THE FEDERAL COMMUNICATIONS COMMISSION SCHEDULED a June 12 hearing on early termination fees, the announcement coming after a back-channel effort by Chairman Kevin Martin and a nationwide operator failed to find common ground with leading consumer groups on a national policy governing penalty charges levied on subscribers who break service contracts. From all indications the nationwide operator is Verizon Wireless, which is facing a trial in a massive class action lawsuit.
“I was approached by one of the carriers in the last couple weeks that said they thought they had made a lot of progress with the consumer groups. And I said that if they had – I’m always happy to end up revisiting if there’s a consensus around a common approach – but I’m not sure there was any consensus yet built around it,” Martin told reporters. “Obviously, I think [a national ETF policy] would be a good thing both from the industry’s perspective and consumers’ perspective.”
Martin said he does not feel he was misled by the carrier about the level of progress made with Consumers Union and AARP, two leading consumer advocates. The FCC chief suggested that what consumer advocates are publicly saying about ETFs is not necessarily what they’re saying privately in talks with the agency and industry officials.
“We’re concerned about eliminating consumers’ right to sue, with an uncertain benefit on the other side,” said Chris Murray, senior counsel for Consumers Union. “But this deal is very much fluid, no one can confidently say anything about it yet.”
“We agree with other consumer advocates that early termination fees are unfair and anti-competitive obstacles that hurt cell phone subscribers,” said David Certner, AARP’s legislative policy director. “That is why, despite some industry efforts to move forward on long-overdue consumer protections, a recently reported potential deal between the FCC’s chairman and the wireless industry does not change AARP’s position or activities.”
Recent meetings
FCC records indicate that executives and lobbyists at Verizon Wireless and its parent company have been meeting with FCC regulators the past two months on options to deal with a 2005 wireless industry petition seeking to make ETFs off limits to states and plaintiffs’ lawyers. In exchange for a federal rule on ETFs that might give consumers more leeway in canceling service without incurring $175-plus charges and help them take advantage of pro-rated ETFs (relief already offered by Verizon Wireless and promised by other top carriers), the mobile-phone industry wants the agency to federally pre-empt state regulation and litigation involving early termination fees under a 1933 law. The law forbids states from regulating rates charged by cellular carriers to consumers.
A class action lawsuit against Sprint Nextel Corp. is in its third week in California state court. On deck for trial in the same court is Verizon Wireless. If it loses, the No. 2 carrier could be forced to pay nearly $1 billion in ETF refunds to consumers.
Asked if he believed Verizon Wireless’ lobbying was connected to the California class action lawsuit, Martin replied: “I’m confident all these issues are related.” At the same time, Martin said he favors putting a national framework in place even if doing so impacts ETF litigation in California, saying the benefits outweigh any consequences regarding the class action lawsuit.
Consumers shortchanged
Sen. Amy Klobuchar (D-Minn.), lead author of a wireless consumer bill, said she believes consumers would be shortchanged under proposals floated by Verizon Wireless.
“For years, wireless companies have gamed consumers out of millions of dollars through unfair practices and excessive fees. Rewarding these companies for making the practical and reasonable change of prorating their early termination fees is unacceptable,” said Klobuchar. The Minnesota lawmaker added: “Consumers deserve to have their hard earned money refunded when appropriate. Most major carriers have announced plans to pro-rate their fees and it is long past time for these companies to live up to those assurances without being given a multimillion dollar handout by the FCC.”
The ETF controversy caught fire in 2005 when cellphone industry association CTIA petitioned the FCC to federally preempt them. But with the 11th Circuit overturning an FCC rule preempting state regulation of wireless line item fees and other court rulings on preemption, the agency has been hesitant to move forward on CTIA’s request.
“Since at least the time of our ETF filing more than three years ago, we have supported the establishment of a uniform and consistent national wireless policy,” said Joe Farren, a CTIA spokesman. “The greatest threat wireless technology in America faces today is disparate treatment by public regulatory bodies. We simply can’t afford to travel back in time and re-create the days when each state regulated telecommunications service differently. In a mobile society, we have to continue moving forward and that means establishing a uniform federal wireless policy that consumers and providers can depend on across the entire country.”
States against preemption
One potentially complicating factor in the ETF fracas is that consumer groups may not agree to a deal that happens to satisfy Consumers Union and AARP
“If Verizon wins, Martin would slip a bad excuse of a federal early termination fee regulation into FCC rules, so that Verizon can avoid existing lawsuits under state law arguing that early termination fees are unfair and deceptive efforts to prevent cell phone customers from shopping around,” said Ed Mierzwinski, consumer program director of the U.S. Public Interest Research Group, in a blog. “The companies would be required to slightly lower and pro-rate the fees, but not enough to matter.”
States groups appear dead set against ETF preemption.
“We’re not going along with preemption. That’s a line in the sand we’re not willing to cross,” Patrick Pearlman, deputy consumer advocate of the Consumer Advocate Division at the Public Service Commission of West Virginia. Pearlman played a key role in the successful legal challenge of the National Association of State Utility Consumer Advocates to the now-defunct FCC line-item preemption rule.
“If it effectively takes state cops off the beat, that’s never a good idea,” said Brad Ramsay, general counsel of the National Association of Regulatory Utility Commissioners.
