Friday, May 28, 2010

FCC Finds Wireless Customers Suffer from Bill Shock; Early Termination Fees Are Still an Issue

On May 26, 2010, the FCC released the findings of a survey which indicates that 30 million Americans - or one in six mobile users - have experienced "bill shock," its term for a sudden increase in their monthly bill that is not caused by a change in service plan. The survey also showed that nearly half of cell phone users who have plans with early termination fees ("ETFs") - and almost two-thirds of residential broadband users with ETFs - don't know the amount of the fees they're accountable for if they switch providers or terminate service before the end of the contract. To conduct this survey, the FCC interviewed over 3000 adults between April 19th and May 2nd.

Of the 30 million "bill shocked" wireless customers, 84% said their mobile carrier did not contact them when they were about to exceed their allowed minutes, text messages, or data downloads and 88% said their carrier did not contact them after their bill suddenly increased. Also, more than a third of the people who experienced bill shock said their bills jumped by at least $50, and 23% said the increase was $100 or more.

The survey also asked consumers about ETFs for wireless phone and broadband service. Of the respondents with personal cell phones (those not paid for by an employer), 54% reported that they would have to pay an ETF should they terminate their contracts before the expiration date, and 18% didn't know whether they would have to pay or not. Of those who are subject to an ETF, 43% said it was $150 or more, but 47% did not know how much it was. One reason the FCC found for the confusion is the billing practices of the service providers: Only 36% of cell phone customers who are familiar with their bills said that they include "very clear" information on ETFs. For residential broadband ETFs, only 21% of home broadband users stated that their contracts include an ETF. Of those, fully 64% were unaware what the fee is.

Finally, according to the survey, 43% of customers indicated that ETFs are one factor that keep them from switching carriers even when their service is not ideal, almost exactly the same number who said they would be deterred from switching by the cost of setting up a new service or by paying a deposit on a new service.

To combat the consumer abuse found in the survey, the FCC unveiled a "Tip Sheet" which offers sage advice, such as "Ask how much the early termination fee will be and how it is prorated" and "If you use your phone sparingly, consider avoiding the whole ETF issue by buying a pre-paid phone."

It does not surprise PULP that the FCC had placed the burden of consumer protections on the consumer. While awareness is essential, basic protections such as the notice of fees, should clearly reside with the provider. Remember that in December there was a scathing report out of the Government Accountability Office, and while the FCC processes tens of thousands of wireless customer complaints every year, it does not actually decide them when the wireless company does not agree with the consumer.

On top of this, the wireless industry has developed its own voluntary (and thus unenforceable) Consumer Code, which apparently hasn't worked well to protect about 63% of consumers who told the FCC that their bills were not "very clear." Believe it or not, Code Number One is actually "Disclose Rates and Terms of Service to Consumers:"
For each rate plan offered to new consumers, wireless carriers will make available to consumers in collateral or other disclosures at point of sale and on their web sites, at least the following information, as applicable: (a) the calling area for the plan; (b) the monthly access fee or base charge; (c) the number of airtime minutes included in the plan; (d) any nights and weekend minutes included in the plan or other differing charges for different time periods and the time periods when nights and weekend minutes or other charges apply; (e) the charges for excess or additional minutes; (f) per-minute long distance charges or whether long distance is included in other rates; (g) per-minute roaming or off-network charges; (h) whether any additional taxes, fees or surcharges apply; (i) the amount or range of any such fees or surcharges that are collected and retained by the carrier; (j) whether a fixed-term contract is required and its duration; (k) any activation or initiation fee; and (l) any early termination fee that applies and the trial period during which no early termination fee will apply.
Further, while the New York State Public Service Commission ("PSC") regulate terms and conditions of wireless services in the state upon completing a hearing determining that such a move is in the public interest - which would include establishing consumer protections for wireless users - it has not taken leadership on wireless consumer protection. This, despite the fact that the United States Centers for Disease Control and Prevention released a report earlier this month on the number of Americans who have "cut the cord" and are using wireless telephone service only. According to the report, 24.5% had only wireless telephones during the last half of 2009, a 1.8% increase since the first half of 2009.

More and more Americans are relying on their wireless phones as their primary means of communication. Should they suffer billing, notification, or termination issues, there is nowhere to turn. The FCC will not decide a complaint. The PSC claims it can not take a complaint (because it has not exercised its discretionary power to regulate terms and conditions of wireless service). And the industry's own weak Consumer Code is not even followed by the industry which wrote it.

The PSC seems to be waiting for the federal government to act and preempt the states. That may not happen or it may mean a very weak set of protections. New York should take leadership now to establish reasonable and enforceable universal service, affordability, consumer protection, and service quality requirements for all telecommunications providers operating in the state, including traditional landline telephone service, cable telephony, and wireless.

Lou Manuta

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