Wireless Providers Beware: Consumer Complaints On The Rise
December 24, 2003
Today, more than half of all Americans are mobile phone customers. That was hardly the case as recently as five years ago, but now, with six major national providers and several regional or local providers, prices have come down and service availability (including attractive new options such as mobile Internet, “picture phones” and games) continues to rise. But, as is often the case, success has its price. Mobile phone service does not always measure up to each consumer’s expectations. When any appreciable number of consumers within a state express dissatisfaction about a service that has become an important part of day-to-day life, the state takes notice.
Cellular, PCS and cellularized SMR carriers have become accustomed to operating in an environment where the potential for state regulation has not posed a significant business risk. Congress specifically pre-empted state entry regulation and set a high bar for retaining or imposing rate regulation. Nonetheless, Congress preserved state regulation over “other terms and conditions” relating to provision of Commercial Mobile Radio Service (CMRS). Today, however, wireless providers are now firmly on the radar of the state attorneys general, state legislatures and those state agencies, such as public utility commissions, that regulate consumer complaints against wireless telecommunications services. Add to this an ever-increasing number of consumer class action suits filed against wireless carriers that relate to terms, conditions and quality of service. and we appear to be on the leading edge of a national trend
The wireless industry has not been a passive observer to this recent turn of events. The Cellular Telecommunications Internet Association is promoting a voluntary code to demonstrate that the industry is prepared to do what is necessary to meet consumer concerns. Recent implementation of local number portability – the ability of consumers to take their phone numbers with them if they decide to switch wireless carriers – may be an effective counterbalance to rising consumer complaints. Nonetheless, states have identified several business and marketing practices common to the wireless industry that, in their view, raise consumer protection concerns.
State Public Utility Commissions and Consumer Protection Agencies Focus on Wireless
At each of the three National Association of Regulatory Utility Commissioners meetings held during 2003, a resolution was passed calling for action to ensure that CMRS providers resolve the issues that form the basis for a rising volume of consumer complaints. Jurisdiction over wireless consumer complaints is exercised by either the Public Utility/Public Service Commission, or the consumer protection agencies of 24 states (Alaska, California, Connecticut, Hawaii, Illinois, Indiana, Iowa, Kentucky, Massachusetts, Michigan, Montana, Nebraska, New Mexico, North Dakota, Ohio, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, Wisconsin and Wyoming). While the majority of these states are explicit that they are not imposing entry and rate regulation, these state agencies routinely handle wireless consumer complaints and post “Consumer Alerts” on their Web site. On a national basis, state utility commission and consumer protection agency actions present several trends:
• Five states require all CMRS providers to either “register” with the state or obtain a “permit” prior to initiating service, and distinguish these requirements as distinct from “entry regulation.”
• Eight states now impose either annual reporting requirements; collect information relating to rates, terms and conditions of service; analyze information collected for annual reports; publish wireless rate surveys or require annual revenue reporting. In most instances, these reporting requirements appear intended to facilitate development of a record for state monitoring of wireless penetration within the state and its impact on consumers as well as, again, seeking information to inform state universal service policy.
• Nine states have taken an activist approach towards consumer complaints against wireless carriers. For example, the state public utility commissions for five of these nine states have instituted formal actions against wireless providers for billing and service contract disputes, false and misleading advertising, failure to provide a trial period to new customers and alleged irregularities in redistribution to localities of funds collected to implement wireless E-911. Among these states, the California Public Utility Commission is nearing completion of a proceeding to adopt a “telecom consumers bill of rights” that will most likely be applicable in some form to CMRS providers.
• Two states post current data on number and type of complaints filed against particular wireless service providers. Consumer agencies in two other states have adopted formal “Buyer Beware Lists,” posted on the agency website. One such list features four CMRS providers.
Attorney General Investigations Rising
We have identified 18 states (Alaska, Arizona, California, Colorado, Florida, Idaho, Iowa, Maryland, Missouri, New York, North Carolina, North Dakota, Oregon, Pennsylvania, Utah, Vermont, Washington and Wisconsin) where the attorney general has brought suit or made public an investigation of a particular wireless provider(s). The basis for such actions to date is enforcement of state laws prohibiting false and misleading advertising, as well as unfair business practices. Examples of “typical” attorney general claims against wireless providers include: changing terms and conditions of service through “opt out” provisions; misleading consumers about their contract terms and ability to change wireless plans; deceptive/confusing marketing materials and representations about the extent of coverage areas and costs as well as other elements of advertised offers; unauthorized/undisclosed charges on consumer bills; confusing/misleading billing statements; and failure to disclose charges such as termination fees. Those attorney general cases that were resolved through settlement, have included payment of damages that range up to $3,750,000.
Class Action Lawsuits Emerging Across the Country
Wireless providers also face an increasing number of consumer class action lawsuits complaining about billing issues, misrepresentation, false advertising and service quality. Although we have uncovered class action lawsuits in 20 states, these are probably only a small portion of the actions that have been filed, as research is only able to pick up the presumably small percentage of cases that are publicly reported, or for which a final order finds its way into published court decisions. A number of these actions are likely settled in an early stage, and therefore fly below the radar.
A “typical” class action concerns a wireless company’s billing practices; failure to disclose gaps in coverage area and service limitations; charging for “rounding up” and non-communication time; and failure to inform customers that phones could not work on another network. During the past two months we have observed an increase in filing of these types of complaints, with Illinois emerging as one of the more popular forums, although California, Florida and New York remain the “forums of choice” for plaintiffs’ attorneys.
It is widely believed that the Supreme Court’s decision earlier this year to deny AT&T’s petition for certiorari in Ting et. al. v. AT&T, 319 F.3d 1126 (9th Cir. 2002), cert. denied, 124 S. Ct. 53 (2003), provided a roadmap for successfully attacking the type of mandatory binding arbitration clause that routinely is incorporated in wireless customer service agreements. Ting does not change the fundamental fact that mandatory arbitration clauses should be enforced because they generally permit parties to effectively vindicate their legal rights. What Ting does establish, however, is that a strong factual record can void an arbitration clause as unconscionable under state law. Moreover, Ting is particularly helpful to those contemplating class actions premised on wireless consumer issues because of obvious analogies to the Ting fact pattern, involving competitive provision of long distance service.
Wireless providers need to be cognizant of the dynamics that are causing greater state scrutiny of wireless services, and should regard wireless consumer issues as a significant factor in assessing potential liability and risk. The aim is to develop an integrated and uniform approach to every aspect of the service provider/consumer interface that will minimize potential liability on a national basis.
For more information, e-mail Rosalind Allen at rosalind.allen@hklaw.com or Rebecca Duke at rebecca.duke@hklaw.com, or call toll free 1-888-688-8500.