FCC Chief Open to Regulating Cell Phone Cancellation Fees

The head of the Federal Communications Commission said Friday he wants to regulate fees charged to cell phone users who cancel their wireless contracts early.

At a news conference, FCC chief Kevin Martin would not say whether he endorses an industry plan to help consumers avoid "early termination fees" as detailed by The Associated Press earlier this week.

But Martin said he supports regulating the fees at a federal level, even if it affects a series of class-action lawsuits against carriers in state courts.

Consumers would benefit from a national standard that addresses many of the problems with the current fees system more than a potential lawsuit that may affect consumers in one state, Martin said.

Martin said industry and consumer groups were negotiating to reach an agreement to ease the fees, which have infuriated consumers. But so far, they have been unable to reach consensus.

Citizens will be able to speak their minds on the subject during a public hearing at the commission's next meeting, scheduled for June 12.

Verizon Wireless, the nation's No. 2 cell phone company, has offered a plan that would give consumers a break on fees charged when they quit their service early. But it also would let cell phone companies off the hook in state courts where they are being sued for hundreds of millions of dollars by angry customers.

Cell phone companies routinely charge customers $175 or more for quitting their service early. Under the wireless industry proposal, consumers would have the opportunity to cancel service without any penalty for up to 30 days after they sign a cell phone contract or until 10 days after they receive their first bill.

The proposal would require companies to reduce fees month by month over the course of a contract based on how long customers have left, according to people familiar with the offer who spoke on condition of anonymity because the FCC has not approved it.

It would not abolish cancellation fees entirely and would not refund such fees to anyone who already paid them.

The sticking point for consumer groups is that the proposal would take away states' authority to regulate the charges. Consumers Union called the provision a "get-out-of-court-free card."

AARP, another organization mentioned by Martin as key to a successful agreement, appeared to oppose the plan Thursday, noting that the industry offer "does not change AARP's position or activities," according to a statement by David Certner, the organization's legislative policy director.

Wireless companies say cancellation fees are necessary to recover the cost of cell phones, which they subsidize under long-term service contracts, and to defray their costs for signing up new customers. Consumer groups said the fees are unreasonable and intended to discourage customers from switching among providers.

The expensive fees have led to class-action lawsuits in several states and legislative proposals on Capitol Hill and in state legislatures around the country.

The industry's proposal would link cancellation fees to actual costs incurred by a wireless company, and it would require companies to prorate any fees over the course of the contract. Verizon Wireless currently prorates fees down to $60. AT&T Inc. will begin prorating fees Sunday.

The proposal also would prohibit a wireless company from imposing a termination fee on customers who change terms of their contract or end one contract period and begin another.

Verizon Wireless is a joint venture between Verizon Communications Inc. and the Vodafone Group PLC of Britain. Verizon Wireless, with about 66 million subscribers, is second to AT&T Inc., with 70 million customers.