WASHINGTON-With the Federal Communications Commission having reaffirmed last month that state courts are not prohibited under the telecom act from awarding monetary damages in lawsuits against wireless carriers, the mobile-phone industry suddenly finds itself vulnerable to consumer litigation on a wide range of business practices ranging from billing to marketing to service quality.
It is a new challenge for the wireless industry, which to date has dedicated resources toward spectrum acquisition, network buildout and deregulation. It is unclear whether industry is up to the task. The consumer litigation issue will not go away, owing ironically to the wild popularity of wireless devices. Complaints about dropped calls, busy signals, dead spots and improper billing will continue to be lodged with customer service representatives, state and federal regulators, and the courts.
State attorney generals in California, Connecticut and Wisconsin already have signaled their intent to protect wireless consumers. So have public utility commissions in several states.
The FCC shortly will be issuing monthly data on wireless complaints and inquiries it receives. A bill expected to be reintroduced soon by Rep. Anthony Weiner (D-N.Y.) would set minimum cell-phone service quality standards and make mobile-phone operators answer to the FCC. Rep. Rush Holt (D-N.J.) has introduced legislation to ban the transmission of unsolicited commercial messages-spam-to wireless subscribers. Another bill, sponsored by Rep. Rodney Frelinghuysen (R-N.J.), would require customer consent prior to providing wireless call location information to third parties.
The Cellular Telecommunications & Internet Association has petitioned the FCC for a regulation similar to the law sought by Frelinghuysen.
The rise in consumer complaints and ensuing litigation are a relatively new phenomenon in a mobile-phone industry that is less than 20 years old. The consumer backlash is symptomatic of growing pains experienced by a high-growth business sector that today numbers more than 110 mobile phone subscribers.
Today, there are a handful of wireless consumer lawsuits and likely more on the way. Mobile phone firms have some protection against consumer lawsuits. Arbitration clauses are routinely written into wireless contracts for the express purpose of avoiding litigation. A divided Supreme Court affirmed the legality of arbitration clauses late last year.
Still, the industry has significant legal exposure.
A big reason is the FCC’s wireless liability ruling. The agency last month upheld its August ruling, which said states could award monetary damages against wireless carriers for violations of state contract, tort or consumer protection laws. The decision was a major blow to the mobile-phone industry, which expended considerable resources to convince the FCC that a 1993 federal law pre-empting states from regulating wireless rates and market entry had the effect of also prohibiting damage awards by states.
The FCC shot down industry arguments, however, saying the 1993 law permits states to regulate terms and conditions of wireless service.
“We do not agree that our framing and analysis of the issue in this manner were incorrect,” the FCC stated its Feb. 5 reconsideration ruling. “In the WCA order, we specifically determined that a damages award or calculation is not necessarily a ruling on the reasonableness of the price charged to a CMRS [commercial mobile radio service]. CTIA also maintains that damages awards are in fact retroactive rate adjustments. However, we also rejected arguments that a damage award, including a refund or rebate, necessarily was equivalent to a retroactive rate adjustment,” said the FCC.
The wireless liability issue grew out of a consumer lawsuit against AT&T Wireless Services Inc. in California. The lawsuit claims AT&T Wireless falsely advertised a `seamless calling area’ throughout Southern California and that it failed to disclose coverage gaps where wireless subscribers cannot connect calls.
AT&T Wireless argued the telecom act pre-empts states from regulating wireless rates, which would be affected if state courts force mobile-phone operators to pay damages.
The Wireless Consumers Alliance petitioned the FCC to declare that state courts are not pre-empted from awarding monetary damages against wireless carriers for breach of contract, false advertising and other fraudulent business practices. Last August, the FCC ruled in favor of WCA. CTIA filed a petition for reconsideration, which the FCC rejected last month.
Meanwhile, BellSouth Corp., which has combined its wireless unit with that of SBC Communications Inc. to form Cingular Wireless, has challenged the FCC at the U.S. Court of Appeals for the District of Columbia Circuit. CTIA said it would not seek a similar appeal.
Meanwhile, the California appeals court considering the pre-emption issue ruled against AT&T Wireless last month. The case will now go forward in trial court.
“The court, in considering the issues, said states should give great deference to the FCC decision,” said Carl Hilliard, president of WCA. “The appeals court rendered a decision that was a total victory for consumers.”
The industry downplayed the fallout of losing twice to the FCC on the wireless liability pre-emption issue.
“The impact is the same as the first FCC decision,” said Michael Altschul, senior vice president and general counsel at CTIA.
Indeed, in rejecting the trade group’s challenge, the FCC said CTIA merely rehashed earlier arguments. Thus, the industry neither gained nor lost any new ground.
Last month’s ruling punctuated the FCC’s position on wireless carrier liability in consumer matters. The two wireless liability rulings were generated under former FCC Chairman William Kennard.
An early test of new FCC Chairman Michael Powell on wireless consumer policy will be how he handles a petition seeking whether mobile-phone carriers have an obligation to disclose the industry-wide practice of rounding calls up to the next minute.
