A bipartisan bill introduced Tuesday in the House of Representatives would ban new state or local takes on mobile phone services for a period of five years. Sponsored by Rep. Zoe Lofgren (D-Calif.) and five co-sponsors, the bill is known as the Cell Tax Fairness Act (HR 5793 ).
In a statement, Lofgren said that between January 2003 and July 2007, the taxation rate on wireless services increased four times faster than the rate for other taxable goods and services. As a result, consumers pay 15.19 percent in federal, state, and local taxes on their cell phone bill, compared with 7.07 percent in taxes for most other goods and services.
"The Cell Tax Fairness Act will help ensure that consumers make choices about communications technology based on the merits of that technology, rather than on the rate of taxation," Lofgren said. The legislation "does not take away any existing revenue for state or local governments."
The bill, which is similar to Senate legislation introduced last year, would not affect current taxes, nor does it call for a ban on any new federal taxes. Furthermore, the ban would not apply to fees meant to subsidize emergency 911 services nor the universal service charge, which funds telecommunications infrastructure for low-income and rural residents. The federal excise tax on phone services, which was originally created to support the Spanish-American War, was dropped by the Internal Revenue Service and the Department of the Treasury in August 2006.
The wireless industry's lobbying arm, the Cellular Telecommunications Industry Association (CTIA), is supporting the bill, calling it "a step in the right direction." In its own statement, the association joined Lofgren in saying that a ban on new taxes would help encourage new innovation in the wireless sector. "We should do everything in our power to remove the roadblocks--such as excessive, discriminatory wireless taxes--that stand in the way of progress," said CTIA President and CEO Steve Largent.
Cell phones taxes and fees have been the target of a few bills in Congress since the Democrats regained control of the House, but lawmakers and the CTIA haven't always seen eye to eye. Separate bills in both the Senate and the House propose eliminating early termination fees and handset locking. The latter issue has become particularly controversial following AT&T's well-publicized lock on the iPhone, even though handset locking has been standard practice in the industry for years. Though the Senate bill won support from Senators in a hearing held in October, Largent and the CTIA have declined to support it, calling it "unnecessary."
Two top consumer groups are backing legislation aimed at giving consumers more freedom over their cell phone contracts. The Consumers Union and the Consumer Federation of America announced their support yesterday for the Cell Phone Consumer Empowerment Act of 2007 (aka the Cell Phone Bill of Rights), which is sponsored by Sen. Amy Klobuchar (D-Minn.) and Sen. Jay Rockefeller (D-W.Va.).
Though the bill centers on limiting early termination fees for cell phone contracts, the consumer groups are focusing on another provision that would prohibit any customer fees not expressly authorized by federal, state, or local governments. "Most wireless carriers advertise a (monthly contract) price significantly lower than the bill customers pay each month, adding mysterious regulatory charges and other junk fees," said Consumers Union Senior Counsel Chris Murray in a statement. "If this legislation is passed, it would go a long way toward eliminating those shenanigans."
Cell phone customers pay an average of $10 in taxes and fees each month on top of the normal rate. Though most of the current fees are already authorized by the government, customers can accrue other charges like a carrier administrative fee.
Of course, the wireless industry is not accepting the bill with open arms. The Cellular Telecommunications Industry Association said the legislation isn't needed at a time when cell phone complaints to the FCC are falling.
Early terminations have long annoyed cell phone subscribers, but now they're beginning to annoy Congress as well. On Friday, Sens. Amy Klobuchar (D-Minn.) and Jay Rockefeller (D-W.Va.) introduced a bill that would give subscribers greater freedom to leave cell phone carrier contracts before the agreements expire.
The Cell Phone Consumer Empowerment Act of 2007 would allow subscribers to cancel a contract for any reason up to 30 days after a new agreement is signed or an existing contract is extended. Klobuchar said the bill is all about fairness. "Early termination fees are a family budget buster," she said. "Families should be able to terminate service without outrageous fees and know if their cell phone will work on their drives and in their home and office."
While most carriers already give subscribers a set period for leaving a new contract, they are not required to do so by law. What's more, the bill would require carriers to prorate ETFs the closer a subscriber is to the contract's ending date. Here again, many carriers already offer that option, but it is not required.
Not surprisingly, the wireless industry's lobbying arm in Washington isn't greeting the bill with cheers. In a statement, Steve Largent, the president and CEO of the Cellular Telecommunications Industry Association (and a former Republican member of Congress), disputed the need for any regulation.
"Wireless consumers in America enjoy the most affordable service in the free world," Largent said. "The [bill] is unnecessary and, if enacted, threatens to increase the cost of wireless service and reduce the number of choices available to American consumers." He also cited FCC statistics that state that between 2003 and 2006, the number of contract related complaints fell from 15 for every 1 million customers to nine for every 1 million.
The CTIA has long defended ETFs as a way for them to offer free and discounted cell phones and plans at a lower monthly price. "ETFs are a means of holding customers to the 'bargain' they made with their carrier," said a CTIA position paper from earlier this year. "They allow carriers to offer their most attractive rate plans to their customers who commit to a specific term."
But Klobuchar and Rockefeller aren't buying that argument and are calling for additional mandates in their legislation.
Most interestingly, it directs the FCC to submit a report to Congress that studies the practice of handset locking and its effect on consumer behavior and competition. Though phone locking has been a long-standing practice in the industry, AT&T's much-publicized exclusive on the Apple iPhone has brought the issue under Congress' radar.
Additionally, the bill mandates that carriers do the following: produce coverage maps that are detailed enough to identify whether a person could get service in their home; make public-specific details on coverage gaps and dropped calls; and inform customers of rate changes at least 30 days before they take effect. Fees not expressly authorized by federal, state, or local governments would be illegal, and carriers would be required to clearly explain all fees and break out roaming charges in a separate section of a subscriber's monthly billing statement.
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