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Are Wireless Providers Destined for State Regulation?
By Jonathan Marashlian |
This is a question that plagues the burgeoning wireless telecommunications
industry now more than ever. Over half of all Americans currently
use wireless telephone services, either as subscribers or users
of prepaid wireless devices. And recent reports show that one in
ten adults have cut the cord on their landline telephone service
entirely, choosing instead to use wireless as their sole means of
telephony. The exponential growth of wireless services over the
last decade has not gone unnoticed by state regulatory bodies, and
the transition from a wired world to a wireless one could soon lead
to another trend… increased regulation by the states.Once
upon a time, wireless providers believed they were relatively immune
to the long arms of state utility commissions, Attorneys General
and other state agencies. This belief was not wishful thinking,
but was grounded in the idea that Congress had actually preempted
the states from having broad authority to regulate wireless telecommunications
through Section 332(c)(3)(a) of the Federal Communications Act,
which says:
“no State or local government shall have any authority to
regulate the entry of or the rates charged by any commercial mobile
service or any private mobile service…”
However, this passage from Section 332, coupled with the laissez-faire
approach to regulation taken by virtually all states during the
developmental years of the wireless industry, gave false comfort
to many because finishing the sentence in the statute reveals that
Congress specifically reserved to the states vast authority to regulate
wireless communications:
“…except that this paragraph shall not prohibit a State
from regulating the other terms and conditions of commercial mobile
services.”
Not only did Congress reserve to the states the authority to regulate
“other terms and conditions” of wireless services, it
also specifically provided states the ability to exact universal
service contributions from wireless providers, if certain market
conditions existed:
“Nothing in this subparagraph shall exempt providers of commercial
mobile services (where such services are a substitute for land line
telephone exchange service for a substantial portion of the communications
within such State) from requirements imposed by a State commission
on all providers of telecommunications services necessary to ensure
the universal availability of telecommunications service at affordable
rates.”
And last, but not least, Congress provided states with the opportunity
to petition the Federal Communications Commission for authority
to regulate wireless rates and potentially market entry:
“Notwithstanding the first sentence of this subparagraph,
a State may petition the Commission for authority to regulate the
rates for any commercial mobile service and the Commission shall
grant such petition if such State demonstrates that –
(i) market conditions with respect to such services fail to protect
subscribers adequately from unjust and unreasonable rates or rates
that are unjustly or unreasonably discriminatory; or
(ii) such market conditions exist and such service is a replacement
for land line telephone exchange service for a substantial portion
of the telephone land line exchange service within such State.”
Although it has not happened to date, given the ever increasing
substitution of wireless for wired telephones and flood of consumer
complaints, of which many pertain to rates and billing, could it
be much longer before a state commission boldly asks the FCC for
market entry and rate regulation authority?
Already halfway there
In 2003 and 2004, the National Association of Regulatory Utility
Commissioners (NARUC) passed multiple resolutions addressing concerns
about wireless services and pressured wireless providers to address
the causes of rising consumer complaints before more state action
is required. These threats are already being realized in several
states.
Currently, 24 states have explicitly asserted their jurisdictional
authority to address consumer complaints and other consumer protection
issues. They are: 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 declare they are not imposing
regulations on market entry or rates, they do handle wireless consumer
complaints, either through their Office of the Attorney General
or Public Utility Commission, or both.
• Public Utility Commissions in five of these states require
all wireless providers to either “register” with the
state or obtain a “permit” prior to offering service;
• Eight impose either annual reporting; collect information
relating to rates, terms and conditions of service; analyze information
collected for annual reporting; publish wireless rate surveys or
require annual revenue reporting;
• Five state utility commissions have actively pursued formal
enforcement actions against wireless providers for a variety of
matters, including 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 911 emergency services;
and
• Two states post current data on the number and type of complaints
filed against certain wireless providers.
And let’s not forget the state Attorneys General, where in
at least 18 states, wireless providers have been sued or investigated
for alleged violations of state consumer protection laws, including
laws prohibiting false and misleading advertising and unfair business
practices.
California dreaming
The most notoriously aggressive state when it comes to asserting
and attempting to expand its regulatory grip on wireless providers
is none other than, you guessed it… California.
In the March issue of The Prepaid Press, “Cutting the Cord,
Wireless boom causing states to rethink “hands off”
approach to wireless regulation,” we described the California
PUC’s “Telecommunications Consumer Bill of Rights,”
which was implemented in May 2004, but whose application to wireless
providers was suspended eight months later. If still in effect,
the Bill of Rights would require wireless providers to:
• Allow customers to cancel service within 30 days of signing
up without incurring termination fees;
• Fully disclose rates, terms and conditions of service on
their Web sites, including for service plans no longer offered,
but currently provided to existing customers;
• Notify consumers at least 25 days in advance of every proposed
change in the customer agreement that would result in higher charges
or more restrictive terms or conditions;
• Limit late-payment penalties;
• Provide toll-free number and other information directing
customers to contact Utility Commission regarding complaints or
disputes;
• Provide description of customer’s privacy rights and
how confidential information is handled;
• Refrain from making deceptive, untrue, or misleading solicitations;
• Use written authorization forms subject to form and content
restrictions; and
• Other bill format, content and disclosure requirements.
We also described how, within one month of the California PUC’s
vote to suspend the rules, state lawmakers in California’s
Democrat-controlled statehouse introduced legislation (SB-1068)
aimed at converting the Bill of Rights into the “law of the
land” in California.
Well, on May 23, 2005, SB-1068 was passed in the state Senate by
a margin of 22-13 and is currently sitting in California’s
General Assembly, where hearings are scheduled to begin July 6,
2005. Whether or not SB-1068 eventually makes it out of the Assembly
may be irrelevant if admittedly pro-business Governor Arnold Schwarzenegger
(R) is called upon to exercise his veto power.
Nevertheless, the regulatory and legislative struggles in California
are representative of the issues states across the country are currently
or will soon be grappling with. There is no turning back the tide
on the explosion of wireless communications technologies and the
ever increasing substitution of wireless telephony for wired telephones
– the genie is unmistakably out of the bottle. And, absent
some legislative or judicial expansion of the preemptive effect
of Section 332 of the Federal Communications Act, it is doubtful
that states concerned with protecting the welfare of their consumers
(and at the same time preserving their gravy train of taxes, fees
and funding that is the regulated telephone industry) will forever
resist the temptation to regulate wireless telecommunications providers.
Jonathan S. Marashlian is partner at The Helein Law Group, LLLP,
a Washington, D.C.-area boutique law firm specializing in federal
and state telecommunications matters. He can be reached at jsm@thlglaw.com.
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