New consumer labels may combat broadband service sticker shock

The FCC in partnership with the Consumer Financial Protection Bureau (CFPB) has developed a new set of labels for wireline broadband and wireless Internet services, giving consumers the ability to make price and feature comparisons when they shop for service.

Although the new labels are recommended but not legally required, the FCC said service providers that use them will not face government investigations into net neutrality transparency rules.

Similar to the federally required nutrition labels on nearly all U.S. foods, the labels will address three main areas: price, data allowances and performance.

With the price label, service providers will lay out all of the so-called hidden fees such as overage, equipment, early termination and administrative fees. Data allowances is the service provider's defined plan limit where consumers will face additional charges or slowed data speeds if they go above their agreed monthly limit. Finally, the performance metric will measure broadband speeds and other metrics.

"These labels provide consumers clarity about the broadband service they are purchasing, not only helping them to make more informed choices but also preventing surprises when the first bill arrives," said FCC Chairman Tom Wheeler, in a statement. "Customers deserve to know the price they will actually pay for a service and to be fully aware of other components such as data limits and performance factors before they sign up for service."

Rich Cordray, director of the CFPB said that similar to understanding the terms of a mortgage or a student loan, "Consumers deserve to know before they owe, with clear, upfront information about the prices, risks, and terms of the deal," said Director Cordray.

Under the guise of the net neutrality rules the FCC issued last March, the regulator created "a 'safe harbor' process for the format and nature of the required disclosure to consumers, which [the agency believes] will result in more effective presentation of consumer-focused information by broadband providers."

The FCC said those disclosures include "promotional rates, all fees and/or surcharges, and all data caps or data allowances; adding packet loss as a measure of network performance that must be disclosed; and requiring specific notification to consumers that a 'network practice' is likely to significantly affect their use of the service."

On a yearly basis, the FCC said it gets over 2,000 complaints related to "surprise" fees associated with consumers' Internet service bills. According to the complaints that the FCC collects, the actual prices paid for broadband-related services can be as much as 40 percent greater than what is advertised after taxes and fees are added to a bill.

After passing the open Internet rules last year, the FCC asked its Consumer Advisory Committee "to recommend a disclosure format that should be clear and easy to read -- similar to a nutrition label found on food items -- to allow consumers to easily compare the services of different providers." 

CFPB has developed disclosures for for financial products that use clear language to inform consumers, including its "Know Before You Owe" campaign, which now includes mortgages, student loans, prepaid cards, and more. The CFPB provided the FCC with suggestions on the design and content of the consumer broadband labels. The CFPB and FCC have also partnered on enforcement actions to protect consumers.

The FCC's broadband labels come at an interesting time in the broadband service industry. Providers like AT&T (NYSE: T) and Comcast (NASDAQ: CMCSA) have been toying with forms of metered broadband service that warn consumers when they have gone above their limits.

AT&T plans to introduce an unlimited data option for U-verse Internet customers, while raising the monthly data usage allowance on other tiers in May, for example. Customers who subscribe only to AT&T's U-verse broadband service can sign up for its unlimited home Internet data plan for an additional $30 a month.

The service provider will provide multiple warnings for those that go over their limit.

Other telcos like CenturyLink (NYSE: CTL) are looking at conducting a trial of metered broadband usage sometime this year on its copper and FTTH-based products. The trial may begin later this year.

For more:
- see the FCC release

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