October 29, 2010
The Value of Regulators or "I Want My $3"
The FCC announced yesterday (pdf here) a settlement agreement related to "mystery fees" Verizon Wireless charged some pay-as-you-go customers, which included a record $25 million payment to the U.S. Treasury, as well as an immediate refund to 15 million customers to the tune of $52.8 million. Verizon Wireless was apparently improperly charging a $1.99 per MB data usage charge to some customers. The customers were getting charged for a variety of reasons. Some customers did not know they had programs on their phones that were connecting to the data network. Others were charged even though they failed to connect to the data network other than to register a charge. Still others accidentally hit a button on their phone that accessed the network. (The FCC consent decree can be found here in pdf.)
This case underscores one of the real potential values of regulators. Ultra-large companies serve so many customers that small charges can lead to large dollars. With 15 million customers, an extra dollar charged per customer raises a ton of cash. A small charge can be quite lucrative, even though the impact per customer is relatively small. On the one hand, of course, $15 million is not a lot of money to Verizon. Last year, the company's total wireless revenues were $16.2 billion and service revenues were $14.2 billion. On the other hand, an extra $15 million here and there still adds up quickly.
Most individuals are not likely to pursue a few dollars in overcharges zealously because they are dealing with an entity with great resources and the potential gain is modest. That doesn't mean a large company's practices should go unchecked. Not every customer can be expected to be the newspaper boy from the "classic" film, Better Off Dead. And perhaps that's part of the real value of regulators. They can be our Johnny the Paper Boy when it comes to big companies acting improperly. The FCC already chased Verizon Wireless down the ski hill screaming, "I want my $3!" That means 15 million Verizon Wireless customers didn't have to.
(With apologies to those without solid roots in 1980s film and/or the John Cusack Collection.)
At the same time, the penalties imposed by regulators on "ultra large" companies, while they appear large, are trivial. Scarcely a slap on the wrist; a mere "cost of doing business." And that's after the citizen catches the attention of the bureaucrats. Try complaining to the government about violations of the "No call" rules; or fast-dealing in penny-stocks. If the regulators would impose serious punishment on one of these corporate malfeasors, like sending a couple executives to jail, they might actually discourage some of this bad conduct.
Posted by: Arthur O. Armstrong | Oct 30, 2010 12:44:10 PM
Certainly some of the penalties are relatively insignificant, but something beats nothing in my book. Plus, at least arguably, it sends a message to consumers, shareholders (and potential shareholders), and conceivably (though not necessarily) the board of directors. If the question is, "Do regulators adequately stop cheating and corruption?" then the answer is, "No." But if the question is, "Should we have regulators?" then the answer, at least to me, is "Yes," and here's one reason why.
Posted by: Josh Fershee | Oct 30, 2010 5:24:02 PM
The problem with "cost of doing business" regulatory punishments is that the public never hears of it; or, at most, there is a one day item in the Business Section of the paper. Even if it should be noticed, the public attention span is short, and shortly all is forgotten. Read "Serpent on the Rock." A far better remedy than a fine would be corrective advertising such as the FTC occasionally requires. Make the company run ads telling the public about the punishment, perhaps spending as much on promotion of the news of the penalty as was spent promoting the company's business during the period of the malfeasance. Nothing like the risk of wearing a Scarlet Letter to discourage adultery.
Posted by: Arthur O. Armstrong | Oct 31, 2010 9:56:27 AM