More about Monopolies

Give Me a Cell Break
By Mike Mills, CQ Columnist

I am not happy with my family's cell phone service.
My wife and teenage daughter complain all the time about spotty coverage and dropped calls.
I've stopped using my mobile phone completely, relying instead on my employer's Blackberry, which uses a more dependable network.
If only I could fire my family's cellular phone provider and get a new one.

But I can't. Doing so would cost me an early termination fee of $150 per phone, or $450. So unless I want to pay their ransom, I'm stuck with this lemon of a carrier until November 2006, when my three two- year contracts expire.

But don't feel sorry for me. Feel sorry for a guy named Jerome in Riverside, Calif., who posted his story on ConsumerAffairs.com:
He signed a two-year deal with his carrier, only to quickly find there
was no coverage within two miles of his home.
"In this situation I will pay for not receiving service, no matter what," he wrote.

Freedom to choose among multiple carriers, of course, was a promise of the 1996 Telecom Act.
We were even supposed to be free to pick someone other than a Bell company for our local land-line service.
But when that didn't happen - instead all the Bells merged back together and blocked rivals from leasing their lines - we heard,"Well, at least consumers can choose among multiple wireless carriers."

True, we do have six major wireless providers nationwide.
Oops, make that four: The market recently consolidated again with the Cingular/AT&T and Sprint/Nextel mergers.
But by imposing hefty early termination fees - from $100 to $240 per user - the Big Four (including Verizon and T-Mobile) make it mighty difficult to exercise choice in the wireless market.

The fees are the wireless industry's revenge after the Federal Communications Commission made carriers offer "number portability" in late 2003 - letting consumers keep their phone numbers even as they switch carriers.
Back then the research firm In-Stat/MDR predicted number portability would lead to 22 million additional customers switching carriers in 2004.
Instead, Merrill Lynch reported in June that customer "churn" over the past year actually declined by 20 percent.
The industry celebrated those figures as evidence of customer satisfaction.
But in an August survey of 1,000 consumers by the U.S. Public Interest Research Group, 47 percent said they would seriously consider switching carriers if there were no early termination fees in their contracts.

Who protects consumers when we're being unfairly held to a contract that we feel our wireless carrier has reneged on?
In recent years, state public utility commissions have been cracking down on the most egregious abuses of early termination fees, and class action suits are pending in several states.
California's Public Utilities Commission last year upheld a $12 million fine against Cingular for charging early termination fees and prohibiting refunds at the same time it was aggressively signing up consumers without disclosing significant network problems. (Cingular denied any wrongdoing.)

But now the carriers want the FCC to effectively prohibit states from challenging their shut-off fee practices.
They want the regulators to treat the fees as part of their overall rates, rather than as penalties.

The Company Line

Cell carriers argue the fees are necessary so they can recoup the costs of adding new customers to their networks in the event that customers leave before their contracts expire.
They point, in particular, to their practice of greatly subsidizing the cost of the
phones themselves (a tactic borrowed from the razor blade industry).
Moreover, they argue, in a free and competitive market, states shouldn't be going around telling them what kinds of fees to charge.
Customers should know the terms of the contract when they sign up - and shouldn't complain later if they don't like those terms.

I'm all for this free-market thing: I'm a consumer, after all, and I want as many companies as possible beating each other's brains out to win me as a customer.
But since when, in a free-market, does any company have a guaranteed right to recoup its costs - even when an unsatisfied customer wants to leave early because of shoddy service?
If I buy a car and then return it because it doesn't work, should the dealer be able to charge me a fee for selling it to me?

The wireless carriers' "cost recovery" argument is a reminder that they're owned by the same old land-line phone companies that spent decades haggling with the FCC and state public utility commissions back when their costs - and their profits - were highly regulated.
Though they are now free to earn as much as they can, they seem to not yet grasp the notion of "risk capital."

Interestingly, these telecom giants don't yet have such stiff fees on their broadband Internet services.
Verizon asks only for a one-year contract and has a $79 early termination fee for its high-speed Web access - compared with their two-year contract and $175 early cancel
fee for its cell service.
Why? Their rivals can't charge such fees, as a rule: Cable companies still must answer to local regulators.

How quaint: If you want to fire your cable company, you need only pay off your bill and send back their leased equipment.

Mike Mills is CQ's executive editor for electronic publishing.
Source: CQ Weekly
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