need to downplay speed. “It’s a Goldilocks problem,” Cimerman said. “Everyone wants it to be just right.” Vendors need help in the form of flexibility, said Michael Balhoff, managing partner of Balhoff & Williams. “The states need to get in there. The real action is at the state level. You know what works, the details, the numbers.” Balhoff noted that the high and ongoing cost of backhaul could demand more money, since the stimulus package only prescribes funding infrastructure. “Backhaul can run $60 or $100 a month,” he said. “This is just the beginning of the process.”