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Angry consumers are filing lawsuits against wireless companies, reflecting a wave of discontent with new, mostly Web-focused, services
Consumer grievances against wireless companies are taking on a new dimension. For more than a decade, mobile-phone customers have griped vociferously about what they consider unfair billing and inadequate wireless voice calling. But the advent of mobile data services—from texting to gaming to social networking to Web surfing—has given subscribers a whole host of new beefs to complain about.
In the past few months, users have filed class actions against AT&T (T), Verizon Wireless, Sprint Nextel (S), T-Mobile USA, and many smaller wireless service providers. The complaints cover a multitude of alleged sins, from excessive roaming charges to text-message spam. One filed in April says Verizon Wireless should pay damages for harm suffered by a 14-year-old girl after she was sexually assaulted by an adult male who contacted her through an Internet profile she created using her cell phone. Another attempts to hold Verizon Wireless and third-party content providers responsible for illegal gambling by users. Verizon Wireless declined to comment.
Confusion Over Pricing
What these seemingly different lawsuits have in common is that they reflect users' discontent with a wave of new services, many of them Web-focused, that are crucial to the wireless industry. Though slow to take off in the U.S., especially in comparison with the rest of the world, text messaging, wireless music, and video services are finally entering the mainstream. AT&T received 21.5% of its wireless revenues from data services in the first quarter, up from 16% a year earlier. Industry revenue from the larger category of wireless data, which includes mobile content and Web access, rose 53%, to $23 billion, in 2007, according to industry group CTIA. With increased usage comes new frustrations.
Damian Fernandez tapped into that rising ill will when he launched a class action on behalf of users of Apple's iPhone. The California lawyer set up a Web site, appleiphonelawsuit.com, after reading about angry U.S. users who racked up hundreds of dollars in unexpected fees after using their devices abroad. "I still remember the passion and anger that people felt," Fernandez says. Within days, he received several hundred complaints and the attorney who previously focused on business contract disputes suddenly found a new calling. Fernandez now represents five clients, who complain of everything from high roaming charges to buying iPhones that no longer work, in a class action against Apple (AAPL) and AT&T, its U.S. service-provider partner. Apple and AT&T haven't filed a response to the allegations. Apple declined to comment. AT&T didn't address specific litigation.
According to the Federal Communications Commission, in the first quarter of 2007, the number of wireless service-related complaints rose 14%, to 5,242, led by billing issues. "There's so much confusion out there in regards to what the price of the data plan is, what's included or not," says Bill Stone, CEO of wireless content seller Handango. "Consumers don't know the fine print."
Bills have become all the more confusing with the proliferation of services that barely existed a few years back, consumer advocates say. "The lawsuits are following the technology," says Art Neill, attorney for advocacy group Utility Consumers' Action Network, which has filed a lawsuit disputing charges Sprint added to its broadband card users' bills. "A couple of years ago, everybody began getting ringtones," Neill says. "Now, these services are expanding to streaming audio and video. The breadth of lawsuits being filed is following that [expansion of offerings]." Some class actions are asking for reimbursements of charges as low as 15¢. Some seek damages in the millions of dollars.
Most subscriber contracts explicitly prohibit consumers from filing class actions, and instead require that disputes be handled in arbitration. Some carriers involved didn't respond to BusinessWeek.com's request for comment. Others declined to comment, saying they couldn't talk about pending litigation. "There's no ambiguity about [our charges], our terms and conditions are very, very clear," AT&T spokesman Mark Siegel says.
A new wave of potentially costly litigation comes at a bad time for the wireless industry. With 83% of Americans already brandishing cell phones, carriers face an uphill battle retaining users. In the first quarter, the U.S. wireless industry added 23% fewer subscribers than in the same quarter a year earlier, according to Bernstein Research. The firm estimates that by 2010, the market will reach peak penetration of 89%. To grow, carriers will increasingly have to poach each others' subscribers, offering plans that are cheaper and less profitable for the provider. "The cost [of adding a subscriber] is $400," says Rich Nespola, CEO at consultancy TMNG (TMNG). "Do you really want to alienate and possibly lose a subscriber over $20?"
Rising dissatisfaction with wireless data plans and pricing may also result in more calls to customer service, boosting costs to carriers, analysts say.
What's a carrier to do? Already, they're making billing for nonvoice services more straightforward. "We need more simplicity of pricing," Stone says. Today, people can get subscription services, individual ringtones, and free or ad-supported trials of mobile content. But Stone suggests content should be bundled into wireless plans for free, or that people use a universal "mobile content currency"—tokens for which they can purchase content that is, perhaps, included with their plan.
T-Mobile USA, owned by Deutsche Telekom (DT), is among providers that have revised texting policies. Several recent lawsuits, including one from Joseph Calloway filed in Seattle in May, allege that the carrier's users are being charged 15¢ for text messages they don't want to receive. "T-Mobile is working on implementing an enhanced service this summer that would enable customers to block text messages, beyond the functionality that is currently available," writes T-Mobile spokesperson Peter Dobrow in an e-mail. "It's too early though for me to disclose specifics on the planned service."
To dispel confusion, carriers are also likely to embark on extensive consumer education programs. "You've got a market that didn't exist three or four years ago," says Steve Shivers, a general manager at OpenMarket, a provider of wireless billing services. "And you don't have customer expectations set in."