An empty promise: the telecommunications industry's deceptive and manipulative business practices in the grandfathering of wireless unlimited data.

• Author: Vo, Linda

1. INTRODUCTION

   For industries that provide everyday services to vast consumers, building and maintaining a loyal customer base is fundamental to the success of a business. (1) Over the years, many businesses have used the grandfathering of services and programs as a temporary strategy to achieve this objective of customer loyalty. (2) Grandfathering is the business practice of allowing preexisting customers to retain their previously subscribed services, which are no longer being offered to new subscribers. (3) With the turn of the twenty-first century, wireless service providers have adopted and practiced this business model by grandfathering unlimited data plans, giving rise to one of the most contentious consumer topics today. (4) Large telecommunications companies, such as AT&T and Verizon, have been phasing out their highly coveted unlimited data plans to the dismay of their preexisting customers, leading to much legal discourse. (5)

   This Note will demonstrate how the business strategy of grandfathering services is achieved through the deceptive use of vague and ambiguous contractual language, which allows corporations to fluidly and unfairly manipulate their terms of service. (6) Part II of this Note first traces the general history of grandfathered services that lead up to the present grandfathering of wireless unlimited data plans. (7) Part II will then continue to explore the historical context of telecommunications corporations and its transformation from a monopolistic to an oligopolistic controlled industry. (8) Part II.C profiles case law that arises from disgruntled consumers in regards to their grandfathered services and programs, with a focus on consumer protection issues that arise with the intervention of federal regulatory agencies on behalf of consumers. (9) Part III sets forth the circumstances that lead up to the current issue of the phasing out of grandfathered unlimited data plans discussed in this Note. (10)

   By highlighting the manipulative and deceptive contractual language and service terms of agreements, Part IV demonstrates how the telecommunications industry unfairly phased out and/or terminated their grandfathered services and programs. (11) Part IV finds connections as to why businesses offered grandfathered services and programs by analyzing the business purposes as to marketing and strategy. (12) The analysis sheds light on the telecommunications industry's unfair and deceptive practices to phase out grandfathered services, which closely mirrors a bait and switch scheme. (13) Furthermore, the analysis examines how vague contractual language protects these companies but also renders them liable to their own terms and conditions, while observing consumer protection implications. (14) Part IV will then present proposals of possible solutions to these problems. (15) Part V advocates for a more progressive approach to protect consumers against corporate bullying with statutory governance of grandfathered services to eliminate the corporate manipulation of contractual language and deceptive business practices. (16)

2. HISTORY

   1. General History of Grandfathered Services

      Grandfathering is a common business practice used across various fields of industry. (17) A grandfather clause creates an exemption based on preexisting circumstances. (18) Formerly, however, the term 'grandfather' originated from late United States nineteenth-century legislation and constitutional amendments to voter registration requirements, which included literacy tests, poll taxes, and residency and property restrictions. (19) Some Southern states created exemptions, coined as 'grandfather clauses,' to these registration requirements for individuals whose ancestors or 'grandfathers' had the right to vote before the Civil War. (20) Today, statutory grandfathering continues to be utilized.

      In healthcare law, the Patient Protection and Affordable Care Act of 2010 ("Affordable Care Act" and/or "ACA") provided a "grandfather rule" for preexisting consumers to retain their current healthcare plans before the law took effect. (21) Experts and scholars in the field, however, have predicted that healthcare insurance plans are unlikely able to keep their grandfather statuses for much longer. (22) Federal regulations governing the Affordable Care Act establish strict guidelines for healthcare plans to retain grandfathered status. (23) These unrealistic requirements are practically impossible to meet, such that most plans are likely to forfeit grandfathered status. (24) "The [Obama] Administration acknowledges that grandfathered plans will likely cease to exist within a few years of ACA's enactment, but assures us that we will not notice the change or will prefer our new ACA plans anyway." (25) The Affordable Care Act's grandfather rule specifies that preexisting plans will not be terminated, but it does not guarantee that grandfathered plans will remain unchanged. (26) Beyond health insurance, grandfathering has extended from statutory to contractual implementation, such as is the case with wireless unlimited data plans. (27)

   2. Historical Context of Telecommunications Corporations: Monopoly to Oligopoly

      The Telecommunications Act of 1996 (28) deregulated markets that previously had largely been regulated by the government since the inception of the industry. (29) Prior to this shift in market structure in 1996, modern telecommunications networks had been heavily regulated by state and federal governments. (30) Although dually regulated, the pre-1996 telecommunications industry was a unified telephone market with only one major provider, the Bell System. (31) The interstate governance of telecommunications fell under the Communications Act of 1934. (32) Because of Bell System's monopoly over the industry, the Communications Act of 1934 did not foster competition in the market at the time. (33) This lack of governance over Bell System's monopolistic power led to federal antitrust laws, which were thus used to control the only telecommunications giant. (34)

      In 1982, the communications market began to open up, splitting into two markets. (35) Shifting from a dependent subsidiary to standalone, the Regional Bell Operating Companies were spun off of the telecommunications giant AT&T. (36) This meant that AT&T now became a single competitor in the telecommunications market, in which it no longer held any competitive advantage over other interstate carriers. (37) After this initial split, the telecommunications market only continued to expand and diversify, gradually transforming into the highly competitive structure that exists today. (38)

      With the advancement in technological capability and rise in popularity of smartphones in recent years, access to data has evolved from a privileged product to an everyday necessity. (39) To fulfill this network demand of wireless data, telecommunications companies have had to compete against one another by offering appealing wireless data plans to attract consumers. (40) From this spur of competition, the "unlimited data plan" was born, quickly becoming the ultimate commodity in everyday technology. (41)

      Currently, only Sprint and T-Mobile, out of the "Big Four" networks, still offer unlimited plans, which expand beyond data to include talk and text. (42) Sprint offers cheaper options between the two cellular service providers, with a monthly rate of either $70.00 for unlimited access compared to T-Mobile's $80.00 monthly rate. (43) With the launch of the iPhone 6, however, T-Mobile bested its competitors and stole customers from all of its rivals. (44) Meanwhile, the other two "Big Four" networks Verizon and AT&T have alternatively allowed preexisting customers to grandfather their unlimited data plans. (45)

   3. Current Case Law and Legal Discourse

      Unfortunately, as all good things must come to an end, wireless carriers have begun to phase out these grandfathered services, leaving the few fortunate preexisting customers anxiously awaiting the seemingly inevitable termination of their unlimited data plan subscriptions. (46) The phasing out and termination of grandfathered unlimited data plans have left many loyal subscribers disgruntled, leading to numerous law suits. (47)

      1. Contractual Disputes

         Upset over these wireless networks' unfair terms, consumers have brought several lawsuits and class actions against telecommunications companies regarding the ambiguous contractual language used in their wireless service contracts. (48) In one such case, consumers filed action against Apple and AT&T involving misleading advertisements and service contracts of unlimited data plans that were specifically designed for Apple's 3G-enabled iPads. (49)

         In the case of In re Apple and AT & T iPad Unlimited Data Plan Litigation, the plaintiffs asserted several claims against the defendants for breach of contract, including: "intentional misrepresentation, false promise/fraud, negligent misrepresentation, and unjust enrichment." (50) Plaintiffs allege that the tech giant and wireless service provider perpetrated a classic "bait and switch" fraudulent scheme in their marketing and sale of the iPad tablet bundled with the select unlimited data plan. (51) In 2010, Apple began selling 3G-enabled iPads with AT&T as its exclusive 3G data provider, which offered two data plan options, including unlimited data for $29.99 per month. (52) With Steve Jobs pushing consumers to subscribe to the unlimited data plan, Apple and AT&T teamed up to exclusively offer an attractive unlimited data plan for the new data-enabled iPad devices. (53)

         The unlimited data plan, however, was only made available from April 30, 2010 to June 7, 2010, on which date the telecommunications company announced that it would no longer provide an unlimited data plan option. (54) This short time period reflects approximately only one month for consumers to subscribe to the unlimited data plan. (55) With such a short time frame, it can be...