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Lawsuits alleging that Verizon Communications and Sprint Inc. are misleading consumers about their ability to deliver high-speed Internet access may be just the beginning of a new wave of legal challenges over unregulated services that are facing telecommunications providers.
Both the Verizon lawsuit, filed in Washington, D.C., and the lawsuit against Sprint, filed in Dallas, seek class-action status on behalf of all purchasers of Verizon's DSL Access and Sprint's Business ION (Integrated ON Demand Networking) services.
The Verizon lawsuit accuses New York-based Verizon of breach of contract, violation of the Virginia Consumer Protection Code, "untrue, deceptive or misleading" advertising and negligent misrepresentation.
"The calls are coming in from everywhere," says attorney Alex Barnett, whose firm, Cohen Milstein Hausfield & Toll PLLC, filed the Verizon suit. Complaints appear to be widespread, ranging from "significant" problems with installation, service disruptions and delays, to a lack of Internet access and billing.
Verizon, which was formed by the merger of Bell Atlantic and GTE Corp., is expected to contest the allegations. The company's digital subscriber line (DSL) business grew more than five-fold last year, to more than 540,000 lines installed from 87,000 lines at the end of 1999.
"It's a new industry that involves sophisticated, rapidly evolving technology and which is seeing phenomenal growth with attendant stress and strain. This is the situation for all players nationwide," said a Verizon spokesman, reading from a prepared statement. "We continue to support DSL and stand behind our services."
To be sure, Sprint and Verizon are not the only targets of DSL complaints. Virtually every carrier is criticized in comments posted on web sites like www.dslreports.com and www.complaints.com. Consumers' Voice, a Washington-based consumer lobby, just published a two-and-one-half inch thick volume of consumer complaints and negative media reports about former Bell operating companies and their high-speed Internet services.
"The Bells are making promises to the public about digital subscriber line (DSL) service, and those promises are being broken with frequency and impunity-the kind of impunity only a monopoly can perpetuate on a hostage public," the lobbying said as it released the third edition of its report, "Bell Monopoly High-Speed Internet Consumer Complaints."
The strong demand for high-speed Internet services, coupled with the shaky competitive environment, has made DSL a popular target, says Kelly Cameron, a former Federal Communications Commission attorney now in private practice in Washington. Until the independent DSL companies appeared on the playing field, the RBOCs showed little enthusiasm for deploying DSL, which brings high-speed Internet connectivity over plain old telephone lines. Once competition in the broadband market appeared, the ILECs were scrambling to roll out their solution, which may account for the plethora of technical snafus.
"Part of the reason why people are so upset is that they feel they've been promised something revolutionary, and they're not getting what they think they've been sold," Cameron says.
In a true competitive market, this level of complaints about one company's service would be unusual.
"If the service is really bad, in a competitive market, people will go somewhere else," Cameron says. In reality, many consumers don't have a lot of alternatives right now because the alternative DSL providers, like Covad Communications Inc., NorthPoint Communications and Rhythms NetConnections Inc., are "in very tough shape."
Consumer lawsuits over service issues are something new for the telcos, an industry used to strict regulation by the Federal Communications Commission and state utility commissions.
"Historically, the only remedy would have been to go to the FCC or state commission and say, 'They're not providing service consistent with the terms under which they have legally committed to provide service,'" as spelled out in a tariff, Cameron says.
While all of the incumbent local phone service providers have wanted to escape regulation, "there's been a real reluctance on the part of carriers, including non-dominant carriers, to be de-tariffed," and lose that protection against lawsuits they get by publishing their prices, Cameron says.
The Telecommunications Act of 1996 specifically gave the FCC the authority to de-tariff carriers for interstate services, but DSL largely has been regulated at the state level.
In Colorado, for example, the state assembly last year specifically deregulated high-speed data services offered by carriers like Qwest Communications International Inc. That means consumers no longer can file complaints about poor DSL service with the Colorado Public Utility Commission, says spokesman Terry Bote. It also means that carriers like Qwest, ICG Communications Inc. and other non-dominant providers no longer are protected against consumer lawsuits.
Verizon sells its DSL to its own DLEC, Verizon Online, on a wholesale basis under a federal tariff. The DLEC then re-prices and re-packages the DSL service for consumers at the retail level. Any protection against lawsuits associated with the federal tariff likely is limited to the wholesale transactions, rather than Verizon Online's retail sales, the company says.
Sprint spokeswoman Robin Carlson says company attorneys were waiting to see the Dallas lawsuit before commenting. Kansas City-based Sprint offers high-speed DSL in 19 markets through its local service division. Its ION products for home and small business are available in 10 markets and combine local and long distance phone service, with high-speed Internet access.
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