TCS Daily

Bill of Frights

By Brent Mast - July 15, 2003 12:00 AM

Senator Schumer's "Cell Phone User Bill of Rights" -- introduced June 9th -- will harm the consumers he wants to help. His proposals, similar to stringent regulations proposed in California, will reduce consumer choices and increase their monthly bills.

The senator's latest targets are "bogus" wireless surcharges. But these fees defray the cost of unfunded federal mandates that he supports, including enhanced 911 services.

Enhanced 911 provides the location of mobile phone callers during emergencies. This mandate costs wireless providers an estimated $1.5 billion. Some would say that is money well spent. Already, they provide the location of cell towers transmitting emergency calls. Many can even pinpoint the exact location of emergency callers.

The senator claims that "in many cases", 911 improvements "have not been made by the companies" charging for enhanced 911. Not exactly. Most of the companies are holding up their side of the bargain; the real problem is the vast majority of government 911 centers that have not completed needed upgrades. According to a top Sprint executive, "at current course and speed, the GPS phones we're selling today will be retired and thrown away before most [911 centers] can be made ready".

Senator Schumer told AP on June 2 that enhanced 911 would have prevented four teenagers from drowning off City Island in January, "but the technology wasn't there". He failed to mention, however, that the Sprint PCS phone had the necessary technology. Unfortunately, as Police Commissioner Ray Kelly admitted, the city's 911 system was "not capable of receiving it." (The NYPD told Sprint it is "considering" making needed upgrades). Furthermore, the 911 supervisor failed to notify the harbor unit that could have saved the teens. The families are suing the city, not Sprint.

It is debatable whether enhanced 911 and other services should be mandated. The FCC could let consumers decide if they want to pay the extra costs for such features. After all, who wants to pay an extra $40 or $50 for a GPS wireless phone for emergencies, if the system isn't up and running?

In the highly competitive wireless market, 30% of customers switch providers annually anticipating better deals. Carriers conduct marketing research to determine what consumers value, and they compete by advertising their services and prices. In addition to information provided by wireless companies, consumers turn to independent sources such as Consumer Reports, J.D. Power, and Indeed, family, friends, and coworkers provide some of the most helpful information on wireless plans.

Senator Schumer is right that wireless surcharges should be truthfully labeled and included in advertised prices. But the new billing and advertising regulations he favors will inundate wireless consumers with unhelpful information, while making it difficult for companies to provide facts consumers want. In addition, the new "rights" the senator proposes will increase wireless prices. Similar rules in California are expected to increase monthly bills by almost $6.00.

And while outraged over fees the "out of control" wireless industry charges, Senator Schumer is silent on wireless taxes he and his fellow lawmakers impose. Yet surcharges to recover costs of unfunded mandates are quite modest relative to taxes. Taxes on wireless consumers average about 12%. In New York, they are over 20%, and in California, they are nearly 18%. In Missouri, where Sprint and Nextel were sued over surcharges, wireless taxes exceed 15%. In sharp contrast, Sprint's fee to cover mandates is only 2%; Nextel's $1.55 fee is about 3% of the average monthly bill.

Unlike the fees Senator Schumer criticizes, wireless taxes seldom fund services that specifically benefit wireless users. In some states, wireless taxes supposedly finance 911 centers. But these funds are often diverted. Take Senator Schumer's home state, for example. Assemblyman David Koon asserts that while New York has collected over $300 million in E911 surcharges since 1991,"not one cent" has made it to 911 centers. Auditors found that the funds paid for police department travel expenses and dry cleaning, among other things. (Senator Clinton is co-sponsoring a bill to prevent states from misusing 911 funds).

There are more important matters for policy makers than the billing and advertising practices of wireless companies. Senator Schumer should focus his efforts on the readiness of government 911 systems and the burden that wireless taxes impose on consumers.

The author is research fellow at The Progress & Freedom Foundation. He has taught economics at Hobart and William Smith Colleges, John Jay College of Criminal Justice, and Miami University of Ohio.

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