Telecommunications: FCC Needs to Improve Oversight of Wireless Phone Service
Released: 2009-12-10T00:00:00

Letter

Background

The use of wireless phone service has grown rapidly in recent years. By the end of 2008, about 82 percent of adults lived in households with wireless phone service, up from 54 percent at the end of 2005. Furthermore, by the end of 2008, about 35 percent of households used wireless phones as their primary or only means of telephone service, of which about 20 percent had only wireless phones and the other 15 percent had landlines but received all or most calls on wireless phones. Consumers’ use of wireless phones for other purposes, such as text messaging, photography, and accessing the Internet, has also increased dramatically. For example, FCC reports that, while a subscriber’s average minutes of use per month grew from 584 to 769 from 2004 to 2007, the number of text messages grew more than tenfold during the same period.

Within the wireless phone industry, four nationwide wireless phone service carriers—AT&T, Sprint, T-Mobile, and Verizon—operate alongside regional carriers of various size. The four major carriers serve more than 85 percent of wireless subscribers, but no single competitor has a dominant share of the market. As recently as 2007, more than 175 companies identified themselves as wireless phone service carriers.

To subscribe to wireless phone service, a customer must select a wireless phone service carrier and either sign a contract and choose a service plan or purchase prepaid minutes and buy a phone that works with the prepaid service. Most customers sign contracts that specify the service plan and the number of minutes and text messages the customer is buying for a monthly fee. Also, new customers who sign contracts for wireless phone service sometimes pay up-front fees for “network activation” of their phones and usually agree to pay an “early termination fee” if they should quit the carrier’s network before the end of the contract period. In return for signing a contract, customers often receive wireless phones at a discount or no additional cost.

In 1993, the Omnibus Budget Reconciliation Act (1993 Act) was enacted, creating a regulatory framework to treat wireless phone service carriers consistently and encourage the growth of a competitive marketplace. Specifically, the law required FCC to treat wireless carriers as common carriers but gave FCC authority to exempt wireless service carriers from specific regulations that apply to common carriers if FCC could demonstrate that doing so would promote competition, that the regulations were unnecessary to protect consumers, and that the exemption was consistent with the public interest. FCC has specific authority to regulate wireless phone service rates and market entry, while states are preempted from doing so; however, states may regulate the other “terms and conditions” of wireless phone service.

The 1993 Act also directed FCC to require wireless carriers, like other common carriers, to provide service upon reasonable request and terms without unjust or unreasonable discrimination, as well as to adhere to procedures for responding to complaints submitted to FCC. Subsequently, the Telecommunications Act of 1996 authorized FCC to exempt wireless service carriers from these sections; however, in a 1998 proceeding to consider whether to exempt certain wireless phone service carriers from these requirements, FCC specifically stated that it would not do so, noting that these respective sections represented the “bedrock consumer protection obligations” of common carriers. FCC’s rules specify that the agency has both informal and formal complaint processes. FCC’s informal complaint process allows consumers to file complaints with FCC that the agency reviews and forwards to carriers for a response. The formal complaint process, which is similar to a court proceeding, requires a filing fee and is rarely used by consumers.

State agencies also play a role in wireless phone service oversight. State utility commissions (sometimes called public utility commissions or public service commissions) regulate utilities, including telecommunications services such as wireless phone service and landline phone service. State commissions may also designate wireless phone service carriers as eligible telecommunications carriers (ETC)—a designation that allows carriers to receive universal service funds for serving consumers in high-cost areas. Through this process, state utility commissions may place conditions on how wireless carriers provide services in those high-cost areas in order for them to be eligible for such funds. State attorneys general broadly serve as the chief legal officers of states while also representing the public interest, and their work has included addressing wireless consumer protection issues. For example, in 2004, the attorneys general of 32 states entered into voluntary compliance agreements with Cingular Wireless (now AT&T), Sprint, and Verizon, under which the carriers agreed to disclose certain service terms at the point-of-sale and in their marketing and advertising, provide a service trial period, appropriately disclose certain taxes and surcharges on customers’ bills, and respond to consumers’ complaints and inquiries.

Most Consumers Are Satisfied with Their Wireless Phone Service, but Some Have Experienced Problems

According to our consumer survey, overall, wireless phone service consumers are satisfied with the service they receive. Specifically, we estimate that 84 percent of adult wireless users are very or somewhat satisfied with their wireless phone service and that approximately 10 percent are very or somewhat dissatisfied with their service (see fig. 2).

Stakeholders we interviewed identified a number of aspects of wireless phone service that consumers have reported problems with in recent years. We identified five key areas of concern on the basis of these interviews and our review of related documents, and we subsequently focused our nationwide consumer survey on these areas (see table 1).

Based on our survey results, we estimate that most wireless phone users are satisfied with these five specific aspects of service (see table 2). For example, we estimate that 85 percent of wireless phone users are very or somewhat satisfied with call quality, while the percentages of those very or somewhat satisfied with billing, contract terms, carrier’s explanation of key aspects of service at the point of sale, and customer service range from about 70 to 76 percent. Additionally, we estimate that most wireless phone users are satisfied with their wireless phone service coverage. For example, we estimate that 86 to 89 percent of wireless phone users are satisfied with their coverage when using their wireless phones at home, at work, or in their vehicle.

While we estimate that about three-fourths or more of wireless phone service users are satisfied with specific aspects of their service, the percentages of those very or somewhat dissatisfied range from about 9 to 14 percent, depending on the specific aspect of service. For example, we estimate that 14 percent of wireless phone users are dissatisfied with the terms of their service contract or agreement. While the percentages of dissatisfied users appear to be small, they represent millions of people since, according to available estimates, the number of adult wireless phone service users is over 189 million.

Other results of our survey suggest that some wireless phone consumers have experienced problems with billing, certain service contract terms, and customer service recently—that is, during 2008 and early 2009. Specifically, our survey results indicate the following: Billing. We estimate that during this time about 34 percent of wireless phone users responsible for paying for their service received unexpected charges and about 31 percent had difficulty understanding their bill at least some of the time. Also during this time, almost one-third of wireless users who contacted customer service about a problem did so because of problems related to billing.

Service contract terms. Among wireless users who wanted to switch carriers during this time but did not do so, we estimate that 42 percent did not switch because they did not want to pay an early termination fee.

Customer service. Among those users who contacted customer service, we estimate that 21 percent were very or somewhat dissatisfied with how the carrier handled the problem.

Our analysis of FCC consumer complaint data also indicates that billing, terms of the service contract, and customer service are areas where wireless consumers have experienced problems in recent years. Furthermore, FCC complaint data indicate that call quality is an area of consumer concern. Specifically, our analysis of FCC data indicates that the top four categories of complaints from 2004 through 2008 regarding service provided by wireless carriers were billing and rates, call quality, early termination of contracts, and customer service, as shown in figure 3 (see app. II for additional discussion of FCC wireless consumer complaint data).

Our survey of state utility commissions also found that billing, contract terms, and quality of service were the top categories of consumer complaints related to wireless phone service that commissions received in 2008. Specifically, among the 21 commissions that track wireless consumer complaints, 14 noted billing, 10 noted contract terms, and 10 noted quality of service as among the top three types of complaints commissions received in 2008. Additionally, 3 commissions specifically cited early termination fees as one of the top three categories of complaints they received in 2008.

In response to the areas of consumer concern noted above, wireless carriers have taken a number of actions in recent years. For example, officials from the four major carriers—AT&T, Sprint, T-Mobile, and Verizon—reported taking actions such as prorating their early termination fees over the period of the contract, offering service options without contracts, and providing Web-based tools consumers can use to research a carrier’s coverage area, among other efforts. In addition, in 2003, the industry adopted a voluntary code with requirements for dealing with customers and, according to CTIA–The Wireless Association, the wireless industry spent an average of $24 billion annually between 2001 and 2007 on infrastructure and equipment to improve call quality and coverage. Also, carriers told us they use information from third-party tests and customer feedback to determine their network and service performance and identify needed improvements. (See app. III for additional information about industry actions to address consumer concerns.)

Representatives of state agencies and various consumer and industry associations we interviewed expressed concern to us that many of the actions the industry has taken to address consumers’ concerns are voluntary and have not effectively addressed some major consumer concerns. For example, officials from some state public utility commissions indicated that there are no data to support the effectiveness of the wireless industry’s voluntary code and that this code lacks the level of oversight that state agencies can offer. Moreover, officials from state utility commissions and consumer associations we spoke with indicated that the industry’s actions to prorate early termination fees may be inadequate because the fees are not reduced to $0 over of the course of the contract period. Furthermore, some representatives of state agencies and consumer groups suggested that the industry has taken voluntary actions such as adopting the voluntary code and prorating early termination fees to avoid further regulation by FCC. Industry representatives, however, told us that the voluntary approach is more effective than regulation, since it gives the industry flexibility to address these concerns.

FCC Processes Wireless Consumer Complaints but Has Conducted Little Other Oversight of Services Provided by Wireless Phone Service Carriers

FCC processes tens of thousands of wireless consumer complaints each year but has conducted little additional oversight of services provided by wireless phone service carriers because the agency has focused on promoting competition. The agency receives informal consumer complaints and forwards them to carriers for response; however, our consumer survey results suggest that most wireless consumers with problems would not complain to FCC and many do not know where they could complain. FCC has also not articulated goals and measures that clearly identify the intended outcomes of its complaint-processing effort. Consequently, if wireless consumers do not know where they can complain or what outcome to expect if they do, they may be confused about where to go for help or what assistance they can expect from FCC. Additionally, FCC cannot demonstrate how well it is achieving the intended outcomes of its efforts. While FCC monitors wireless consumer complaints by reviewing the top categories of complaints received, it has conducted few in-depth analyses to identify trends or emerging issues, impeding its ability to determine whether its rules have been violated or if new rules may be needed.

FCC Processes Consumers’ Wireless Complaints, but Many Consumers May Not Know They Can Complain to FCC

FCC receives about 20,000 to 35,000 complaints each year related to services provided by wireless carriers, which the agency forwards to carriers for response. Given that our survey indicates that an estimated 21 percent of consumers who contact their carrier’s customer service about a problem are dissatisfied with the result, FCC’s efforts to process complaints are an important means for consumers to get assistance in resolving their problems. After reviewing a complaint received, FCC responds by sending the consumer a letter about the complaint’s status. If FCC determines that the complaint is valid, the agency sends the complaint to the carrier and asks the carrier to respond to FCC and the consumer within 30 days.

Once FCC receives a response from the carrier, the agency reviews the response, and if it determines the response has addressed the consumer’s complaint, it marks the complaint as closed. According to FCC officials, if the response is not sufficient, FCC contacts the carrier again. FCC officials told us they consider a carrier’s response to be sufficient if it responds to the issue raised in the consumer’s complaint; however, such a response may not address the problem to the consumer’s satisfaction. When FCC considers a complaint to be closed, it sends another letter to the consumer, which states that the consumer can call FCC with further questions or, if not satisfied with the carrier’s response, can file a formal complaint. FCC officials also told us that if a consumer is not satisfied, the consumer can request that FCC mediate with the carrier on his or her behalf; however, the letter that FCC sends to a consumer whose complaint has been closed does not identify mediation as an option. FCC closes most wireless phone service complaints within 90 days of receiving them. Specifically, according to FCC’s complaint data, the agency closed 61 percent of complaints received in 2008 within 90 days (see fig. 4).

FCC uses several methods to inform consumers that they may complain to the agency about their wireless phone service and has taken steps to improve its outreach. According to FCC officials, the agency provides information on how to complain to FCC on its Web site and in fact sheets that are distributed through various methods, including its Web site. Also, in response to a recommendation from its Consumer Advisory Committee in 2003 to improve outreach to consumers about the agency’s process for handling complaints, FCC switched from using one complaint form to having multiple forms for different types of complaints to make filing complaints easier for consumers. FCC also made its complaint forms and fact sheets available in Spanish and has distributed consumer fact sheets at outreach events and conferences. Furthermore, the agency created an e- mail distribution list for disseminating consumer information materials, which it used to inform consumers about the revised complaint forms. We have previously noted that it is important for an agency’s consumer protection efforts to inform the public effectively and efficiently about its role and how to seek redress. Additionally, we have reported on various ways an agency can communicate with the public about its efforts, including how exploring multiple methods for communicating with the public may improve public outreach. Such outreach methods can include making effective use of Web sites, e-mail listserves, or other Web-based technologies like Web forums, as well as requiring relevant companies to provide information to their customers. For example, many state utility commissions require landline carriers to include information on customers’ bills about how to contact the commission with a complaint.

Despite FCC’s efforts to improve its outreach, these efforts may not be adequately informing the public about the agency’s role in handling consumer complaints. Specifically, based on the results of our consumer survey, we estimate that 13 percent of adult wireless phone users would complain to FCC if they had a problem that their carrier did not resolve and that 34 percent do not know where they could complain. Therefore, many consumers that experience problems with their wireless phone service may not know to contact FCC for assistance or may not know at all whom they could contact for help. We reported these survey results in June 2009. In August 2009, noting our survey results, FCC sought public comment on whether there are measures the agency could take to ensure that consumers are aware of FCC’s complaint process, including whether FCC should require carriers to include information for consumers on their bills about how to contact FCC with a complaint.

FCC Lacks Goals and Measures That Articulate the Intended Outcomes of Its Efforts to Process Consumer Complaints

FCC’s goals and measures related to its efforts to process wireless consumer complaints do not clearly identify the intended outcomes of these efforts. The Government Performance and Results Act of 1993 (GPRA) requires an agency to establish outcome-related performance goals for its major functions. GPRA also requires an agency to develop performance indicators for measuring the relevant outcomes of each program activity in order for the agency to demonstrate how well it is achieving its goals.

The key goal related to FCC’s consumer complaint efforts is to “work to inform American consumers about their rights and responsibilities in the competitive marketplace.” This key goal also has a subgoal to “facilitate informed choice in the competitive telecommunications marketplace.” According to FCC officials, “informed choice” means consumers are informed about how a particular telecommunications market works, what general services are offered, and what to expect when they buy a service. FCC’s measure related to its efforts to process wireless consumer complaints under this subgoal is to respond to consumers’ general complaints within 30 days, which reflects the time it takes FCC to initially respond to the consumer about the status of a complaint. The measure does not clearly or fully demonstrate FCC’s achievement of its goal to facilitate informed consumer choice. Instead, it is a measure of a program output, or activity, not of the outcome the agency is trying to achieve. Another subgoal is to “improve customer experience with FCC’s call centers and Web site.” While this subgoal does identify an intended outcome, FCC does not have a measure related to this outcome that pertains to consumers who complain about services provided by their wireless carrier. FCC officials told us that they do not measure customer experience with the agency’s call centers and Web sites but sometimes receive anecdotal information from customers about their experiences.

We have previously reported that to better articulate results, agencies should create a set of performance goals and related measures that address important dimensions of program performance. FCC’s goals may not represent all of the important dimensions of FCC’s performance in addressing consumer complaints. A logical outcome of handling complaints is resolving problems or, if a problem cannot be resolved, helping the consumer understand why that is the case. However, it is not clear whether resolving problems is an intended outcome of FCC’s consumer complaint efforts. While FCC’s goals in this area indicate that informing consumers is a goal of the agency, some information from FCC implies that another intended outcome of these efforts is to resolve consumers’ problems. For example, FCC’s fact sheets state that consumers can file a complaint with FCC if they are unable to resolve a problem directly with their carrier, which may lead consumers to believe that FCC will assist them in obtaining a resolution. However, FCC officials told us that the agency’s role in addressing complaints, as outlined in the law, is to facilitate communication between the consumer and the carrier and that FCC lacks the authority to compel a carrier to take action to satisfy many consumer concerns. Thus, it is not clear if the intended outcome of FCC’s complaint-handling efforts is resolving consumer problems, fostering communication between consumers and carriers, or both. Furthermore, FCC has not established measures of its performance in either resolving consumer problems or fostering communication between consumers and carriers. For example, FCC does not measure consumer satisfaction with its complaint-handling efforts. Without clear outcome-related goals and measures linked to those goals, the purpose and effectiveness of these efforts are unclear, and the agency’s accountability for its performance is limited.

As noted above, consumers may not know to contact FCC if they have a complaint about their wireless phone service. Additionally, because FCC has not clearly articulated the intended outcomes of its complaint- processing efforts, consumers may not know the extent to which FCC can aid them in obtaining a satisfactory resolution to their concerns, and since FCC’s letters to consumers do not indicate that mediation is available, consumers may not know that they can request this service from FCC. Consequently, consumers with wireless service problems may be confused about where to seek assistance and what kind of assistance to expect if they do know they can complain to FCC.

FCC Has Few Rules That Address Services Provided by Wireless Phone Service Carriers

FCC has few rules that specifically address services consumers receive from wireless phone service carriers, and in general, the agency has refrained from regulating wireless phone service in order to promote competition in the market. FCC’s rules include general requirements for wireless carriers to provide services upon reasonable request and terms and in a nondiscriminatory manner, and to respond to both informal and formal complaints submitted to FCC by consumers. FCC also has specific rules requiring wireless carriers and other common carriers to present charges on customers’ bills that are clear and nonmisleading, known as truth-in-billing rules. Additionally, FCC’s rules establish other consumer protections, such as requiring wireless carriers to provide enhanced 911 and other emergency services and number portability rules that allow customers to keep their phone numbers when switching between wireless carriers or between landline and wireless services. While FCC has rules that cover billing, the agency has not created specific rules governing other key areas of recent consumer concern that we identified (see table 3).

According to FCC, the agency does not regulate issues such as carriers’ contract terms or call quality, since the competitive marketplace addresses these issues, leading carriers to compete on service quality and proactively respond to any related concerns from consumers. Additionally, having determined that exempting carriers from certain regulations will promote competition, FCC has used its authority under the 1993 Act to exempt wireless carriers from some rules that apply to other communications common carriers. For example, in 1994, FCC exempted wireless carriers from rate regulations that apply to other common carriers. FCC has stated that promoting competition was a principal goal of the 1993 Act under which Congress established the regulatory framework for wireless phone service oversight. As required by the 1993 Act, in exempting wireless phone service carriers from regulations in order to promote competition, as FCC has done, FCC must determine that such exemption is in the public interest and that the regulations are not necessary for the protection of consumers.

FCC officials told us that the agency has taken a “light touch” in regulating the industry because it is competitive and noted that carriers compete with one another to provide better service. FCC proposed rules in 2005 for wireless carriers to address further regulation of billing practices and, in 2008, to address carriers’ reporting of service quality information such as customer satisfaction and complaint data. FCC has received comments on both proposals but has taken no further action to date. In August 2009, as part of its effort to seek comment on a number of telecommunications consumer issues, FCC sought comment on the effectiveness of its truth-in- billing rules and whether changes in these rules are needed.

FCC Has Conducted Limited Monitoring of Wireless Consumer Complaints and Has Not Enforced Its Billing Rules for Wireless Carriers

FCC monitors informal complaints submitted by consumers to determine whether further regulation is needed and if the wireless industry is complying with the agency’s rules, but such monitoring is limited. According to FCC officials, trends in consumer complaint data may alert them to the need for changes in regulation. Furthermore, FCC has acknowledged that when exempting telecommunications service providers, such as wireless carriers, from its regulations, the agency has a duty to ensure that consumer protection needs are still met. FCC’s Consumer and Governmental Affairs Bureau reviews the top categories of complaints reported in the agency’s quarterly reports of consumer complaints and looks for trends. FCC officials said that the agency does not routinely conduct more in-depth reviews of the nature of wireless consumer complaints unless they are needed to support an FCC decision- making effort, such as a rulemaking proceeding. FCC does not document its monitoring of consumer complaints and does not have written policies and procedures for routinely monitoring complaints.

FCC has taken a number of actions to enforce its rules that apply to wireless phone service carriers, but the agency has conducted no enforcement of its truth-in-billing rules as they apply to wireless service. One of the agency’s performance goals is to enforce FCC’s rules for the benefit of consumers. According to representatives of FCC’s Enforcement Bureau, trends in consumer complaints that identify potential violations of FCC rules may signal the need for FCC to conduct an investigation, which could lead to an enforcement action. For example, in reviewing complaint data, the bureau identified five wireless carriers that had not responded to consumer complaints, which in 2008, led the agency to initiate enforcement actions against these carriers. However, Enforcement Bureau officials told us that they have not reviewed complaints to look for potential wireless truth-in-billing rules violations. Under the method it currently uses to categorize informal complaints, FCC cannot easily determine whether complaints may indicate a potential violation of FCC’s truth-in-billing rules. For example, FCC officials told us that while the agency uses category codes to identify types of complaints related to billing, such as codes for rates, line items, and fees, FCC officials would have to review complaints individually to determine whether they revealed a potential violation of its truth-in-billing rules—an analysis FCC has not conducted. Furthermore, according to FCC officials, since the application of the agency’s truth-in-billing rules to wireless carriers was expanded in 2005, the agency has conducted no formal investigations of wireless carriers’ compliance with these rules because investigating other issues has been a priority and FCC has received no formal complaints in this area. Since our consumer survey indicates that about a third of consumers responsible for paying their wireless bills have had problems understanding their bill or received unexpected charges, the enforcement of truth-in-billing rules is important for the protection of consumers.

Lacking in-depth analysis of its consumer complaints, FCC may not be aware of trends or emerging issues related to consumer problems, if specific rules—such as the truth-in-billing rules—are being violated, or if additional rules are needed to protect consumers. Our standards for internal control in the federal government state that agencies should have policies and procedures as an integral part of their efforts to achieve effective results. Without adequate policies and procedures for conducting such analyses of its consumer complaints, FCC may not be able to ensure that its decisions to exempt carriers from regulation promote competition and protect consumers.

State Utility Commissions’ Efforts to Oversee Wireless Phone Service Are Varied, Their Regulatory Authority Is Unclear, and Communication with FCC Is Infrequent

Results of our survey of state utility commissions show that while most commissions process wireless consumer complaints, most do not regulate wireless phone service. Representatives of state utility commissions and other stakeholders we interviewed told us that states’ authority under federal law to regulate wireless phone service is unclear, and this lack of clarity has, in some cases, led to costly legal proceedings and some states’ reluctance to provide oversight. Additionally, based on the results of our survey, communication between these commissions and FCC regarding oversight of wireless phone service is infrequent.

Most State Utility Commissions Accept Wireless Consumer Complaints, but States’ Efforts to Address Complaints Vary

In response to our survey of 51 state utility commissions, 33 commissions reported receiving complaints about wireless phone service, which they process in different ways. Specifically, 20 of these commissions work with the consumer and/or wireless carrier to resolve wireless complaints, while the other 13 commissions that accept complaints forward the complaint or refer the consumer to the relevant wireless carrier or another government entity. States that forwarded complaints or referred consumers to other government entities most frequently did so to FCC or a state attorney general, with some complaints also going to the Federal Trade Commission, a state consumer advocate, or another state agency. State utility commission officials we spoke with in California, Nebraska, and West Virginia, which all accept complaints and work with carriers and consumers to resolve them, told us that they have access to higher-ranking carrier representatives than consumers who call the carriers directly. This access, they said, helps them resolve wireless consumer complaints in an effective and timely manner. Twenty-one of the 33 commissions that accept complaints reported recording and tracking the number and types of wireless phone service complaints they receive. Based on the responses of commissions to our survey, they received a total of 8,314 wireless service complaints in 2008.

Most State Utility Commissions Do Not Regulate Wireless Phone Service

Most commissions do not regulate wireless phone service. As noted previously, under federal law, states may regulate “terms and conditions” of wireless phone service, although they are preempted from regulating rates and entry. In response to our survey, 19 commissions reported having rules (or regulations) for wireless phone service, either for telecommunications services generally, including wireless service, or wireless services specifically (see fig. 5).

Few commissions have rules within the following five main areas related to the terms and conditions of wireless service we asked about in our survey: service quality, billing practices, contract or agreement terms and conditions, advertising disclosures, and disclosure of service terms and conditions. Specifically, the number of commissions that have rules in these areas ranges from 3 that have rules about disclosure of service terms and conditions to 15 that have rules about service quality (see fig. 6).

While fewer than half of the commissions have wireless rules, most designate wireless carriers as eligible telecommunication carriers (ETC) to receive universal service funds for serving high-cost areas. Although ETC status is not required for a wireless carrier to operate in a high-cost area, it is required if the carrier wants to receive universal service funding. We previously reported that wireless carriers often lack the economic incentive to install wireless towers in rural areas where they are unlikely to recover the installation and maintenance costs, but high-cost program support allows them to make these investments. Most commissions place conditions on receiving these funds related to various aspects of service. Specifically, 41 commissions in our survey reported having processes to designate wireless carriers as ETCs, and 31 reported placing such conditions on carriers to receive these funds. For example, the Nebraska state commission requires designated wireless ETCs to submit reports about coverage, service outages, complaints, and their use of universal service funding. For each of the five main areas related to the terms and conditions of service we asked about, more commissions reported having conditions for wireless ETCs than rules for wireless carriers (see fig. 6). Such conditions would not apply to wireless carriers generally—only to those carriers designated as ETCs to provide services in high-cost areas.

Few state utility commissions—five—reported taking enforcement action against wireless phone service carriers since the beginning of 2004. According to national organizations representing state agencies, states’ concerns about the cost of pursuing these issues in court have created a reluctance to do so.

State utility commissions generally cannot regulate wireless phone service unless they are granted authority to do so by state law. According to our survey of state utility commissions, many state commissions do not have authority to regulate wireless phone service, and most that do have authority indicated that it is limited. Specifically, 21 commissions reported having authority to regulate wireless phone service, with 5 commissions indicating they have authority to regulate in all areas related to the terms and conditions of service (excluding those aspects of service preempted by federal law) and 16 indicating they have authority to regulate in some areas. Twenty-one commissions reported that they do not have wireless regulatory authority and another 9 commissions would not assert whether they did or did not have wireless regulatory authority for various reasons (see fig. 7). As discussed in the next section, according to some state officials, the lack of authority or limited authority in many states to regulate wireless phone service may be due to concerns about the lack of clarity in federal law regarding states’ authority to regulate wireless phone service.

The Extent of States’ Authority to Regulate Wireless Phone Service under Federal Law Is Unclear

State authority under federal law to regulate wireless phone service is not clear, based on the views of stakeholders we interviewed, court cases, FCC proceedings, a 2005 FCC task force report, and comments in our survey of state utility commissions. As discussed earlier, in 1993, Congress developed a wireless regulatory framework that expressly prohibited states from regulating the market entry or rates charged by wireless phone service carriers, while retaining states’ authority to regulate other “terms and conditions” of wireless service. In an accompanying report, Congress stated that “terms and conditions” was intended to include billing practices and disputes, as well as other consumer protection matters. The report further stated that examples of service it provided that could fall within a state’s lawful authority under “terms and conditions” were illustrative and not meant to preclude other matters generally understood to fall under “terms and conditions.” Despite this guidance, whether specific aspects of service are considered “rates” or “terms and conditions” has been the subject of disputes at FCC, in state regulatory bodies, and in the courts. For example, courts have recently been grappling with cases about whether billing line items and early termination fees are defined as “rates,” and are therefore not subject to state regulation, or as other “terms and conditions,” which may be regulated by states. Such cases have not resolved the issue, as courts have reached different conclusions about the meaning of these terms or await action by FCC. (See app. IV for examples of legal proceedings that address states’ authority to regulate terms and conditions of wireless phone service.)

FCC has provided limited guidance about the meaning of “terms and conditions.” The agency did offer preliminary observations in response to petitions states filed with FCC seeking to continue regulating wireless rates and in a few other proceedings. For example, in 1995, FCC noted that while states could not set or fix wireless rates in the future, they could process consumer complaints under state law because “terms and conditions” was flexible enough to allow states to continue in this role. FCC has also said that states may designate wireless carriers as ETCs and that states may impose consumer protection requirements on wireless carriers as a condition for ETC designation. In 1999, FCC concluded that billing information, practices, and disputes fall within these other terms and conditions. Subsequently, in 2005, as part of its truth-in-billing proceeding, FCC concluded that regulation of line items by states constituted rate regulation, thereby preempting state authority; however, this conclusion was rejected by the Eleventh Circuit Court of Appeals. In this proceeding, FCC also asked commenters to address the proper boundaries of “other terms and conditions” and to describe what they believe should be the roles of FCC and the states in defining carriers’ billing practices. However, this proceeding is still open, and FCC has taken no further action to define the proper role of states in regulating billing practices.

The lack of clarity regarding states’ authority to regulate wireless service has led to delays in deciding some legal matters and some states’ reluctance to provide oversight. In some instances, when hearing cases involving early termination fees, courts have halted proceedings pending FCC’s resolution of its own proceedings examining whether such fees should be defined as “rates” or “terms and conditions.” For example, in 2008, rather than issue a ruling, a U.S. District Court in the state of Washington deferred to FCC a case against a wireless carrier involving early termination fees, citing FCC’s primary jurisdiction over the issue. According to FCC officials, when courts defer cases to FCC, the agency does not automatically address the issue, but requires that a party file a petition asking FCC to do so. Officials of national organizations representing state agencies and officials from state agencies we interviewed told us that some states are reluctant to regulate wireless phone service until their authority is clarified. This is due, in part, to the potential legal costs that could be incurred if their authority is challenged in court by the industry. Such reluctance may lead to less consumer protection in certain states that otherwise might issue regulations.

As we have previously reported, to develop an efficient and effective regulatory framework, the appropriate roles of participants, including states, should be identified. Because of the lack of clarity noted above, various stakeholders have expressed a desire for clearer roles for FCC and the states in providing wireless phone service oversight. For example, officials of national organizations representing state agencies, as well as officials from state agencies we interviewed, told us that clarity from Congress or FCC about the scope of state authority in regulating wireless phone service is needed. Some industry representatives also told us that there should be better guidance on the respective roles of state and federal agencies. A report by the FCC Wireless Broadband Access Task Force in 2005 recommended that FCC further clarify states’ authority to regulate “terms and conditions,” saying ambiguity about this authority has resulted in several disputes at FCC, in state regulatory bodies, and in the courts, and has caused significant regulatory uncertainty that will adversely affect investment in and deployment of wireless networks and other services. In 2005, CTIA–The Wireless Association petitioned FCC to declare that early termination fees are rates, and FCC sought comment on the petition. Recently, when CTIA–The Wireless Association withdrew its petition, four consumer groups opposed its withdrawal, hoping that FCC would offer some clarity on whether early termination fees are subject to state laws and regulations in order to help resolve some pending state lawsuits.

State, consumer, and industry stakeholders hold varying views about how the meaning of “terms and conditions” should be clarified, which would affect states’ authority to regulate wireless phone service. Industry representatives argue that “terms and conditions” should be defined narrowly, which would preempt states’ ability to regulate aspects of wireless phone service that fall outside the definition. For example, industry representatives have stated that early termination fees and billing line items should be considered “rates,” rather than “terms and conditions,” which would preclude state utility commissions from regulating these aspects of service. In general, industry representatives have supported regulation at only the federal level, which they claim would avoid inconsistent state regulatory requirements they say would add to their costs. In contrast, state agency representatives and some consumer organizations have supported clarifying the meaning of “terms and conditions” to broadly encompass various aspects of wireless phone service, since they oppose efforts to preempt states’ regulatory authority. For example, state consumer advocates and consumer organizations have argued that aspects of service such as early termination fees and billing line items should fall within the definition of “terms and conditions” of service that states have authority to regulate. These representatives argue that states should have authority to create and enforce wireless phone service regulations, since they claim states are better positioned to effectively address consumers’ problems.

FCC’s Communication with State Utility Commissions Regarding Oversight of Wireless Phone Service Is Infrequent

Based on the results of our survey of state utility commissions, communication between FCC and state commissions about wireless phone service oversight is infrequent. Eleven state commissions indicated they had communicated with FCC about wireless phone service oversight issues during the last 6 months of 2008, and 33 commissions reported they had no contact with FCC about wireless phone service oversight during that time. Four of the 11 state commissions reported having communication with FCC during that 6-month period about wireless phone service complaints the state commissions had received from consumers. State utility commission officials we interviewed in California, Nebraska, and West Virginia said there was a need for better communication between FCC and the states regarding wireless phone service oversight, and the National Association of Regulatory Utility Commissioners has called for more focused and routine dialogue between FCC and the states, including a formal process to discuss jurisdictional issues.

While FCC officials told us they routinely coordinate with state utility commissions about the handling of wireless complaints, they have no written policies or procedures on how they communicate with the states about wireless phone service oversight issues. FCC officials do participate in monthly conference calls with state utility commissions and state attorneys general during which wireless phone service oversight issues can be discussed. However, the state utility commission organizer of this conference call told us that wireless issues are rarely discussed, in part because few states actively regulate wireless phone service.

Communication between federal and state agencies that share oversight of a particular industry—such as between FCC and state utility commissions—can be useful for sharing expertise and information, such as data on consumer complaints that could be used to identify problems that may warrant regulatory oversight. As noted earlier, federal law provides that oversight of wireless phone service is a responsibility shared by FCC and the states. Also FCC, in issuing its rules for implementing the wireless regulatory framework created by the 1993 Act, agreed with a suggestion by the National Association of Regulatory Utility Commissioners that state and federal regulators should cooperate in monitoring the provision of wireless services and share monitoring information. We previously reported that collaboration between agencies tasked with shared responsibilities produces more public value than independent actions by such agencies. These practices include identifying and addressing needs by leveraging resources to support a common outcome and agreeing on roles and responsibilities in agency collaboration. Additionally, we have recently developed a framework with characteristics of an effective system for providing regulatory oversight. One characteristic of this framework is a systemwide focus—among both federal and state regulators—with mechanisms for identifying consumer concerns that may warrant regulatory intervention, while another characteristic is an efficient and effective system within which the appropriate role of the states has been considered, as well as how the federal and state roles can be better harmonized. Without effective communication between FCC and state regulators, FCC may not be able to ensure such focus and clear delineation of the federal and state roles.

Without written policies and procedures for how FCC communicates with states about wireless phone service oversight, FCC may be missing opportunities to work with its state partners in conducting oversight, such as sharing complaint data that could be used for monitoring trends. This lack of communication may also limit FCC’s awareness of issues the states are encountering in their oversight of wireless carriers. Additionally, without clear awareness of state-level efforts, FCC may not be aware of inconsistencies among state oversight efforts that could indicate a need for changes in its regulations.

Conclusions

Although the percentages of consumers dissatisfied with various aspects of their wireless phone service are small, these small percentages represent millions of people. By emphasizing its responsibility under the law to foster a competitive marketplace for wireless service, FCC has contributed to the industry’s growth and to innovative products and services that have benefited consumers. Nevertheless, FCC’s responsibility to protect consumers from harm remains critical, particularly given the growing numbers of wireless service consumers and the limited number of requirements governing key aspects of service that are currently of concern to consumers.

FCC’s processing of consumers’ informal complaints may be an important means for dissatisfied consumers to get help, but as long as FCC lacks clear outcome-related goals and measures for this process, consumers do not know what they can expect from it, and FCC cannot demonstrate its effectiveness in assisting consumers who need help. While most states accept wireless consumer complaints, many do not work with the carrier and the consumer to resolve those complaints, making FCC’s efforts an important resource for consumers in those states that do not accept or work to resolve complaints. However, if, as our survey of wireless users suggests, most consumers are not aware they can complain to FCC, those with problems may not know how to seek a fair resolution. Furthermore, without policies and procedures to monitor consumers’ concerns and thereby identify problems that may warrant regulatory or enforcement action, the FCC cannot ensure that consumers are adequately protected under the competitive deregulatory framework the agency has fostered.

Finally, without clear guidance for states on the extent of their regulatory authority under federal law, or policies and procedures for how to communicate with states about wireless phone service oversight, FCC could be missing opportunities to partner with state agencies in developing an effective regulatory system. The lack of clarity about states’ authority may discourage some states from taking action to protect consumers. While FCC does have efforts to assist consumers, leveraging state resources by clarifying state authority would better ensure that identified problems can be addressed effectively at either the state or the federal level. Additionally, policies and procedures to guide how FCC and the states communicate would help ensure that FCC and the states are sharing information to guide their oversight. Improved communication between FCC and state regulators could help both parties ensure they are providing effective oversight with a systemwide focus and clearer roles enabling them to better identify trends in complaints and emerging consumer concerns that may warrant changes in regulation.

Recommendations for Executive Action

We are making the following five recommendations to the Chairman of the Federal Communications Commission: To improve the effectiveness and accountability of FCC’s efforts to oversee wireless phone service, direct the commission to 1. clearly inform consumers that they may complain to FCC about problems with wireless phone service and what they can expect as potential outcomes from this process, and expand FCC’s outreach to consumers about these efforts; 2. develop goals and related measures for FCC’s informal complaint- handing efforts that clearly articulate intended outcomes and address important dimensions of performance; and 3. develop and implement policies and procedures for conducting documented monitoring and analysis of consumer complaints in order to help the agency identify trends and emerging issues and determine whether carriers are complying with existing rules or whether new rules may be needed to protect consumers.

To better ensure a systemwide focus in providing oversight of wireless phone service and improve FCC’s partnership with state agencies that also oversee this service, direct the commission to 4. develop and issue guidance delineating federal and state authority to regulate wireless phone service, including pulling together prior rulings on this issue; addressing the related open proceedings on truth- in-billing and early termination fees; and, if needed, seeking appropriate statutory authority from Congress; and 5. develop and implement policies and procedures for communicating with states about wireless phone service oversight.

Agency Comments

We provided a draft of this report to FCC for its review and comment. FCC provided written comments, which appear in appendix V. FCC agreed with our recommendation on monitoring and had no position on the others, but noted it has started to take steps to address the issues we raise in our report. In particular, FCC noted that its August 2009 notice of inquiry sought comment on a number of issues related to the findings and recommendations in this report. The agency views this action as the first step in implementing several of the report’s recommendations.

Regarding clearly informing consumers about its complaint process and expanding outreach to consumers, FCC noted that its notice of inquiry sought comment on whether the agency should take measures to ensure that consumers are aware of its complaint process. Additionally, FCC noted that it intends to do more to better inform consumers of its services to assist consumers, including making it clear that consumers can request that FCC mediate with their carrier on their behalf. Regarding developing goals and measures that clearly articulate the intended outcomes of its complaint-handling efforts, FCC noted that it already has some performance measures for these efforts and, that since the outcome of each complaint varies depending on its particular circumstances, the appropriate performance measures for this effort should measure its procedural aspects rather than its substantive outcomes. We note, however, that as we indicated in this report, it is not clear to consumers what they can expect from FCC’s complaint process. Articulating the intended outcome of this process—whether it be to help consumers resolve their problems, facilitate communication between carriers and consumers, or both—would provide consumers with a better understanding of the purpose of this effort, as well as help the agency better demonstrate results. Regarding our recommendation to develop and implement documented monitoring of its consumer complaints, FCC noted that it has been working to make improvements to its complaint database, including its analytical tools, which will facilitate such monitoring.

Regarding the development of guidance delineating federal and state authority to regulate wireless phone service, FCC noted that, in response to its August 2009 notice of inquiry, the agency is currently updating the public record regarding its truth-in-billing rules and carriers’ early termination fees, and expects to use this as the basis for potential federal regulatory action, which could include delineating areas within the states’ authority that the record indicates should be addressed. Regarding policies and procedures for communicating with states about wireless phone service oversight, FCC noted that it is always looking for new and better ways to communicate with its state partners and that its recent notice of inquiry also asks whether FCC can take further action to reach out to state, as well as federal, local, and tribal government entities.

We also provided FCC a draft of this report’s related e-supplement, GAO-10-35SP, containing additional results of our surveys of consumers and state utility commissions. FCC indicated it did not have any comments in response to the e-supplement.

As we agreed with your offices, unless you publicly announce the contents of this report earlier, we plan no further distribution of it until 30 days from the date of this letter. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-2834 or goldsteinm@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. Contact information and major contributors to this report are listed in appendix VI.

Appendix I: Objectives, Scope, and Methodology

This report examines (1) consumers’ satisfaction with wireless phone service and problems they have experienced with this service, as well as the industry’s response to these problems; (2) the Federal Communication Commission’s (FCC) efforts to oversee services provided by wireless phone service carriers; and (3) state utility commissions’ efforts to oversee services provided by wireless phone service carriers.

To respond to the overall objectives of this report, we interviewed FCC officials and reviewed documents obtained from the agency. We also reviewed relevant laws and FCC regulations. Additionally we interviewed individuals representing consumer organizations, state agencies, and the industry to obtain their views on wireless phone service consumer concerns and oversight efforts. Table 4 lists the organizations with whom we spoke.

To obtain information about consumers’ satisfaction with wireless phone service and problems they have experienced with this service, we conducted a telephone survey of the U.S. adult population of wireless phone service users. Our aim was to produce nationally representative estimates of adult wireless phone service users’ (1) satisfaction with wireless service overall and with specific aspects of service, including billing, terms of service, carriers’ explanation of key aspects of service, call quality and coverage, and customer service; (2) frequency of problems with billing and call quality; (3) desire to switch carriers and barriers to switching; and (4) knowledge of where to complain about problems. Percentage estimates have a margin of error of less than 5 percentage points, unless otherwise noted. We conducted this survey of the American public from February 23, 2009, through April 5, 2009. A total of 1,143 completed interviews were collected, and calls were made to all 50 states. Our sampling approach included randomly contacting potential respondents using both landline and cell phone telephone numbers. Using these two sampling frames provided us with a more comprehensive coverage of adult cell phone users than if we had sampled from only one frame.

Because we followed a probability procedure based on random selections, our sample is only one of a large number of samples that we might have drawn. Since each sample could have provided different estimates, we express our confidence in the precision of our particular sample’s results as a 95 percent confidence interval. This is the interval that would contain the actual population value for 95 percent of the samples we could have drawn. As a result, we are 95 percent confident that each of the confidence intervals in this report will include the true values in the study population.

Each sampled adult was subsequently weighted in the analysis to account statistically for all of the adult cell phone users of the population. The final weight applied to each responding adult cell phone user included an adjustment for the overlap in the two sampling frames, a raking adjustment to align the weighted sample to the known population distributions from the 2009 supplement of the U.S. Census Bureau’s Current Population Survey and the Centers for Disease Control and Prevention’s 2008 National Health Interview Survey, and an expansion weight to ensure the total number of weighted adults represent an estimated adult population eligible for this study.

We conducted an analysis of the final weighted estimates from our survey designed to identify whether our results contain a significant level of bias because our results inherently do not reflect the experiences of those who did not respond to our survey—i.e., a nonresponse bias analysis. We compared unadjusted weighted estimates and final, nonresponse-adjusted weighted estimates of the proportion of U.S. adults’ cell phone usage to similar population estimates from the 2008 National Health Interview Survey, which also includes questions about household telephones and whether anyone in the household has a wireless phone. While we identified evidence of potential bias in the unadjusted weighted estimate, the final weighting adjustments appear to address this potential bias, and we did not observe the same level of bias when examining the final weighted estimates. Based on these findings, we chose to include final weighted estimates at the national level from our survey in the report. In addition, we identified all estimates in the report with margins of error that exceeded plus or minus 5 percentage points and we did not publish estimates with a margin of error greater than plus or minus 9 percentage points.

Telephone surveys require assumptions about the disposition of noncontacted sample households that meet certain standards. These assumptions affect the response rate calculation. For this survey the response rate was calculated using the American Association of Public Opinion Research (AAPOR) Response Rate 3, which includes a set of assumptions. Based on these assumptions, the response rate for the survey was 32 percent; however, the response rate could have been lower if different assumptions had been made and might also be different if calculated using a different method. We used random digit dial (RDD) sampling frames that include both listed and unlisted landline numbers from working blocks of numbers in the United States. The RDD sampling frame approach cannot provide any coverage of the increasing number of cell-phone-only households and limited coverage of cell-phone-mostly households (i.e., households that receive most of their calls on cell phones in spite of having a landline). Because of the importance of reaching such households for this survey about wireless phone service, we also used an RDD cell phone sampling frame. The RDD cell phone sampling frame was randomly generated from blocks of phone numbers that are dedicated to cellular service. About 43 percent of the completed interviews were from the RDD cell phone sample.

Because many households contain more than one potential respondent, obtaining an unbiased sample from an RDD frame of landline numbers requires interviewing a randomly selected respondent from among all potential respondents within the sampled household (as opposed to always interviewing the individual who initially answers the phone). We obtained an unbiased sample by using the most recent birthday method, in which the interviewer asks to speak to the household member aged 18 or older with a wireless phone who had the most recent birthday. If the respondent who was identified as the member of the household with the most recent birthday was unavailable to talk and asked to schedule a callback, the call representative recorded the person’s name and preferred telephone number for the callback. There were also cases when a respondent from the cell phone sample asked to be called back on his or her landline. These respondents, if they completed the survey, were considered a completed interview from the cell phone sample. There were no respondent selection criteria for the cell phone sample; each number dialed from the cell phone sample was assumed to be a cell phone number, and each cell phone was assumed to have only one possible respondent to contact.

The results of this survey reflect wireless phone users’ experience with their current or most recent wireless phone service from the beginning of 2008 through the time they were surveyed. Not all questions were asked of all respondents. For example, questions about the prevalence of billing problems were asked only of respondents who indicated they were solely or jointly responsible for paying for their service. Additionally, satisfaction with wireless coverage for particular locations (i.e. at home, at work, and in a vehicle) was calculated only among respondents who indicated they used their wireless phone service in those locations. The survey and a more complete tabulation of the results can be viewed by accessing GAO-10-35SP.

To identify the type and nature of problems consumers have experienced in recent years with their wireless phone service, we interviewed officials from FCC, consumer organizations, national organizations that represent state agency officials, and state agency officials from three selected states—California, Nebraska, and West Virginia—representing utility commissions, offices of consumer advocates, and offices of attorneys general (see table 4). We selected these states based on their varying geography, populations, region, and approaches to overseeing wireless phone service, as indicated in part by information obtained from national organizations representing state agency officials. We also interviewed officials from the four major wireless carriers, two selected smaller carriers that serve mostly rural areas, and wireless industry associations. In addition, we reviewed documents obtained from some of these sources. We also analyzed FCC’s wireless complaint data on complaints received from 2004 through 2008. We reviewed FCC’s processes for generating these data and checked the data for errors and inconsistencies. We determined that the data were sufficiently reliable for the purposes of this review. We also obtained the total number of wireless complaints received in 2008 by the 21 state utility commissions that record and track wireless phone service consumer complaints. While we did not assess the reliability of the state complaint data, we are providing the numbers of complaints states reported receiving for illustrative purposes.

To identify major actions the industry has taken in recent years to address consumers’ concerns, we interviewed the industry organizations named above and reviewed related documentation (see table 4). We also requested service quality information from the four major carriers, including measures of network performance and the number and types of customer complaints. Carriers told us that this information is proprietary and sensitive, and as we did not obtain comparable information from all four carriers, we were not able to present any aggregate information based on these data. Additionally, we interviewed consumer, state, and federal stakeholders about the effectiveness of industry efforts to address consumers’ concerns (see table 4).

To evaluate how FCC oversees wireless phone service, including the agency’s efforts to process complaints, monitor sources of information to inform policy decisions, and create and enforce rules, we interviewed FCC officials about these activities and reviewed related documentation obtained from these officials. We also reviewed relevant laws, regulations, and procedures, as well as FCC’s quarterly complaint reports, strategic plan, and budget with performance goals and measures. In addition, we reviewed requirements of the Government Performance and Results Act of 1993 and our prior recommendations on performance goals and measures and determined whether FCC’s efforts to measure the performance of its efforts to process consumer complaints are consistent with these requirements and recommendations. We also interviewed consumer, state, and industry stakeholders about their views on FCC’s efforts to provide oversight (see table 4). We focused our review on FCC’s oversight of wireless phone service issues that have been major areas of concern for consumers in recent years, specifically targeting consumer protection efforts and those actions related to how wireless carriers interact with and serve their customers. We did not assess how FCC oversees a number of other facets of the wireless industry, including competition, spectrum allocation, licensing, construction, technical issues such as interference, public safety, or the agency’s obligations under the Telephone Consumer Protection Act and the Controlling the Assault of Non-Solicited Pornography and Marketing Act.

To describe state utility commissions’ efforts to oversee wireless phone service, we surveyed commissions in all 50 states and the District of Columbia. We conducted this survey from March 3, 2009, through April 1, 2009. We received responses from all 51 commissions, which we obtained through a Web-based survey we administered and subsequent follow-up with some states. The survey and a more complete tabulation of the results can be viewed by accessing GAO-10-35SP. To obtain illustrative information about these issues, we interviewed state officials in public utility commissions, consumer advocate offices, and offices of attorneys general in three selected states (California, Nebraska, and West Virginia). Although we met with the offices of the state attorneys general in the three selected states and a national organization representing state attorneys general, we did not attempt to assess the full breadth of involvement of state attorneys general in addressing wireless phone service consumer concerns.

Appendix II: Analysis of FCC Wireless Consumer Complaint Data

Overall, the number of informal consumer complaints FCC has received about the service provided by wireless phone carriers has decreased since 2004 (see table 5). FCC received 20,753 complaints about the service provided by wireless phone carriers in 2008, the second-lowest total since 2004.

From our analysis of FCC data on complaints about the service provided by wireless phone carriers from 2004 through 2008, we identified specific problem areas that complaints cited within the major complaint categories: Billing and rates: Within this category, specific issues consumers complained about included problems obtaining credits, refunds, or adjustments to their bills; charges for minutes talking on a wireless phone; recurring charges on their bills; rates; and unauthorized or misleading charges. Of the nearly 55,000 billing complaints FCC received during this period, there were 28,000 focused on obtaining credits, refunds, or billing adjustments. FCC also received almost 9,000 billing complaints about charges for minutes talking on a wireless phone. Additionally, there were more than 5,500 complaints about recurring charges on consumers’ bills and more than 5,500 complaints about the rates they received from their wireless service providers. Finally, our analysis of FCC’s data identified more than 2,100 wireless complaints concerning unauthorized, misleading, or deceptive charges (known as “cramming”).

Call quality: Within this category, the majority of consumers complained about three issue areas: the quality of wireless phone service in their local service area, the premature termination of calls (i.e., “dropped calls”), and the inability to use their wireless phone because of service interruption by wireless phone service providers. Specifically, of the more than 14,000 call quality complaints FCC received during this period, more than 7,300 were about the quality of wireless phone service in the local service area. FCC also received more than 3,200 complaints about dropped calls and more than 2,000 complaints about interruption of service by wireless service providers.

Contract early termination: This category includes termination of wireless phone service by the consumer or by the carrier. Nearly 12,000, or just under 90 percent, of all terms-of-service contract complaints FCC received were about termination by consumers prior to the end of a specified contract term, which would result in an early termination fee.

Customer service: Customer service complaints were the fourth largest category of complaints; however, FCC did not report customer service complaints as a top category of complaints in its quarterly reports from 2004 through 2008. In comparison, FCC identified carrier marketing and advertising as a top category of complaint in each year from 2004 through 2008, even though there were more customer service complaints in 2005, 2006, and 2007. An FCC official told us they did not include customer service complaints in the quarterly reports because they fell within the “other” category, which FCC does not report. FCC also indicated that the large decrease in the number of customer service complaints from more than 3,500 in 2007 to fewer than 500 in 2008 was due in part to the agency’s redesign of its complaint forms, which allows for more accurate coding of complaints under specific topics rather than placing them in the “service treatment” category FCC uses to track customer service issues.

Appendix III: Industry Actions to Address Wireless Consumer Concerns

The wireless phone service industry has taken some actions to address the types of consumer concerns we identified. Specifically, in 2003, the industry adopted a voluntary code, and since then, carriers have taken other measures. Table 6 outlines how elements of the industry code and examples of subsequent major actions we identified among the four largest carriers correspond to the key areas of consumer concern we identified.

Appendix IV: Examples of Actions Taken by FCC and Courts Regarding States’ Authority to Regulate Wireless Phone Service

Federal law provides that while a state may not regulate a wireless carrier’s rates or entry, it may regulate the other terms and conditions of wireless phone service. Section 332(c)(3)(A) of title 47 of the U.S. Code does not define what constitutes rate and entry regulation or what comprises other terms and conditions of wireless phone service. This has left it up to FCC and courts to further define which specific aspects of service fall within the scope of these respective terms. Recently, two areas have garnered much attention at FCC and in the courts—the ability of states to regulate billing line items and the imposition of early termination fees. However, clarity has not yet been achieved.

Billing Line Items

One area of disagreement is whether billing line items, such as surcharges and taxes that appear on consumers’ wireless bills, should be considered a rate or a term and condition of service. In 2005, under its truth-in-billing proceeding, FCC held that state regulations requiring or prohibiting the use of line items for wireless carriers constituted rate regulation and therefore were preempted. In the same proceeding, FCC solicited comments on the proper boundaries of “other terms and conditions” within the statute and asked commenters to delineate what they believe should be the relative roles of FCC and the states in defining carriers’ proper billing practices. The National Association of State Utility Consumer Advocates challenged FCC’s preemption finding in court, and the United States Court of Appeals for the Eleventh Circuit (Eleventh Circuit) found that FCC had exceeded its authority. Specifically, the court found that the presentation of a line item on a bill is not a “charge or payment” for service, but rather falls within the definition of “other terms and conditions” that states may regulate.

Subsequent to the Eleventh Circuit’s ruling, the Western District Court of Washington rejected the Eleventh Circuit’s analysis and concluded that FCC did not exceed its statutory authority when it preempted line-item regulation and that line items are charges. However, the United States Court of Appeals for the Ninth Circuit (Ninth Circuit) reversed the district court, finding that the Eleventh Circuit decision is binding outside of the Eleventh Circuit. Furthermore, the Ninth Circuit stated that it agreed with the Eleventh Circuit’s determination that how line items are displayed or presented on wireless consumers’ bills does not fall within the definition of “rates.”

FCC has not responded to these court decisions, nor has FCC concluded its truth-in-billing proceeding. While FCC has received comments on its 2005 truth-in-billing proposal, it has taken no further action in this proceeding. Accordingly, the issue of how states may regulate billing line items remains unclear. In August 2009, as part of its effort to seek comment on a number of telecommunications consumer issues, FCC sought comment on the effectiveness of its truth-in-billing rules and whether changes in these rules are needed.

Early Termination Fees

Early termination fees are another area where the distinction between “rates” and “terms and conditions” is not clear. Wireless carriers routinely offer customers discounts on cell phones in exchange for the customer’s commitment to a 1- or 2-year contract. If the contract is canceled before the end of the contract term, the customer is generally charged a fee, commonly referred to as an early termination fee.

The Western District Court of Washington, in recently considering an early termination fees case, noted that it is not clear whether a wireless service carrier’s early termination fees are within the preemptive scope of “rates charged” under the statute. The court noted that federal courts that have considered the matter appear to be split on the issue, citing the examples of a district court that found early termination fees to fall under “terms and conditions” and another district court that found them to be “rates charged.” Because of the ongoing FCC efforts in this area, the Western District Court of Washington halted its proceeding pending a determination from FCC about this issue.

In 2005, FCC was drawn into this debate at the request of a South Carolina court. In February 2005, SunCom, a wireless carrier, at the request of the court, filed a petition with FCC on whether early termination fees are rates charged. In May 2005, FCC released a public notice seeking comments on this matter. Subsequently, the parties to the litigation entered into a settlement agreement and jointly requested that FCC dismiss the matter without further review. FCC issued an order terminating the proceeding; however, the agency noted that it had a similar petition under review that it intended to address “in the near future.” The similar petition was filed by CTIA–The Wireless Association in March 2005, asking for an “expedited” ruling on whether early termination fees are rates. FCC sought comments on the matter from interested parties, who have submitted over 37,000 filings in this proceeding.

In view of the growing concern over early termination fees and the number of complaints that FCC receives from consumers on this issue, FCC held a hearing in June 2008. At this hearing, expert panelists testified on the use of early termination fees by communications service providers. A year after the hearing, CTIA–The Wireless Association notified FCC that it was withdrawing its petition, citing the evolution of the competitive wireless marketplace as a reason for its withdrawal. However, the National Association of State Utility Consumer Advocates, the National Consumer Law Center, U.S. Public Interest Research Group, and Consumers Union filed a joint response in opposition to the petition’s withdrawal, arguing that a ruling from FCC would help clarify this issue and help resolve some pending lawsuits about it. FCC has not responded to CTIA–The Wireless Association’s notice or the consumer advocates’ joint response. Thus, this is another area that remains unresolved.

Appendix V: Comments from the Federal Communications Commission

Appendix VI: GAO Contact and Staff Acknowledgments

Staff Acknowledgments

In addition to the individual named above, Judy Guilliams-Tapia, Assistant Director; Eli Albagli; James Ashley; Scott Behen; Nancy Boardman; Bess Eisenstadt; Andrew Huddleston; Eric Hudson; Mitchell Karpman; Josh Ormond; George Quinn; Ophelia Robinson; Kelly Rubin; Andrew Stavisky; and Mindi Weisenbloom made key contributions to this report.