FCC, Verizon Wireless proposal on ETFs may be DOA: Wireless industry hopes for federal preemption of state regulation

An initial effort spearheaded by Federal Communications Commission Chairman Kevin Martin and Verizon Wireless to secure support from leading consumer groups to give subscribers relief on early termination fees – in exchange for ridding top wireless carriers of potentially costly class-action lawsuits, now and in the future – appears to have collapsed, according to sources close to the matter.
While key stakeholders are said to continue to negotiate on an ETF compromise, there are indications a deal – which would require approval by an FCC majority – remains an uphill battle. The Associated Press yesterday reported the FCC was trying to work out a deal for a federal rule perhaps giving new subscribers 30 days, or 10 days following receipt of their first bill, to break service contracts without incurring ETFs of $175 or more. In exchange, the agency would federally preempt state regulation of fees that carriers say help offset costs they incur by subsidizing handsets that are bundled with service.
Consumers Union and AARP appear to be two groups approached by Verizon Wireless, but there are no clear signs they believe the concessions – which also include prorating ETFs as Verizon Wireless has instituted and other carriers have announced plans to do – offered by industry are adequate when consumers could surrender the ability to take legal action against mobile-phone operators.
“We’re concerned about eliminating consumers’ right to sue, with an uncertain benefit on the other side,” said Chris Murray, senior counsel for Consumers Union. “But this deal is very much fluid, no one can confidently say anything about it yet.”
A class-action lawsuit against Sprint Nextel Corp. is in its second week in California state court. On deck for trial in the same court is Verizon Wireless. If Verizon Wireless loses, the No. 2 carrier could be forced to pay $1 billion in ETF refunds to consumers.
Sen. Amy Klobuchar (D-Minn.), lead author of a wireless consumer bill, said she believes consumers would be shortchanged under the original deal that was in play.
“For years, wireless companies have gamed consumers out of millions of dollars through unfair practices and excessive fees. Rewarding these companies for making the practical and reasonable change of prorating their early termination fees is unacceptable,” said Klobuchar. The Minnesota lawmaker added: “Consumers deserve to have their hard-earned money refunded when appropriate. Most major carriers have announced plans to pro-rate their fees and it is long past time for these companies to live up to those assurances without being given a multimillion dollar handout by the FCC.”
Aside from the litigation, the ETF controversy caught fire in policy circles in 2005 when cellphone industry association CTIA petitioned the FCC to make the penalty fees off-limits to state regulators and plaintiff lawyers. But with the 11th Circuit overturning an FCC rule preempting state regulation of wireless line item fees and other court rulings on preemption, the FCC has been hesitant to move forward on the CTIA request.
“Since at least the time of our ETF filing more than three years ago, we have supported the establishment of a uniform and consistent national wireless policy,” said Joe Farren, a CTIA spokesman. “The greatest threat wireless technology in America faces today is disparate treatment by public regulatory bodies. We simply can’t afford to travel back in time and recreate the days when each state regulated telecommunications service differently. In a mobile society, we have to continue moving forward and that means establishing a uniform federal wireless policy that consumers and providers can depend on across the entire country.”