Now Hear This Newsletter, July 3, 2008 Posted by Bob at 07/02/08 01:25 PM

Two issues that could have major repercussions for consumers are now floating around the executive offices of the Federal Communications Commission headquarters.

The first is a proposal recently drafted by the wireless telephone industry involving those maddening early termination fees consumers are forced to pay if they decide to change carriers before the end of their long-term service contracts.

A few weeks ago Verizon Wireless approached FCC Chairman Kevin Martin with a plan to make certain changes in the way the industry imposes the fees – such as some pro-rating of the fees over the life of the contract and moving back deadlines for new customers to cancel their service without penalty.

In exchange, the industry is asking the FCC to take away the regulatory and legal powers over early termination fees that currently reside with the states. That is a huge deal because several wireless carriers are now facing class action lawsuits over early termination fees in state courts that, if successful, could result in billions of dollars in damages. In theory, those lawsuits would go away if the FCC were to preempt the states on early termination fees, as called for in the Verizon plan.

There was a hastily-arranged FCC hearing on the Verizon proposal on June 12, where the agency heard testimony from wireless industry executives, attorneys involved in some of the pending ETF lawsuits, and other stakeholders – including Consumers Union, the publisher of this blog.

Since then, there have been rumors that FCC Chairman Martin is circulating proposed regulations based on the Verizon proposal and might try to get the full commission to take action on the issue as soon as its regularly scheduled public meeting later this month.

Consumers Union is opposed to the Verizon proposal and would be highly skeptical of any new FCC regulations based on it.

Although they are touted by wireless carriers as necessary so they can provide customers with cheaper or free phones, early termination fees are in fact penalties designed to stop consumers from switching companies for better service and better price.

These penalties don't save consumers money as the carriers claim, and they rob consumers of the benefits that an open and competitive market would otherwise bring, according to Consumers Union's telecom policy analyst Chris Murray, who testified at the recent FCC hearing on early termination fees. Click here to read Murray’s full testimony.

USA Today ran an excellent editorial on the issue on the day of the hearing, pointing out the gross lopsidedness of the proposal in favor of the wireless industry.

XM-Sirius Merger Decision Could Be Close

Rumors are also circulating that the FCC is close to reaching a decision on whether to approve the pending merger of the country’s only two satellite radio companies, XM and Sirius.

The Justice Department’s antitrust division rubber stamped the merger in March, somehow arguing with a straight face that the resulting satellite radio monopoly the deal would create won’t harm consumers.

We begged to differ at the time, to put it mildly. And we continue to hold out hope the FCC will not buy the tortured logic offered by the Justice Department in its approval of the deal.

The simple fact is that monopoly businesses – particularly unregulated monopolies – are by their very nature anti-consumer, no matter what the Justice Department and other supporters of the XM-Sirius merger might think. The whole idea of a monopoly is to destroy all competition in the marketplace, cut services and choices, and then slap consumers with high prices.

XM and Sirius have recently offered up some sweeteners aimed at easing some of the monopoly concerns shared by most anyone with even the most rudimentary understanding of basic economics – which unfortunately does not include the so-called “antitrust watchdogs” at the Justice Department, who approved the deal without any sort of conditions.

For example, Sirius CEO Mel Karmazin – without offering too many details – has said the merged company would not raise subscription prices and will allow subscribers to pick and choose the channels they receive under certain circumstances.

Karmazin may be a fine and honorable fellow, but we think it is an acutely bad idea to ever let the competitors in any industry combine to become a monopoly, particularly a government-blessed one.

Washington Post business columnist Stephen Pearlstein did a very good job of presenting the rational arguments against the XM-Sirius deal when it was approved by the Justice Department a few months ago.

By the way, did we mention that it was the FCC which cleared the way for XM and Sirius to get in the satellite radio business more than a decade ago, but with one very important caveat – the two companies could not merge? We’re not making this up.

We hope the FCC will read and heed Pearlstein’s insightful words about this anti-consumer deal – and remember what the agency itself thought about such a merger when it created the satellite radio industry more than a decade ago – as they consider the XM-Sirius deal in the coming days.

comments (7)

1 Posted by Joe at 07/02/08 03:12 PM

My guess is that Verizon and the two satellite stations will get just about everything they are asking for. Why? For decades, big business has been running this country through their lobbying efforts. If recent news reports are correct, the number of lobbyists in Washington has more than tripled in the past 8 years from approximately 6,000 to 20,000! Most of our elected officials sacrifice us for their own pocketbooks. Also, the class action lawsuits already in process should not be affected by future laws.

2 Posted by Alan Levenson at 07/02/08 03:20 PM

I must say that I am in favor of the XM/Sirius merger for the following reasons. Originally, I signed with Sirius because I am a 'serious' news junky and when not at home glued to C-SPAN/CNN/MSNBC/NPR and occasionally (er, rarely, FOX), I listen while in the car; short trips, long trips, all trips. When Sirius decided to drop C-SPAN and XM picked it up, I forsook Sirius and joined XM. However there were several trade-offs: XM's NPR offering is paltry. XM's Bloomberg radio channel keeps banker's hours. XM doesn't stream the Dow-Jones, S&P 500, and NASDAQ averages. XM doesn't broadcast NFL. (On the upside, XM doesn't offer Howard Stern!)

It's my fervent hope that if the two services merge, more will come of it than the melding of their respective financial statements. However, if the total programming proves less than synergistic then your skepticism will be vindicated. Alas...

3 Posted by Herb Neu at 07/02/08 04:32 PM

Washington DC has become an island unto itself, completely isolated from the citizens of the United States...with the exception of "corporate citizens" who feel they have the right to suck us dry. The corruption of attitudes of those who have power is beyond comprehension.

4 Posted by Jack Feder at 07/02/08 06:09 PM

1. Regarding termination fees for wireless phone subscribers, the Verizon proposal gets the FCC into an area that is apparently being well handled by State regulations. The FCC seems willing to give corporations what they want and the back-of-their-hand to consumers. I can't wait for a turnover in the FCC ranks come next November.

2. Regarding the XM-Sirius merger, Steven Pearstein has said it all last March in his Washington Post newspaper column. His words have been ignored by both the Justice Dept. and the FCC. Too bad. This administration has definitely been pro-business and anti-consumer. Hopefully, November's election will change that.

5 Posted by Robin Bergman at 07/05/08 10:47 PM

I expect that Martin will railroad through everything no matter what the input from consumers, the minority FCC Commissioners, or even the Congress, given his previous track record on media consolidation. He never saw a corporation that he didn't love.

I'm currently an XM subscriber and I am worried about the outcome of the merger. I will also have to buy new equipment in order to continue service, which I wasn't planning on doing as the equipment I have was already expensive enough.

6 Posted by gary at 07/07/08 09:23 AM

(The writer is an attorney for AT&T)

I'm just wondering why it is in consumers' interest to send out bulletins with incomplete and misleading information. Here are the facts you omit: (1) Early termination fees are typically much lower than the $250 you cite. (2) Early termination fees are paid only by those consumers who obtain a subsidy from the carrier on the handset they purchase. In other words, if a consumer wants the carrier to finance a discount on the handset, the consumer must sign up for a term plan. If the consumer is willing to pay full price for the phone or to bring his/her own phone, he/she can avoid the term commitment and the fee. (3) Carriers are not seeking to prevent all lawsuits relating to fees. They are asking the FCC to find that only the federal government, not the states, can regulate ETFs because Congress has given the FCC exclusive authority to regulate wireless rates.

Consumers deserve the facts and any organization that holds itself out as a consumer advocate should responsibly present them, not deliberately distorted propaganda.

7 Posted by Dan Leach at 07/07/08 12:11 PM

Why do you think you will have to buy new equipment ? Under the current proposal all receivers will work.