Under fire from consumer action campaigns and political pressures, Congress is considering legislation calling on the Federal Communications Commission (FCC) to regulate terms of wireless user contracts, including early termination fees (ETF) and other conditions.
The Cell Phone Consumer Empowerment Act of 2007 (S. 2033) was introduced in September by Sens. John D. Rockefeller (D-WV) and Amy Klobuchar (D-MN). Wireless companies and their trade associations are firmly against the measure and have allies on the committee, including Jim DeMint (R-SC), John Sununu (R-NH), and former committee chairman Ted Stevens (R-AK).
“Despite the good intentions of this legislation, once the FCC writes up the regulations for it, it is likely to set back the wireless industry many years,” said DeMint in a statement.
“When you regulate prices, when you get price controls for any component, every experience at the federal level with price controls has not worked,” Sununu added in his own statement.
Stevens believes consumers will see less-attractive wireless plans if Congress intervenes in companies’ policies. “If Congress acts too rashly, the end result could be that consumer prices would go up,” he remarked.
Amid their September 7 introduction of the proposed measure–as well as in previous statements and public hearings–Rockefeller and Klobuchar have clearly been sympathetic to what some euphemistically call a wireless or cellular “Bill of Rights” pushed by such groups as Consumers Union, the Consumer Federation of America, and Free Press.
‘Hodge-Podge of Fees’
Rockefeller has decried “a hodge-podge of fees and surcharges” that often are nothing more than operating costs, and Klobuchar has characterized “outrageous” ETFs as family budget-busters.
Service providers say they use ETFs to protect their investment in the phone, which is sold to consumers at a sizable discount or offered free. In return, the customer commits to the service provider for anywhere from 12 to 24 months.
The legislative move comes at a time when wireless carriers such as AT&T and Verizon are starting to loosen contract terms, including the reduction of ETFs by pro-rating. Consumers Union claims the pro-rating doesn’t go far enough and the companies “still are failing to provide consumers adequate relief from these costly charges.”
Chris Murray, senior counsel for Consumers Union, said the aim of S. 2033 “is on target” because “markets work best with good information, and this bill aims to get real information into consumers’ hands.”
Government Action Unnecessary
Randolph May, president of the Free State Foundation, and Jerry Ellig, senior research fellow of the Mercatus Center at George Mason University, say the legislation is misplaced. “When a marketplace is sufficiently competitive, service providers will know it’s in their interest to give consumers what they want,” May said. “There’s no need for the government to step in; it is unnecessary and unproductive.”
Ellig called the regulatory bill a “predictable response” and “problematic approach” that doesn’t consider all potential ramifications and repercussions, including the possibility service providers will recoup costs in other contract terms if the pro-rating reduces ETFs.
“Regardless of whether one thinks there’s a problem, since all the contract terms are not regulated, it would be easy for service providers to alter the non-regulated terms then to recover the money, and the odds are the contracts will be less attractive to consumers than before,” Ellig explained. “Anyway, we can expect these competitors to produce contract terms in a variety of strategies, so it is hard to image how injecting regulation will make it more competitive or even better for consumers.”
Frank Barbetta ([email protected]) writes from Little Falls, New Jersey.