BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 1010
                                                                  Page  1

          Date of Hearing:   August 14, 2006

                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
                               Lloyd E. Levine, Chair
                    AB 1010 (Ruskin) - As Amended:  June 14, 2006
                         (CONCURRENCE IN SENATE AMENDMENTS)  

          SUBJECT  :   Telecommunications: Mobile telephony services.
                        
           SUMMARY  :   Requires providers of mobile telephone service to  
          provide a minimum 30-day grace period to new customers or  
          customers who renew, alter, or extend a contract, during which  
          the customer may rescind the agreement. Specifically,  this bill  :  
           

          1)Requires mobile telephone carriers to allow a 30-day grace  
            period for all new customers, during which the customer may  
            rescind the agreement and terminate service if the customer  
            finds that the service quality is unsatisfactory.

          2)Requires mobile telephone carriers to allow a 30-day grace  
            period for all existing customers who choose to renew, extend,  
            or modify their service, during which time the customer may  
            rescind the agreement and terminate service if the customer  
            finds that the service quality is unsatisfactory.

          3)Specifies that a customer who rescinds a contract must pay for  
            those services used prior to cancellation of the agreement.

          4)Requires mobile telephone companies to provide reasonable  
            notice of this grace period and the customer's right of  
            rescission. 

          5)Provides that the grace period shall not apply to a  
            month-to-month account or prepaid account.

           The Senate amendments  delete the Assembly version of this bill,  
          and instead insert the above provisions
            
           AS PASSED BY THE ASSEMBLY  , this bill shifted responsibility for  
          oversight of specified at-grade rail crossings from the Public  
          Utilities Commission (PUC) to the Department of Transportation  
          (Caltrans).  

           COMMENTS  :  According to the author, the intent of this bill is  








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          to protect consumers from entering into a long-term mobile phone  
          contract without the ability to ensure that the phone company's  
          service meets the expectations of the customer.  A mobile phone  
          customer cannot rely on the coverage maps provided by the  
          carriers as an indicator of true service availability in an  
          area, and all coverage maps contain disclaimers that the map is  
          not a guarantee of service availability or quality.  In the  
          absence of accurate maps, the only way for customers to know if  
          the mobile phone meets their needs is to use it for a period of  
          time.  If a customer is required to sign a long-term contract to  
          obtain service, that customer is potentially stuck if he finds  
          the service is poorer than expected.  The goal of this bill is  
          to provide customers a reasonable way out of long-term  
          commitments if the service does not meet expectations. 

          Supporters of this bill argue that given the complexity of  
          selecting a mobile phone service plan, combined with the length  
          of the contract that most carriers require, customers should be  
          entitled to a 30 day grace period to check out their service  
          before excessive early termination fees are charged.  Supporters  
          further contend that when Californians had this right  
          previously, mobile phone usage grew and carriers prospered.  

          1)   History:  On June 7, 2004, the California Public Utilities  
          Commission (PUC) adopted D.04-05-057, the Telecommunications  
          Protection Decision (Consumer Bill of Rights), which included a  
          30-day right of recession for mobile phone contracts.  However,  
          on January 27, 2005, the Commission stayed the Consumer Bill of  
          Rights pending further examination of whether-given the effects  
          of changes in the telecommunications industry since the  
          inception of the proceeding-the Consumer Bill of Rights provided  
          a consumer protection structure that could be reasonably  
          implemented, adequately enforced, and viable in the longer term.

          On March 2, 2006 the PUC adopted Decision 06-03-013, repealing  
          the Consumer Bill of Rights, outright.  In adopting this  
          Decision, the PUC eliminated the 30-day grace period for mobile  
          customers.  The PUC reports that its decision was based in part  
          on the fact that all of the major phone providers offered grace  
          periods ranging from 14 to 30 days.

          AB 1010 would statutorily reinstate the 30-day grace period that  
          was eliminated following the adoption of the March 2006 PUC  
          decision.  









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          2)   Opposition Arguments:   Opponents, primarily the mobile phone  
          providers, argue that by mandating a set grace period, the state  
          would infringe upon one of the key tools mobile phone companies  
          use to differentiate themselves from one another.  They argue  
          that in highly competitive industries, such as the wireless  
          phone market, it is in the interests of the customers to  
          preserve all available means the carriers have to offer a wide  
          range of service options.  Furthermore, Verizon Wireless argues  
          "the California Public Utilities Commission specifically  
          rejected inclusion of a mandatory grace period in its Consumer  
          Bill of Rights decision."  In a similar vein, Sprint states that  
          "Given the pending implementation of the recently adopted  
          consumer protection and fraud prevention rules, action by the  
          Legislature on AB 1010 would be ill-timed, sow needless  
          confusion, and be contrary to the pro-competitive policies just  
          endorsed by the PUC."

          Another argument put forward by the opponents of the bill  
          centers around the requirement in the bill that customers who  
          modify service be granted the opportunity to opt out of a  
          contract.  The wireless industry is concerned that this would  
          permit a customer to end their contract by adding a service,  
          thus triggering a 30 day period in which the customer could  
          cancel the entire contract.  Under this scenario, after six  
          months a customer could add text messaging service onto a two  
          year contract, and then within 30 days opt out of the next 18  
          months of the contract, without penalty.  If this concern were  
          realized, it would essentially negate all current mobile phone  
          contracts as customers would have a readily available loophole  
          to exploit.  It is also possible that the industry would respond  
          by prohibiting any alteration of an existing contract,  
          restricting customers from adding additional services during the  
          life of their service agreement. 

          3)   No such thing as a free phone:   The major mobile phone  
          providers require customers to sign long-term contracts for  
          service.  Those contracts are typically one or two years long  
          and usually include free or discounted mobile phones.  It is  
          important to note that the mobile phone provider amortizes the  
          price of the free or discounted phone over the term of the  
          contract.  As such, a 30-day grace period may increase the costs  
          of providing a free or discounted phone, which may be  
          detrimental to customers who prefer low up-front costs.

          4)   Previous Legislation  AB 2622 (Ruskin), which contained  








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          identical language to this bill was moved to Interim Study by  
          this Committee on May 10, 2006.
           
           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          AARP California
          American Federation of State, County and Municipal Employees  
          (AFSCME)
          California Alliance for Retired Americans (CARA)
          California Labor Federation
          Communications Workers of America

           Opposition 
           
          California Public Utilities Commission (CPUC)
          CTIA - The Wireless Association
          Sprint Nextel
          Verizon Wireless

           Analysis Prepared by  :    Greg Girvan / U. & C. / (916) 319-2040 

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