Consumer Federation of California

Cellular phone companies ranked first in 2006 among all industries in
consumer complaints filed with the Better Business Bureau. Complaints
filed with the Federal Communications Commission and other regulators
include inaccurate bills, deceptive contract terms, poor phone
reception, excessive early termination fees and inadequate customer
service.

Cellular phone industry competition is decreasing. Three years ago,
consumers could choose among six major cell phone companies. Today,
four cell companies control 80% of the US market. Industry
consolidation is directly tied to increasing complaints, according to
Consumers Reports magazine.

The California Public Utilities Commission is responsible for
protecting cell phone consumers. However in 2006, new appointees to the
PUC revoked the ‘Telecommunications Consumers Bill of Rights’ ‘
regulations adopted by the PUC in 2004 to restrain some of the
industry’s worst practices. Despite consistently high levels of
consumer complaints, the current PUC has clearly stated that it opposes
regulation of the cell phone industry. The only venue available for
phone users to address these problems is the California legislature.

Take Action: Tell the Governor and your Legislators to support cell phone subcriber protections!

SB 831 SUMMARY

SB 831 would establish a sorely needed minimum standard of consumer
protections that every cell phone customer deserves. Those protections
include:

1. 30 Day Right to Cancel Cell Phone Contract Without Early Termination Fees

Problem: Cell phone companies usually require a minimum one or
two year contract, and charge customers early termination fees as high
as $200 or more. Worse, most cellular companies offer return policies
between 15 and 30 days ‘ not a sufficient amount of time for customers
to determine if reception is good and whether their bills are loaded
with fees that were not clearly identified when they signed up for the
phone service.

SB 831 Solution: Protects consumers by allowing either 30 days –
or 10 days after receiving their first bill ‘ whichever is later – to
evaluate their phone service and coverage area and cancel before being
locked into a one or two year service contract subject to steep early
termination fees.

2. Pro-Rates Early Termination Fees

Problem: To obtain cell phone service, consumers are often
locked into one or two year contracts with early termination fees as
high as $200 as a penalty for canceling a contract early. For a two
year contract, this costly penalty is assessed regardless of whether
the cell phone user cancels after 2 months or after 23 months. Phone
companies claim that these penalties are needed to cover the costs
incurred in acquiring a new customer. According to this logic, that
acquisition cost is gradually paid back by the customer with each
month’s bill payment. When the contract nears the end of the one or two
year period, the customer has paid back almost all of the alleged cost
of acquiring the customer.

SB 831 Solution: Protects consumers by gradually phasing out
termination fees on a month to month basis. A cell phone subscriber
canceling after 23 months pays a small fraction of the penalty paid by
someone canceling after only 2 months.

3. Requires Clear Notification of Rights When Unauthorized Charges Made to Phone

Problem: Consumers are not notified in their billing statements
of their right to dispute unauthorized charges, including not having to
pay a disputed charge while an investigation is pending, prohibiting
carriers from referring a disputed charge to collections and from
making a negative credit report based on the disputes. Currently, when
a cell phone is lost or stolen, a customer may be stuck paying a big
bill for unauthorized use of the phone.

SB 831 Solution: Protects consumers by requiring that each bill
statement clearly explain the right to dispute a charge. Allows a
consumer to dispute a bill for unauthorized calls by presenting
evidence that the phone was lost or stolen. Limits a customer’s
liability for unauthorized charges on a lost or stolen phone to fifty
dollars.

4. Prevents Third Party Retailers from Charging Early Termination Fees

Problem: Some third party retailers charge their own early
termination fee of $200 or more in addition to the phone carrier’s
early termination fee, which can reach $200, resulting in combined
early termination fees reaching $400.

SB 831 Solution: Prohibits third party retailers from charging early termination fees.

5. Right to Cancel if Phone Companies Make Unilateral Changes in Contract

Problem: Too often phone companies raise rates during the
lifetime of a phone contract. When a phone company increases its rates,
it does not inform the consumer of any right to cancel the contract.
Consumers are reluctant to cancel, despite the increased cost, because
of their concern about paying big early termination fees.

SB 831 Solution: Protects consumers by requiring phone companies
to clearly notify customers that they have the right to cancel their
service without penalty when the phone company makes unilateral changes
that result in higher rates or more restrictive terms.

6. Limiting the Term of a Contract to Two Years

Problem: In the past, one year contracts were the norm for
cellular phone service. Now, two year contracts are prevalent.
Currently there’s nothing to prevent cell phone companies from
extending contract terms even further, thereby holding consumers
hostage in interminable, unsatisfactory cell phone contracts with steep
early termination fees.

SB 831 Solution: Limits the terms of an agreement for a mobile telephone to two years.

SB 831 SPONSOR

The Consumer Federation of California is the sponsor of SB 831. For more information call (650) 375-7840, or email: mail@consumercal.org