WASHINGTON-The mobile-phone industry increasingly finds itself like the proverbial Dutch boy with his finger in the dike, drawn into courts, public utility commissions and other bodies around the country to fight new state taxes, regulations and consumer lawsuits.
The carriers’ defiant defense in many cases: federal pre-emption.
While industry’s federal pre-emption argument has had mixed success in tower-siting lawsuits, and until recently was a sure-bet winner in health-related litigation, it is beginning to be chipped away at in one court ruling after another.
The $100 billion mobile-phone industry is on the defensive. Wireless carriers are fighting back and winning a few along the way.
An Illinois state court recently ordered hundreds of municipalities to reimburse wireless consumers millions of dollars for improperly imposing a gross receipts tax on mobile-phone carriers.
But the trend of late has favored cities and states. The South Dakota Supreme Court last month ruled a wireless gross receipts tax was not pre-empted by federal law. “Ultimately, this tax unfairly burdens South Dakota wireless consumers, because it is a tax on us as a carrier that we then pass on to consumers,” said Karen Smith, a Verizon Wireless spokeswoman.
Last week, the U.S. Supreme Court found in favor of cities in a tower-siting case.
The major battleground is clear: federal law vs. states’ rights. The outcome will help shape the regulatory, legal and business environments in which mobile-phone operators will operate in coming years.
The wireless industry has taken the fight to the states on their own turf, appealing taxes in various courts and persuading the California Public Utilities Commission to suspend the bill of rights for telecom and consumers. One step forward, two steps back: some in California and Massachusetts legislatures want to make the bills of rights state laws.
Fighting the states has become a 24/7 proposition for the wireless industry.
Meantime, wireless taxes, state regulations and consumer lawsuits keep coming. And now, health-related litigation is suddenly alive again because industry’s federal pre-emption argument failed to carry the day in federal court in Baltimore and the 4th U.S. Circuit Court of Appeals in Richmond, Va.
If carriers cannot win them all in court, what are their options?
The mobile-phone industry is expected to ask Congress to expand or strengthen existing federal pre-emption wireless laws in any telecom act rewrite. Also, wireless carriers want the Federal Communications Commission to go to bat for them.
The FCC responded earlier this month by rejecting a consumer group’s request that regulatory recovery fees-charges passed on to wireless subscribers to cover the carriers’ cost of implementing enhanced 911, local number portability, universal service and other federal mandates-be prohibited.
Late last year, in an amicus brief, the FCC told a federal appeals court that a Minnesota state law requiring mobile-phone carriers to give subscribers 60 days’ written notice of proposed contract changes is pre-empted by U.S. law. The law-which was to have kicked in last July-is on hold pending the outcome of the mobile-phone carriers’ appeal of a suit they lost against Minnesota Attorney General Mike Hatch.
In his 8th Circuit brief, Hatch echoed what various courts, state regulators, consumer advocates and plaintiff’s lawyers are generally arguing around the country.
“This case embodies an attack by the wireless industry upon Minnesota’s sovereign authority to enact consumer protection legislation,” said Hatch. “In establishing a shared-authority scheme with respect to wireless service, Congress expressly chose not to pre-empt states from exercising their core powers to enact consumer protection laws.”
Congress in 1993 banned states from regulating rates and market entry of mobile-phone carriers, but left “other terms and conditions” of commercial wireless service to the states.
The briefing cycle is complete in the 8th Circuit case in Minnesota, with the parties awaiting a date for oral argument.
More recently, the wireless industry petitioned the FCC for a ruling that would shield mobile-phone carriers in the future from class-action suits challenging early termination fees assessed against subscribers who break their contracts with service providers.
CTIA, the national wireless trade group, said the FCC must act quickly to declare that ETF suits in state courts are pre-empted by federal law.
“Discovery is now going forward in some of these cases, and wireless carriers are being forced to produce cost data, expert evaluations of their rates and rate structures, and economic justifications for the existence and size of the ETF,” CTIA stated. “The fact that discovery in these cases closely resemble a traditional `cost of service’ rate case under state regulation of intrastate wireline services powerfully illustrates why these lawsuits are nothing more than a form of state regulation expressly pre-empted by Section 332.”
Section 332 is the provision of a 1993 law prohibiting rate regulation and entry of commercial wireless carriers. Plaintiffs’ lawyers have argued ETFs violate various state laws.
CTIA, noting that a similar petition was filed by SunCom Operating Co L.L.C. in connection with an ETF class suit in South Carolina, asked the FCC to consolidate both petitions.
Other ETF lawsuits are pending against mobile-phone carriers in California, Florida and Illinois, according to CTIA.
Elsewhere, Cingular Wireless L.L.C, Verizon Wireless, Sprint PCS and T-Mobile USA Inc. asked the Maryland Tax Court to consolidate eight tax lawsuits brought by carriers against the City of Baltimore and Montgomery County. Those cases, unlike many others, do not turn on federal pre-emption.
CTIA also unveiled a grass-roots attempt at getting consumers to lobby their representatives to stop taxation called mywireless.org.
