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Democrats take aim at un-'friendly' wireless carriers

Verizon Wireless, rural carriers and Republicans balk at proposed law forcing changes in early termination fees, billing practices and coverage maps.

WASHINGTON--Disgruntled Democratic senators on Wednesday renewed threats to impose new regulations designed to force more "consumer-friendly" policies on wireless carriers.

Curbing early termination fees, prohibiting companies from passing "deceptive" fees onto customers, reporting the number of dropped calls to government regulators and providing more accurate service coverage maps are among the requirements being considered in a bill touted at a morning hearing here convened by the Senate Commerce Committee.

If such a law were enacted, it would be a significant departure from today's relatively limited federal regulations in the wireless industry, which date back to the early years of the Clinton administration.

"I do not believe that this limited regulatory scheme is now working given the industry size and its domination by four major carriers," said Sen. John Rockefeller (D-W.V.), one of the bill's chief sponsors. "I believe it's time to revisit the entire regulatory framework that governs wireless service."

Unlike at a similar House of Representatives hearing during the summer, however, politicians didn't pay as much attention to the issue of device "locking" and also refrained from specifically criticizing Apple's iPhone being tethered to the AT&T network.

Sen. Byron Dorgan (D-N.D.), one of the chief sponsors of Net neutrality legislation in the Senate, said that the practice of "locking in phones, making them exclusive to one provider, and requiring consumers to purchase a new phone when changing carriers" is also a phenomenon that members of Congress need to examine. (The proposed bill largely punts on that issue, requiring a report to Congress on "handset locking and portability.")

Naturally, wireless companies aren't happy about the specter of increased government control. Verizon Wireless CEO Lowell McAdam told the committee such legislation was not only unnecessary but could be "harmful to the consumer." For instance, the bill's decision to allow not only federal regulators but also individual state authorities to enforce its many requirements will make it more complicated to do business.

"A set of regulations will establish a minimum requirement that when a carrier diverts from that minimum requirement, they will be questioned by regulators across the country," McAdam said. "All that will do is slow down a very innovative and dynamic industry."

Some wireless carriers have already begun addressing some of the complaints the Senate bill seeks to address, arguably in hopes of averting new regulations. For instance, on Tuesday, AT&T announced that next year it plans to begin prorating its existing flat rate, $175 early termination fee--a move widely believed to be timed to Wednesday's hearing. Verizon Wireless already initiated such a practice last year.

But other carriers need to be coerced by law into doing the same, supporters of the wireless bill said.

For smaller carriers with fewer customers over whom to spread their costs, it'll also be prohibitively expensive if the Senate goes ahead with a number of the bill's proposed mandates, including requiring carriers to provide customers with specially itemized invoices, to update maps quarterly to show coverage areas and to file semiannual reports with the Federal Communications Commission on number of dropped calls, said Mike Higgins, CEO of the Central Texas Telephone Cooperative.

"While the mandates are well-intentioned," the rural wireless carrier executive told the politicians, "the actual benefit to the public is significantly less than the substantial cost of compliance."

Consumer advocates at Wednesday's hearing sided with the need for new regulations. Patrick Pearlman, a consumer advocate with the West Virginia Public Service Commission, said neither the market, nor existing federal rules, have been adequate constraints on unreasonable or abusive wireless carrier practices.

"Consumers just aren't as happy as they ought to be," said Chris Murray, senior counsel for Consumers Union.

Senators themselves were among the complaining consumers. Sens. Amy Klobucher (D-Minn.), another chief sponsor of the wireless bill, and Rockefeller griped about lagging coverage areas in rural zones in their states. Sen. Claire McCaskill (D-Mo.) complained that even though she hadn't signed up for text messaging for her three teenage children, they managed to receive incoming messages on their phones, resulting in what she called "a horrendous situation."

A number of the Democrats also said they were troubled by the variety of fees, labeled "administrative" or "regulatory," tacked onto consumers' bills. In Rockefeller's eyes, wireless companies are "literally passing the buck for ordinary operating costs and tax liabilities" to their customers, and "that's not right," he said. Those complaints, however, were arguably a little ironic, since Congress is responsible for passing many of the laws that spawn regulatory fees--for instance, payments into a fund that subsidizes rural telephone service--in the first place.

Verizon Wireless' McAdam said his company has spent a lot of time making sure its bills are clear to customers, revamping the bill's design five times in its eight-year history based on customer feedback. He denied that the wireless firm was passing on operational costs to customers under the guise of government mandates, arguing that many municipalities layer on additional fees and taxes.

"We don't make a penny on any of it," he said. "There's no advantage to us to put these fees on the bill."

Republicans present suggested that if such problems exist, government regulation isn't the way to go about resolving them. They pointed to the fact that, with some of the most limited government regulation of any U.S. industry, wireless services have flourished, racking up some 230 million customers today, compared with only 9 million in its infancy in the early 1990s.

"Our government has consistently shown that it cannot effectively manage complex functions," said Sen. Jim DeMint (R-S.C.), citing complaints his offices receive daily from constituents about processing of food stamps and other government services. "To suggest we are going to design a system that more effectively protects consumers than a competitive market is well intended but naive."

If there are aspects of wireless service that are "performing significantly below other products or other services that are important to consumers," added Sen. John Sununu (R-N.H.). "I think that's where we need to look and take measured action."