The Checkout

Who Should Regulate Cellphone Carriers?

There's a new Mr. Smith in the Metro station ads around town; this time he's a lobbyist for cellphone companies. (Check out the ad at http:\\ is a non-profit bankrolled by the wireless industry and the ads try to persuade consumers they would be better off with a "national wireless policy." Why now? Because there's a Senate bill that is pending on the Hill that would switch wireless regulatory authority from the states to the federal government.

"The freedom, choice and value wireless consumers enjoy today are threatened," the group's Web site says, because "a confusing tangle of costly wireless regulations and taxes."

"If wireless is ruled by 50 different sets of state laws and regulations, consumers can expect less innovation, fewer choices among services and providers, and higher prices," the Web site continue.

Just like your wireless bill, though, the rest of the story is in the fine print.

Today, the Federal Communications Commission regulates cellphone carrier rates. The terms and conditions of cellphone contracts, however, fall under state jurisdiction.

States such as Minnesota have used that authority to try and stop carriers from unilaterally changing rates without affirmative consent from their customer. Other states have prohibited wireless companies from listing misleading charges on cellphone bills.

Consumers Union, Consumer Federation of America, AARP and U.S. PIRG object to the bill, saying the wireless industry is just trying to end run consumers by superseding tougher state and local regulators with weaker oversight by the FCC. The Senate bill is not likely to pass before the election recess, but it may have a better shot during a lame duck session.

The Hill is not the only front in the wireless industry's fight against state regulation. The industry is fighting class-action lawsuits filed on behalf of consumers in several states that challenge early termination fees. The wireless industry claims early termination fees are really rates, and thus, none of the states' business. It also has asked the Federal Communications Commission to rule that early termination fees are rates. If the FCC goes along with the industry, those lawsuits will be moot and consumers will not be able to challenge wireless carriers under state laws.

This movie isn't over yet. Perhaps in this version, as in the original, Mr. Smith ends up "lookin' out for the other fella." Stay tuned.

Do you think states should be allowed to regulate terms and conditions of cellphone contracts? Or do they just muck it up for everyone? Share your thoughts, please.

By Annys Shin |  September 15, 2006; 7:00 AM ET Consumer News
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I'm all about tougher regulations on the wireless companies. If the FCC won't do it, then let the states do it. But some states, like VA, don't want much to do with the wireless companies, and so they can get away with hidden charges and changing rates. The thing I want changed the most is the early termination fee. If I don't have the choice to switch carriers until my 2 year contract is up, then I don't really have much of a choice. And the wireless companies know this - that's why they lock us in to the contract.

Posted by: McLean | September 15, 2006 10:07 AM

You have a choice not to sign a contract. For example, you can use one of the pay-as-you-go plans. Most carriers also offer a contract-less plan.

Sure, the terms are less attractive (fewer minutes, more expensive minutes, no free or subsidized phone). But that's the trade you make if you don't want to be locked in.

BTW, one of the big reasons they sign you up for two years is because they're giving you a large subsidy for the phone (they aren't really free) and they're recovering that subsidy during the course of the contract.

Posted by: ah | September 15, 2006 10:45 AM

This issue is as usual a two-edged sword.

On one hand, FCC control will almost guaranteed result in weaker regulation, certainly while it is controlled by Republicans (Democrats being only slightly less bought by the telecom lobby).

On the other hand, the myriad regulations in every state result in an steep state-by-state compliance cost, which inevitably is paid by the consumers themselves.

The best outcome would be to have federal regulation based on the toughest state laws, but that outcome isn't very likely.

With regards to early termination fees; these fees subsidize the handset you get with the contract. One cannot seriously expect to get a free $300 handset and then be able to switch to another provider after one month payment. If you don't want to be tied to contracts, you still have the choice of pre-paid.

Posted by: Lagging | September 15, 2006 10:50 AM

If people don't want to stick around for the full two years of their contract, then they shouldn't sign a two-year deal.

Pay full retail for the phone, or pay the one year price.

Posted by: Columbia | September 15, 2006 11:01 AM

Cell phones are not necessities. I have no idea why the goverment should be involved at all. If prevailing contract law is flawed--and that some any consumers cannot read or are unwilling to abide by the terms of the contract does not prove this--then it shoud be changed without regard to cell phones in particular.

The length of time of a contract is the exact same as a bulk price discount. I cannot buy a case of Pepsi and then try to return a couple of cans I didn't want.

Posted by: bkp | September 15, 2006 11:24 AM

I would be all for prorating the termination fee. If you've had the contract for only one month, then you pay the fee and the company recoups their loss on the free phone they gave you. If you have only one month left, on the other hand, you pay far less, as they have already gotten their money's worth out of giving you the phone.

Posted by: Allison | September 15, 2006 12:34 PM

"The freedom, choice and value wireless consumers enjoy today are threatened,"...they say. But all that was created with today's regulations. Which now threaten?

Keep your eye on the ball. The contract termination fees, etc., are red herrings. The real issue is concentrating regulatory power in one spot where the industry's lobbyists can bring force to bear -- rather than in 50 spots, like it is now.

Posted by: Toad10 | September 15, 2006 1:55 PM

There are practical reasons, outside of the whole termination fee shenanigans, for the local regulation of cell phones. For example, there are rural and exurban areas where the cost of installing and operating landline telecom far exceeds the ability of the populace to generate anything other than a great big loss for the carrier. (Before you think this is crocodile tears for telcos, it's not, except to point out that the old Ma Bell would have eaten the cost but for the stupidity which was the AT&T antitrust suit. But anyway.)

I guess this is a roundabout way of saying that geography and demographics dictate the technical requirements of cellco operation; setups for urban areas tend to focus on things like user capacity and high-bandwidth applications while rural areas need basic network availability and reliability. Federal oversight is going to give you the lowest common denominator, and I can't see how that's ever served anyone effectively.

And hey, if your state regulators can't figure out how to make telco laws work for your consumer, you can change that in November.

Posted by: r-burger | September 15, 2006 2:41 PM

NARUC - The bipartisan National Association of State Utility Commissioners and a bipartisan group of State Attorney's General strongly agree with Consumer's Union and AARP on this issue. The current Senate language effectively shuts down all State avenues for relief and leaves consumers to rely on an understaffed federal agency that is not positioned to handle the workload (and for much of the country is not even in the same time zone). If nothing else, the way the actual language of the proposed preemption provision is worded guarantees unnecessary litigation. It does this by providing the wireless industry with a ready made defense for any AG lawsuit to stop particular carrier abuses - if the lawsuit "affects" its rates in any way - that would be a ground to dismiss it. Section 1006 is a small part of a much broader bill that covers a host of other issues - but this provision - which was added at the very last minute before Committee markup - can be removed - if and when the bill gets to the floor. Whether you agree with NARUC, NASUCA, CU, and AARP or not, you should let your Senator know how you feel. That's easy enough to do online or you can just call the capitol switchboard at 202 224 3121 and ask for your State senators' offices. The provision to reference is Section 1006 of the Senate version of HR 5252.
Brad Ramsay, NARUC General Counsel

Posted by: Anonymous | September 15, 2006 3:54 PM

I don't care who regulates the cellphone companies, so long as they actually watch out for consumers.

Aside from early termination fees (which should be pro-rated according to when one terminates the contract, should have escape clauses for people who move places where the carrier does not support decent service, and should have escape clauses for mergers that the consumer does not voluntarily take part of), there needs to be better regulation of mergers and guarantees.

Just yesterday I received a notice (a "servie gram," in their parlance") from Cingular informing me that as of February 2008, they will no longer support the TDMA/analog phone and service I have. That is decent notice; what follows is not: "While it will be possible for you to continue to use your current device and remain on your current calling plan until the TDMA/analog service is doscontinued, a monthly $4.99 network charge will be applied to the bill for each TDMA/analog line (as early as September)."

Given that I received this notice in September, I don't think it's adequate notice to increase the charge (and the "coupon" they sent for "free" phone not only expires on September 23 (less than 2 weeks away)). More importantly, this violates the spirit and letter of the merger agreement between Cingular and AT&T (approved by the FCC, but apparently not followed up on) in that it discontinues a service I had through AT&T and forces me to sign on to a locked in contract even though I outlasted my previous contract and was happily (from my perspective, clearly not from theirs) going along month-to-month. This is just the latest problem I've had with Cingular since the Cingular/AT&T merger over which few, if any, regulatory agencies paid attention to consumer needs.

Posted by: CA | September 15, 2006 4:49 PM

Why are the cell service providers also sellers of phone equipment? Landline telcos got out of the equipment business years ago. Contracts and early termination fees are tied to the instrument subsidies. Let's get the cell providers out of the equipment/accessories business so they just provide the wireless equivalent of a dial tone. Only then will the cost of service be directly related to the actual service they provide.

Posted by: Caldog | September 15, 2006 5:14 PM

NARUC's position on an issue is as good as gold. Nevertheless, it is not a life or death issue, as cell phones are luxury/entertainment goods.

Posted by: bkp | September 15, 2006 5:20 PM

There should be one set of laws and requirements for phone services regardless of how the backbone of the service is setup. What ever laws are in place to cover landlines should be the same for cellular, Wifi, VoIP, satellite ect..
911, 411, 611 and so on should all work the same and our elected officals at a minimum should make this happen. No waiting - get the basic's right first then give me different ringtones. Ringtone choices do not help when I need to make an emergency call. And cellphone vendor marking departments have not put safty first.

Posted by: JPM | September 18, 2006 10:53 AM

Why can't we have an open platform for cellphone communications that allows *your* (you would own it) cell phone to search for and negotiate rates for *each* call placed?

(Acting as your agent)

Commodity cellular communications providers would be required to exchange realtime rate information with empowered consumer cellphones at the initiation of each call, and whenever an ongoing call switched cells. This way we could enjoy the full benefits of informed competition.

Posted by: Arundo | September 21, 2006 9:13 PM

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