The Cell Phone Racket

File this under that insanely annoying reality we all must face together. Writing about the telecom industry and its mostly duopolistic reign of terror over the spectrum and our wallets might sound mundane. But this story was probably one of the most popular article I’ve written in months. It eventually got picked up by the Sacramento News and Review, as well as Metro Santa Cruz. See, everyone’s pissed off at the telecoms. Dial up the original version I wrote for AlterNet, and make the call if you’re mad as hell.

The Infuriating Cell Phone Racket
[Scott Thill, AlterNet]
If you’re not angry with AT&T, Verizon, T-Mobile and Sprint — America’s four national wireless providers that reportedly control 90 percent of the market — then here’s some ridiculous news to raise your righteous ire.

Perhaps you’d be interested to know about one of the most outrageous cell phone scams? It’s simple: Charge customers for being forced to listen to 15 seconds of unnecessary voicemail instructions reminding them how to leave a message after the beep. According to New York Times technology writer David Pogue, if Verizon customers leave voicemails or check their messages twice a day, the mammoth New Jersey-based telco takes in around $620 million. In return, you lose wasted hours of your life and have to pay for it.

Speaking of Verizon, have you heard about the representative who refused to shut down a dead man’s service, even though his daughter produced a death certificate and needed the account closed so settlement of his estate could proceed? Or the rep who tried to collect an overdue $308 bill from customer Al Burrows by threatening to, and I quote, “blow your muthafucking house up”? Do we need to even talk about AT&T’s various controversies, from censoring Pearl Jam to allegedly helping the National Security Agency unlawfully monitor the American people’s communications?

The telco giants’ latest disgrace, according to a recent Federal Communications Commission report, has been given the egregious name of “bill shock” (PDF). Which is a misnomer, actually: it’s certainly not shocking to find, as the FCC explains, that “30 million Americans — or one in six mobile users — have experienced…a sudden increase in their monthly bill that is not caused by a change in service plan.” It’s even less alarming to discover that “nearly half of cell phone users who have plans with early termination fees (ETFs) — and almost two-thirds of home broadband users with ETFs –don’t know the amount of the fees they’re accountable for.”

“In January, we sent letters to the major wireless providers asking the rationale for their ETFs,” FCC spokesperson Rosemary Kimballl told AlterNet. “While the business model of subsidizing phones by the ETFs is the carriers’ choice, our position is that the ETF charge must be made clear to the consumer when he is signing the contract. And this does not seem to be the case in many instances.”

It is the kind of obscure legalese the industry is known for. Their contracts are dense with clauses that no self-respecting human should have to wade through, just to place a call or send a text. ETFs are a particularly blatant insult to wireless customers, who can’t leave an underperforming carrier (and that’s really all of them) without forking over hundreds of hard-earned dollars. In fact, AT&T just nearly doubled its $175 early termination fee to $325 in May. That cold, capitalist logic is built specifically for bottom lines and earnings reports, not for flawless customer service. ETFs are financial shackles to mediocrity, and they’re just the start.

According to Wisconsin Democratic Senator Herb Kohl, the telcos have fortified their industry monopoly with other scandalous pricing. Between 2006-2008, the cost of sending and receiving a text message rose 100 percent. The average American consumer pays approximately $500-$600 a year for wireless service, which is practically more than any other developed nation. Of course, iPhone addicts — who are chained to Apple’s exclusive contract with AT&T until the probably inevitable Verizon contract arrives in 2011 — pay around twice that annually in various subscription fees. This in spite of the fact that AT&T, Verizon and Sprint continually rank among the worst in the nation when it comes to customer service. Or that such early termination fees are arguably illegal, depending on which judge you ask.

“We want consumers to know that they can avoid the ETF by using prepaid phones,” Kimball added. “And we have recently released a public notice (PDF) asking for comments from consumers and the industry on how customers can be made aware they are about to incur unexpected charges. We asked whether a model like that used in the European Union, where customers must be alerted when they are about to incur roaming charges, would work in the United States.”

Mandating that the wireless industry warn their customers before they variously fleece them is a great start. But bridging the price gaps between the carriers and their carrion is going to take a while.

“A big part of the problem is that this country is such a huge landmass,” Pogue told AlterNet. “No one cell phone carrier can cover it all, unlike in Europe and Japan. Therefore, people have to buy from the company or two with coverage where they live, so there’s very little competition. The cell companies can essentially get away with whatever they want.”

This geographical reality has produced a wireless market that is a functional duopoly. Although Verizon and AT&T are only half of the big four carriers, they actually control 60 percent of the wireless market between them. Can you hear me now?

“We don’t have equivalent providers in the marketplace,” Consumers Union’s wireless, phone and Internet policy analyst Joel Kelsey told AlterNet by phone. “There are tell-tale signs that this is not a competitive market: the ubiquitous existence of early termination fees that have been continually raised; the inability of consumers to bring their smart phone investments with them from carrier to carrier; parallel and consistent price increases in text messaging, despite the fact that the cost to provide that service is declining; the opaque nature of data overage charges. Everything seems randomly tacked on.”

Bringing transparency and purpose to that random pricing is a primary objective of the FCC, which seems to have finally come to its senses under the leadership of chairman Julius Genachowski, who was nominated by President Obama and confirmed by Congress in 2009. He’s a long way from the national joke that was FCC chairman Michael Powell, son of Colin, who disastrously deregulated the industry while simultaneously levying ridiculous obscenity penalties on networks airing Janet Jackson’s breast, Bono’s expletives, Howard Stern’s show, and even Saving Private Ryan. But the new FCC regime is going to have its hands full bringing AT&T and Verizon to heel, although its task will be helped by the telco titans’ continuing insults. But they’re not giving up without a fight, especially when they can charge anything for whatever.

“The FCC is talking about a common sense way of giving consumers more control to help them realize cost savings,” Kelsey said. “Consolidation is increasing and the market is dwindling toward a duopoly, because AT&T and Verizon have the best deals with the handset providers, who have the most consumers. And they have very little incentive to invest in their own network; investment in the network as a percentage of revenue has actually declined. And they own the lion’s share of the wireless spectrum.”

At the 2008 wireless spectrum auction, Verizon actually sued the FCC for having the temerity to rule in Google’s favor that the five available spectrum blocks remain open to services, applications, devices and networks. Verizon eventually dropped the lawsuit, and nearly $5 billion on the FCC for the coveted open-access C-block, but we’re a long way from non-exclusivity. And further auctions kicking off in the years to come are sure to be as contentious, especially now that FCC chairman Genachowski has argued that the nation is due for a “looming spectrum crisis” because of the burgeoning desire for mobile broadband.

“There are a number of political undercurrents at play,” Kelsey explained. “The government has been trying to get as much money as possible out of auctions, and that certainly raises the question about what is the most effective use of the spectrum and doesn’t take into account the interest in public use or social good. It’s not clear what the FCC wants or plans to do, but their actions over the last several weeks have been great. They’re showing that they’re interested in broadband mobile as a check on current practices.”

Which is great, because the bill for current practices is getting larger and more unreasonable by the year. The check is going to need to be a big one. Those purposefully ridiculous fees and charges from the telcos aren’t going to pay themselves.

This article appeared at ALTERNET and alt-weeklies in Santa Cruz and Sacramento