Watchdogs Snarl as FCC Tackles Wireless Fees

The government is expected to come up with rules on cell-phone early termination fees that could keep carriers out of court.
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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) - Get Report

and

Vodafone

(VOD) - Get Report

) and

AT&T

(T) - Get Report

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.

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That's because in November

Sprint Nextel

(S) - Get Report

and

Deutsche Telekom's

(DT) - Get Report

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."

Chris Murray, the legislative counsel for

Consumers Union

, a nonprofit publisher of consumer reports, says that FCC intervention would be welcome if regulators were to introduce a federal standard that was better than what exists in individual states.

"The question is will we substitute a federal law for a state law that eliminates consumers' right to sue," says Murray. "It's not impossible the federal government could come up with something that is fair to consumer

s. However, it's not yet what we see on the table."

Until consumers are given something more substantial, Rosenfield says watchdog groups will rally against the FCC through the court system. "It will certainly be litigated by any consumer group as being beyond the FCC's authority," he says.

"If the FCC even attempts to take over responsibility for the fees, it would be used by the cell companies to dismiss any pending court cases," Rosenfield adds. "It'll be another weapon in the highly limited arsenal of these companies."

Murray agrees with FCC Chairman Kevin Martin's assessment that there shouldn't be a patchwork of 50 different laws in individual states, and he asserts that the only reason a change is coming is because wireless carriers want to be washed clean of any legal liability.

"The carriers want the FCC to assert their authority and then stand around while doing nothing," Murray adds. "I'm confident the FCC is smart enough to do right by consumers, but it will take a lot of political will to resist the call of the carriers to get rid of the state law while advocating federal authority."

Rosenfield's solution is simpler: Keep the FCC out of the mess and force telecom companies to pay consumers for deceptive billing charges.

"They engage in misleading advertising and it needs to be addressed," he said. "This is all about money and who gets to keep what belongs to the consumer. The FCC is jumping into the fray to save companies. It's not about what the FCC can get; it's about what the companies get. Ideology trumps any common sense."