The Sting of Success

AT&T Wireless' Digital One Rate clearly has been successful for the company in terms of attracting new subscribers. AT&T's figures for 2Q99 show 473,000 net added wireless subscribers, more than in any other quarter and a 45.5% increase over the same quarter last year.

However, along with all of those subscribers have come capacity problems, particularly in the New York-New Jersey coverage area.

"We're a victim of our own success," said Ken Woo, AT&T Wireless spokesperson.

That may be, but some subscribers contend that they are the real victims.

A class-action lawsuit against AT&T, initiated by Naevus International, a small New Jersey consumer-products distributor, is claiming false advertising, breach of contract and violation of the consumer-protection laws of the state of New York.

"Basically we're trying to get AT&T to stop advertising and selling a product that it doesn't have yet," said Jacqueline Sailer, attorney with New York law firm Rabin & Peckel LLP, which is handling the case for the plaintiffs.

Sailer said Naevus is a small company whose employees are continually on the road and which needed wireless phone service to stay in contact. After subscribing to the Digital One Rate plan, Naevus' employees had difficulty getting their calls through. Naevus came to Rabin & Peckel, and the result was the class-action suit filed in May.

Since news of the lawsuit has appeared, Sailer said she had heard from Digital One Rate subscribers in other parts of the country including Pennsylvania, the Midwest and Florida. She will be seeking to certify the lawsuit on a national basis.

She has not heard complaints about other wireless service providers.

"People are telling me they dropped AT&T and went to Bell Atlantic or Nextel, and what a relief to have a service that works," Sailer said.

Meanwhile AT&T has filed for dismissal of the suit on the grounds that coverage limitations are spelled out clearly in the service contracts. Woo said that AT&T acknowledges that there is an issue with network capacity and is working to fix it.

"We've pretty much stabilized the Manhattan systems and are working on the New York-New Jersey networks," Woo said, adding that AT&T has put in enough new electronics on top of the old network to power an entire new network in a city the size of Kansas City or Seattle.

The biggest holdup is in siting issues, particularly in the Long Island area, he said. "They're demanding coverage, but they're not willing to show up at the regulatory hearings to support our need for cell sites."

The only other way to increase capacity is if the FCC lifts its spectrum cap, but AT&T is not necessarily counting on that, Woo said.

In a related matter, a petition filed with the FCC on July 16 by the Wireless Consumers Alliance seeks to clarify whether the FCC's jurisdiction pre-empts the jurisdiction of state courts to award monetary relief against wireless providers that are found to violate state consumer-protection laws.

The petition arises from a class-action lawsuit, filed against L.A. Cellular in California, complaining of false advertising based on L.A. Cellular's claims of a "seamless calling area" throughout Southern California. The state court granted a motion by L.A. Cellular to strike the plaintiffs' claim for damages on the grounds that CMRS providers are preempted by the Federal Communications Act from awarding monetary relief for fraud and false advertising claims. L.A. Cellular argued that the award of monetary relief against it would be the same as requiring a state court to regulate rates of a CMRS provider. Subsequently, the California Court of Appeals has stayed the state court's ruling until the FCC can rule on the issue.

The FCC is seeking comments on the WCA petition (www.fcc.gov.e-fileects.html) by Sept. 10 and reply comments by Oct. 12.