When T-Mobile began selling Apple's iPhone in Germany last fall, a legal skirmish ensued, forcing the wireless carrier to sell it untethered to a contract--at $1,460, no less. T-Mobile eventually persuaded a court that the two-year contract was legal.
Now that same kind of European rule would be imported into the United States--meaning AT&T would be legally required to sell a contract-free iPhone--if a new Democratic proposal in the U.S. House of Representatives becomes law.
Sponsored by Rep. Ed Markey (D-Mass.), a congressman who serves as chairman of a House telecommunications and Internet panel, it's similar to but somewhat more sweeping than a bill proposed in the Senate last year. His subcommittee has scheduled a hearing on the plan for Wednesday morning.
The draft legislation says every mobile provider "shall offer to consumers the opportunity to purchase subsidy-free wireless customer equipment."
The emergence of the 27-page draft bill (PDF), called the Wireless Consumer Protection and Community Broadband Empowerment Act, underscores what is apparently growing concern among congressional Democrats during this session with what they seem to view as insufficiently flexible, forthcoming dealings among wireless carriers and their customers.
Both bills would direct the Federal Communications Commission to establish a number of new rules for wireless carriers. Among other things, those companies would have to give abundant disclosure to their customers about their rate plans in a "clear, plain, and conspicuous manner," breaking out the cost of everything from early termination fees to state and local taxes for the customer.
Carriers would also be obligated to devise more detailed maps of their network coverage areas. And they'd have to permit customers to cancel a contract for any reason without penalty within the first 30 days and to prorate any fees associated with leaving a contract early.
Unlike the Senate bill, Markey's proposal would also dictate that wireless carriers offer customers the choice of buying a wireless service plan with no early termination fee.
Wireless carriers say they charge early termination fees because they've subsidized the cost of the wireless handset used with it, but Markey's draft bill would also require them to offer consumers the ability to buy "subsidy-free" equipment without a long-term service plan--and at the same price as comparable service for a plan with subsidized equipment.
That's where the potential implications for the iPhone and similar devices come in. Right now, signing up for iPhone service is a two-year commitment on top of the price of the gadget itself. But, assuming that AT&T subsidizes at least some of the cost of the phone--one estimate says the subsidy is around $400--Markey's bill would apparently force AT&T to sell it at an unsubsidized price and for a contract length of the customer's choosing.
To be sure, such an option may not even be in some consumers' best financial interests. iPhone unlocking has become a popular pastime, with thousands of consumers buying them without pledging allegiance to AT&T in the first place. But Markey's bill, in the interest of consumer protection, would force carriers to offer such a choice anyway.
The wireless industry has long been lobbying for a uniform set of rules governing its operations from the federal level, complaining that states have imposed a patchwork of obligations for billing and other practices that don't mesh well with the national nature of wireless service. But if its less-than-enthusiastic reaction to the Senate bill is any indication, the House's prescriptive approach likely isn't what it had in mind.
A lobbyist for CTIA-The Wireless Association, which represents the major wireless carriers, is scheduled to speak about the bill at a hearing Wednesday, but the organization declined to speak further about the proposal beforehand.
"Generally, we're looking forward to the hearing and the opportunity to talk about the many consumer benefits that accompany a uniform set of standards for wireless policy in America," CTIA spokesman Joe Farren said Tuesday.
The wireless industry is likely to point out some of the steps it has already undertaken in the absence of regulations in an apparent effort to be more consumer-friendly. Most of the major carriers have announced plans to prorate the early termination fees for their contracts, for instance.
Markey's proposal doesn't stop at wireless issues. It also includes a section that would reserve the right of municipalities to offer their own broadband services--a trend that has encountered mixed success thus far. The bill says such networks "serve the public interest" and that states should not be allowed to make laws thwarting their creation.
Passing federal legislation to promote such offerings isn't new. The idea grew out of attempts by state legislatures, often pressured by major Internet service providers like Verizon and Comcast, to enact laws restricting city governments from getting into the same game. But so far, despite support in both chambers of Congress, no such measure has been made into law yet.
A group of major trade associations representing telephone companies both large and small said in a Tuesday letter to Markey that they're concerned his proposal will create "unintended consequences" that undermine his stated goal of getting affordable broadband to more places.
"We still believe federal municipal broadband legislation would chill private investment in existing and future broadband networks," wrote the association executives. "This ultimately leads to less, not more, broadband deployment as the investment risk for private entities is unnecessarily increased and private capital is displaced with public funds, needlessly burdening taxpayers."
WASHINGTON--Disgruntled Democratic senators on Wednesday renewed threats to impose new regulations designed to force more "consumer-friendly" policies on wireless carriers.
Curbing early termination fees, prohibiting companies from passing "deceptive" fees onto customers, reporting the number of dropped calls to government regulators and providing more accurate service coverage maps are among the requirements being considered in a bill touted at a morning hearing here convened by the Senate Commerce Committee.
If such a law were enacted, it would be a significant departure from today's relatively limited federal regulations in the wireless industry, which date back to the early years of the Clinton administration.
"I do not believe that this limited regulatory scheme is now working given the industry size and its domination by four major carriers," said Sen. John Rockefeller (D-W.V.), one of the bill's chief sponsors. "I believe it's time to revisit the entire regulatory framework that governs wireless service."
Unlike at a similar House of Representatives hearing during the summer, however, politicians didn't pay as much attention to the issue of device "locking" and also refrained from specifically criticizing Apple's iPhone being tethered to the AT&T network.
Sen. Byron Dorgan (D-N.D.), one of the chief sponsors of Net neutrality legislation in the Senate, said that the practice of "locking in phones, making them exclusive to one provider, and requiring consumers to purchase a new phone when changing carriers" is also a phenomenon that members of Congress need to examine. (The proposed bill largely punts on that issue, requiring a report to Congress on "handset locking and portability.")
Naturally, wireless companies aren't happy about the specter of increased government control. Verizon Wireless CEO Lowell McAdam told the committee such legislation was not only unnecessary but could be "harmful to the consumer." For instance, the bill's decision to allow not only federal regulators but also individual state authorities to enforce its many requirements will make it more complicated to do business.
"A set of regulations will establish a minimum requirement that when a carrier diverts from that minimum requirement, they will be questioned by regulators across the country," McAdam said. "All that will do is slow down a very innovative and dynamic industry."
Some wireless carriers have already begun addressing some of the complaints the Senate bill seeks to address, arguably in hopes of averting new regulations. For instance, on Tuesday, AT&T announced that next year it plans to begin prorating its existing flat rate, $175 early termination fee--a move widely believed to be timed to Wednesday's hearing. Verizon Wireless already initiated such a practice last year.
But other carriers need to be coerced by law into doing the same, supporters of the wireless bill said.
For smaller carriers with fewer customers over whom to spread their costs, it'll also be prohibitively expensive if the Senate goes ahead with a number of the bill's proposed mandates, including requiring carriers to provide customers with specially itemized invoices, to update maps quarterly to show coverage areas and to file semiannual reports with the Federal Communications Commission on number of dropped calls, said Mike Higgins, CEO of the Central Texas Telephone Cooperative.
"While the mandates are well-intentioned," the rural wireless carrier executive told the politicians, "the actual benefit to the public is significantly less than the substantial cost of compliance."
Consumer advocates at Wednesday's hearing sided with the need for new regulations. Patrick Pearlman, a consumer advocate with the West Virginia Public Service Commission, said neither the market, nor existing federal rules, have been adequate constraints on unreasonable or abusive wireless carrier practices.
"Consumers just aren't as happy as they ought to be," said Chris Murray, senior counsel for Consumers Union.
Senators themselves were among the complaining consumers. Sens. Amy Klobucher (D-Minn.), another chief sponsor of the wireless bill, and Rockefeller griped about lagging coverage areas in rural zones in their states. Sen. Claire McCaskill (D-Mo.) complained that even though she hadn't signed up for text messaging for her three teenage children, they managed to receive incoming messages on their phones, resulting in what she called "a horrendous situation."
A number of the Democrats also said they were troubled by the variety of fees, labeled "administrative" or "regulatory," tacked onto consumers' bills. In Rockefeller's eyes, wireless companies are "literally passing the buck for ordinary operating costs and tax liabilities" to their customers, and "that's not right," he said. Those complaints, however, were arguably a little ironic, since Congress is responsible for passing many of the laws that spawn regulatory fees--for instance, payments into a fund that subsidizes rural telephone service--in the first place.
Verizon Wireless' McAdam said his company has spent a lot of time making sure its bills are clear to customers, revamping the bill's design five times in its eight-year history based on customer feedback. He denied that the wireless firm was passing on operational costs to customers under the guise of government mandates, arguing that many municipalities layer on additional fees and taxes.
"We don't make a penny on any of it," he said. "There's no advantage to us to put these fees on the bill."
Republicans present suggested that if such problems exist, government regulation isn't the way to go about resolving them. They pointed to the fact that, with some of the most limited government regulation of any U.S. industry, wireless services have flourished, racking up some 230 million customers today, compared with only 9 million in its infancy in the early 1990s.
"Our government has consistently shown that it cannot effectively manage complex functions," said Sen. Jim DeMint (R-S.C.), citing complaints his offices receive daily from constituents about processing of food stamps and other government services. "To suggest we are going to design a system that more effectively protects consumers than a competitive market is well intended but naive."
If there are aspects of wireless service that are "performing significantly below other products or other services that are important to consumers," added Sen. John Sununu (R-N.H.). "I think that's where we need to look and take measured action."
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