WASHINGTON-Harsh political and industry criticism of the California Public Utilities Commission’s bill of rights for telecom consumers likely signals the controversy will carry over into 2005, when pro-business GOP Gov. Arnold Schwarzenegger replaces two exiting Democratic commissioners with his own appointments.
“I am disappointed in the action taken today by the California Public Utilities Commission,” said Schwarzenegger, following a landmark decision that other states may well emulate and that reverses the trend of state deregulation spurred by 1993 federal legislation.
“The PUC has overreached its regulatory responsibilities. This measure will impede growth in the highly competitive wireless industry and could result in companies shifting investments and jobs outside of California,” warned Schwarzenegger, who after taking office late last year ordered a moratorium on new regulations until their economic impact could be assessed. The PUC, an independent agency, was not bound by the directive but took public comment on the economic implications of a bill of rights.
Since the early 1990s, the mobile-phone industry has grown by leaps and bounds to a current 165 million subscribers. Now industry is feeling growing pains manifested in consumer lawsuits, expensive federal mandates and renewed scrutiny by states.
Last week, a California judge approved a settlement of a class-action billing lawsuit against No. 1 Verizon Wireless. A Missouri federal judge recently signed off on a settlement of a class-action billing suit against Nextel Communications Inc. Other national carriers have been dragged into court as well, sometimes by state attorneys general.
The mobile-phone industry vowed to challenge the CPUC ruling.
“These rules simply represent a leap to judgment that is fundamentally inconsistent with a vigorous and competitive marketplace,” said Steven Largent, president of the Cellular Telecommunications & Internet Association. Largent said consumer complaints have decreased significantly in recent years.
Consumer advocates welcomed the decision, but said the PUC did not go far enough.
“Although the commission could have done much more, the decision today is nonetheless a victory for 19 million cell-phone customers in California who are often in a `cell hell’ of poor service and billing nightmares,” said Janee Briesemeister, of Consumers Union’s EscapeCellHell.org campaign. “We commend the PUC for taking a significant step forward in improving market conditions for cell-phone customers.”
After four years of voluminous filings, public hearings and non-stop rancor, the PUC voted 3-to-2 for a compromise bill of rights crafted by Commissioner Geoffrey Brown. At the same time, state regulators resoundingly rejected Commissioner Susan Kennedy’s alternate proposal, which was highly deregulatory and largely favorable to the mobile-phone industry.
In the end, possibly by design, the PUC did not vote on a third telecom consumer plan pushed by Commissioner Carl Wood, the bill of rights author. By having commissioners vote first on the Kennedy alternate and then on the Brown proposal-holding the Wood plan for last-PUC President Michael Peevey effectively canceled out an already marginalized Wood.
The last-minute procedural maneuver forced Wood and Commissioner Loretta Lynch to change their votes and back the Brown plan rather than risk going away empty handed. Indeed, there was another scenario that could have materialized as a result of Peevey’s sequencing of votes: lack of majority support for any of the three bill-of-rights plans.
“He [Peevey] wanted to kill it [the bill of rights],” said Brown.
Brown worked closely with Wood in recent months before going his own way. In doing so, though, Brown salvaged Wood’s pet project.
“I’m very pleased we got this thing out,” said Wood. “It’s not everything I wanted, but it’s the bulk of it.” The terms of Commissioners Wood and Loretta Lynch expire at the end of the year.
The Brown bill of rights fits in between Kennedy’s deregulatory plan-which closely tracked industry’s voluntary code of conduct-and Wood’s pro-consumer plan.
Brown’s plan allows consumers to trial cell-phone service for 30 days and return phones without having to pay penalty fees, while stripping out advertising regulation and controversial privacy provisions. Carriers will be required to provide clearer, up-front disclosure of rates, terms and conditions to consumers. In addition, wireless service providers will be prohibited from listing regulatory recovery charges together with taxes and fees assessed by local, state and federal agencies.
“Although I have great respect for Commissioner Wood’s intentions and his hard work, I believe my order is in a better posture to survive January of 2005,” said Brown. “I believe we can implement these rules without market disruption and without huge costs. These are mostly thou-shall-not-deceive-the-customer rules. That’s what this is about. What the industry most fears is that we will have a reasonable rule that only the most shameful people will dismantle.”
But that is clearly what the wireless industry-possibly with the help of Sacramento-would like to do. There are several options. One is for mobile-phone carriers to immediately file for reconsideration or modification of the bill-of-rights decision. Industry also can take the PUC to court. Then there is the political option, whereby Schwarzenegger works his will through new PUC appointees who could team with pro-business Democrats Kennedy and Peevey to gut or overturn the bill of rights next year.
“Because of their refusal to completely analyze these regulations prior to today’s vote, no one at the PUC knows what the economic impact of these telecommunications rules be,” said California Chamber of Commerce President Allan Zaremberg. “The only certainty as a result of the PUC’s wireless regulation is that prices will go up, competition will decline, and California will lose jobs and investment.”
The same frustration was echoed by the wireless industry and even by broadcasters who otherwise are at odds with wireless carriers over spectrum.
“We’re disappointed that a majority of the California PUC has chosen to move ahead with a costly and unnecessary regulatory scheme at this time,” said Len Lauer, president of Sprint Corp. “The commission still hasn’t done a rigorous analysis of the cost this so-called bill of rights will have for the California economy, so we don’t know what the impact will be for jobs and economic growth, which are much needed in the state.
Stan Statham, president of the California Broadcasters Association, stated: “The rules could trigger a dramatic reduction in wireless advertising on television and radio in California. Advertising is a valuable source of information for wireless subscribers and keeps the wireless market competitive. Through advertising, wireless carriers reach consumers with new deals and service options. The new rules ensure consumers will have less information about their wireless options.”
Brown said he is prepared to make adjustments to the bill of rights if problems arise. “We are not insensitive to market conditions and market responses,” he remarked.
Peevey opposed any new telecom consumer rules. “This is a classic case of philosophical difference. I don’t believe in command and control. I believe in markets. Regulation is a poor substitute for competition,” said Peevey.
Kennedy was even more vocal. “Under the banner of protecting consumers, this commission is proposing a sweeping expansion of feel-good regulation that will do nothing more than launch a frenzy of litigation, expand bureaucracy, increase costs to consumers and make it more expensive to do business in the state,” she said. Kennedy predicted small and medium-sized carriers-like Cricket Communications, Me
tro PCS and Virgin Mobile-will especially feel the pinch. RCR
