Consumer Federation of California

ACTIVISTS SAY INDUSTRY MONEY SILENCES PRO-CONSUMER BILLS

SACRAMENTO – Consumer advocates fought more than four years for state
regulators to adopt protections favorable to California’s 28 million
cell phone users. It took only eight months and a nudge from Gov.
Arnold Schwarzenegger to make the rules disappear.

Since then, the Legislature has considered nine notable consumer laws
that would make it easier for cell phone owners to do such things as
terminate their contracts, transfer their phones to different carriers
and dispute billing discrepancies. Only one has become law.

Consumer groups and some lawmakers cite a simple reason such measures
fail: the power of the increasingly influential telecommunications
lobby.

According to a Mercury News analysis, telecommunications companies with
cell phone divisions have pumped more than $7 million into California
political campaign accounts since 2005. And that doesn’t include the
industry’s lucrative payments to a legion of lobbyists engaged in a
fierce battle that rivals few other causes.

"It’s a testament to the cell phone industry’s power that the first
thing Arnold Schwarzenegger did when he came into office was put people
on the Public Utilities Commission who were pro-industry,
anti-consumer, and immediately proceeded to tear down pro-consumer
regulations that prevented cell phone company abuses," said longtime
consumer advocate Harvey Rosenfield, author of Proposition 103, which
significantly reduced insurance rates for California drivers.

"I can’t think of another industry except the insurance industry back
in the early 1980s that begs for regulation as much as the cell phone
industry does," Rosenfield said. "The situation I think is completely
out of control."

Consumers Union, which publishes Consumer Reports magazine, and the
national Council of Better Business Bureaus report that complaints
against cell phone carriers last year far exceeded complaints against
any other industry.

Wireless industry representatives, their hired lobbyists and the
Schwarzenegger-appointed public utilities commissioners are proud of
their pro-business record. The proposed laws and rules, they say, are
unnecessary, bad for a competitive market, burdensome, and, if
implemented, will jack up cell phone bills.

Even if some legislation is well-intentioned, said Jay Ziegler, a
spokesman for the wireless industry association, known as CTIA, the
measures would end up being detrimental for consumers.

And besides: The competitive cell phone market, he adds, is the only
sector of the telecommunications industry where a consumer can say, "If
you don’t treat me well, I’m leaving and I have other wireless
companies to choose from for service."

Consumers argue that’s easier said than done. Many users feel held
hostage by carriers that force them into exclusive contracts with $200
early termination fees.

"They’re kind of locking you into their system, their network," said
Patrick Herlihy, 40, an information technology worker from Redwood City
who wishes he could use his phone with another carrier after his
two-year, AT&T contract expires. "It’s scandalous."

Perhaps no bill in California better demonstrates the industry’s
influence than this year’s most significant consumer-friendly measure:
SB 831 by Sen. Alan Lowenthal, D-Long Beach.

Lowenthal attempted to restore major provisions of the PUC’s dismantled
"telecommunications bill of rights" and other blocked measures. He
proposed forcing carriers to prorate early termination penalties,
instituting a 30-day cancellation policy on contracts and stopping
retail stores from charging their own cancellation fees.

When the Senate took up his bill June 6, the measure drew 20 votes –
one short of passage. Shortly thereafter, nearly two dozen cell phone
lobbyists paced the hallway outside the Senate chambers, trying to
influence lawmakers.

That same day, an AT&T employee political action committee donated
$50,000 to the ballot initiative that would allow a number of current
lawmakers to extend their terms.

The next day, on Lowenthal’s final attempt at passage, two key
Democrats who previously expressed support for the bill turned away
from it. The bill died.

The two lawmakers – Jenny Oropeza of Redondo Beach, who at the time was
running for Congress, and new legislator Alex Padilla of Van Nuys –
said in interviews that they disagreed with pieces of the bill.

Padilla, who previously supported the bill in committee, and Oropeza,
who considers herself among the Senate’s leading consumer advocates,
denied being pressured by last-minute lobbying. However, a legislative
aide and a consumer advocate found it curious when they spotted
industry lobbyists conversing privately with each lawmaker between
votes.

Regulation drive

The move toward regulating the industry began in 2000 when members of
the PUC, appointed by then-Gov. Gray Davis, a Democrat, traveled the
state seeking public testimony to produce the telecommunications bill
of rights.

The proposed regulations sought to require phone companies to allow
customers 30 days to opt out of contracts without penalties, clearly
state fees and taxes on phone bills, ensure contracts be printed in
legible-size fonts, and ban deceptive statements about rates and
services.

Industry lobbyists worked hard to torpedo the proposal – and found an
ally in Schwarzenegger, the Republican governor who replaced Davis in
late 2003.

Shortly before the commission’s May 27, 2004, meeting, Commissioner
Geoffrey Brown, considered a swing vote, said Schwarzenegger called him
once, and the governor’s aides called him "repeatedly," attempting to
destroy the measure.

"I’m not against these rules and regulations," Brown quoted
Schwarzenegger as saying, "but these regulations will look
anti-business."

Schwarzenegger spokesman Aaron McLear confirmed the administration
keeps in touch with commissioners, but said the governor and his aides
don’t try to sway their votes.

At the time, Schwarzenegger and the industry didn’t have the votes. The measure passed 3-2.

But about seven months later, Schwarzenegger made his first appointments to the commission, shifting the balance of power.

Within weeks, a pro-business Davis appointee, Susan Kennedy, who
considered the regulations onerous and had voted against the bill of
rights, led the new majority to suspend the measure and replace it with
a new set of rules more palatable to the industry. (She would later
leave the PUC to become Schwarzenegger’s chief of staff.)

The wireless carriers celebrated the PUC’s shift to support a so-called
market-based business model, which commissioners said would benefit
carriers and consumers by streamlining the way cell phone users file
complaints. The lack of government regulation, said Mike Bagley of
Verizon Wireless, is why consumers pay 80 percent less for cell phone
service, and receive more benefits, than a decade ago.

But consumer advocates were stunned by the new direction. So were a
handful of lawmakers who have introduced nine bills in response.

Sen. Martha Escutia, D-Norwalk, and Assemblyman Hector De la Torre,
D-South Gate, proposed to help immigrants by forcing cell phone
companies to print contracts in the same language in which the sale was
verbally negotiated. Sen. Dean Florez, D-Bakersfield, sought to force
carriers to "unlock" their phones so owners can use them with a
competitor. Assemblyman Ira Ruskin, D-Los Altos, offered up a 30-day
right to cancel contracts. Lowenthal, D-Long Beach, wanted prorated
early termination fees.

Industry criticism

The industry blasted some legislation as unnecessary, such as the
translation of contracts, saying it would be too costly and noting that
the PUC was seeking to require a translated "summary" of a contract’s
highlights. The industry opposed unlocking of phones, arguing it would
be technically unfeasible. The industry fought the 30-day
cancellations, because carriers were voluntarily adopting such
policies. The industry rejected giving consumers a break on termination
fees, saying that two-year contracts help subsidize the price of the
cell phones.

All but De la Torre’s bill – which is yet to be voted on – died an
unusual, premature death in a Legislature whose committees and
leadership are controlled by the authors’ fellow Democratic colleagues.

"What’s interesting about this legislation is, it’s been opposed on a
bipartisan basis," said John Taylor, a spokesman for Sprint, whose
employees donate to political causes through payroll deduction. "And
generally, bad ideas tend to unify opposition across party lines, and I
think that’s what we’ve seen in Sacramento the past couple of years."

There’s another theory: the industry’s unmistakable financial presence.

"We’re dealing with an industry that is very wealthy, that gives
millions to both parties’ elected officials every year, and that has, I
think, made a determination to fight every attempt to regulate it," said Richard Holober of the Consumer Federation of California, "because they know that what starts here often takes off on a national basis."

Of the $7.2 million handed out by telecom companies with cell phone
divisions since 2005, more than $600,000 has gone to the California
Democratic Party.

AT&T, Verizon, Sprint, T-Mobile and phone maker Qualcomm have
forked over more than $200,000 for the campaign funds of the dozen
members of the Assembly Utilities and Commerce Committee, where about
half the bills met their demise.

More than $1.2 million has benefited Schwarzenegger and causes he supports, including the California Republican Party.

AT&T, which has interests in wireless phones, land lines, broadband
and Internet television, far outspent its competitors by shelling out
$4.5 million.

"You could argue that AT&T has a seat in the governor’s office and
runs the show at the Public Utilities Commission," said Rosenfield, an
attorney who started the Foundation for Taxpayer and Consumer Rights.

AT&T’s media relations director declined an interview request and
referred questions to the wireless industry association, whose
spokesman said he didn’t have information on the company’s campaign
donations.

McLear denied that AT&T’s money or any other contributions from the
industry influence the governor’s office. "We believe the PUC has done
a great job protecting consumers," he said.

So, what does the future hold for cell phone legislation? Lowenthal was
asked if he will try again. Discouraged by how his previous bill was
"massively attacked" by lobbyists, he said he wasn’t sure. But he hopes
someone does.