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FCC bill shock proposal exposes carriers to greater legal woes, analyst says

The biggest risk facing wireless carriers on the Federal Communications Commission's bill shock proposal is not so much the proposal itself but that it could open the companies up to consumer lawsuits, according to investment analyst Jeffrey Silva of Medley Global Advisors.

As seen with previous episodes when lawmakers or the FCC focus on consumer issues, the FCC's bill shock push could awaken "a new business opportunity in the wireless litigation space," Silva wrote in a research note.

A good example of this: In September 2008, Sen. Herb Kohl (D-Wis.), chairman of Senate Judiciary's antitrust subcommittee, held hearings on text message price increases. The greater attention to text message increases led to dozens of class action suits filed against the four national wireless carriers, costing the industry for legal fees and damaged reputations.

Silva estimates the wireless industry has spent more than $100 million on lobbying, legal fees and court settlement related to consumer policies. Verizon in 2008 reached a $21 million settlement for a class action suit against its use of early termination fees. In January 2010, AT&T reached an $18 million class action settlement on early termination fees and Sprint Nextel also settled an ETF class action suit about the same time.

The wireless industry has warned the Federal Communications Commission to proceed carefully with new rules that would help consumers avoid bill shock, but it says it is willing to work with the agency.

By Cecilia Kang  | October 14, 2010; 1:47 PM ET
Categories:  AT&T, Apple, Consumers, FCC, Sprint Nextel, T-Mobile, Verizon  
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Next: Teens text every 10 minutes, Nielsen says

Comments

I think there is a conflict of interest here in that Medley Global Advisors is owned by the Financial Times which has editorialized against the way class action lawsuits are structured in the US, such that a very large percentage of the award goes to the attorneys.

Posted by: TheChileanPresidentIsMuchBetterRespondingToDisastersThanObama | October 14, 2010 7:29 PM | Report abuse

If you look at Verizon having to pay 15 million users out, this could really become an issue. That said though, if they generated the income in an underhanded way, then what's due to clients is only fair. Could really be crippling to smaller carriers and one wonders what the long term effects will be on the industry. Perhaps simplifying things would be the answer; if you knew exactly what you were getting yourself into upfront, and when your limits were reached, the onus would lie fully with you to control your bill. This is perhaps why there are so few issues with the prepaid sector. Take my net10 phone for example. I know up front how much I'm spending, and what I'm receiving in exchange. Nothing more, nothing less. Tells me on screen how much I have left. When I run out, phone doesn't work and I'm in control of purchasing more minutes (at the same rate) should I choose to do so. There is no room for confusion on a bill, meaning there is no comeback later in terms of unfairness or hidden charges. For me, definitely a case of less is more. Something for the big names to consider on their contract plans.
Oh, and may actually force them to be more competitive on price, putting them into a similar league as prepaid.

Posted by: AFenton1 | October 20, 2010 2:52 AM | Report abuse

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