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Testimony before: Chairmen Michael Morrissey, Brian Dempsey and members of the Joint Committee on Telecommunications, Energy and Utilities

My name is Deirdre Cummings and I am the consumer program director with the Massachusetts Public Interest Research Group. MASSPIRG is a non-profit, non-partisan consumer advocacy organization with over 50,000 members across the state. I am here today to testify in favor of the Cell Phone Users’ Bill of Rights (HB 3389 and SB 1945) filed by Representative Steven Walsh and Senator Karen Spilka among others.

Consumer complaints about cell phone companies’ unfair billing practices and poor quality are leading to calls for change from frustrated customers. Complaints to the Federal Communications Commission (FCC), which oversees the wireless industry, continues to receive over 25,000 consumer complaints a year for the last 3 years. In a 2006 survey, Consumer Reports found that cell service still leaves a lot to be desired. As a group, cellular carriers scored only 66 on a scale of 0-100 for overall satisfaction (100 being the best), worse than most other services they survey – in line with cable TV and computer tech support. And the cell phone industry ranks number one among all industries in consumer complaints filed with the Better Business Bureau.

The problems consumers experience with wireless service have taken on increasing importance as more consumers begin to use their cell phones as substitutes for traditional landline phones. Unlike traditional phone service, wireless service is largely unregulated. The FCC has failed to enact even the most basic consumer protection regulations, instead relying almost exclusively on competition and market forces to protect wireless subscribers. Unfortunately, competitive pressures to date have proven to be inadequate for ensuring that consumers are treated fairly in the wireless marketplace.

Adding fuel to the fire is the massive consolidation in the wireless industry. In the beginning of 2004, the industry giants included AT&T, Nextel, Sprint, Cingular, Verizon and T-Mobile. In October 2004, Cingular acquired AT&T, leaving five companies controlling roughly 80% of U.S. cell phone industry revenues. The most recent merger between Nextel and Sprint, approved in August, 2005 leaves only four companies controlling more than four-fifths of the market for cell phones in this country.

History teaches us that such a high level of concentration in a major ind ustry can be accompanied by excessive market power, which in turn can reduce competition to the detriment of consumers and overall efficiency in the U.S. economy. The cell phone ind ustry is no exception. Cell phone companies have engaged in numero us highly questionable practices designed to reduce the level of competition in the ind ustry and undermine consumers’ ability to choose.

Recently, for example, they fought, and fortunately lost the battle, to prevent cell phone number portability, which would allow consumers to keep their old cell phone numbers when they transfer to a new company. They also “lock down” consumers' handsets with special software, which forces c ustomers to buy a new phone, rather than simply change “SIMM” chips, if they want to switch carriers.

Another anti-competitive practice, which is applied to more than nine out of every ten cell phones, is commonly known as “early termination fees.” For a detailed analysis of the consumer impact of the ETF fee see our August 2005 report, Locked In A Cell: How Cell Phone Early Termination Fees Hurt Consumers” on our website, www.masspirg.org.

The report includes analysis of a phone survey of 1000 U.S. households in July 2005, conducted by the polling firm IPSOS North America. Key findings include:

  • Nearly half (47%) of cell phone customers would “switch cell phone companies as soon as possible” or “consider switching cell phone companies” if early termination fees were eliminated.
  • More than one out of three (36%) of the respondents replied that the early termination fee had prevented them from switching.
  • Nearly 9 out of 10 (89%) of the consumers agreed that the early termination fee is “a penalty to discourage switching cell phone companies”.
  • Combining the actual costs incurred by the 10% of consumers who switched in the past three years ($2.5 billion) with the potential benefits others have lost or can’t afford ($2.1 billion), cell phone early termination fees cost consumers more than $4.6 billion from 2002 to 2004.
  • More than three out of four (77%) of the consumers either strongly support (57%) or support (20% elimination of the early termination penalties.

In survey after survey, cell phone subscribers reveal chronic dissatisfaction with the wireless industry. A major cause is the punitive fee designed to keep consumers from exercising their clout in the market place – switching service. The fees and long term contracts are impediments to the market place and should be eliminated.

In addition to our findings that almost half of the consumers surveyed would consider switching companies if early termination fees were eliminated, a 2003 GAO poll found that 20% of cell phone users wanted to change providers but did not because of the early termination fees.

These fees work and as a result create captive customers and inhibit competition which in turn results in chronic poor service and quality and consumer dissatisfaction.

The dissatisfaction is outlined in our March 2005 report: “Can You Hear Us Now”. The report included a survey of 874 Massachusetts cell phone customers and found that 42% of consumers reported having a billing problem with their provider and 68% reported dropped calls and other quality problems.

Among the industry shortcomings highlighted in our report and reported to us by consumers include poor quality and dropped calls, the widespread use of vague, misleading and confusing rate plans and contract terms, poor billing practices, a lack of customer service and the aggressive use of extended contract periods and high termination fees designed to tie consumers down and make it difficult to drop or change providers.

The rising swell of customer dissatisfaction with the cell phone industry demonstrates a need for basic, common-sense consumer protections. While the FCC has taken a "hands-off" approach to wireless regulation, states, including Massachusetts, can play an important role in establishing a set of basic service quality and customer service standards. Senator Karen Spilka ( Ashland) and Representative Steven Walsh ( Lynn) have filed the Cell Phone Users’ Bill of Rights (SB 1982 and HB 3389). The cell phone users’ bill of rights includes the following consumer provisions:

Better disclosure:

  • All wireless contracts and marketing materials must clearly spell out the terms of the contract in an easy-to-read, standardized format so consumers can compare costs. The disclosures must be made available and accessible to consumers comparing prices and services.
  • All providers must provide consumers with coverage maps that are as accurate as current technology would allow. These maps must be available on the provider's Internet site as well.

Billing:

  • Cell phone bills must be clearly organized. All mandated government taxes, surcharges and fees required to be collected from consumers and to be remitted to federal, state, or local governments would be listed in a separate section of the bill and clearly itemized. This section of the bill may not include any charges for which the carrier is not required to remit to the government.
  • Roaming calls must be itemized on the bill within 60 days of the call, and identify the date and location of the call.
  • Charges from theft that arise after reported to the carrier may not be charged to the consumer as long as the consumer promptly reported the theft to the service provider.
  • Consumers will be able to file billing disputes with the state utility commission and providers should not treat the disputed portion of the bill as late or terminate the contract or service for non-payment if the billing dispute complaint is pending with the state.

Service Quality:

  • The DTE (Department of Telecommunications and Energy) would monitor service quality. Data should be collected and made publicly available so consumers can compare signal strength, dropped call counts and dead zones across carriers.

Service Contracts:

  • Consumers would have a trial period during which a customer can cancel any new service contract without having to pay the hefty contract termination fee ($175-300). This gives consumer time to see whether the phone works where and how it was promised. Consumers would have 30 days to cancel after having received their first bill.
  • Carriers can not extend a customer's contract without obtaining a customer's written permission. Currently, many consumers do not realize that they are extending their contracts by upgrading their phones or by increasing or decreasing the minutes in their plans.
  • No contract for wireless telephone service can be longer than twelve months.
  • Any material changes that the carrier makes to the contract must be provided to customers in advance, and customers would have a 30 day opportunity to terminate the contract without penalty and to receive a pro-rated refund of the charges they paid for purchasing a phone for the carrier's network.

Consumer Privacy:

  • Carriers must obtain customers express permission prior to making cell phone numbers public. They may not charge a fee for keeping the number private.

In addition, MASSPIRG supports SB 1945, which allows consumers to get out of their long term contracts if they experience 5 dropped calls a month. This approach gets at a major source of frustration for consumers – the poor quality and the punitive fees for switching. This too would be a step in the right direction.

Consumers have sent us their complaints and problems with their cell phone providers. I am enclosing 60 of them with my testimony today to help give you a better understanding of need for these basic reforms.

I hope you will pass this bill favorably from your committee. Thank you for your time and consideration, and as always, look forward to working with you on these important issues.

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