Higher Taxes, Heavier Regulations Would Hurt Wireless Consumers

Published May 1, 2008

Telecommunications industry analysts are expressing concern that the wireless industry is coming under pressure from consumers and lawmakers who want more regulation, higher taxes, or both.

At the federal level, Rep. Edward Markey (D-MA) has introduced legislation to eliminate early termination fees and force wireless carriers to let consumers cancel contracts with 30 days’ notice without penalty.

At least 22 states have pending legislation aimed at regulating the telecom industry to varying degrees. Numerous counties and municipalities also see the wireless industry as a means of replacing sagging real estate tax revenues, said Scott Mackey, an economist and partner at Kimbell Sherman Ellis, a government relations and public affairs firm.

“Why these governments are singling out one industry, wireless and telecom, for tax burdens that are two to three times what other competitive goods and services are taxed at, is a good question,” Mackey said.

“From a communications industry perspective, we seem to face sales taxes and other impositions” more than other industries, Mackey noted. “We’re paying the price for governments that are trying to cover declining revenue bases.”

Tax Revenue Shortfalls

Tax revenues are declining mainly as a result of a slowing economy and falling housing values.

“Local governments got accustomed to substantial growth because of increasing real estate values,” Mackey said. “Now the money is not there like it had been, yet they have the same appetite for spending.”

The result, said Mackey, is “a lot of discriminatory taxes going through 911 fees and other impositions tied to emergency services. Cook County [Illinois] and the City of Chicago are seeking to dramatically increase their 911 fees. Montgomery County in Maryland is looking to focus on wireless for new revenue. It’s happening in a lot of places.”

Regulatory Push

At the state level, the focus is on heavier regulation of the wireless industry. Supporters say much of that legislation is driven by consumer complaints over contract extensions, early termination fees, billing disputes, and other issues.

That was the impetus behind the “Minnesota Wireless Telephone Consumer Protection Act” proposed by state Sen. Mary A. Olson (DFL-Bemidji).

Olson’s bill would require wireless carriers to:


  • Clearly state at the time of sale the price for the service being purchased, including any variable charges such as roaming charges or charges for exceeding a specified number of minutes.



  • Provide a good-faith estimate of all applicable government-authorized or -required taxes and fees.



  • Inform customers whether their monthly charge could be altered in the future.



  • Specifically alert a customer whenever a change in service or purchase of a product will result in an extension of their contract.



  • Clearly disclose any termination fee and change-in-term provisions in a wireless service contract, and obtain written acknowledgment that the customer has read and understands those provisions.



  • List government-mandated charges in a section of the bill separate from the charges for the wireless telecommunications service itself.



  • Include a brief, easy-to-understand description of each charge included in the bill.



  • Provide customers with accurate coverage maps at every location where their service is sold.



  • Provide the number of the Federal Communications Commission (FCC) on each bill, in case the consumer has complaints about the bill or service.



  • Provide the customer a copy of the contract at the time of sale.


Micromanaging Carriers

The bill also prohibits wireless carriers from including a charge from a third party on a customer’s bill unless the third party has obtained the customer’s prior authorization, and requires carriers to include a contact number for the third party if any such charges appear on a customer’s bill.

“We are not asking cell phone companies to change the way they run their company,” Olson said in a statement when she introduced the bill in February. “Rather, we are simply asking these businesses to make their billing and service terms more transparent and understandable to their customers.”

Gerry Keegan, director of state legislative affairs at CTIA, a wireless industry trade group, said the Minnesota bill goes beyond many others in micromanaging how wireless carriers do business, going so far as to dictate font sizes on various documents consumers receive.

“Using Minnesota as an example, these proposals are so micromanaging in telling wireless carriers how to transact business that it’s going to be harmful to businesses and consumers,” Keegan said. “More costs will be thrust upon consumers.”

New Regs Not Needed

Steve Largent, president and CEO of CTIA, has publicly endorsed a federal approach to make regulations uniform instead of varying from state to state, provided the regulations are not unduly burdensome.

The concern about consumer complaints is real. The Better Business Bureau reports the industry has generated the most complaints in the past three years among the 3,900 industries it tracks. However, the BBB also says the wireless sector does a better job of resolving complaints than the overall rate for all industries.

Keegan cites the industry’s ability to resolve complaints in arguing against further state intervention.

“The industry already has a code for disclosure” like that called for in many of the bills, Keegan said. “Early termination is moving to pro-rating of fees. Verizon Wireless was the first to do this, in 2006, and TMobile, Sprint, and AT&T have also done this. We are responding to consumers without the need for new regulations.”

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.