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Industry Voices: Telecom companies should prepare for junk fee regulation – Hays

Legislation aimed at regulating telecommunications operators is in the works, and companies should hasten to prepare for what’s to come. A bill introduced to the Senate in March proposes to do away with “junk fees,” which are financial charges that President Biden denounced in his State of the Union address. These could include early termination fees, which are widely utilized across the telecom industry to recover up-front costs incurred for equipment, installation and activation.

A current draft of the legislation puts the onus on the Federal Communications Commission (FCC) to establish the specifics. When the FCC begins hearing arguments around the law, the industry should be prepared to help shape it. At the same time, it’s crucial that operators take steps now to align their products and cost-recovery structures with some of the key provisions that are likely to emerge.

The proposed rules uniformly apply to operators offering voice, broadband, television and wireless; whether satellite is included is unclear. If enacted, the Junk Fee Prevention Act would prohibit providers from charging a fee or imposing an “excessive or unreasonable” requirement on consumers for terminating a covered service early, but there is room for debate in how to define those terms. The bill explicitly allows companies to recoup the cost of rental or loan equipment as well as the outstanding cost of a purchased device, but it’s not clear whether other labor-related charges, such as set-up and installation, would be permitted.

Industry associations need to mobilize to help influence language included in the law so that it does not prevent their members from recovering real costs and preserving the value of their investments. It may be useful to present arguments to regulators in a way that also addresses transparency in billing.

For years, one major sticking point between consumer advocates and the industry has been the way billing is structured and delivered. In 2019, Consumer Reports published a Cable Bill Report. The report included a survey that found telecommunications providers (in which they included cable companies) "are the worst offender when it comes to charging unexpected or hidden fees.” The report goes on to say the average cable bill “contains more than a dozen line-item charges” and many of those represent “nothing more than a cost of doing business.”

The challenge for most telecom operators, however, is that early termination fees aren’t “junk.” In most cases they represent real costs that need to be recouped in order to survive and grow. The good news is that educating regulators and consumers about specifically what those expenses are may go a long way toward resolving the debate. Many customers, for instance, don’t realize that those line-items on their bill represent charges that are passed along by content providers, in particular broadcast networks and local affiliates. In fact, consumers may be willing to accept higher up-front prices from operators if those prices are communicated to them as a desirable feature of a simplified and streamlined service plan. If similar strategies are deployed across the industry, they may also put pressure on content providers to maintain reasonable rates.

To present a more coherent cost recovery approach to regulators and consumers, operators need to get clear themselves as to what their real costs are. Then they must design new, straightforward pricing models that ensure regulatory compliance and consumer acceptance. Whether selling services, devices or both, for instance, it may be desirable to consider ways to structure cost recovery mechanisms as short-term consumer loans. In this new regulatory environment, operators may need to find pricing models that work for their business and are simultaneously transparent and accessible for a wide range of consumers.

Of course any changes in regulations, cost recovery mechanisms, or billing can require significant investment in the various systems that support these activities. Operators should understand these costs as well, and consider the traceability, auditability and controls that must be put in place.

Complying with any new rules and increased oversight always comes with a complicated mix of priorities to balance. However, by strategizing and looking to the future, telecom companies can turn restrictions into opportunities. Participating in the process of shaping the regulatory language is essential and, in the long term, reevaluating fee structures and enhancing communication around pricing will be to the industry’s advantage. The biggest winners will likely be the companies that lead the way in imagining different, more compliant products that resonate with consumers.

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