Wednesday, May 19, 2010

No Need for "EU-Style" Wireless Mandates

Last week the FCC issued a public notice seeking comment on EU-inspired regulation of wireless customer service and billing. The public notice requests comment on the feasibility of imposing regulation similar to recently-adopted EU "bill shock" regulations that "are designed to ensure that a consumer is fully aware of the roaming charges he or she is incurring so that the consumer does not receive a higher than expected bill for these services." Now, transparency and disclosure of clear information are vital to informed consumer transactions. But since we already have those kinds of rules in place, is the addition of an extra layer of rules based on EU regulatory assumptions necessary? There are good reasons to think it's not.
Basic truth-in-billing rules prohibit fraud or deceptive practices that harm consumers. Since 2005, the FCC’s truth-in-billing rules requiring brief, clear, non-misleading and plain language descriptions of services rendered have applied to both wireline and wireless carriers. FCC regulation already prohibits slamming (carriers switching consumers' service to another carrier without consent) and cramming (carriers overcharging consumers). And general consumer protection statutes provide a venue in state courts to counter unfair and deceptive trade practices related to wireless services.

Unlike truth-in-billing rules or consumer protection statutes, however, the case for imposing EU-inspired "bill shock" rules is not nearly so strong. For starters, "bill shock" regulations can't be justified on anti-fraud or anti-deception grounds. After all, such regulations and laws are not directed to prohibiting fraudulent or deceptive practices. Rather, "bill shock" regulations are intended to provide consumers with extra notice about services they've already agreed to receive. Seen in this light, these regulations are less a matter of protecting consumers from wrongful e-commerce practices than protecting consumers from themselves. This suggests a paternalistic element to "bill shock" regulations premised on regulators' own judgments about what kind of wireless services carriers should provide and consumers should want.

Imposing EU-type "bill shock" regulations also makes little sense in light of the dynamic and competitive nature of the wireless marketplace. Why adopt regulations that risk freezing into place wireless services that are new and in a state of rapid change? Text messaging, smartphone apps, and other wireless data services are recent offerings in a rapidly-changing market that is likely to undergo further unpredictable innovation in the years ahead. And why single out wireless carrier bills for special regulation when consumers are increasingly using wireless devices for a variety of e-commercial purposes? Consumers now purchase all kinds of wireless-delivered goods and services—including video and music files—through entities other than wireless carriers. This includes a variety of paid subscription services with recurrent billing. But imposing "bill shock" regulations on iTunes, Zune, or online app stores would be unnecessarily sweeping and almost certainly exceed the FCC's jurisdiction. Given that truth-in-billing rules already exist, there is little justification for imposing "bill shock" regulations on one particular facet of today's wireless consumer experience.

Coinciding with rapid technological innovation in wireless services, billing practices have also undergone significant change and cut against the need for EU-style "bill shock" regulations. In terms of roaming fees or charges resulting from exceeding wireless plan use limits, the issue is fading due to the number of wireless carriers now offering free domestic roaming, unlimited calling, and unlimited texting plans. For instance, I solved my own "bill shock" experience 5 or 6 years ago by upgrading my plan to better fit my own text messaging patterns. Also witness the 13-year old girl in California who recently sent 14,582 text messages in one month under a flat-rate plan but incurred no extra charges. The economic downturn has likewise seen a sharp rise in pre-paid plan adoption by consumers. Pre-paid plans present none of the concerns with wireless carrier billing and consumer behavior apparently sought to be addressed by "bill shock" regulations. Indeed, the rapid rise of pre-paid services may be seen as an indication that consumers are wise enough to choose the type of services best-suited to their own needs.
Importantly, wireless carriers already provide consumers with the ability to check on the status of their wireless bills and obtain updates via e-mail or text messaging. And the wireless industry already has its own self-regulatory framework in place through CTIA's Consumer Code of ten principles. Industry self-regulation and wireless marketplace competition alone are not panaceas for all consumer protection issues. But self-regulation and competition are both disciplining forces that benefit consumers.

Unfortunately, if the FCC follows the EU's course then none of these developments in the U.S. wireless marketplace would matter. As the FCC's public notice points out: "[a] number of EU mobile services providers had already implemented procedures to combat the problem of 'bill shock' prior to the adoption of the 2009 regulations." Despite innovation in wireless services and choices in the U.S., the FCC is now considering whether to impose EU-inspired "bill shock" regulations, too.

All of this raises the most obvious question: why should the FCC look to EU policy to guide U.S. policy? The U.S. obviously has a regulatory framework and perspective that is quite different than the EU. Europe is much more prone to adopt a regulatory answer than enable pursuit of marketplace solutions to competition issues. The European wireless market is still working itself out from a telecom industry past characterized by national, government-owned operators. Unlike the U.S., Europe standardized GSM technology for its wireless market, primarily operates on a "caller pays" system rather than a both parties pay system, and it tends towards a "competitor welfare" emphasis for competition regulation and antitrust over a consumer welfare model. By contrast, since deregulation and preemption policies for wireless were put in place by Congress in 1993, U.S. wireless innovation and competition has exploded in an atmosphere of minimal federal and state regulation.

Now just because the EU adopts a policy doesn't mean that it's a bad policy or that it's never worth considering. But given fundamental differences between the U.S. and European view of marketplace micromanagement, the FCC is better off sticking with the justifiable rules it already has in place for wireless billing than with importing regulations premised on the EU's different set of regulatory assumptions. The FCC's recent release of a tip sheet for avoiding "bill shock" is certainly helpful. But beyond existing rules and educational efforts, the best thing the FCC can do for consumers is continue to let the wireless innovation and competition that got us to this point flourish, free from regulatory interventionism.