As irate cell-phone users demand better protection, carriers make an end run around state initiatives
Shortly after becoming a state senator in Minnesota in 2006, Mary A. Olson discovered some unsettling information: Wireless operators generated more consumer complaints each year than any other business, including 1,000 gripes in 2007. So last month, Olson, a Democrat, introduced a proposal in the state legislature for a cell-phone-user bill of rights, aimed at stopping many of the industry's most criticized activities. "The cell-phone industry has been making a lot of money on [questionable] consumer practices," says Olson.
Minnesota is at the forefront of a growing movement. Lawmakers have introduced some version of a wireless bill of rights in 22 states, including Arizona, California, Massachusetts, and New York. The proposals vary widely, but they typically include clearer disclosure of fees and taxes and the end of unauthorized charges for ringtones and other third-party services. The Minnesota bill, which consumer advocates say appears to have the best chance of becoming law, could be voted on in the next two weeks. "I'm feeling pretty good about it right now," says Olson.
One group that's not feeling so good is the U.S. wireless industry. Beyond their general distaste for regulation, companies such as AT&T (T) and Verizon Wireless (VZ) are appalled by the idea that they may need to comply with different regulations in 22 or more states. That's why they're throwing their support behind a federal bill that could preempt the various state efforts. "We feel like this is an issue whose time has come," says Steve Largent, president and chief executive of CTIA-The Wireless Assn., the industry's main trade group. "We'd just as soon get it done. We're trying to get under a national framework."
The push in Washington is being spearheaded by Representative Edward J. Markey (D-Mass.), chairman of the House subcommittee on telecommunications and the Internet. On Feb. 27 he held the first round of hearings on a draft bill that would beef up protection of wireless customers, and in the coming weeks he is expected to release a revised version of the bill. While new legislation rarely passes in an election year, congressional staffers say the bill has a decent shot at becoming law before July 4. "As the number of wireless consumers continues to grow, they deserve a comprehensive bill of rights that clarifies the contract and fee issues that frustrate so many users," says Markey.
More than 250 million Americans use cell phones, or nearly 85% of the population. A Mar. 5 study by the Pew Internet & American Life Project reported that Americans would find it harder to abandon their cell phones than the Internet, television, or traditional landline phones. Still, as much as Americans love their cell phones, they despise the service they get with them. The Better Business Bureau says that out of the 3,900 industries it tracks, the wireless sector has received more complaints than any other for three straight years.
Minnesota got so many consumer complaints that state Attorney General Lori Swanson filed a lawsuit against Sprint Nextel (S) last September. The case alleges the company unlawfully extended wireless contracts without the consent of consumers when they made small changes to their service. Sprint says there are "discrepancies" between the charges in the suit and its own records. Sprint may not be the last target. "We're looking at other companies as well over similar practices," says Swanson.
In Florida, the flash point is ringtones. After receiving numerous complaints, Bill McCollum, the state's Attorney General, launched an investigation into how AT&T (T) charges customers for the short tunes that announce an incoming call. He found thousands of consumers who alleged that, after advertising free ringtones and other services, AT&T signed them up for expensive monthly subscription fees. On Mar. 3, McCollum and AT&T reached an agreement under which the company will pay $2.5 million and more clearly explain the costs of ringtones and other content.
One of the key issues in the debate over a wireless bill of rights is the role states will play. The current version of the Markey bill grants states the power to enforce national rules, but it bars them from creating their own new rules. States such as Minnesota are reluctant to give up that power, fearful that the federal bill won't be tough or flexible enough to address local issues. This could become a major sticking point in negotiations. If states are not prevented from writing new rules, telecom lobbyists say they will not back the Markey bill.
As such issues are debated, the wireless industry is fighting intensely to stop the state bills. In Minnesota, telecom lobbyists are advertising online and sending around e-mails arguing that "additional regulation on wireless service will only drive up monthly bills even more." At a hearing in Minnesota last month, state Senator Kevin L. Dahle told the CTIA's local representative that he was more resolved than ever to vote in favor of Olson's bill after seeing the e-mails. "I would bet that you spent more money lobbying against these bills than it's going to cost you to implement," Dahle said.