GAO to FCC: Wireless Carrier Competition a Problem

The Government Accountability Office has suggested the FCC look more closely at practices of wireless carriers, such as Verizon and AT&T, that may hurt consumers and industry competition.

The Government Accountability Office is recommending changes to Federal Communications Commission procedures that could enable the wireless industry to be more competitive and U.S. consumers to be better protected.

The recommendations from the GAO, which operates as Congress' watchdog, again bring to the spotlight issues of wireless carrier contracts and termination fees. The GAO recommendations were issued in a report in July.

"The FCC generally has not collected data on ... consumer switching costs because of the complexity and burden associated with gathering these," states the report. It further says that the FCC has nonetheless recently undertaken such inquiries, which could help it to better fulfill its reporting requirements to "assess the competitiveness of small and regional carries [and to] shed light on the impact of switching costs for consumers."

In January, the FCC expanded its investigation into the early termination fees (ETFs) charged by wireless carriers, sending letters to AT&T, Google, Sprint and T-Mobile asking how their ETFs were structured and whether customers were alerted to them.

In November 2009, Verizon doubled its ETF, from $175 to $350, and in May AT&T followed, boosting its fee from $175 to $325. The fee hikes encouraged Sen. Amy Klobuchar, D-Minn., to call on the FCC to take action against the ETFs, which she reported as being both confusing to consumers and detrimental to competition in the wireless marketplace.

"Nearly two out of three Americans have seriously considered switching cell phone providers but ultimately decided to stay with their current provider because of a cancellation fee," Klobuchar said in a May 26 statement. "Like a rigged carnival game, wireless providers bury these fees in the fine print and slam consumers if they try to find better service or save a few bucks in their monthly bill."

The GAO said that its recommendations come at a time when Americans are increasingly relying on wireless phones, as nearly 40 percent of households now use them primarily or solely. Studying the wireless industry since 2000, in preparation for the report, the GAO found that the news wasn't all bad for consumers, who now generally enjoy better coverage, as well as prices that are approximately 50 percent lower than in 1999. For smaller carriers, however, consolidation amongst carriers has hurt their ability to make network investments and to offer the newest devices-both major factors in effectively competing for subscribers.

According to the GAO, policies related to the use of spectrum for commercial use, as well as those regarding termination fees, are also hurting competition.

"Many small carriers and consumer groups perceive early termination fees associated with wireless service contracts and exclusive handset arrangements as creating switching costs that serve as barriers to consumer movement," states the report. To remedy this, it continued, it recommends that the FCC assess whether expanding its data collection to items such as prices, special access rates, capital expenditures and equipment costs" could help it to better review the competitive market conditions amongst mobile service providers.

The GAO appears to have no ability to enforce its recommendations. Instead, it offers advice to Congress that it hopes, it writes in its mission statement, provides "timely information that is objective, fact-based, nonpartisan, non-ideological, fair and balanced."