SACRAMENTO -- A Miami-based prepaid cellular company controlled by Mexican billionaire Carlos Slim is taking fire as it moves to expand in the lucrative California market.
TracFone Wireless, which has more than 21 million users in the United States, is the country’s biggest player in the fast-growing business of selling low-cost cellphones and prepaid minutes — often to low-income customers.
These phones, typically costing users as little as $20 for a phone and 60 minutes of use, appeal to many customers who don’t want or can’t afford to sign yearlong or multiyear contracts.
At issue in California is whether the company should collect and pay the state the same fees from customers that other cellphone and traditional land-line companies do. These state-required fees fund phone and Internet services to the poor, disabled and rural residents.
TracFone, which acquired Irvine, Calif.-based Simple Mobile last year, is being pummeled publicly by activists on both sides of the U.S.-Mexican border because of what they call monopolistic business practices of its corporate parent, Mexico City-based America Movil. Slim, the company’s chairman, is worth an estimated $69 billion and tops Forbes magazine’s most recent list of the ultra-wealthy.
“We’ve taken it upon ourselves basically to do work in the states to educate the public about who Carlos Slim is, and specifically to tell them about what we perceive to be his monopolistic and predatory business practices as we see them develop over time in Mexico and throughout Latin America,” said Juan Jose Gutierrez, a co-director of a binational organization called Two Countries, One Voice.
The group publicly criticized Slim at a news conference attended by state legislators that was held in December on the California State Capitol steps. Regulators should be wary of TracFone, the activists warned.
California regulators have been investigating TracFone for more than three years. In February, the state Public Utilities Commission ruled that the company violated California law by refusing to send the state required service fees that it should have been collecting from customers.
Officials at the Public Utilities Commission contend that TracFone could owe them as much as $20 million. The company is appealing the ruling to the state Court of Appeal.
And the Legislature is getting ready to jump into the fray. Los Angeles County lawmakers say they expect to introduce a bill that would give the state more authority to regulate prepaid cellphone companies such as TracFone and approve proposed mergers in the future.
“Many of my constituents rely heavily on prepaid phones and prepaid phone cards,” state Sen. Kevin De Leon, a Democrat, said. “But this industry is largely unregulated and unchecked, leaving open the very real possibility of widespread abuse of vulnerable consumers.”
A TracFone executive says he’s baffled that Latino immigrant groups such as Two Countries, One Voice have brought their complaints about Slim’s Latin American companies to California, where they’re calling for more state regulation.
“Our whole program is to save people money,” said Rick Salzman, TracFone’s executive vice president and general counsel. “We generally provide a comparable service to our competitors at a lower cost, and it’s less burdensome on the customer as well, with no early termination fees, no contracts and no long-term commitments.”
Salzman declined to comment on a draft of proposed legislation being circulated in Sacramento that would require prepaid cellphone companies to get authorization from the state Public Utilities Commission for proposed mergers.
But he criticized the commission’s ongoing efforts to make TracFone collect the so-called universal service fees that traditional wireless and land-line carriers bill customers and remit to the state to fund programs for the deaf and disabled, the poor and rural residents.
Most phone companies add the fees, which are small percentages of the total bill, on monthly statements. But prepaid services “have no legal or practical way to collect the fees” since the minutes are bought at stores before the calls are made, Salzman said.
In a lengthy legal proceeding that concluded in February, the Public Utilities Commission rejected TracFone’s arguments that it merely resells cellphone minutes purchased from other companies.
“TracFone is ultimately responsible for payment of these user fees,” the five commissioners unanimously decided.
The amount of back fees that TracFone could ultimately pay will be decided in the second phase of the proceeding, which begins this month.
In the meantime, Salzman said, his firm is now remitting the fees under protest.