Business Practices & Corporate Accountability News

BOSTON— Nearly half (47%) of all cell phone customers would switch or consider switching cell phone service carriers to get a lower rate and better service if they didn’t have to pay an average penalty of $170 to cancel their service contract, according to a new economic analysis and survey released today by MASSPIRG (Massachusetts Public Interest Research Group).

"Consumers are locked into cell phone contracts by the early termination fees, preventing them from shopping for better or cheaper cell phone service,” said Deirdre Cummings, MASSPIRG Consumer Program Director. "When consumers buy a cell – they don’t think they are going to be locked into one.”

The report’s release coincides with Federal Communications Commission (FCC) review of a petition from the cell phone industry that, if granted, could preempt, or eliminate, state oversight of Early Termination Fees (ETFs), which range from $150-$240 depending on the company. The report, Locked in a Cell, How Cell Phone Early Termination Fees Hurt Consumers, also follows last week’s Nextel/Sprint merger approval, leaving just four companies to provide more than 80% of the cell phone service in the U.S.

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

"Not only does this new survey find that more than three out of four Americans want these unfair fees eliminated, but our economic analysis also shows that when you combine the penalties some consumers have paid with the benefits others have lost or can’t afford, these penalties have cost consumers more than $4.6 billion in the last three years,” said Cummings.

“Consumers are suffering in the pocketbook when they turn on their phone because cell phone companies can’t be held accountable for poor service,” said Senator Jarrett T. Barrios (Cambridge), chief Senate sponsor of the Cell Phone Users’ Bill of Rights. “States are moving quickly to curb abuses of the cell phone industry and those efforts shouldn’t be undermined by the FCC. Instead of fighting to stifle competition, companies should be fighting to keep customers.”

The new report, “Locked in a Cell: How Cell Phone Early Termination Fees Hurt Consumers” 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 response to consumer lawsuits in several states, including California, Florida and Illinois, challenging these early termination fees (ETFs) as unfair, the cell phone industry has petitioned the Federal Communications Commission (FCC) to treat ETFs not as penalties designed to restrict consumer choice, but as a part of the rates that the companies charge their customers for cell phone services.

"This survey further shows how many people feel trapped and are unhappy with their wireless providers. Therefore it is imperative that the FCC reject the cell phone industry's demands and continue to allow strong state and local protection of consumers," said Representative Steven Walsh (Lynn), chief House sponsor of the Cell Phone Users’ Bill of Rights.

U.S. Rep. Anthony Weiner (D-NY) and 14 other members of Congress sent a joint letter today to FCC members saying they “strongly urge you to deny” the petition or “any action that would preclude states from enforcing their own laws to protect consumers from unfair and anti-competitive business practices.”

”Locked in a Cell” recommends:

1. The FCC should reject the cell phone industry’s petition and neither Congress nor any federal agency should accede to the industry’s demands to eliminate strong state and local protections.

2. Mobile phone companies should eliminate the use of early termination fees and similar unfair practices.

3. The U.S. Government Accountability Office (GAO) should study the impacts on consumers, competition and the economy of high concentration and market power in the wireless industry.

“The FCC can promote consumer choice by denying the industry petition or it can keep consumers locked in cell phone hell by siding with industry,” concluded Cummings.