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 AB 1010 Page 2 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. AB 1010 Page 3 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 AB 1010 Page 4 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 FN: