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Industry and Consumers Clash at FCC Over Cell Phone Fees

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By William G. Korver, Reporter,

WASHINGTON, June 12 - Industry and consumer groups butted heads at the Federal Communications Commission on Thursday over early termination fees, or charges imposed on the customers of communications services prior to the expiration of their contract.

Such fees are a source of “diminished” competition and should be abolished, said Anne Boyle, chair of the Nebraska Public Service Commission. Such fees have been the source of more than 3,700 complaints to the FCC, which held an unusual “open meeting” to hear the views of state commissioners, academics, consumer groups, individual consumers, and corporations.

Boyle said that since more than 200 million individuals now own a cellphone, 1992 legislation authorizing wireless providers in included fees in customer contracts was no longer necessary – having already served its purpose. The fees should also be done away with because it limit consumers' ability to move from carrier to carrier.

John Murphy, senior vice president, controller and chief accounting officer for DirecTV, and Thomas Tauke, executive vice president for public affairs, policy and communication for Verizon Communications, objected to Boyle’s assertion that early termination fees should be made illegal. Doing so would decrease the amount of people who can afford cellular service, they said.

Contract balances that include such fees that may be paid over a longer period of time, allowing lower-income individuals a better opportunity of owning a cell phone, they said. The fees allow wireless companies and the satellite company to offer bundled server at lower costs. The fees also allow companies to better anticipate revenue .

Nonetheless, Lee Selwyn, president and founder of Economics and Technology Inc., a telecom consulting firm, said that wireless companies only lose an average of nine dollars per customer that terminates his or her contract early. Selywn said that the average Sprint customer does not terminate his or her contract until after 60 months of service.

Boyle also noted that companies conduct credit checks prior to offering wireless services, which she said would seem adequate to provide low-income individuals with the ability to obtain wireless contracts without early termination fees.

Harold Schroer, an individual consumer testifying at the hearing, said that he was charged an exorbitant fee for attempting to revert to his original wireless plan - after discovering that he was having to pay more for services that he didn't want. His carrier, Verizon Wireless, said he couldn't revert to his old plan without paying the fee. Schroer refused to pay, and he said he received harassing calls and letters from Verizon, as well as a lower credit rating.

Consumer Molly White, like Schroer, also dubbed such fees “illegal.” White said she was not allowed to use her Cingular phone on the AT&T network after AT&T purchased Cingular. Instead, White was forced to enter into a long-term contract with AT&T.

Questioned by Commissioner Michael Copps, Tauke said that, if a customer makes a contract with a third-party reselling, like Qwest, that has an agreement with Verizon, the customer should not expect pro-rating, a policy that was recently adopted by Verizon.

While several of the panelists applauded Verizon and other wireless companies for deciding to pro-rate, Boyle and Patrick Pearlman, of the National Association of State Utility Consumer Advocates, called it merely the first step in the right direction.

The hearing began with Sen. Amy Klobuchar, D-Minn., calling it the government's responsibility to ensure that consumers are given choice and adequate information by wireless providers. Klobuchar is currently co-sponsoring a bill, the Cell Phone Empowerment Act, with Jay Rockefeller, D-W.V., an attempt to require better disclosure of such fees.

Thomas Hazlett, professor of law and economics at George Mason University, said that liberalization and deregulation are the actual reasons for cheaper rates in the wireless industry, not state regulation.

Daniel Brenner, senior vice president for law and regulatory policy for the National Cable and Telecommunications Association, urged the wireless industry to adopt stratagies similar to those of the cable companies, which allow customers the option of paying on a monthly basis.

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