A new way to compromise: an analysis of the FCC, CTIA, and Consumers Union bill shock compromise and its application to cramming.

• Author: Friedman, Matthew
• Position: Cellular Telecommunications, Internet, & Wireless Ass'n

TABLE OF CONTENTS I. INTRODUCTION II. HISTORY OF COMMISSION PROTECTION OF WIRELESS CONSUMERS A. Pre-Genachowski Commission Regulatory Approaches 1. Chairman Kennard 2. Chairman Powell 3. Chairman Martin B. Regulatory Actions and Philosophy of the Genachowski Commission 1. Bill Shock 2. Cramming 3. Improving Consumer Education and Access to Information III. ANALYSIS OF THE BILL SHOCK COMPROMISE A. The Commission's Authority to Impose the Rules Proposed in the Bill Shock NPRM is Questionable at Best B. The Bill Shock Compromise is Too Regulatory in Nature and Does Not Adequately Resolve the Consumer Harms that Exist 1. The Wireless Industry Agreed to the Bill Shock Compromise Because It Was More Costly to Not Reach a Compromise and Not Because the Compromise Was Good Policy 2. The Compromise is Unnecessarily Paternalistic, Inadequately Allocates the Costs of Compliance, and Will Ultimately Lead to Increased Costs for Wireless Consumers 3. The Compromise is an Example of Regulating for Regulation's Sake that Does Not Adequately Address the Harms to Some Wireless Consumers C. Commission Action in Response to Bill Shock Should Have Focused on Deregulatory Solutions that Are More Narrowly Tailored to the Harms Found 1. The Commission Should Have Taken Enforcement Action Against Unjust and Unreasonable Carrier Behavior Through the Rules and Mechanisms Already in Place 2. The Commission Should Have Focused More on Adopting Policies Aimed at Working with Industry to Take Advantage of Usage Tracking Tools Already in Place and Increasing Consumer Access to Information IV. APPLICATION OF THE BILL SHOCK COMPROMISE TO CRAMMING V. CONCLUSION I. INTRODUCTION

This article will address the question of what amount of regulation is appropriate to protect consumers of commercial mobile radio services ("CMRS" or "wireless"). Specifically, it focuses on the recent compromise between the wireless industry, Consumers Union, and the Federal Communications Commission ("Commission" or "FCC"), which stemmed from the Commission's "bill shock" proceeding, and the viability of Commission-industry compromises as a future regulatory tool for protecting wireless consumers. Ultimately, the article concludes that the bill shock compromise is bad policy because it places substantial burdens on the wireless industry and fails to properly allocate the costs of compliance, which will lead to unnecessary costs for consumers. Instead, the Commission should have focused on enforcement against unjust and unreasonable carrier behavior for which the Commission already has authority. The Commission should have adopted policies that are aimed at working with industry to increase consumer choice and access to information, and narrowly tailored its solutions to concrete harms. While this paper concludes that in the case of bill shock, the comprise was bad policy, it nevertheless makes the argument that this style of Commission-industry compromise could be a useful regulatory mechanism for protecting consumers on issues such as cramming--as long as the outlined industry commitments are narrowly focused on the issue of informing and educating consumers.

In order to get a sense of past Commission actions, Part II of this paper first discusses the regulatory approaches and strategies relied on by prior Commissions to protect wireless telecommunications consumers. Second, it examines the regulatory philosophy of the Commission under Chairman Genachowski with regard to consumer protection. This discussion focuses primarily on the series of Commission actions regarding the issues of bill shock and cramming that culminated in a compromise where the wireless industry agreed to provide free and automatic alerts to consumers when their data, text and minute usage approaches and reaches capped levels. In Part III, the article analyzes whether the bill shock compromise is a wise policy mechanism for protecting wireless consumers from the harms of bill shock by examining whether these perceived consumer harms are actual harms, whether the costs of compliance were distributed efficiently, and whether the compromise will effectively remedy the consumer harms that do exist. It concludes that the costs of the compromise outweigh the benefits and therefore it is not a good policy. Finally, Part 1V considers the merits of applying a similar Commission-industry compromise solution to the Commission's pending bill cramming proceeding and finds that such an approach is advisable to the extent that any actions required by industry are narrowly focused on informing and educating consumers.

2. HISTORY OF COMMISSION PROTECTION OF WIRELESS CONSUMERS

   The Communications Act of 1934 ("the Act"), as amended, created the Commission and authorized it, under Title II, to regulate common carriers and ensure that "[a]ll charges, practices, classifications, and regulations for and in connection with such communication service, shall be just and reasonable...." (1) Throughout its history, the Commission has relied upon Title II and other authority to take measures to protect consumers, although its philosophy regarding the proper amount and breadth of the regulations has varied over time. An examination of previous consumer protection policies and regulations utilized by the Commission is helpful in determining the merits of the Commission's bill shock compromise under Chairman Julius Genachowski. This examination will provide meaningful information regarding the state of the wireless regulatory environment when the compromise was reached, as well as highlight the successes and failures of past approaches from which lessons can be learned.

   1. Pre-Genachowski Commission Regulatory Approaches

      Since the passage of the Telecommunications Act of 1996 ("the 1996 Act") and the rollout in 1998 of the "bucket of minutes" concept that dominates the post-paid wireless marketplace today, four individuals--two Democrats and two Republicans--have been nominated by the President, confirmed by the Senate, and served as Chairman of the Commission. (2) The structure and extent of the policies and regulations implemented by the Commission have been intricately linked to the regulatory philosophy and political affiliation of the Chairman who adopted them. Accordingly, past consumer protection actions are best examined in light of the Chairman implementing them.

      1. Chairman Kennard

         William Kennard, a Democrat appointed by President Clinton, served as Commission Chairman from November 1997 to January 2001, during Matthew Friedman, Attorney, Technology Law Group. J.D., George Washington University Law School, May 2012; B.S. in Physics and Political Science, Muhlenberg College, 2007. The author would like to thank Natalie Roisman for her guidance in connection with this article and the staff of the Federal Communications Law Journal for their work in helping prepare it for publication. He also thanks his mom and dad for their endless encouragement and support. the implementation of the 1996 Act. (3) Although he is a Democrat, and might have been expected to have a more regulation-oriented philosophy, Chairman Kennard stressed that "[a] business solution to a business problem is always better than a regulatory solution to a business problem," (4) and according to the Commission itself, he "shaped policies that created an explosion of new wireless phones." (5) However, Chairman Kennard's deregulatory philosophy was not unbridled. He considered protecting consumers to be one of six key responsibilities of the Commission in the post-1996 Act regulatory environment, (6) and acknowledged that "not all competitors are scrupulous, and not all means of garnering competitive advantages are fair to consumers, especially those consumers who are used to obtaining telecommunications services from regulated monopolists." (7) In implementing policies to protect telecommunications consumers, Chairman Kennard focused primarily on the issues of cramming--which involves unauthorized, misleading, or deceptive charges on a consumer's telephone bill--and truth-in-billing. The Chairman's efforts established the regulatory base that eventually led to the bill shock compromise. (8)

         During a meeting convened by Chairman Kennard in May 1998, local exchange carriers ("LECs") and providers of billing and collection services worked with the Commission to address the problem of cramming. (9) Following the meeting, the Commission promulgated a voluntary code of "best practices" designed to prevent the type of charges associated with cramming. (10) The code was not legally enforceable on the consenting parties and only applied to charges by third parties to wireline LECs (not mobile providers) for inclusion on consumers' local telephone bills. These best practices focused primarily on (1) ensuring that bills were complete and comprehensible; (2) ensuring that consumers had the information necessary to discuss or dispute charges; (3) providing consumers control over whether or not a third party's products and services are charged on their telephone bills; and (4) establishing procedures for screening products, services, and service providers prior to approval for inclusion on a bill. (11) Further, the Commission educated consumers about the importance of reviewing their telephone bills and provided assistance with understanding these bills. (12) Through this action, the Commission, which had processed on average more than 300 complaints each month from consumers claiming to have been crammed, (13) took affirmative, but narrowly tailored, steps. The Commission anticipated that these new efforts would limit unfair or deceptive marketing and billing practices, as well as assist consumers with recognizing improper charges before any payment is made, but would not unnecessarily burden the nascent mobile industry. (14)

         Less than a year later, in April 1999, the Commission took further action to protect consumers in its "truth-in-billing"...