Senator Amy Klobuchar (D-Minnesota) is expected to introduce legislation this week to protect consumers from excessive early termination fees for ending their cell phone contracts early.
The Cell Phone Consumer Empowerment Act comes a few weeks after Verizon Wireless doubled their cancellation fees November 15 from $175 to $350 for “advanced” mobile phones.
Klobuchar sent a letter to Verizon Wireless President and CEO Lowell C. McAdam, criticizing the company’s decision to increase its Early Termination Fees (ETFs) for new smart phone customers. Klobuchar also sent a letter to Federal Communications Chairman (FCC) Julius Genachowski, urging a review of the Verizon Wireless decision to raise these fees.
“These fees are anti-consumer and anti-competitive and they bear little to no relationship to the cost of the handset device,” said Klobuchar, a member of the Senate Commerce Committee.
Klobuchar’s bill is anticipated to specifically target Verizon Wireless over its decision to double fees for consumers. Although the specific details of how the legislation will control fees is still being worked out, Klobuchar’s bill is expected to force providers to incrementally reduce fees for every month of service a customer completes and possibly set a ceiling on the fee charged depending on the retail price of the phone.
Klobuchar introduced a similar bill during the last session of Congress and many cell phone providers responded by pro-rating cancellation fees for departing customers, typically 1/24th of the fee waived for each month a customer stayed with the provider during a two-year contract. But Verizon Wireless’ decision to double their fee, which could set a new trend in the industry, directly increases prices for consumers, according to Klobuchar.
“Under the company’s new plan, the penalty for leaving the contact halfway through a two-year contract would be $230 – still higher than the $175 ETF Verizon Wireless previously charged for these phones,” Klobuchar wrote to McAdam.
Verizon Wireless is the nation’s largest cell phone service provider. Verizon customers purchasing an Advanced Device (smart phone) with a one or two year service agreement will be subject to an ETF of up to $350 if they disconnect service prior to the minimum term. The $350 ETF will decrease $10 for each month of service completed.
The cell phone industry has defended cancellation fees as necessary because providers subsidize the cost of the cell phones sold to consumers. Customers can purchase phones at the retail price and not be committed to any contract or termination fees. Some advanced handsets can cost well over $500 if purchased without a contract.
Copies of correspondence to McAdam and Genachowski appear below.
The FCC today voted unanimously to begin writing a formal Net Neutrality policy to govern broadband services across the United States. Three Democratic commissioners voted yes and applauded the concept of Net Neutrality. The two Republican commissioners also voted to move the process forward, but signaled they would likely oppose the final draft of the rules.
Support for Net Neutrality, which would prohibit providers from slowing down, blocking, or charging higher pricing for favored access to web content, was spearheaded by FCC Chairman Julius Genachowski.
Genachowski said the rules were needed to protect consumers from abusive behavior by telecommunications companies that might seek to block or restrict access to broadband content, including telephone and video services.
“Internet users should always have the final say about their online service, whether it’s the software, applications or services they choose, or the networks and hardware they use to the connect to the Internet,” Genachowski said.
Other Democratic commissioners agreed with Genachowski. Commissioner Michael Copps stated it was important to hear from everyone about the proposed rules.
“We need to recognize that the gatekeepers of today may not be the gatekeepers of tomorrow,” Copps said.
John McCain
Many Republicans were unconvinced of the need to establish Net Neutrality as formal policy.
“I do not share the majority’s view that the Internet is showing breaks and cracks, nor do I believe that the government is the best tool to fix it,” Republican commissioner Robert McDowell said.
“These new rules should rightly be viewed by consumers suspiciously as another government power grab over a private service provided by private companies in a competitive marketplace,” Sen. John McCain wrote in an opinion piece published by The Washington Times.
McCain compared Net Neutrality with the federal bailout of Wall Street and the American auto industry.
Under the draft proposed rules, subject to reasonable network management, a provider of broadband Internet access service:
would not be allowed to prevent any of its users from sending or receiving the lawful content of the user’s choice over the Internet;
would not be allowed to prevent any of its users from running the lawful applications or using the lawful services of the user’s choice;
would not be allowed to prevent any of its users from connecting to and using on its network the user’s choice of lawful devices that do not harm the network;
would not be allowed to deprive any of its users of the user’s entitlement to competition among network providers, application providers, service providers, and content providers;
would be required to treat lawful content, applications, and services in a nondiscriminatory manner; and
would be required to disclose such information concerning network management and other practices as is reasonably required for users and content, application, and service providers to enjoy the protections specified in this rulemaking.
The draft rules make clear that providers would also be permitted to address harmful traffic and traffic unwanted by users, such as spam, and prevent both the transfer of unlawful content, such as child pornography, and the unlawful transfer of content, such as a transfer that would infringe copyright.
Today’s vote marks only a beginning of the process to begin writing the formal policy of Net Neutrality governing Internet use in the United States. As with the ponderous debate on health care reform, what ends up defining “Net Neutrality” will be open to interpretation, and a barrage of lobbyists and arm twisting from politicians will be part of what comes next.
On the eve of the historic vote, Verizon Communications seemed to join Google in affirming some of the basic principles of Net Neutrality.
However, the devil is in the details, as is always the case in telecommunications policy.
Verizon supports its own interpretation of Net Neutrality, which is wrapped in a concept they call “innovation without permission,” which is code language for a deregulatory open free-market environment. It broadly accepts the concept that telecommunications companies should not interfere with legal content, but the company doesn’t want a whole barrage of new regulations to specifically define what would constitute “interference.” Verizon believes onerous rules would stifle investment, and that existing rules already in place at the FCC are sufficient protection.
Things get downright dicey when Verizon spells out its “network management” principles, warning the FCC overly specific rules in this area could have unintended consequences.
Broadband network providers should have the flexibility to manage their networks to deal with issues like traffic congestion, spam, “malware” and denial of service attacks, as well as other threats that may emerge in the future–so long as they do it reasonably, consistent with their customers’ preferences, and don’t unreasonably discriminate in ways that either harm users or are anti-competitive. They should also be free to offer managed network services, such as IP television.
It is in this area where very specific rules are appropriate to write, because what one company defines as appropriate “network management,” could be discriminatory against selected content those providers seek to “manage.”
No broadband user has ever objected to network management that controls spam, “malware,” denial of service attacks, and other like-minded traffic. In fact, most consumers wish more could be done to control these things. Nothing in the current framework of telecommunications regulations or in those proposed have ever sought to impede this type of management.
No consumer minds having access to additional content, such as IP television. But consumers do object when such content is used as an excuse to ram through Internet Overcharging schemes limiting broadband usage or imposing higher fees for using the types of services companies like Verizon now advocate. “The broadband sky is falling” rhetoric about “exafloods,” overloaded “Internet brownouts,” and other such scaremongering nonsense often comes from the same providers that now want to provide IP television. What they provide with their left hand, they want to limit with their right.
It’s anti-competitive, because the same companies with an interest in selling these pay television services (FiOS, cable television, fiber-telephone U-verse, etc.) also provide the broadband service that companies like Netflix and Hulu use to indirectly challenge their video business models.
Another concern is “traffic congestion” management, which all too often has meant speed throttles selectively imposed on “offending” applications, particularly peer to peer traffic. There is good traffic management, such as routing equipment that provides even delivery of services like streaming video and Voice Over IP telephone calls, which rapidly deteriorate on loaded down networks, and then there is bad traffic management which selectively slows down the speed of whatever the provider deems to be of “lower priority.” Allowing the customer to make the decision about which traffic gets priority is one thing. Allowing a provider to do it without the consent of the customer is quite another.
Too often, the “unintended consequences” Verizon and Google speak about in the joint statement go to the provider’s favor, not to the consumer. Overly broad, non-specific language opens loopholes through which providers will eagerly leap through.
Verizon also advocates transparency — “All providers of broadband access, services and applications should provide their customers with clear information about their offerings.”
Disclosure alone doesn’t suffice for consumers, particularly if there are few competitive places to take your business if you disagree with company policies. Those rules should include realistic speed information (marketing stating “up to 10Mbps” that in reality only delivers 3Mbps would be one example). It should not simply be an escape clause for providers to abuse their customers with throttled, slow service, and give them the excuse that “we disclosed it.”
Facebook and Twitter have officially signed up for the Net Neutrality battle on the side of consumers demanding a free and open Internet.
Facebook co-founder Mark Zuckerberg and Twitter’s Evan Williams added their signatures to a letter expected to reach Federal Communications Commission Chairman Julius Genachowski this morning. The letter, signed by 24 high profile Internet executives, calls on the FCC to continue efforts to “begin a process to adopt rules that preserve an open Internet.”
Both companies have not been major players in the political debate surrounding Net Neutrality until now.
The correspondence comes after two weeks of sustained attacks on Net Neutrality from several dozen Republicans on Capitol Hill and intense lobbying from telecommunications companies to drop the issue.
One signer, Echostar CEO Charlie Ergen, is no stranger to pro-consumer telecommunications legislation. Prior to the launch of DISH Network, Ergen sold satellite dish equipment to consumers and was an active participant in the battle to pass the 1992 Cable Act, which mandated fair and open access to cable programming networks making DirecTV and DISH Network possible. Ergen’s company owns Sling Media, manufacturer of the Slingbox, a device that streams television programming over the Internet for private use. The Slingbox has been banned from certain wireless mobile networks, a prohibition that would end should Net Neutrality rules take hold.
Eighteen Republican senators joined twenty House Republicans in a letter writing campaign to get FCC Chairman Julius Genachowski to drop Net Neutrality from the agenda at the Federal Communications Commission, calling the policy “counterproductive,” and would create a “chilling effect” on broadband investment in the future.
Many GOP members signing the latest round of letters also took issue with Net Neutrality a few years ago when it was a hot topic in Washington.
After Sen. Kay Bailey Hutchison’s aborted attempt to de-fund FCC enforcement of Net Neutrality regulations, the past month has seen a full frontal assault on Net Neutrality by many Republicans. Minority Leader John Boehner (Ohio) and Republican Whip Eric Cantor (Virginia) co-authored a letter to President Barack Obama suggesting he intervene to drop Net Neutrality policies and instead focus on the national broadband plan.
Any regulations that would prohibit Internet service providers from managing their networks, they said, would discourage those companies from investing the billions of dollars needed to expand broadband access.
“We believe that network neutrality regulations would actually thwart further broadband investment and availability, and that a well-reasoned broadband plan would confirm our view. So to hastily begin the process of adopting network neutrality rules months before issuing such a plan implies that politics are driving the FCC’s decision-making process.”
Ranking Member of the House Communications, Technology & the Internet Subcommittee, Rep. Chris Stearns of Florida fired off a letter to Genachowski echoing the same sentiment:
Sam Brownback (R-Kansas)
“At first glance, net neutrality regulations may appear reasonable and harmless, but, a deeper examination reveals that net neutrality is neither reasonable nor harmless. These mandates would harm consumers, reduce competition, and discourage new investment and innovation at a time of tremendous technological growth.”
“The FCC bears the responsibility to prove a market failure, especially since its 2002, 2005, 2006, and 2007 decisions on cable modem service, digital subscriber line service, broadband over power line service, and wireless broadband service were predicated on the notion that the broadband market nationwide is competitive and that regulation is unwarranted,” Stearns wrote.
Of course, during the years he cites, the Republicans enjoyed a majority on the Commission that made that finding.
Stearns and his colleagues suggest that the FCC could only intervene if substantial evidence existed the broadband marketplace was collapsing.
The Senate Republicans, led by Senator Sam Brownback of Kansas and Chuck Grassley of Iowa, questioned the need to adopt new regulation, suggesting only two abusive incidents have occurred in the last five years that would have been prohibited by the regulations.
“It appears your decision to create new commission rules is outcome-driven. Your promulgating network neutrality rules seems to emanate from a fear that there may be some problems related to openness in ‘the future.’ Our view is that it is harmful for the commission to impose industry-wide rules based upon speculation about what may occur in the future.”
“Such a major policy shift should be contemplated with only all of the FCC Commissioners involved,” they wrote. “To do it with just one party reduces the confidence the public and Congress has in the proposal.”
Pro Net Neutrality groups had none of it:
Gigi Sohn, Public Knowledge:
It is truly unfortunate that the House Republican leadership has put itself in the position of trying to slow down the greatest economic engine for job creativity and innovation ever created. Under the neutral, non-discriminatory Internet, thousands and thousands of new businesses were created and millions of dollars were invested.
The latest House Republican letter asking for the FCC to slow action on preserving an open, non-discriminatory Internet is simply another attempt at a delaying tactic by those who favor big telecom and cable companies over competition and innovation.
The letter also has fatal flaws, such as when it asserts that Net Neutrality would make investment more difficult, or that Net Neutrality would result in lower speeds and higher prices for consumers. Both of those claims are false. Billions of dollars were invested in the Internet ecosystem, not only by carriers, but by companies doing business on the Internet, and by consumers subscribing to Internet services. That is the investment we seek to expand. There is nothing in banning discrimination on the basis of source, ownership or destination of bits would create lower speeds or raise prices. Those are simply distractions.
Net Neutrality is about big telecom, cable and wireless companies (which are often the same) picking winners and losers on the Internet. It has nothing to do with online services, consumer electronics or applications. The FCC should proceed to guarantee the freedom of the Internet that all consumers and businesses deserve.
Markham Erickson, Open Internet Coalition:
This issue has been under debate since 2005 when the Supreme Court issued its Brand X ruling. The previous Republican-led FCC engaged in ad-hoc enforcement in the Comcast case. To suggest this is a radical policy u-turn is simply incorrect.
The Internet existed for more than 25 years under a neutral regime. During that time, a national data network was built out by telcos and cable providers, despite a neutrality requirement. To suggest that a return to that status quo threatens broadband investment is not borne out by experience. In fact, it is critical to investment that this issue be addressed sooner rather than later — further delay in addressing this core policy issue will harm investment flows into new and innovative technologies.
Verizon Wireless and Google this morning surprised the wireless mobile industry when it went far beyond a much-anticipated agreement between Verizon and Google to market smartphones using Google’s Android operating system, and instead seemed to embrace Net Neutrality for unrestricted use of online services on Verizon Wireless’ network. Is this a consumer-friendly about face or a strategic effort to take the wind out of the sails pushing for formal adoption of Network Neutrality regulations?
Today’s announcement represents a complete reversal for Verizon Wireless, which announced opposition for wireless Net Neutrality in September. Tom Tauke, Verizon’s executive vice president of regulatory affairs said then: “We believe that when the FCC reviews the record and looks at the facts, it will be clear that there is no current problem which justifies the risk of imposing a new set of regulations that will limit consumer choices and affect content providers, application developers, device manufacturers and network builders.”
Google and Verizon have been on opposite sides of the Net Neutrality debate for several years now. The phone company spends millions of dollars lobbying Washington to keep Net Neutrality off its back, in direct opposition to Google’s strong advocacy for the consumer-friendly open network rules. One might anticipate a joint webcast between the two companies would be reserved in tone at best.
It wasn’t.
In fact, Verizon Wireless CEO Lowell McAdam and Google Chairman and CEO Eric Schmidt fell all over themselves praising one another, and attacked Verizon’s nemesis AT&T.
McAdam took a shot at AT&T for the recent controversy over their decision to block Google Voice and other Voice Over IP services from working with AT&T’s wireless network.
“Either you have an open device or not. This will be open,” McAdam said.
Schmidt praised Verizon Wireless’ nationwide mobile broadband network, calling it “by far the best in the United States.”
AT&T understood the implication of the partnership between its biggest rival and the super-sized Google and announced it was reversing its decision to block Voice Over IP applications on its network.
Ralph de la Vega, chief executive of AT&T’s consumer wireless unit, said “the iPhone is an innovative device that dramatically changed the game in wireless when it was introduced just two years ago. Today’s decision was made after evaluating our customers’ expectations and use of the device compared to dozens of others we offer.”
That’s a remarkable statement coming from a company that has routinely ignored the wishes and expectations of its iPhone customers for less expensive, higher quality, less restrictive service.
AT&T’s reversal was praised by FCC Chairman Julius Genachowski, who is pushing for adoption of Net Neutrality as part of FCC broadband policy.
“When AT&T indicated, in response to the FCC’s inquiry, that it would take another look at permitting VoIP on its 3G network I was encouraged,” Genachowski said. “I commend AT&T’s decision to open its network to VoIP. Opening wireless services to greater consumer choice will drive investment and innovation in the mobile marketplace.”
Have AT&T and Verizon suddenly realized taking a customer-friendly position of Net Neutrality is better for their corporate image?
Perhaps, but one might also consider the reversals to be part of a strategic effort to demonstrate a lack of need for Net Neutrality rules in a ‘remarkably open and free competitive wireless marketplace.’ Expect to see that line or something akin to it coming from the anti-Net Neutrality lobbying campaign within hours of today’s events.
AT&T has also spent millions on lobbying efforts in Washington to keep Net Neutrality and other telecommunications legislation at bay. The prospect of a sudden role reversal for two of the biggest spenders on influencing public policy would be remarkable, if it actually happened for consumers’ sake.
Verizon Wireless & Google Joint Webcast — October 6, 2009 (18 minutes) You must remain on this page to hear the clip, or you can download the clip and listen later.
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