Most Americans are in cell phone jail

Bob Sullivan Technology correspondent • Profile • E-mail

At any given time, most Americans are in cell phone jail.  

You know the feeling.  You talk to a friend with a snazzy new handset that does amazing things. Or you see an advertisement for a great deal on a monthly plan. Then what do you do?

You sigh, wistfully wishing you could shop for a new phone.  If you are really on top of things, you call your provider and ask when your current cell phone contract expires. And then you wait.

One thing you don’t do: You don’t act like a rational consumer in a normal, functioning market economy.  You don’t go buy the new phone, or get the cheap new plan.  You don’t reward the more efficient company with your business. You can’t. You’re in jail.

Imagine if you couldn’t switch coffee shops or grocery stores without paying hundreds of dollars in penalties.  Preposterous? No — not in the world of cell phones.

From the start, wireless providers have worked hard to lock you up into losing situations, constructing walls with cancellation fees, service-specific phones, and the loss of your phone number.

Worse yet — cell phone companies can, and do, change their side of the contract unilaterally.  Consumers seemingly have no options to decline the higher prices. In other words, they can raise prices, and you can’t quit.  Consider this note of complaint, filed with the Pennsylvania Public Interest Research Group by a consumer named Kerry:

I’m currently in the middle of a two-year contract with Verizon Wireless. They just notified me that they are dramatically increasing the charges I pay for receiving each text message from 2 cents to 10 cents.

When I called to complain, they left me with a few choices, and I was unhappy with all of them. I could simply accept the increase in charges. Alternatively, I could sign up for an unlimited text messaging plan for another $5/month, but only if I renew with Verizon for another two years. Or, I could end my contract and pay an early termination fee of $175.

If I don’t pay the fee and change my plan to get the best rate for text messaging, then I'm locked in with Verizon for even longer than I originally would have been had they just kept the rates the same. And since the new plan also has an early termination fee, I’ll face the same problem if they decide, without my agreement, to change the plan again to suit their needs.

Make no mistake about it — like Kerry, most cell phone users are captives.  In 2005, IPSOS North America surveyed 1,000 U.S. adults and found that 47 percent would consider switching services if termination fees were eliminated.  Fully 36 percent said fees already had forced them to stay in a higher-priced plan against their will.

This, it should be obvious, is economic lunacy.  And it certainly explains why U.S. residents suffer from what is remarkably among the world’s least reliable cell phone services.  After all, what’s the incentive to fix the U.S. network?  NBC Nightly News anchor Brian Williams, on his personal blog, mentioned wistfully once that he often enjoys “crystal clear, uninterrupted” cell phone conference calls to New York while on the road in faraway, “middle of nowhere” places like the highway from Amman, Jordan to the Dead Sea.  But on his daily commute into New York City?  That’s another matter.  In fact, cross-country drivers on the main east-west highway in the northern U.S., Interstate 90, will find this sorry fact:  they can’t make a reliable phone call all the way from Chicago to Seattle. 

It’s an embarrassment, but it’s completely predictable.  Captive consumers are bad for everyone, consumers and businesses alike.  Why would anyone start a new cell phone company in this environment? Why would anyone invest in customer satisfaction?

Consumers have managed to tear down one wall in this jail. In 1996, the FCC ruled that consumers who switched providers didn’t have to surrender their phone numbers, mandating what’s called number portability.  Of course, it took nearly 8 years of legal battles to force wireless carriers to play along, but finally, in November 2003, consumers were allowed to switch carriers without switching numbers.

There was an immediate impact.  About 367,000 consumers abandoned AT&T Wireless in the first quarter of 2004, an incredible number given that cell phone carriers were enjoying unprecedented subscriber growth at the time.  Like dogs suddenly let off their leash, consumers began a mass exodus from the notoriously unreliable provider as soon as they could.  The exodus eventually brought the company to its knees, and it was forced to sell out to Cingular. Competition works.  That’s capitalism. Bad companies don’t deserve to be propped up by bad regulations or supportive government agencies.

The wireless providers who watched the demise of AT&T learned quickly; and the wall that was knocked down — number portability — was rebuilt even taller.  In 2004, most carriers extended typical contracts from one year to two years. Nothing portable about that!  By 2006, cell phone jail was more fortified than ever.

And in the ultimate irony, cell phone firms found a way to profit handsomely off number portability.  Beginning about a year before portability kicked in, cell phone firms began charging roughly $1 per month per customer for number portability — at one point collecting nearly $100 million per month, according to the Center for Public Integrity! The fees were hard to spot, often lumped into a line item called “federal recovery fee,” or something similar.  Collectively, the industry took in more than $1 billion before the practice was curbed.

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