Cell Phone Fees
Lisa Poole  /  AP
The U.S. government is quietly negotiating to help cell phone customers avoid expensive fees when they cancel contracts with wireless companies.
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updated 5/21/2008 7:05:15 PM ET 2008-05-21T23:05:15

A wireless industry proposal under consideration by the government that would make it easier for cell phone customers to break up with their service providers was met with withering criticism by consumer advocates on Wednesday.

The plan would give consumers a break on fees charged when they quit their service early, but would also let cell phone companies off the hook in state courts where they are being sued for hundreds of millions of dollars by angry customers.

Cell phone companies routinely charge customers $175 or more for quitting their service early. Under a proposal being reviewed by the Federal Communications Commission, the wireless industry would give consumers the opportunity to cancel service without any penalty for up to 30 days after they sign a cell phone contract or until 10 days after they receive their first bill.

The proposal would require companies to reduce fees month by month over the course of a contract based on how long customers have left, according to people familiar with the offer who spoke on condition of anonymity because the FCC has not approved it.

It would not abolish cancellation fees entirely and would not refund such fees to anyone who already paid them.

If approved by the FCC, the proposal would take away the authority of states to regulate the charges, known as early termination fees.

"If this plan goes through, the nation's largest cell phone carriers get a get-out-of-court-free card," said Chris Murray, senior counsel for Consumers Union, the nonprofit publisher of Consumer Reports magazine. "We have long opposed limiting consumers' rights to sue, and that seems to be what we're doing here."

Another expert agreed.

"The consumer protections are an inadequate fig leaf to justify federal pre-emption," said Patrick Pearlman, a lawyer with the consumer advocate division of West Virginia's Public Service Commission. "The FCC is not an adequate policeman."

The nation's No. 2 wireless company, Verizon Wireless, offered the proposal to the FCC for its review after high-level meetings with senior FCC officials. It did so in consultation with other leading wireless companies, whose executives indicated they would not oppose its provisions, people familiar with the offer told The Associated Press.

The FCC has declined to comment on the proposal.

Wireless companies said the cancellation fees are necessary to recover the cost of cell phones, which they subsidize under long-term service contracts, and to defray their costs for signing up new customers. Consumer groups said the fees are unreasonable and intended to discourage customers from switching among providers.

The expensive fees have led to class-action lawsuits in several states and legislative proposals on Capitol Hill and in state legislatures around the country.

The industry's proposal would link cancellation fees to actual costs incurred by a wireless company, and it would require companies to prorate any fees over the course of the contract. Verizon Wireless currently prorates fees down to $60. AT&T Inc. will begin prorating fees Sunday.

The proposal also would prohibit a wireless company from imposing a termination fee on customers who change terms of their contract or end one contract period and begin another.

Verizon Wireless is a joint venture between Verizon Communications Inc. and the Vodafone Group PLC of Britain. Verizon Wireless, with about 66 million subscribers, is second to AT&T Inc., with 70 million customers.

The wireless industry is increasingly worried about a series of long-running, class-action lawsuits in state courts. One lawsuit against Sprint Nextel is under way in California, and plaintiffs in a New York case in arbitration are seeking $1 billion in refunds.

Federal law prohibits states from regulating wireless rates but gives them authority over some terms and conditions under wireless contracts. The industry's Washington lobbying group, CTIA, previously asked the FCC to consider cancellation fees to be rates, which would preclude state governments and courts from any jurisdiction over them.

In September, Sens. Amy Klobuchar, D-Minn., and Jay Rockefeller, D-W.Va., introduced the Cell Phone Consumer Empowerment Act, which would require prorated fees and a 30-day window for customers to exit a contract.

Klobuchar said in a statement Wednesday that carriers should not be given a "multimillion-dollar handout" by the FCC for making the "practical and reasonable change" of prorating early termination fees.

FCC Chairman Kevin Martin has been mum on the negotiations and there has been no word on how far the proposal has progressed or when it might be made public by the agency.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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