THE MOBILE-PHONE INDUSTRY’S BUSINESS MODEL continues to come under attack, with challenges to carrier control increasingly playing out in the courts, Congress and at the Federal Communications Commission.
National wireless carriers find themselves ensnarled in more than a dozen handset-locking and early-termination-fee cases consolidated in the California Superior Court in Alameda. For at least two carriers, there is an end in sight to the litigation. But that is hardly the end of the story, with constant wireless consumer lawsuits emphasizing the industry’s uncertain quest for expanded federal pre-emption on Capitol Hill and a Supreme Court reversal of a major states’ rights victory in the 11th U.S. Circuit Court of Appeals.
Locking issues unlocked
No. 2 operator Verizon Wireless and No. 3 Sprint Nextel Corp. have opted to settle California class-action lawsuits challenging handset locking, a widespread industry practice that Sens. Amy Klobuchar (D-Minn.) and Jay Rockefeller (D-W.Va.) want federal regulators to scrutinize as part of a far-reaching wireless consumer-protection bill. On a related carrier control issue, the FCC agreed to impose a network open-access condition on one-third of the 700 MHz spectrum to be auctioned in late January. The cellphone industry has challenged the open-access rule in federal appeals court.
“We believe the settlement is fair and reasonable,” said Matt Sullivan, a spokesman for Sprint Nextel, referring to the California handset-locking suits.
Under the settlement, Sprint Nextel has agreed to disclose the phone lock code to consumers; assist customers with non-Sprint Nextel handsets to activate them on the carrier’s network where possible, and notify Sprint Nextel direct and indirect retailers of these policies. In addition, Sprint Nextel agreed to provide these benefits throughout the country.
Scott Bursor, co-lead counsel for the class in the California case, said the Sprint Nextel settlement parallels a similar pact with Verizon Wireless.
“Both of these settlements will make it significantly easier for consumers to use their CDMA phones to subscribe to service on the networks of other CDMA carriers,” said Bursor. “Together, both of these settlements are tremendous victories for consumers and for free competition among cellphone carriers.”
Verizon says it doesn’t lock handsets
Verizon Wireless settled even though it says it does not lock cellphones
Indeed, Verizon Wireless declared as much in a Web notice explaining the settlement to subscribers.
“Verizon Wireless denies that it has ever installed software locks on the overwhelming majority of its wireless phones and denies any liability to the class representatives or the settlement class,” the carrier stated. “Verizon Wireless, however, has agreed to settle the actions for the purpose of avoiding the uncertainties and expense of, and diversion of business resources resulting from, further litigation.”
Verizon Wireless added: “No court has determined the merits of the plaintiffs’ claims or Verizon Wireless’s defenses. This notice does not imply that there have been or would be any findings of violation of the law by Verizon Wireless or that recovery could be had in any amount if the actions were not settled.”
Network control
Another novel issue for industry involves carriers’ gate-keeping role.
Rebtel, a Voice-over-Internet-Protocol firm that offers international calling on mobile phones, said Verizon Wireless, Alltel Corp. and T-Mobile USA Inc. rejected requests for short codes to create local numbers by text message.
“We believe Verizon’s rejection of our short-code campaign is an anti-competitive abuse of power, just like their rejection of NARAL Pro-Choice America’s campaign was interference with political speech and activism,” said Greg Spector, Rebtel’s spokesman. “Enough is enough. It’s time to do what’s right for the consumer-not Verizon’s profits.”
After initially rejecting NARAL’s request for a short-code to enable the group to send text messages to supporters’ cellphones, Verizon Wireless promptly reversed course as part of a policy shift and granted the application.
Jeffrey Nelson, a Verizon Wireless spokesman, noted Rebtel’s shortcode application was denied in May and that the firm did not appeal. Nelson said Verizon Wireless has a policy of rejecting short codes from companies that seek to compete with it, whether it is Rebtel or its traditional cellular competitors.
Rebtel said AT&T Mobility has not denied its application for a short code, but the outlook does not look good for Rebtel.
“While I can’t comment on this particular company and its services, I can tell you that our terms and conditions specifically prohibit the use of VoIP-type services on our wireless network,” said Mark Siegel, an AT&T Mobility spokesman.
Rebtel said it has not encountered such problems in Europe and elsewhere, where it said creating local numbers by text message is standard practice.
Alltel and T-Mobile USA did not immediately respond to requests for comment. However, Rebtel said Alltel’s rejection letter stated that the VoIP service “cannibalizes” its international rates and that T-Mobile USA responded it “will not participate in this campaign.” Rebtel said Verizon Wireless’ rejection letter refused to acknowledge the legitimacy of the Stockholm-based VoIP firm’s international calling plan.
Request for congressional hearing
Sens. Byron Dorgan (D-N.D.) and Olympia Snowe (R-Maine) have asked Commerce Committee Chairman Daniel Inouye (D-Hawaii) to hold a hearing to examine discrimination against content and applications by telecom and cable companies and whether existing regulatory safeguards are sufficient to protect against unfair and anti-competitive behavior.
Inouye has yet to say whether he will schedule a hearing.
