WASHINGTON-A U.S. appeals court in Atlanta is scheduled to hear oral argument this week in a key case that turns on whether a common billing practice by mobile-phone carriers is pre-empted by federal law.
After the Federal Communications Commission last year ruled states are barred from regulating non-tax line items on wireless bills as part of a broader decision that extended federal truth-in-billing regulations to mobile-phone operators, the National Association of State Utility Consumer Advocates and the Vermont Public Service Board went to court to challenge the agency decision.
NASUCA sought to have the FCC ban regulatory recovery fees-charges levied by cellular operators to defray the cost of federal mandates such as local number portability, enhanced 911 and universal service. The consumer group said such charges are deceptive because they come across to consumers as looking like mandated state and federal charges. Mobile-phone operators have argued regulatory recovery fees help consumers see precisely what they are paying for.
In its 2005 decision, the FCC said rules either requiring or prohibiting line items on wireless bills amount to illegal rate regulation. The mobile-phone industry agrees, pointing to a 1993 law that prohibits state regulation of wireless rates and market entry, but reserves to states oversight of other terms and conditions. Consumer advocates and some state regulators argue the latter reserve clause gives states oversight of non-tax line items on wireless bills.
The case before the 11th U.S. Circuit Court of Appeals, set to be heard Wednesday, is important not only in its own right, but also for what it could mean to a major case on hold in Kentucky federal court and to other FCC proceedings in which state-vs.-federal jurisdiction is the overarching theme.
Last year, Cingular Wireless L.L.C., Verizon Wireless, Sprint Nextel Corp. and T-Mobile USA Inc. sued Kentucky to challenge a new tax signed into law by Gov. Ernie Fletcher. The law, forbidding telecom carriers from passing on to consumers a 1.3-percent gross receipts tax, was to have gone into effect Jan. 1.
Last December, U.S. District Judge Karen Caldwell temporarily suspended legal proceedings in the Kentucky lawsuit pending a ruling in the 11th Circuit’s truth-in-billing case. Mobile-phone carriers argue non-Kentucky cellular customers on national calling plans would have to absorb most of the cost of the state tax without gaining any benefit.
The outcome of the 11th Circuit also could have reverberations for two FCC proceedings that appear ripe for action. In one, industry trade association CTIA has asked the FCC to declare that early termination fees charged to subscribers who want out of their service contracts falls within state-outlawed rate regulation.
The FCC also is crafting a follow-up truth-in-billing order. In that rulemaking, the agency last year preliminarily determined inconsistent state regulation of telecom carrier-specific truth-in-billing regulations should be pre-empted. At the same time, the FCC said future pre-emption would not limit the ability of states to enforce their own consumer-protection laws. The commission also tentatively concluded non-tax line items must be located in a section of a wireless bill separate from government-imposed charges and that carriers must disclose to consumers at the point of sale the full rate, including any non-mandated line items, as well as an estimate of government-imposed surcharges.
The mobile-phone industry would like Congress to further roll back state powers in telecom re-write legislation, but carriers are not limiting their outreach to Senate and House members. The wireless industry is taking the fight to states around the country where carriers face new state wireless regulations and taxes.
Last year, the U.S. 8th Circuit Court of Appeals sided with industry in striking down a Minnesota wireless consumer law requiring advance consent of subscribers before carriers could implement contract changes that could raise rates. Minnesota Attorney General Mike Hatch asked the U.S. Supreme Court to review the 8th Circuit ruling. Cell-phone carriers were expected to file responses to Hatch’s petition last Friday.
