Washington Weighs In Against Wireless Industry

Last week, we finally saw some federal action against anti-consumer practices in the wireless industry, in the form of legislation in the Senate and an inquiry from the Federal Communications Commission. The pushback was twofold, and speaks to two fronts that are opening up in the fight to stop wireless companies like Verizon and AT&T from price-gouging customers.

First, Sen. Amy Klobuchar (D-Minn.) proposed new legislation that would make it harder for companies to impose outrageous early-termination fees (ETFs). The bill is a direct rebuke of Verizon's recent announcement that it was raising its ETF to a whopping $350 for "advanced devices." The bill is co-sponsored by Sens. Russ Feingold (D-Wisc.), Jim Webb (D-Va) and Mark Begich (D-Alaska).

Wireless carriers claim these fees are needed to offset the substantial subsidies they provide to bring down the initial price of handsets. But they haven't shown that the amount of these fees reflects the difference between the devices' "subsidized" and wholesale prices.

Sen. Klobuchar isn't buying the argument. "Forcing consumers to pay outrageous fees bearing little to no relation to the cost of their handset devices is anti-consumer and anti-competitive," she said in a statement.

One day after Klobuchar introduced her bill, the FCC weighed in with a letter to Verizon, asking the company to explain its "rationale" for more than doubling its ETF and to detail how it's justifying this cost to consumers.

If Verizon fully answers all of the FCC's questions, we may get our first look into the opaque issue of how carriers handle cell phone subsidies.

In the letter, the FCC asks for particulars on:

(1) the cost differentials that Verizon pays for advanced devices over what it charges its customers; (2) the ETF levels, proration schedules, and other terms and conditions of ETFs; (3) how the levels of ETFs, together with the terms and conditions, relate to these cost differentials; and (4) how this relationship varies among devices and/or among "advanced devices."

We'll see how Verizon responds.