Watchdogs Snarl as FCC Tackles Wireless Fees

Wireless phone service providers may avoid paying millions of dollars in lawsuits if the Federal Communications Commission develops rules for early termination fees. But they won't escape the wrath of consumer watchdog groups that contend the carriers are getting off easy.

The FCC plans to hold a public hearing on early termination fees after its next open agenda meeting on June 12, at which many expect the commission will take up the task of creating a nationwide policy for cell-phone contract termination fees.

Such a move would thwart the efforts of arbitrators hoping to hit the wireless giants like Verizon Wireless (the joint venture of Verizon (VZ Quote) and Vodafone (VOD Quote)) and AT&T (T Quote) with class-action lawsuits representing millions of subscribers. Those lawsuits would undoubtedly cost carriers millions of dollars.

In return, wireless providers would prorate termination fees for customers canceling their contracts, which seems to be a favorite subject for the FCC. However, many consumer groups view this as a lopsided deal.

That's because in November Sprint Nextel (S Quote) and Deutsche Telekom's (DT Quote) T-Mobile unit described plans to prorate early termination fees. AT&T, recently implemented a plan under which the company's new and renewing wireless customers in one- or two-year service agreements incur a termination fee starting at $175. The fee would be lowered by $5 during each month the contract was honored.

"Moving to making a more friendly consumer ETF (early termination fee) is the right business decision, obviously, but competition will force them to all move there anyways," says a Wall Street analyst. "By moving to a gradual ETF, customers might actually pay for a lessened ETF instead of letting it all fall into debt. The most important point, though, is that the industry is looking to the FCC for help."

If the FCC were to step in and begin regulation of ETFs, watchdog groups say that it would essentially be saving the wireless carriers from consumer lawsuits without extracting any meaningful relief for aggrieved consumers. Additionally, the rumored plan would directly contradict statements FCC Commissioner Deborah Taylor Tate made in November after Sprint and T-Mobile began outlining prorated plans.

"I am encouraged that industry has stepped up to address an issue that consumers and state commissioners have been concerned about for some time," said Tate in a release on the FCC's Web site. "In such a competitive market, we should look first to industry, rather than government regulation, to offer consumers the price and service options that best meet their needs."

Instead of allowing the industry to sort out its problems, Consumer Watchdog founder Harvey Rosenfield says the FCC is knowingly going to preclude access to the courts, depriving consumers of the one weapon they have to fight back against wireless carriers.

"This would be the FCC bailing out the telecom industry for all their abuses across the country," says Rosenfield. "There's a system of abuse, charges, and shoddy service, all that makes up a war on consumers. The only way consumers can fight for themselves is to go to court. This is the FCC's attempt to derail litigation."