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Senate Committee Investigates Cell Phone Contracts

Hearings held on exclusivity in mobile market

by Martin H. Bosworth
ConsumerAffairs.com

June 18, 2009 

Although legislation to enact better consumer protections has yet to become law, some members of Congress are taking another crack at cracking down on the cellular industry.

The Senate Commerce Committee held a hearing yesterday on "The Consumer Wireless Experience," exploring how "exclusive" contracts can hinder both wireless customers and companies from getting the most out of their phones.

"We have too many places in this country where wireless call quality is low and service is unreliable — places where wireless broadband is only a pipe dream. This is absolutely unacceptable to me," said committee chair John "Jay" Rockefeller (D-WV).

The hearing, which contained no testimony from consumer advocates or actual citizens, had ample representation from industry spokesmen. AT&T retail division president Paul Roth said the wireless marketplace "[encouraged] the necessary collaboration that optimizes handset performance and accelerates the delivery of next-generation features."

Hu Meena, president of U.S. Cellular South, disagreed, equating the wireless marketplace to the financial industry prior to the global economic meltdown.

"Our country's banking and finance policy mistakenly believed that free reign in the marketplace with little oversight was the best course of action and that certain institutions were simply too big to fail," Meena said. "Congress must take action now to ensure that the wireless industry remains the competitive and innovative marketplace that Congress intended for consumers to have.”

Members of the committee also wrote acting FCC chairman Michael Copps on the subject of competition in the wireless marketplace, urging the agency to take another look at exclusivity in contracts.

"We ask that you examine this issue carefully and act expeditiously should you find that exclusivity agreements unfairly restrict consumer choice or adversely impact competition in the commercial wireless marketplace," the Committee wrote.

"Today, we've got a wireless marketplace where four companies account for more than 85 percent of all subscribers," committee member Sen. John Kerry (D-MA) wrote on SaveTheInternet.com's blog. "In fact, nine of the most popular ten phones are locked in a deal with one of these big wireless carriers, and are only available through one network."

At his confirmation hearing on Tuesday, incoming FCC chairman Julius Genachowski did not directly address the question of exclusivity contracts, but said more needs to be done to emphasize consumer choice and protect customer rights in the wireless marketplace.

Fans of the ultra-popular iPhone have been complaining to ConsumerAffairs.com and elsewhere that AT&T — the exclusive carrier of the iPhone — cripples the phone's functionality and has made upgrading to the new 3GS model too confusing.

"I purchased an iPhone on May 4th and they are not allowing me to exchange my 3G iphone to a 3Gs when it comes out," wrote Anthony of Lawrenceville, New Jersey. "I have discussed my problem with Apple, who has agreed AT&T is engaging in poor business practices."

There have been multiple legal challenges to exclusivity contracts in court, mostly centered around the expensive termination fees customers have to pay to switch from one carrier to another. Wireless companies say the fees are necessary to recoup the costs of the handsets, but critics charge they're designed to lock a customer in and prevent them from shopping for the best offer.

All four wireless carriers — AT&T, Sprint, T-Mobile, and Verizon Wireless — began prorating their termination fees and streamlining their customer service plans after judges in several states ruled the contracts were "unconscionable" and violated state consumer protection laws.

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