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Do We Need A Bill Of Rights To Protect Us Against Our Cell Phone Service Providers?

 

In 2004, California issued a telecom users bill of rights, Canada passed a consumer bill of rights for home phones, Virginia, and many other states have tinkered with the idea, and have thought about or passed some form of consumer rights. The problem with issuing a new one, is that given the amount of legislature and laws out there already, along with the consumer protection agencies and NGO’s, another “Bill of Rights” not necessarily needed.

 

What is needed is a simple explanation of everything that a consumer pays for when they agree to a contract with any telecom company.  As well, consumers need to know how to handle a dispute with their bill. We are also going to have to deal with the lethargy of users, “just gimme the phone” attitudes, and people that will just not read paperwork. What is probably needed is better salesmanship, with sitting down with the customer at time of purchase and going over the charges, and how much each one does. As well, anyone can read an itemized phone bill that explains many of the charges that appear on a phone bill.

 

We do not need another bill of rights; we need a better way to educate the public, the sales people at the POS terminals, and for consumers to pay attention to what they are really getting.

 

We do need clear explanations of what the consumer is going to get. As well, consumers and business need to have a clearer idea of fair use. That the idea of unlocking a phone from a particular carrier might not be illegal to do. That getting a long term contract means that the phone company is doing a loss leader, and to loose that contract early means that the company will not make as much money if they are discounting the phone, and the service over a 2 year period and the consumer backs out after 90 days. Carrier hopping is nothing new, unscrupulous customers will do these things. Having an early termination fee reduces the risk of the telecom company, not necessarily the burden on the person using the service.

 

If the service is horrific, there are ways of getting the long-term contract shut down, turn in the equipment, and go somewhere else can happen. Without the major penalties that are usually incurred. The penalties are designed to stop carrier hopping, not penalize someone with a lemon.

 

New legislation is not the ideal, any legislation is going to be watered down, and eventually taken to court where it may or many not be struck down. The California legislation is under such scrutiny today, and might be stuck down as exceeding the authority of the state.

 

What we really need is for people to sit down and spend time with the customer, explain what everything means. We also need the customer to actually listen to the deal. It takes an hour to get a cell phone at a store in general. Explaining things to a customer, and making sure they understand (they sign the contract, they should understand what they are signing) what is in those contracts. Not as a way to torture customers, but give them light condensed “readers digest” version of the contract that points out important things, as well as an explanation of the bill. Additionally, telecoms should understand that people can unlock their phones, but those same customers take the risk that the unlocking process might render any updates to the phone unusable. There is a middle ground in this, consumers and telecom companies should see about getting there.

   

It’s honestly surprising that a developed economy such as the United States has such problems, whereas a developing economy such as India (where I reside) has none of these problems. In India, I can buy a phone of my choice, select an initial cellular operator of my choice, use this operator’s service for however long I want to, and terminate this agreement by just issuing a written notice. There are no "fees" whatsoever for terminating my connection. In fact, operators are willing to keep my number idle for about six months in the hope that I might change my mind again. Later, if I come back, they are more than happy to waive away any reactivation charge. Customer service is adequate and billing is spot on.

All of these are possible because the regulator TRAI (Telecom Regulatory Authority of India) keeps a hawk’s eye on the cellular service providers. While operators are free to lower prices, any hike in price for any service is closely scrutinized by TRAI. And if deemed unfair to the consumer, the operators are ordered to roll back prices. In some instances, TRAI has been proactive in forcing operators to eliminate monthly charges for roaming services, activation charges for data and other value-added services -- all for the benefit of the consumer. In spite of all these measures, competition for new subscribers is healthy and the incumbent telecom operators are in fact gearing up to bid for fresh spectrum in newly opened up telecom circles.

There are no laws as such. But an empowered regulator -- who keeps the end user’s best interests in mind -- is more than adequate. If the presence of such a regulator works for 250 million subscribers here, there’s no reason why it shouldn’t work in the United States as well.

The FCC is the right organization that can also double up as a market regulator. But is the FCC with its current crop of policy makers in the right position to be a market regulator? Perhaps not. Till this can be remedied, I see no other option but to have a Bill of Rights.

The Bill of Rights could be a first step in the right direction -- try and set a few of the major deficiencies right. But the inherent -- and fundamental -- problem with such bills is, where do you draw the line between what is right and what is wrong? After all, what seems right for today’s market and consumers may seem wrong in tomorrow’s market? It’s not possible to keep altering the bill every now and then without becoming embroiled in bureaucracy. Ultimately, such Bills of Rights don’t serve in the best interests of the consumer in an ever changing market.

I’d recommend the establishment of an empowered regulator -- one not open to lobbying -- as being the most beneficial move for consumers.

Regulation, any way you slice it, is a hot issue in the USA. The nation prides itself on being a "free market" and most people are anti-regulation, all things being equal. But the last time all things were equal was before the Big Bang. People are constantly pro-regulation, so long as it's done on their terms. Telcos - major proponents these days of "free markets" don't have much of a problem with regulated spectrum and their right to have monopoly use of those frequencies. Fact is, no society can function without some measure of regulation, and all its sordid side effects.

Telcos and other industry heavyweights often like to argue that regulation is not needed because the industry is (as we speak) working on self-regulation and standard practices. But I've found that most of these "self-regulation" efforts come only on the heels of a credible impending regulation, and they are designed to be preemptive strikes to take the steam out of the regulation effort. As such, they are often good results, but are hardly self-imposed. And enforcement becomes a major issue.

In economics we learn that consumer-protection regulation is not needed in a perfectly competitive market. Suppliers will shift their services to meet what consumers want in a way where the price equals the cost. Is this wireless telecom?

Carriers, for their part, argue that their market is "fiercely" competitive, and that such things as a Bill of Rights are completely unnecessary. The problem is, that's untrue. While carriers compete aggressively on the basic measure of 'bundle of minutes/monthly fee', their market actually bears more resemblance to a comfortable oligopoly than a "fiercely" competitive playing field. That's because they don't compete on a few dozen other important metrics, since the devices, plans, and bundles are already so confusing that shoppers are overloaded and can't make informed decisions. For example, wireless carriers gouge users for International Long Distance calls, charging up to 75 cents LD fee to call Canada per minute, where Skype can somehow do it for 2 cents. Is their margin in 75 minus 2? In "fiercely competitive markets" those margins should get whittled down to zero. So, carriers compete on the basic plan, but then function like oligopolists who gouge on: roaming, data packages, ringtones, SMS (10 cents for 160kB of data!!), activation fees, ETFs, fees, fake taxes, overages, accessories. It's almost a bait and switch -- you are lured in with the cheap bundle, and then you are 'pwned' for the next 2 years (Yeah, pwned. Look it up.)

Given the above, I think there is some reasonable desire for a national Bill of Rights (BOR). In fact, this BOR could help carriers communicate more clearly, and compete on more levels than the current (painful to them) level of just price per minute. The main thing a NATIONAL BOR could do for the carriers is protect them from a spate of State-level regulations, such as those proposed by California. The costs and inequities posed by doing this at the state level, for what is clearly a national and transportable service is ridiculous.

One of the key things I would like to see in a National BOR is something akin to what credit card companies are required to disclose in a series of boxes on their promotional material. It is a set of standard information that helps a consumer actually compare one provider against others, apples to apples. That's fair competition. And anyone who claims to be a "free marketer" should at least agree that increased competition, and clarity in competition can only be a good thing for society.

Based on the above paragraph, you might be getting the gist of where I am going with this. What I would prefer is regulation that required clear and obvious disclosure of carrier policy in a tabular format that allows customers to make informed choices. Right now, telcos can bury information that is important to customers in lengthy, legalese Terms of Service Contracts. I want more clarity and disclosure. If this were required, then competition would start to move the carriers in the directions desired without as much heavy-handed regulation. The carrier that charged high ETFs would be free to do so, would have to disclose that, and it would be readily apparent to shoppers which telcos did, and which didn't.

There is also a laundry list of things that should be on this disclosure form, such as ETFs, International calling rates, International roaming rates, TRUE coverage maps, handset subsidy paid, cost per minute of use, cost per megabyte of data, cost per SMS. And there are likely many more that could be dreamt up in a brainstorm session, but the list should also be reduced to those most important factors so as not to grow too cumbersome.

Some other issues that SHOULD be required by regulation across all 50 states include:

• a 30 day Easy Out in case a customer find out the service just doesn't work in the locations that are critical to them
• Inbound roaming price caps. The EU is doing this across its members. What happens when a user of telco A roams into the country of telco B is that B typically gouges A's customer, and A just passes along the price (and has the gall to mark it up, too). While competition and clarity can address the markup that A charges its own subscriber, it CANNOT reduce the incentive of B to gouge all A visitors. This has the effect of making traveling with a cellphone prohibitively expensive such that many people simply don't do it. That destroys utility, erases consumer and vendor surplus, and lowers the net social benefit. Regulation is needed to prevent US carriers from doing it to foreigners, and Trade departments should work towards reciprocal deals.
• Handset locking. Ha! The Librarian of Congress has offered an exemption for unlocking from the DMCA! What a farce, and what a clear jab at the notion that this country is about free markets. I hate SIM locking. Even Belgium has realized that it is an anti-competitive move, and passed a law against the telcos locking phones EVER. Meanwhile, in the land of the free, we're considered lucky if we're not criminalized when we manage to hack OUR OWN PHONE. Carriers already lock us into long contracts with ETFs to amortize the investment they made in the phone subsidy. Fair enough, I say, which is why above I explain that ETFs are fair contracts that simply need to be disclosed better. But to sell me a phone in return for a 24 month commitment, and then to also lock it on me...damn. There ought to be a law!
• Fixing of billing errors. Carriers should have a certain set of standards for fixing billing errors within a reasonable time frame
• Fees as taxes. Carriers should be forbidden to hide normal costs of doing business as regulatory fees. Such as the time Sprint worked their Kansas City property taxes into the phone bills, posing them as some for of regulatory fee. Sure, carriers don't want taxes to appear as price hikes, so they call them out to let you know where it's your government gouging you and not your telco. Fine. But hiding business costs as taxes is tantamount to lying about the real price of the service. Lying is bad.

On the other hand, some of the issues you have raised should not be subject to regulation, such as improving or defining a level of Customer Service, or an acceptable level of Billing Errors. These are things that an executive should be able to prioritize or not, and their business should simply suffer the consequences or enjoy the benefits of their execution. Customer service is expensive, and as just one consumer, I'd just as soon not pay for it. I'd prefer a telco that god rid of this department and saved the money, while you might be different. Let the carriers decide this on their own based on their perception of the market.

Caveat emptor is the only legal advice needed.

The problem is that the users do not understand what agreements they are entering. This is not unique to the cellphone industry, by any means.

Many countries have consumer protection laws which as a (sometimes unintended) consequence have to make sure that users understand what agreements they enter, before they can enter them. This is what a law should do, and this would be useful in a broad reach of businesses, from banking (think morgages) to car leasing. And it would include cellphone agreements.

 Of course, there is a converse here. The companies who are in the cellphone business would not make these agreements so fiendishly complicated if they did not believe this was the best way of making money. In Japan and Europe, "all you can eat for 99 dollars a month" (or whatever applicable currency) are now becoming standard, and this is very hard NOT to understand. The US cellphone industry, by persisting with complicated contracts, probably believes they can squeeze more money out of the customers using them (or they just continue because they have not tried to change). There is also a huge sunk cost, and established business practice, in the current billing systems. It takes courage to throw them out, and in the face of quarterly results, a cellphone executive is not likely to become desperate until his customer base starts shrinking. And it will not until users start moving away from the complicated contracts.

Hope this helps

//Johan 

 

Can you hear us now Wireless Carriers!?!

As a life long free market capitalist, I have to question just how screwed up an industry has become when I cheer the thought of new government legislation to “regulate” business practices. Yet that's exactly where US consumers find themselves as state and federal representatives consider vesting a “Cell Phone user's Bill of Rights”upon mobile providers.

Whether its a great awakening of consumer awareness that we have been pushed too far by greedy monolithic wireless carriers, or the feverish crescendo of pain users are expressing over all things iPhone – Politicians are taking an interest in the idea of new wireless regulations. As state houses and capital assembles around the country begin to debate measures to protect constituents you can be certain that cell providers are watching with great interest.

How did we get here?

While it feels like it's been an over night transition, this nexus of user frustration toward wireless companies and said companies' desires to bulk up their bottom lines has been coming for some time. Think back – circa 1990s; In the past cell phone adoption in the US was viewed as a business expense or the purvey of high-end “luxury” and “geek” markets. Subscriber penetration was lower, but usage costs were generally higher due to heavily metered plans and punitive roaming polices. Fast forward to the present, how the marketplace has changed. Cell phones in North America are so pervasive that many consumers opt to cancel traditional residential land-lines, preferring instead the convenience of full-time mobile usage. Team home phone replacement with ubiquitous family plans and it's normal now to see such proliferation of phones that practically every eight year old is talking/texting away.

This drastic increase in the number of mobile devices has done more than just multiply the number of area codes we need, it's been a financial field day for likes of Verizon, AT&T, Sprint, T-Mobile, etc. Thanks to rapid user growth and the addition of consumer features like ringtones, gaming downloads, music, and texting carriers have snared the masses, now how to keep and fully exploit these subscribers?

Hello, some service would be nice!

Has anyone every truly had a positive customer service experience with their provider? Really I would like to know, seeing as anytime I walk into a local company store to get help with my device or plan, I usually see the heard of bewildered looking, discontented people waiting in a 30 minute plus line to talk with a rep and turn around and walk out. Later, when I still need help and call the tech support group – and wait that same 30 minutes – I get someone ten time zones away struggling to read an English “support script” that does not address my issue, only to be told that I will need to be elevated to second level support and they will call me back in 4 hours. Or perhaps you need account billing help to get clarification on erroneous charges you have on a statement, only to be told those are not false charges but some “fee” that was not clearly disclosed at the time of purchase.

The examples go on and on, but the problem is obvious and remains unchanged – Cell providers really don't care. Which leads us to our next point: do you think you are going somewhere?

“Help – I'm locked in.. and I can't get out!”, of my plan that is.

Boat owners are familiar with the axiom – The “best day of your life” is both the day you buy your boat and the day you sell it! The same might very well be true of the relationship many have with their cell providers. Arguably, the single greatest factor contributing to mobile user angst these days is the discovery that you've been locked in. Locked in by a multi-year contract with early termination fees or the realization you posses a handset that is locked exclusively to one provider.

But these business practices should come as no surprise, as they serve the wireless companies' best interest. By locking users into both their network and contract they mitigate subscriber churn. Considering the much heavier saturation of current US subscribers The last thing your carrier wants is for you be able to actually change or terminate service.

An Intervention is Required

So then the dye has been cast and the course certain – A federally mandated cell phone consumers bill of rights is destined to be made law? Not so fast. As with all things in politics a simple issue can quickly become clouded.

While consumers certainly have reason to be all worked up, demanding change is a good start, but what should the remedy be? Here are a few key points any Wireless Telco Act should tackle.

1. Say what you mean, and mean what you say. Whether is is confusing contracts or sales/service reps that change their story depending on who you talk to – it needs to be clear, concise and concrete.

2. End phone subsides and the contracts that result. This is good for carriers, manufactures and consumers: Carriers get the cash upfront for the phone, Handset makers don't have to sign exclusives with just one provider, and Consumers, having already paid for the phone out of pocket, are not subject to a contract or termination fees.

3. Ensure Phone portability – not just number portability. As much as possible the great divide of phone and network lockins needs to stop. If I buy a CDMA network phone from Sprint and want to switch to Verizon I should be allowed to do this. The same would be true for say AT&T and T-Mobile (Yes, I'm talking about the iPhone!)

4. Simplify Pricing/Service Options. Enough with the endless options already! Some strides are being made in this area by MVNOs like “MetroPCS” with a flat price for all that calls/txt/data you want at one price. It's not that you can't have tiers of service, but most consumers are just confused with billing plans and complex up charges.

It's better to be Feared, then Loved.

I'm not sure how Machiavelli would have come down on the question of a mobile users bill of rights, but to barrow from him, his concept of using fear as a motivator might be just what wireless providers need – and that fear is being provide courtesy of pending legislation. Maybe that fear of action is just what the market needs. Let's face it, codifying this type of legislation will take time – time that carriers have to enact positive changes.

This is the most likely outcome; Congress will stall long enough for a consortium of carriers to sign onto a self policed “Bill of Rights” - not an all bad outcome, as long as there is meaningful change in the practices as outlined above.

“I can't hear you – must have a bad connection”

Other option is that the industry will continue to turn a deaf ear to the problem and ignore their customers. Bleak as this may sound it's not unprecedented; look at the upheaval in the long distance market due to disruptive technologies like VOIP.

This much is certain, customers are frustrated and if action is not taken more and more will resort to “hacking” solutions like we have seen with the iPhone. But that's a story for another column...

Consumer Action Makes For Consumer Protection

Legislators love to protect consumers, especially from unpopular and unloved businesses. It is an irony that the sector that has done so much to revolutionize communication - wireless service providers - has done such a poor job of communicating a positive image. But being unloved is not the same as being bad or treating customers unfairly. And choice enables customers to punish poor service. So why do legislators think they need laws to reinforce the job of contracts and competition?

How much does it cost?

Nobody likes to buy something then find out it costs more than expected. Telcos are in the business of making the headline prices of their products look good, whilst making their money elsewhere. This is nothing new in business: many products get sold at a loss on the prospect of making fat profits from associated sales. The solution is also pretty simple. Customers should only agree to tariffs that they understand. Legislation aims to make all prices straightforward so everyone can understand them. But if customers refused to buy into tariffs they did not understand, then legislation would be irrelevant.

Terminating a Contract

The old phrase is that a deal is a deal. Early Termination Fees (ETFs) are sometimes treated like they are unfair punishments. That might be true if customers did not know that they signed contracts that lasted for a certain period of time. The fact that they last some time is important - it means that the up-front costs of providing the service can be spread across the duration of a contract. Pretending that there are no up-front costs would be a fiction. Spreading the cost is a kind of financing deal. Customers can avoid the pitfalls of ETFs by picking products that avoid the spread by having higher costs at the beginning, and shorter contractual tie-ins.

Handset Locking

The uproar about unlocking iPhones shows how sensitive this topic is. Again, the issue is about whether prices are transparent to customers. Locking is key to restricting a customer's freedom, but is a reasonable exchange for a handset that would otherwise be more expensive. Hook-ups between operators and handset manufacturers are pivotal to keeping costs down and creating a compelling proposition where handsets and networks work properly together.  Trying to uncouple the two is perfectly sensible from the customer's perspective.  But if all handsets were sold unlocked, then prices would be higher, which may not be so attractive.

Competition Does Not Work, But Nor Does Intervention

So why do customers regularly feel cheated?  Poor service, obstacles and penalties for changing suppliers, broken promises and hidden fees are routine causes of customer dissatisfaction.  Regular and constant complaints tells its own story about how pleased customers are with the service they get.  When telcos made it hard to complain, or make insufficient effort to listen, that exacerbates the frustration.  But part of the problem is really very straightforward - wireless communication is such a compelling sales pitch that many people would buy it regardless of poor quality services and poor treatment by their supplier.  Complaining about ETFs and handset locking is like complaining that Ford Model T's only came in black.  Like the first mass-produced automobiles, cellphones have such a dramatic impact on our lifestyle that most inconveniences are pretty trivial compared to the advantages.  Which is why people buy them regardless of the poor treatment of each and every supplier.  Which in turn is why competition is not enough of a spur to improve performance.  However, it is specious reasoning to think legislation is the key to better service.  More transparent pricing may benefit the unwary customer, but is unlikely to cause telcos to cut prices or lower their expected returns, so transparency is hardly likely to lead to lower bills.  Flexibility may be great for customers, but may be less loved if the cost of flexibility is transparent.  So legislators want to have their cake and eat it: making rules to address what they do not like, but not answerable for how that benefits the customer in the end.  The most effective form of customer protection is customer action.  But asking customers to challenge their poor cellphone service would be like asking the first automobile owners not to buy their Model T until Ford offered a range of colors from purple to pink.  It sounds like a good idea, but nobody would want to do it in practice.  Getting legislators to intervene may seem like the perfect solution, until you realize that somebody will still have to foot the bills, and the providers will still look for a way to turn a profit and get an advantage over their competitors.  The biggest failing of most providers is that they make promises they do not keep.  Arguably they do that because they have to compete for customers and making promises is their way of attracting customers.  By that logic, less competition would make for better services.  Meaning the services would be no better, but that the expectations would be set lower.  In reality, customers are better off with broken promises and the right to seek redress when contracts are not satisfied.  Much better that than vanilla contracts defined by legislators, which promise the minimum and deliver no more.  That may avoid disappointment, but will not encourage innovation either.  For good reason nobody in government tried to make Ford sell his cars in pink; where the customer cannot exert enough influence, then government intervention will probably flatter to deceive.

Part I:     Yes we do need a Cell Phone Bill of Rights!

The cell empowerment act of 2007 is a wonderful template to provide legal remedies and force changes in an industry that has been plagued by overcharges, abusive or ineffectual support, and poor service.   Here are features of that act, plus a few more to improve the effectiveness of this legislation:

Cut early Termination Fees.   
A good idea. It is reasonable to charge a modest fee to cover handset expenses, but not the "2 year lock ins".

Provide Service Maps: 
Detailed mapping of service areas is needed that includes a call quality feature.   Roaming charges can be hazardous in rural and even some city service areas, and these maps should clearly show cities where "coverage" will involve extra charges and how much these charges are likely to be per minute of use.

Fee Disclosure:
Must be clear and detailed.    Generally this type of disclosure needs a "simple" version as well as the detailed legalistic version.  Cell phone companies have very masterfully hidden fee structures using legalistic mumbo jumbo or simply overwhelming customers with fine print.

Contract Disclosure: 30 days to cancel any contract, better contract summary statements.

Unlocked Phones:  Simple - cell phones cannot prohibit unlocking.

Military Exemptions:  Duh, it's the least they can do to support those serving the country. 

------  I would also add these features to the bill -------- 

Ringtones:  This extremely abusive market preys on the gullibility of youngsters who often "stick" their parents with charges that are unauthorized.    Mandate that all "extra service" charges must be agreed to in writing or via a secure website using billing ID, and can only be authorized by the person paying the phone bill.  Also mandate that any offers using the term "free" must provide a full refund within 30 days regardless of service use.

Roaming:   Roaming alerts will be a default feature, and unless the customer overrides these they will alert customer to the roaming rate before charges are applied.  Customer can choose to cancel the roaming call after the alert.

Dispute resolution:    Mandate refund of disputed items until an unbiased third party review determines the correct charge.   (not sure how to fund this feature though!)
 
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Part II:    No way - don't try to legislate the Cell Phone Market! 

The challenges of the Cell Phone market need innovative solutions, not legislative ones.   In this highly competitive and cutthroat market adding even more regulatory burdens will increase costs to providers who are already reeling from the expenses in this capital intensive market.  This in turn will lead to much higher costs to consumers.  

Rather than a "Bill of Rights" we simply need to broaden the technology to assist customers with their cell phone problems as well as bring better service and more services to customers.   For example provide extensive online coverage mapping information.  For data enabled phones provide these detailed coverage maps via mobile mapping applications like Google maps, and use mashups to help users identify calling infrastructure in their region either online or on their phone.

Rather than waste money legislating complex requirements, use those resources plus some the companies will chip in thanks to savings from alleviating the burden on call centers to fund an unbiased "ombudsman" department that will assist in dispute resolution.   Leveraging internet efficiency will allow a small staff of ombudsman to handle thousands of daily disputes quickly and effectively.    Logging this activity will allow companies and customers to review and fix problem areas far more effectively than "forced" legislative solutions.