Wireless Giants Deny Price-Fixing Texts

Giancarlo Yerkes, a 30-year-old advertising employee, crosses a street in downtown Chicago while text-messaging with his cell phone, Tuesday, July 29, 2008. In an alert issued this week, the American College of Emergency Physicians says based on reports from emergency-room doctors around the country, the number of text-messaging pedestrians, bicyclists, roller-bladers and even motorists who aren't so fortunate is rising. Terkes admitted he once walked straight into a stop sign while texting and bumped his head. (AP Photo/M. Spencer Green) AP Photo/M. Spencer Green

Executives from the nation's largest phone companies went to Capitol Hill Tuesday to defend themselves against allegations that they've been fixing prices on text messaging.

Executives from AT&T and Verizon Communications testified before the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, saying their companies have not been involved in a conspiracy to hike text messaging rates. And they argued that competition is alive and well in the wireless market.

The hearing was called in response to a letter sent in September from Sen. Herb Kohl (D-Wis.) to the four major U.S. operators - Verizon, AT&T, Sprint Nextel, and T-Mobile USA - asking them to explain why their text rates had all increased to 20 cents per message. Kohl noted in his letter that these rates marked a 100 percent increase since 2005.

Shortly after the letter was sent, about 37 separate class action lawsuits were filed against wireless operators alleging price-fixing on text-messaging services.

Both AT&T and Verizon have denied these claims. And the companies came to Capitol Hill to clear their names.

"Especially in light of this litigation firestorm, we want to make it perfectly clear that AT&T sets the prices for all of its products on a unilateral basis," said Wayne Watts, general counsel for AT&T, in his written testimony. "There is no evidence to support an accusation that anyone at AT&T engaged in any inappropriate, much less illegal, behavior as alleged in these lawsuits."

Watts also noted that none of the lawsuits name a time, place, or person involved in the collusion, and all but one of the suits filed cite Kohl's letter as the basis for its allegations.

Plaintiffs in the lawsuits point to the fact that all four major U.S. carriers now charge customers 20 cents to send and receive a text message if they don't have a monthly texting plan. In his September letter, Kohl pointed to the 20 cent per text price tag and asked if this price hike really justified the cost of the service.

In his letter, Kohl also suggested that the wireless industry is not competitive enough. He noted that the four carriers combined currently serve more than 90 percent of wireless subscribers in the U.S.

AT&T and Verizon executives dispute that they have colluded to fix prices on texts, but they also deny that texting rates have increased. Instead, they claim that prices have fallen for text messaging as a result of robust competition.

Verizon's general counsel, Randal Milch, said in his written testimony that there are more differences in text-messaging prices among wireless competitors than there are similarities. And he noted that most Verizon Wireless customers subscribe to a texting plan, and as a result they "pay less than a penny per message," a reduction of almost two-thirds since 2006.

"As the result of the price cuts, usage has grown six-fold," he said.

Milch also called claims that the wireless companies were improperly setting rates "absolutely false." And he said that "market evidence shows fierce competition, not collusion, in text messaging and wireless generally."

The CTIA, the trade association representing wireless carriers, also said that competition in the wireless market is thriving.

"The U.S. wireless industry is the most competitive and innovative in the world. Third-party organizations and influentials--from Consumer Reports Magazine to former Vice President Al Gore--have echoed this statement," Steve Largent, head of the CTIA, said in statement.

Despite these claims, Kohl said he is still concerned about the state of competition in the wireless market, according to a report from the Dow Jones Newswire. Specifically, he pointed out exclusivity deals for popular cell phones, such as the Apple iPhone or the Palm Pre, that limit some consumers' ability to have access to those devices.

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