WASHINGTON-Two new class-action lawsuits filed against Cingular Wireless L.L.C. and Verizon Wireless, and industry’s tax lawsuit loss in Maryland, raise questions about whether wireless carriers would significantly rid themselves of consumer litigation and state and local fees if it won expanded federal pre-emption and tax relief in controversial telecom reform legislation whose passage this year appears doubtful.
Last Thursday, a nationwide lawsuit filed against Cingular alleges the largest U.S. cellular operator crippled service and overcharged former AT&T Wireless Services Inc. customers after Cingular acquired AWS in October 2004. Plaintiffs’ lawyers said consumers’ horror stories prompted the lawsuit.
The class-action, filed in federal court in Washington state, alleges that instead of the new and improved services that Cingular promised AWS customers, Cingular immediately began dismantling and degrading the AWS network, forcing the latter’s customers to move to Cingular’s network. As a result, according to plaintiffs, that meant buying new phone equipment, moving to higher-cost plans, and, in some cases, an $18 transfer or upgrade fee. The lawsuit said some customers who tried to go to another company were hit with $175 early-termination fees, while others who didn’t want to pay or could not afford the fees, have been stuck with riding out their AWS contract while suffering poor to no reception.
“Cingular promised AT&T customers it would `raise the bar’; instead, it lowered service quality, forced AT&T customers to move to Cingular, and then raised prices,” said Harvey Rosenfield, a lawyer for the San Diego-based Foundation for Taxpayer and Consumer Rights.
Joining FTCR in the suit are law firms in California and Washington state.
“Cingular has displayed an arrogance which sends the message that their market share is more important than their customers,” said Bruce Simon of the Cotchett, Pitre, Simon & McCarthy law firm in Los Angeles.
“AT&T promised customers the moon but delivered nothing,” said Mike Withey of Stritmatter, Kessler, Whelan, Withey and Coluccio, a law firm in Seattle. “This suit seeks to hold them accountable to their loyal customers who have been forced to pay added fees just to get the service they were promised. It’s not fair.”
A California state appeals court recently upheld a decision by the California Public Utilities Commission imposing a $12.1 million fine against Cingular for promising cell-phone service it could not provide and charging customers who tried to cancel early-termination fees of up to $500. FTCR said it filed a separate lawsuit against Cingular for that conduct. That case is ongoing.
“We really refute the points in the suit,” said Clay Owen, a Cingular spokesman. “In fact, we spent $6.5 billion last year integrating and upgrade our wireless networks. This isn’t about dismantling anything. This is about integrating and improving the networks of AT&T Wireless and Cingular Wireless.”
Road rage
Verizon Wireless, meantime, faces a new class-action lawsuit moved to federal court in Detroit late last month.
The lawsuit-technically filed against parent Verizon Communications Inc., but directed at its wireless unit-alleges Verizon Wireless charged a subscriber a monthly $2 road-side assistance fee since January 2004 without prior consent and later refused to refund the customer for all unauthorized charges. The lawsuit accuses Verizon Wireless of violating Michigan’s consumer protection act, breach of contract and unjust enrichment.
A Verizon Wireless spokeswoman declined to comment, noting the No. 2 mobile carrier has yet to file a response with the court.
The cell-phone industry points out wireless consumer complaints to the Federal Communications Commission plummeted by 37 percent from the past year and now stand at just 22 complaints per 1 million wireless consumers. Industry said the FCC’s complaint data is bolstered by two recent consumer studies, one out of the University of Michigan and the other from J.D. Power and Associates, that found overall wireless customer satisfaction to have increased significantly
Loss on local taxes
Elsewhere, the Maryland Tax Court rejected a lawsuit against local wireless taxes filed by T-Mobile USA Inc., Verizon Wireless, Cingular and Sprint Nextel Corp. The four national cellular carriers protested monthly wireless taxes of $3.50 and $2 imposed by Baltimore City and Montgomery County, respectively.
“Although disappointed in the decision, the wireless industry will continue to oppose all excessive, regressive and discriminatory taxes in Maryland and across the country on behalf of its consumers,” said Jim Schuler, assistant vice president for external and state affairs for CTIA, the national cell-phone association.
Federal fights
CTIA and its members are lobbying Congress and the FCC for expanded federal pre-emption of state regulation of wireless carriers and tax relief in hopes of curbing lawsuits and fees added onto subscribers’ monthly bills. CTIA is awaiting an FCC ruling on its petition requesting that the agency declare ETFs-the subject of much litigation-as a rate component that is off limits to states.
A 1993 law banned state regulation of wireless rates and market entry, but left to states oversight of other terms and conditions of wireless service. Industry wants Congress to repeal the “other terms and conditions” reserve clause.
Even if industry succeeds in getting Congress to approve a stronger national regulatory framework for cellular carriers-one that could better shield operators from consumer suits and new state rules-it is unclear whether service providers would be able to dodge lawsuits claiming violations of state consumer protection laws or the imposition of future taxes. With so many stakeholders involved in legislation both complex and controversial, it is becoming increasing doubtful Congress can pass a telecom reform bill-the first major rewrite since the 1996 telecom act-during a midterm election year in which Republican control of Congress is being threatened by Democrats.
In addition to fighting against wireless-specific taxes in court, CTIA has also taken its message to Capitol Hill, getting an important win last month with the passage of an amendment to the Communications Act of 2006 to place a three-year moratorium on new state and local wireless-specific taxes. The amendment does not appear to touch existing taxes.
This amendment may prove to be an albatross for the bill as a coalition of municipal organizations which had signaled its support for the Senate Commerce Committee’s version of telecommunications reform withdrew that support citing the wireless-tax moratorium as a key reason.
Calling the wireless-tax moratorium unacceptable, the municipal organizations said they would fight against the bill being considered on the Senate floor.
“It would be unfortunate if the bill’s positive attributes were unable to garner floor time for the lack of having 60 senators supporting consideration. However, unless we receive assurances that the tax amendments and the modification to the video-service provider definition will be removed during floor debate, we will have to urge our members to oppose the bill,” said the U.S. Conference of Mayors, the National League of Cities, the National Association of Counties, the Government Finance Officers Association and the National Association of Telecommunications Officers and Advisors.
Sen. Ron Wyden (D-Ore.), who is not a member of the Senate Commerce Committee, threatened to filibuster the bill because it does not include strong network-neutrality language.
Washington reporter Heather Forsgren Weaver contributed to this report.
