US FCC head has doubts on state wireless oversight

WASHINGTON (Reuters) - The head of the U.S. Federal Communications Commission on Thursday voiced doubts about differing state regulations covering mobile phones as the agency considers what to do about controversial early-cancellation fees.

FCC Chairman Kevin Martin questioned whether consumers are being protected by state regulations of the fees that customers have to pay for early cancellation of their wireless service, or by a series of state class-action lawsuits challenging early-cancellation fees.

Martin said he was "skeptical that plaintiff class-action lawsuits are the most effective way to guarantee these protections."

"And I do not believe a patchwork of 50 different sets of regulations with widely varying protections benefits consumers or the industry," Martin said.

The comments came during an FCC hearing on whether the agency should step in and regulate the unpopular charges, known as early-termination fees, and whether it should override state regulations and class-action suits over the fees.

The fees are a perennial complaint of wireless phone customers and have drawn complaints from some lawmakers. Wireless carriers face class-action lawsuits in several states challenging the fees.

In a prepared statement at Thursday's hearing, Martin said the fees "can be a legitimate means of recovering legitimate costs."

But he said the FCC needed to examine whether the fees were reasonable, not only for the wireless service, but also for video and broadband service.

Martin listed a series of rules the FCC should adopt if it decides to take over authority for regulating the fees. Among other things, he said, the fees should be reduced as customers' contracts get closer to expiration, and a customer should be free to terminate his service without penalty during a grace period extending through receipt of his first bill.

Wireless carriers such as Verizon Wireless, AT&T Inc (T.N) and Sprint Nextel Corp (S.N) say the fees are needed to ensure they recover subsidies they provide for handsets that customers get under the most popular service plans, as well as other up-front costs and rate discounts for those plans.

Verizon Wireless is a joint venture of Verizon Communications Inc (VZ.N) and Vodafone Group Plc (VOD.L)

VOD.N.

Consumer advocates appeared at the hearing and told the FCC that the fees were unjustified and were anti-competitive because they locked customers into their existing carriers.

Verizon Executive Vice President Tom Tauke testified at the hearing in defense of the fees. Without them, he said, the company could not subsidize handsets to new customers. Without the subsidies, some people would not be able to afford the handsets, he said.

The FCC has been negotiating with Verizon Wireless and wireless carriers, as well as consumer groups and others, in an effort to reach a compromise on the issue.

A compromise floated by Verizon Wireless would place additional restrictions on the fees the carriers could charge, and would shift oversight of the fees to the FCC from state regulators.

This would benefit the industry by taking the dispute out of state courts, where the companies face a number of class-action suits.

Verizon Wireless and AT&T already prorate early-termination fees, reducing them as customers' contracts get closer to expiration. Sprint Nextel has indicated it will do so by the end of this year.

(Editing by John Wallace)